form_10-k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
x ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF
1934
For the fiscal year ended
December 31, 2007
OR
o TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from ____________ to ____________
Commission
file number 1-9148
THE
BRINK’S COMPANY
(Exact
name of registrant as specified in its charter)
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Virginia
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54-1317776
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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P.O.
Box 18100,
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1801
Bayberry Court
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Richmond,
Virginia
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23226-8100
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code
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(804)
289-9600
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Securities
registered pursuant to Section 12(b) of the Act:
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Name
of each exchange on
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Title of each
class
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which
registered
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The
Brink’s Company Common Stock, Par Value $1
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the
Act: None
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes x No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes o
No x
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x
No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large accelerated
filer x Accelerated filer o
Non-accelerated filer
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
As
of February 22, 2008, there were issued and outstanding 48,056,236 shares of
common stock. The aggregate market value of shares of common stock
held by nonaffiliates as of June 30, 2007, was $2,557,760,646.
Documents
incorporated by reference: Part III incorporates information by
reference from portions of the Registrant’s definitive 2008 Proxy Statement to
be filed pursuant to Regulation 14A.
THE
BRINK’S COMPANY
FORM
10-K
FOR
THE YEAR ENDED DECEMBER 31, 2007
TABLE
OF CONTENTS
PART
I |
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Page
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Item
1.
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Business
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3
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Item
1A.
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Risk
Factors
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15
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Item
1B.
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Unresolved
Staff Comments
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20
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Item
2.
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Properties
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20
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Item
3.
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Legal
Proceedings
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20
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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20
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PART
II |
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and
Issuer
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Purchases of Equity
Securities
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22
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Item
6.
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Selected
Financial Data
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24
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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25
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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71
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Item
8.
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Financial
Statements and Supplementary Data
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72
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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119
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Item
9A.
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Controls
and Procedures
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119
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Item
9B.
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Other
Information
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119
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PART
III |
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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120
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Item
11.
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Executive
Compensation
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120
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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120
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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120
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Item
14.
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Principal
Accountant Fees and Services
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120
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PART
IV |
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Item
15.
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Exhibits
and Financial Statement Schedules
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121
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The
Brink’s Company
The
Brink’s Company (the “Company”) conducts business in the security industry
through two wholly owned subsidiaries: Brink’s, Incorporated
(“Brink’s”) and Brink’s Home Security, Inc. (“BHS”). We employ
approximately 57,500 people, with approximately 53,900 at Brink’s and 3,600 at
BHS.
Over
the past several years, the Company has changed from a conglomerate (with
operations in the security, heavy-weight freight transportation, coal and other
natural resource industries) into a company focused solely on the security
industry.
On
February 25, 2008, the board of directors approved a strategic decision to
spin-off BHS in a tax-free stock distribution to the shareholders of the
Company. Immediately after the spin-off, BHS will be owned
directly by the shareholders receiving shares in the distribution. In
addition, these shareholders will retain their shares in the Company, whose
operations will consist primarily of Brink’s, its secure transportation and cash
management services unit. The distribution, which is expected to be
completed in the fourth quarter of 2008, is subject to a number of customary
conditions, including execution of appropriate inter-company agreements, filing
of required documents with the Securities and Exchange Commission and receipt of
an opinion of counsel or a private letter ruling from the Internal Revenue
Service that the spin-off will be tax-free to the Company’s
shareholders.
Total
revenues were $3.2 billion and segment operating profit was $337.5 million in
2007. Of these amounts, Brink’s generated $2.7 billion in revenues
and $223 million of operating profit. BHS had revenues of $484
million and operating profit of $114 million.
Financial
information related to The Brink’s Company, our two operating segments (Brink’s
and BHS), and former operations is included in the consolidated financial
statements on pages 76 – 80 and in notes to consolidated financial statements on
pages 81 – 118.
A
significant portion of our business (approximately 57% of revenue) is conducted
outside North America. Our financial results are reported in U.S.
dollars and are affected by fluctuations in the relative value of foreign
currencies. Our business is also subject to other risks customarily
associated with operating in foreign countries including changing labor and
economic conditions, political instability, restrictions on repatriation of
earnings and capital, as well as nationalization, expropriation and other forms
of restrictive government actions. The future effects of these risks
cannot be predicted.
We
continue to have significant liabilities associated with our former coal
business, a substantial portion of which has been funded with cash contributions
to a Voluntary Employees’ Beneficiary Association trust (“VEBA”). For
more information on these liabilities and the VEBA, see pages 41 –
44.
Additional
risk factors are described on pages 15 – 18.
Available
Information and Corporate Governance Documents
The
following items are available free of charge on our website (www.brinkscompany.com)
as soon as reasonably possible after filing or furnishing them with the
Securities and Exchange Commission:
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Annual
reports on Form 10-K
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Quarterly
reports on Form 10-Q
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Current
reports on Form 8-K and amendments to those
reports
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In
addition, the following documents are also available free of charge on our
website:
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Corporate
governance policies
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Business
Code of Ethics
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The
charters of the following Board Committees: Audit and Ethics,
Compensation and Benefits, and Corporate Governance, Nominating and
Management Development.
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Printed
versions of these items will be mailed free of charge to shareholders upon
request. Such requests can be made by contacting the Corporate
Secretary at 1801 Bayberry Court, P. O. Box 18100, Richmond, Virginia
23226-8100.
Brink’s,
Incorporated (“Brink’s”)
Executive
Summary
Brink’s
is a leading provider of secure transportation, cash logistics and other
security-related services to banks and financial institutions, retailers,
government agencies, mints, jewelers and other commercial operations around the
world. Brink’s international network serves customers in more than 50
countries and employs approximately 53,900 people. Our operations
include approximately 800 facilities and 9,100 vehicles. We believe
Brink’s brand, global infrastructure and logistics expertise are important
competitive advantages.
Brink’s
2007 operating profit was $223 million on revenues of $2.7 billion, resulting in
an operating profit margin of 8.2%.
General
Brink’s
is the oldest and largest secure transportation and cash logistics company in
the U.S., and is a market leader in many other countries. Reported
revenues and operating profit are disclosed as “North America” and
“International” operations.
North American
operations has 182 branches in the U.S. and 55 branches in
Canada. North American operations generated 2007 revenues of $886.3
million (32% of Brink’s total revenues) and operating profit of $70.4 million
(32% of Brink’s total operating profit).
International
operations has three regions: Europe, Middle East, and Africa
(“EMEA”), Latin America and Asia Pacific. On a combined basis,
International operations generated 2007 revenues of $1.8 billion (68% of Brink’s
total revenues) and operating profit of $152.9 million (68% of total Brink’s
operating profit). Over the past three years, Brink’s has acquired
security operations in numerous countries in EMEA and Latin
America.
Brink’s
EMEA, which generated $1.2 billion or 44% of Brink’s total 2007 revenues,
operates 249 branches in 21 countries. Its largest operations are in
France, the Netherlands and Germany. In 2007, France accounted for
$629 million or 53% of EMEA revenues (23% of total Brink’s
revenues).
Brink’s Latin
America, which generated $594 million or 22% of Brink’s total 2007
revenues, operates 211 branches in 7 countries. Its largest
operations are in Venezuela, Brazil and Colombia. In 2007, Venezuela
accounted for $225 million or 38% of Latin American revenues (8% of total
Brink’s revenues).
Brink’s
Asia-Pacific operates 32 branches in 9 countries, and accounted for $63
million or 2% of total Brink’s 2007 revenues.
In
2007, Brink’s operations in France, Venezuela, Brazil, the Netherlands, Colombia
and Germany accounted for $1,303 million or 70% of Brink’s revenues from
International operations (48% of total Brink’s revenues).
(In
millions)
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2007
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%
total
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%
change
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2006
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%
total
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%
change
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2005
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%
total
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%
change
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Revenues
by region:
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North America
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$ |
886.3 |
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32 |
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7 |
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$ |
830.0 |
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35 |
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7 |
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$ |
778.2 |
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37 |
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6 |
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EMEA:
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France
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628.8 |
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23 |
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15 |
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546.5 |
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23 |
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8 |
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508.1 |
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24 |
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9 |
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Other
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562.7 |
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21 |
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23 |
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456.6 |
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20 |
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14 |
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400.3 |
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19 |
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23 |
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Total
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1,191.5 |
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44 |
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19 |
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1,003.1 |
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43 |
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10 |
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908.4 |
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43 |
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15 |
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Latin America:
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Venezuela
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224.9 |
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8 |
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31 |
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171.7 |
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7 |
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33 |
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129.0 |
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6 |
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15 |
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Other
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369.3 |
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14 |
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31 |
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282.5 |
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12 |
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|
25 |
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226.1 |
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|
11 |
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|
18 |
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Total
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594.2 |
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22 |
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31 |
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454.2 |
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19 |
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|
28 |
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355.1 |
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|
17 |
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17 |
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Asia Pacific
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62.6 |
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2 |
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(7 |
) |
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67.0 |
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3 |
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(6 |
) |
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71.6 |
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3 |
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5 |
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Total
International
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1,848.3 |
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68 |
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21 |
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1,524.3 |
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|
65 |
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14 |
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1,335.1 |
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|
63 |
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|
15 |
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Total Revenues
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$ |
2,734.6 |
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|
100 |
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16 |
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$ |
2,354.3 |
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|
100 |
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|
11 |
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|
$ |
2,113.3 |
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|
|
100 |
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11 |
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Brink’s
ownership interests in subsidiaries and affiliated companies ranged from 10% to
100% at December 31, 2007. In some instances, local laws limit the
extent of Brink’s ownership interest.
Growth
Strategy
Over
the past several years we have expanded the Brink’s business largely through
internal growth which has been supplemented by acquisitions. For
example, the growth in revenue in the last three years from existing operations
and acquisitions is as follows:
(In
percentages)
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2007
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2006
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2005
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Organic
(a)
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15 |
% |
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9 |
% |
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6 |
% |
Acquisitions
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1 |
% |
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2 |
% |
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5 |
% |
(a)
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Including
the effects of changes in currency exchange rates. See
reconciliation of non-GAAP measure on pages 33 and
35.
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We
intend to continue to pursue growth through acquisitions as long as we are able
to acquire businesses that meet our internal metrics for projected growth,
profitability and return on investment. We are interested in growth
in both new and existing markets and in both core and value-added
services. Although there are risks and start-up expenses when
entering new markets, we believe that growth through a combination of organic
and acquisition is the best long-term strategy.
Services
Our
primary services include:
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Cash-in-transit
(“CIT”) armored car transportation
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Automated
teller machine (“ATM”) replenishment and
servicing
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Global
Services – arranging secure long-distance transportation of
valuables
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Cash
Logistics – supply chain management of
cash
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Guarding
services, including airport
security
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Secure
Data Solutions – transporting, storing and destroying sensitive
information
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Brink’s
typically provides individualized services under separate contracts designed to
meet the distinct needs of our customers. Contracts usually cover an
initial term of at least one year, and in many cases, multiple years, and
generally remain in effect thereafter until canceled by either
party.
Core
Services
CIT
and ATM Services are core services we provide to customers throughout the
world.
CIT We
have been servicing customers since 1859. Our success in CIT is
driven by a combination of rigorous security practices, high quality customer
service, risk management expertise and logistics expertise. CIT
services generally include the secure transportation of:
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cash
between businesses and banks
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cash,
securities and other valuables between commercial banks, central banks,
and investment banking and brokerage
firms
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new
currency, coins and precious metals for central
banks
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ATM
Services Brink’s manages nearly 72,000 ATM units worldwide for
banks and other cash dispensing operators. We provide cash
replenishment, cash monitoring and forecasting capabilities, deposit pick-up and
processing services. Advanced online tools deliver consolidated
electronic reports for simplified reconciliation.
Value-Added
Services
Our
core services, combined with our brand and global infrastructure, provide a
substantial platform from which we offer additional value-added services to our
customers.
Global
Services With operations spanning approximately 50 countries,
Brink’s is a leading global provider of secure long-distance logistics for
valuables including diamonds, jewelry, precious metals, securities, currency,
high-tech devices, electronics and pharmaceuticals. We typically
employ a combination of armored car and secure air transportation to leverage
our extensive global network. Our specialized diamond and jewelry
operation has offices in the major diamond and jewelry centers of the
world.
Cash
Logistics
Brink’s offers a fully integrated approach to managing the supply chain of cash,
from point-of-sale through transport, vaulting and bank deposit and related
credit. Cash Logistics services include:
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money
processing and cash management
services
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deploying
and servicing safes and safe control devices, including our patented
CompuSafeâ
service
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integrated
check and cash processing services (“Virtual
Vault”)
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Money
processing services include counting, sorting and wrapping
currency. Other currency management services include cashier
balancing, checking for counterfeit currency, account consolidation and
electronic reporting. Retail and bank customers use Brink’s to count
and reconcile coins and currency in a secure environment, to prepare bank
deposit information, and to replenish coins and currency in specific
denominations.
Brink’s
offers a variety of advanced technology applications including online cash
tracking, cash inventory management, check imaging for real-time deposit
processing, and a variety of other web-based information tools that enable banks
and other customers to reduce costs while improving service.
CompuSafeâ service offers customers
an integrated, closed-loop system for preventing theft and managing
cash. We market CompuSafeâ services to a variety of
cash-intensive customers such as convenience stores, gas stations, restaurants,
retail chains and entertainment venues. Our service includes the
installation of a specialized safe in the customer’s facility. The
customer’s employees deposit currency into the safe’s cassettes, which can only
be removed by Brink’s personnel. Upon removal, the cassettes are
transported to a secure location where contents are verified and transferred for
deposit. For added security and ease of use, our CompuSafeâ service system features
currency-recognition technology, multi-language touch screens and electronic
interface between point-of-sale and back-office systems.
Virtual
Vault services combine CIT, Cash Logistics, vaulting and electronic reporting
technologies to help banks expand into new markets while minimizing investment
in vaults and branch facilities. In addition to secure storage, we
process deposits, provide check imaging and reconciliation services, and
electronically transmit debits and credits.
We
believe the quality and scope of our cash processing and information systems
differentiate our Cash Logistics services from competitive
offerings.
In
2007, Cash Logistics generated $434 million (16% of Brink’s
revenues). This figure includes coin and currency
processing.
Other
Security Services
Security and
Guarding We protect airports, offices, warehouses, stores, and
public venues with electronic surveillance, access control, fire prevention and
highly trained patrolling personnel. Our guarding services are
generally offered in European markets including France, Germany, Luxembourg and
Greece. A significant portion of this business involves long-term
contracts related primarily to guarding services at
airports. Generally, other guarding contracts are for a one-year
period, the majority of which are extended. Our security officers are
typically stationed at customer sites, and responsibilities include detecting
and deterring specific security threats.
Secure Data
Solutions Our CIT, Global Services and document destruction
services provide secure transportation, storage and shredding services for
confidential records, back-up data tapes, product overruns and other sensitive
information and media.
Industry
and Competition
Brink’s
competes with large multinational, regional and smaller companies throughout the
world. Our largest multinational competitors are Group 4 Securicor
plc (headquartered in the U.K.), Securitas AB (Sweden), Prosegur, Compania de
Seguridad, S.A. (Spain) and Garda World Security Corporation
(Canada).
We
believe the primary factors in attracting and retaining customers are security
expertise, service quality and price. We believe our competitive
advantages include:
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·
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reputation
for a high level of service and
security
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·
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proprietary
cash processing and information
systems
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high-quality
insurance coverage and general financial
strength
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risk
management capabilities
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·
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global
infrastructure and customer base
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We
believe our cost structure is generally competitive, although certain
competitors may have lower costs due to a variety of factors including lower
wages, less costly employee benefits, or less stringent security and service
standards.
Although
Brink’s faces competitive pricing pressure in many markets, we resist competing
on price alone. We believe our high levels of service and security
differentiate us from competitors.
The
availability of high-quality and reliable insurance coverage is an important
factor in our ability to attract and retain customers and to manage the risks
inherent in our business. Brink’s is self-insured for much of the
liability related to potential losses of cash or valuables while such items are
in our possession. However, we purchase insurance coverage for losses
in excess of what we consider to be prudent levels of self
insurance. Our insurance policies cover losses from most causes, with
the exception of war, nuclear risk and certain other exclusions typical in such
policies.
Insurance
for security is provided by different groups of underwriters at negotiated rates
and terms. Premiums fluctuate depending on market
conditions. The security loss experience of Brink’s and, to a limited
extent, other armored carriers affects our premium rates.
Revenues
are generated from charges per service performed or based on the value of goods
transported. As a result, revenues are affected by the level of
economic activity in our various markets as well as the volume of business for
specific customers. Contracts generally run for a period of one
year. Costs are incurred in preparing to service a new customer or to
transition away from an existing customer. Our operating profit is
generally stronger in the second half of the year, particularly in the fourth
quarter, as economic activity is stronger during this period.
Service
Mark and Patents
BRINKS
is a registered service mark in the U.S. and certain foreign
countries. The BRINKS mark, name and related marks are of material
significance to our business. We own patents expiring in 2008 and
2009 for certain coin sorting and counting machines. We also own
patents for safes, including our integrated CompuSafeâ service, that expire
between 2015 and 2018. These patents provide important advantages to
Brink’s. However, Brink’s operations are not dependent on the
existence of these patents.
We
have entered into certain agreements to license the Brink’s and the Brink’s Home
Security names. Examples include licenses to distributors of security
products (padlocks, door hardware, etc.) offered for sale to consumers through
major retail chains.
Government
Regulation
Our
U.S. operations are subject to regulation by the U.S. Department of
Transportation with respect to safety of operations, equipment and financial
responsibility. Intrastate operations in the U.S. are subject to
state regulation. Intraprovince operations in Canada are subject to
federal and provincial regulations. Brink’s International operations
are regulated to varying degrees by the countries in which they
operate.
Employee
Relations
At
December 31, 2007, Brink’s and its subsidiaries had approximately 53,900
employees, including 11,500 employees in North America (of whom 1,800 were
classified as part-time employees) and 42,400 employees outside North
America. At December 31, 2007, Brink’s was a party to 11
collective bargaining agreements in North America with various local unions
covering approximately 2,200 employees, almost all of whom are employees in
Canada and members of unions affiliated with the International Brotherhood of
Teamsters. Two agreements will expire in 2008 and are expected to be
renegotiated. The remaining agreements have various expiration dates
after 2008 and extending through 2011. Outside of North America,
approximately 63% of branch employees are members of labor or employee
organizations. We believe our employee relations are
satisfactory.
Brink’s
Home Security
Executive
Summary
Brink’s
Home Security (“BHS”) markets, installs, services and monitors security alarm
systems for approximately 1.2 million customers throughout North America,
covering more than 250 metropolitan areas in all 50 states and two Canadian
provinces. Based on revenues, we believe BHS is the second largest
provider of security alarm monitoring services for residential and commercial
properties in North America. Our primary customers are residents of
single-family homes, which comprise more than 90% of our subscriber
base. New home construction is a relatively small market for BHS,
accounting for approximately 7% of new subscribers in 2007 and approximately 6%
of our total customer base. Our small but growing presence in the
commercial market includes more than 58,000 business customers, about 5% of our
total customer base.
In
2007, BHS reported operating profit of $114 million on revenues of $484 million,
resulting in an operating profit margin of 24%. At the end of 2007,
our monthly recurring revenue (“MRR”) was $37.2 million. See
reconciliation of non-GAAP measure on page 40.
General
BHS
monitors signals originating from our alarm systems, which can be designed to
detect intrusion, fire (heat and smoke), medical and environmental
conditions. A typical BHS security system consists of sensors (both
hardwired and wireless) and other devices that are installed at a subscriber's
home or commercial location. When an alarm is triggered, a signal is sent to an
operator at one of our two monitoring stations. Signals can be
originated over standard telephone lines, Digital Subscriber Lines (“DSL”),
wireless services, fiber telephony, and Voice over Internet Protocol
(“VoIP”). Wireless devices can serve as the primary method of alarm
communication or as a backup to land-line telephone services.
Monitoring
services and a large portion of maintenance services are generally governed by
three-year contracts with automatic renewal provisions on an annual basis after
the initial term has expired. More than 50% of new customers purchase
extended service protection that covers most repair costs.
For
the last several years, BHS’ average up-front cash investment per installation,
including amounts expensed and capitalized, has ranged between $1,250 and
$1,450. This amount excludes customer down payments, which generally
range between $280 and $340 per site. Including these payments, our
net cost per new installation in 2007 was approximately $1,100. Our
cash break-even point per site is reached in less than 4 years after
installation.
Monitoring
Facilities
Our
monitoring facilities are located in Irving, Texas, and Knoxville,
Tennessee. Both facilities hold Underwriters’ Laboratories (“UL”)
listings as protective signaling services stations. UL specifications
for monitoring centers cover building integrity, back-up computer and power
systems, staffing and standard operating procedures. Many
jurisdictions have laws requiring that security alarms for certain buildings be
monitored by UL-listed facilities. In addition, a UL listing is
required by insurers of certain commercial customers as a condition of
coverage.
Our
monitoring facilities operate 24 hours a day on a year-round
basis. The facilities employ communications and computer systems that
route incoming alarm signals to the next available operator in either
facility. Operators use a customized computer system to determine the
nature of the alarm signal and to identify the customer by name and
location. Our system automatically processes non-emergency
administrative signals, which can be generated by a variety of conditions
including test signals, low batteries, and the intentional or unintentional
arming and disarming of sites by customers. Depending upon the type
of service specified by the customer contract, operators respond to
emergency-related alarms by calling the customer by phone and relaying
information to local fire or police departments. Other actions may be
taken as appropriate.
In
the event of an emergency at one of our two monitoring facilities (i.e., fire,
tornado, major interruption in telephone or computer service, or any other event
affecting the functionality of the facility), all monitoring operations can be
absorbed by the other facility. If additional operators are required
in an emergency situation, employees assigned to other departments at each
facility are cross-trained to handle monitoring signals.
Marketing
and Sales
BHS
markets its alarm systems primarily through television, direct mail, yellow
pages and internet advertising, alliances with other service companies, inbound
telemarketing and field sales employees. Our “direct response”
marketing efforts are designed to direct telephone calls and internet traffic
into our centralized inbound telemarketing sales group. Sales are
closed by this group or by field personnel at on-site consultations with
prospective customers.
Branch
Operations
Most
of our security systems are installed and serviced by BHS
technicians. Subcontractors are occasionally used in some markets if
demand exceeds internal staffing levels. Each branch provides sales,
installation and service support for a market area defined by specific zip
codes.
Our
technical staff operates in 68 branch locations, which also provide space for
the field sales force. Branch offices are staffed to handle a steady
flow of sales opportunities, installations and service calls. We
coordinate staffing of sales and technical personnel at individual branch
locations, based on near-term activity forecasts for each market.
BHS
does not manufacture the equipment used in its security
systems. Equipment is purchased from a limited number of suppliers
and distributors. We maintain minimal inventories of equipment at
each branch office. Certain key items are maintained as safety stock
by third-party distributors to cover minor supply chain
disruptions. We do not anticipate any major interruptions in our
supply chain.
Dealers
To
expand geographic coverage and leverage national advertising, BHS has an
authorized dealer program. In 2007, the dealer program accounted for
20% of new customer installations and 11% of the subscriber base. At
year-end, approximately 150 dealers covering all 50 states were authorized to
participate in the program. Dealers install equipment and initiate
service for both residential and commercial customers. All BHS
dealers are required to install the same type of equipment installed by our
branches and are required to adhere to the same quality standards.
BHS
purchases security system installations and related monitoring contracts from
its dealers. We conduct thorough due diligence on each dealer to
ensure reliability and consistently high-quality
installations. Subscribers secured by our dealers are geographically
diversified and are primarily single-family homeowners. Approximately
6% of 2007 dealer installations were in commercial businesses.
BHS
typically has a right of first refusal to purchase sites and related customer
relationships sold by authorized dealers. Subscriber contracts are
typically three years in duration and generally have automatic renewal
provisions. If a contract is canceled during an initial guarantee
period, the dealer must compensate BHS for the lost revenue stream by either
replacing the site and contract or by refunding the purchase
price. To help ensure the dealers’ obligations, we typically withhold
a portion of the purchase price for each site and contract that we
purchase.
We
provide dealers with a full range of services designed to assist them in all
aspects of their business including forwarding sales opportunities, sales
training, detailed weekly account summaries, sales support materials, and
discounts on security system hardware and installation supplies purchased
through our third-party distributor. We also provide comprehensive
on-line account access.
Brink’s
Home Technologies
To
supplement our branch operations and dealer programs, we also obtain residential
subscribers through our Brink's Home Technologies (“BHT”)
division. Working directly with major national, regional and local
home builders, BHT markets and installs residential security systems, as well as
a variety of low-voltage security, home networking, communications and
entertainment options, into homes under construction. BHT currently
does business with all of the top 10 and 15 of the top 20 residential home
builders in the U.S.
The
BHT activation process consists of three phases:
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Early
construction wiring for security systems and potential non-security-low
voltage applications in certain
markets.
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Installation
of systems equipment near the end of
construction.
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Activation
of security service contracts.
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In
2007, BHT accounted for 7% of new BHS subscribers. BHT operations are
currently conducted in 22 markets located in most regions of the
U.S.
Brink’s
Business Security (Commercial)
BHS
also installs and monitors commercial security systems. Expansion of
our commercial customer base is a significant growth opportunity. In
addition to the typical intrusion detection offerings, products and services
currently offered to commercial customers include installation of non-monitored
closed circuit television (“CCTV”) systems, enhanced event reporting and in
selected markets where applicable certifications and licenses have been
obtained, commercial-grade fire detection systems. We are continuing
to develop additional capabilities in commercial security, including
installation of access control systems. Commercial installation
volume grew approximately 12% in 2007. Commercial customers
represented approximately 5% of subscribers at year-end and 8% of new customer
installations in 2007.
Multifamily
BHS
provides monitored security to owners and managers of multifamily apartment and
condominium complexes, who then offer monitoring security service to
tenants. Installations are handled by subcontractors or our branch
network. At year-end, multifamily customers represented approximately
2% of total subscribers. We are no longer actively pursuing
installation growth in this market segment.
Customer
Care
We
strive to maintain high levels of customer satisfaction and retention by
directly controlling customer and technical service. Customer care specialists
answer non-emergency telephone calls regarding service, billing and alarm
activation issues. Our two monitoring centers provide telephone and
internet coverage 24 hours a day on a year-round basis. To ensure
that technical service requests are handled promptly and professionally, all
requests are routed through our customer contact center. Customer care
specialists help customers resolve minor service and operating issues related to
security systems. In many cases, the customer care specialist is able
to remotely resolve technical issues. When an issue is not able to be
resolved by the customer contact center, our specialists schedule a field
technician service appointment during the same phone call.
BHS
employees are trained to provide high-quality service through prompt handling of
calls and quick resolution of most subscriber issues. We use a customized
information system that quickly and accurately provides our customer care
specialists with technical and administrative information regarding customers
and their security systems, including detailed account and site
history. This system enables BHS to resolve most customer issues in
one telephone call. Our emphasis on customer service results in fewer
false alarms, more satisfied customers, and longer retention rates.
Customer
Retention
The
annual customer disconnect rate at BHS was 7.0% in 2007, and has ranged between
6.4% and 7.2% over the last five years. Our success in retaining
customers is driven in part by our discipline in accepting new customers with
generally stronger credit backgrounds, and by providing high-quality equipment,
installation, monitoring, and customer service. Additionally,
in order to enhance customer service and customer loyalty, our system control
panel and keypads are designed to be user-friendly and to minimize false
alarms.
Our
disconnect rates are typically higher in the second and third calendar quarters
of the year because of the normal increase in residential moves during summer
months. More than 50% of annual gross disconnect activity is caused
by household and business relocations. Another 20% to 30% of disconnects occur
for financial reasons (including accounts disconnected for
non-payment).
The
strength of our economic model is highly dependent on customer retention, and we
believe that the reductions achieved in our annual disconnect rate have
strengthened our economic returns. We do not expect disconnects rates
to increase or decline materially in the foreseeable future.
(a)
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The
disconnect rate is a ratio, the numerator of which is the number of
customer cancellations during the period and the denominator of which is
the average number of customers during the period. The gross
number of customer cancellations is reduced for customers who move from
one location and then initiate a new monitoring agreement at a new
location, accounts charged back to the dealers because the customers
cancelled service during the specified contractual term, and inactive
sites that are returned to active service during the
period.
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Industry
and Competition
According
to industry estimates, the market for electronic security system sales, leasing,
installation, monitoring and service was approximately $30 billion in
2006. Factors driving industry growth include heightened security
awareness, demographic changes, an increase in dual income households, and
higher capital spending by businesses.
BHS
competes in most major metropolitan markets in the U.S. and several markets in
western Canada through branch and dealer operations. The monitored
security alarm industry has many competitors including more than 14,000 local
and regional companies, the vast majority of which generate annual revenue of
less than $500,000. We believe our primary competitors with
national scope include:
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ADT
Security Services, Inc., a part of Tyco International,
Ltd.
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Monitronics
International, Inc.
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BHS
is generally recognized as the second largest provider (behind ADT Security
Services) of monitored security services to residential and commercial
properties in North America. Our key competitive advantages include
brand name recognition and service quality.
Success
in this market depends on a variety of factors including company reputation,
market visibility, service quality, product quality, price and the ability to
identify and solicit prospective customers. There is substantial
competitive pressure on installation fees. Several significant
competitors offer installation prices that match or are lower than our
prices. Other competitors charge significantly more for installation
but, in many cases, less for monitoring. Competitive pressure on
monitoring and service rates is significant. We believe that the
monitoring and service rates offered by BHS are generally comparable to rates
offered by other major security companies.
Government
Regulation and Other Regulatory Matters
Our
U.S. operations are subject to various federal, state and local consumer
protection laws, licensing laws, and other laws and regulations. Most
states have licensing laws that apply specifically to the alarm
industry. In certain jurisdictions, BHS must obtain licenses or
permits in order to comply with standards governing employee selection, training
and business conduct.
Our
business relies primarily on the use of standard wire telephone service to
transmit alarm signals. Wire telephone companies, the cost of
telephone lines, and the type of equipment used in telephone line transmission
are regulated by the federal and state governments. The Federal
Communications Commission and state public utilities commissions regulate the
operation and use of wireless telephone and radio frequencies.
Our
advertising and sales practices are regulated by the U.S. Federal Trade
Commission and state consumer protection laws. In addition, BHS is subject to
certain administrative requirements and laws of the jurisdictions in which we
operate. These laws and regulations include restrictions on the
manner in which we promote the sale of our security alarm services and require
us to provide purchasers of our services with rescission rights.
Our
Canadian operations are subject to the national laws of Canada, and local laws
of British Columbia and Alberta.
Some
local government authorities have adopted or are considering various measures
aimed at reducing false alarms. Such measures include requiring permits for
individual alarm systems; revoking such permits following a specified number of
false alarms; imposing fines on alarm customers or alarm monitoring companies
for false alarms; limiting the number of times police will respond to alarms at
a particular location after a specified number of false alarms; and requiring
additional verification of an alarm signal before the police
response.
The
alarm industry is also subject to requirements imposed by various insurance,
approval, listing and standards organizations. Depending upon the type of
customer served, the type of security service provided, and the requirements of
the applicable local governmental jurisdiction, adherence to the requirements
and standards of such organizations is mandatory in some instances and voluntary
in others.
Employees
BHS
employs approximately 3,600 people, none of whom are currently covered by a
collective bargaining agreement. We believe our employee relations
are satisfactory.
DISCONTINUED
OPERATIONS
Former
Coal Business
The Company has significant liabilities
and expenses related to postretirement medical plans and black lung benefits of
our former coal operations. The Company established a Voluntary
Employees’ Beneficiary Associate trust (“VEBA”) to finance its postretirement
medical plan obligations. The Company expects to have ongoing expense and cash
outflow for these liabilities. See notes 4, 17 and 21 to the
consolidated financial statements.
The
Brink’s Company is exposed to risk in the operation of its
businesses. Some of these risks are common to all companies doing
business in the industries in which we operate and some are unique to The
Brink’s Company. In addition, there are risks associated with
investing in the common stock of The Brink’s Company. These risk
factors should be considered carefully when evaluating the company and its
businesses.
We may not be
able to complete the tax-free stock distribution of BHS to our
shareholders. Our plan is to distribute the shares of BHS (the
"spin-off") to the shareholders of The Brink's Company in the fourth quarter of
2008. The spin-off is subject to a number of conditions, and there
may be reasons why the spin-off is not able to be completed within our
anticipated time frame or at all, including not receiving appropriate assurances
that the distribution will be tax free to the shareholders of The Brink’s
Company. If the spin-off is not completed, or is not completed within
our anticipated time frame, the share price of The Brink’s Company could be
adversely affected.
The Company has
not yet determined certain significant characteristics of the contemplated
spin-off of BHS to our shareholders. The spin-off is subject
to a number of conditions, including execution of appropriate inter-company
agreements between the Company and BHS. These agreements will address
a number of significant matters, among other things, the allocation of assets
and liabilities between the Company and BHS and other similar matters. In
particular, the Company has not yet determined whether the BRINKS brand will be
shared by BHS and the Company, or if BHS will be rebranded. The
alternative branding possibilities include BHS paying royalties to The Brink’s
Company, BHS rebranding itself without using the BRINKS brand, or other
possibilities. The decisions regarding the manner in which BHS will
be separated from the Company in the spin-off could affect the future results of
operations of the Company and the prospective BHS company. For
example, the Company may not fully control the use of the BRINKS brand in the
future, which could also affect the long-term value of the brand, and,
accordingly, the long-term value of the Company.
Completing the
spin-off will require significant resources. The contemplated
spin-off of BHS to our shareholders will require significant Company resources,
and the Company expects corporate expense in 2008 to be higher as a result of
professional fees associated with the spin-off. In addition,
completing the spin-off will require significant attention from our management,
which could divert focus from other aspects of the Company’s business and
adversely affect the Company’s results of operations.
The Company has
significant operations outside the United States. We currently
operate in approximately 50 countries. Revenue outside the U.S. was
over 60% of total revenue in 2007. We expect revenue outside the U.S.
to continue to represent a significant portion of total
revenue. Business operations outside the U.S. are subject to
political, economic and other risks inherent in operating in foreign countries,
such as:
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the
difficulty of enforcing agreements, collecting receivables and protecting
assets through foreign legal
systems
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trade
protection measures and import or export licensing
requirements
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difficulty
in staffing and managing widespread
operations
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required
compliance with a variety of foreign laws and
regulations
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changes
in the general political and economic conditions in the countries where we
operate, particularly in emerging
markets
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threat
of nationalization and
expropriation
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higher
costs and risks of doing business in a number of foreign
jurisdictions
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limitations
on the repatriation of earnings
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fluctuations
in equity and revenues due to changes in foreign currency exchange
rates
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We try to effectively manage these risks
by monitoring current and anticipating future political and economic
developments and adjusting operations as appropriate. Changes in the
political or economic environments in the countries in which we operate could
have a material adverse effect on our business, financial condition and results
of operations.
We operate in
highly competitive industries. We compete in
industries that are subject to significant competition and pricing
pressures. Brink’s faces significant pricing pressures from
competitors in most markets. BHS experiences competitive pricing
pressures on installation and monitoring rates. Because we believe we
have competitive advantages such as brand name recognition and a reputation for
a high level of service and security, we resist competing on price
alone. However, continued pricing pressure could impact our customer
base or pricing structure and have an adverse effect on results of
operations.
Weak economies
could reduce demand for our services and increase BHS’ disconnect
rate. If economies weaken in regions where we provide our
Brink’s and BHS services, demand for our services may lessen. In
addition, current home security customers may decide to disconnect our services
in an effort to reduce their household spending. If this happens, our
revenues, operating profit and cash flow could decline, and subscriber growth at
BHS could suffer.
Brink’s earnings
and cash flow could be materially affected by increased losses of customer
valuables. Brink's
purchases insurance coverage for losses of customer valuables for amounts in
excess of what it considers prudent deductibles and/or
retentions. Insurance is provided by different groups of underwriters
at negotiated rates and terms. Coverage is available to Brink’s in
major insurance markets, although premiums charged are subject to fluctuations
depending on market conditions. The loss experience of Brink’s and
other armored carriers affects premium rates charged to
Brink’s. Brink’s is self-insured for losses below its coverage limits
and recognizes expense up to these limits for actual losses. Brink’s
insurance policies cover losses from most causes, with the exception of war,
nuclear risk and various other exclusions typical for such
policies. The availability of high-quality and reliable insurance
coverage is an important factor in order for Brink's to obtain and retain
customers and to manage the risks of its business. If our losses
increase, or if we are unable to obtain adequate insurance coverage at
reasonable rates, our financial condition and results of operations could be
materially and adversely affected.
Restructuring
charges may be required in the future. There is a possibility
we will take restructuring actions in one of our markets in the future to reduce
expenses if a major customer is lost or if recurring operating losses
continue. These actions could result in significant restructuring
charges at these subsidiaries, including recognizing impairment charges to write
down assets, and recording accruals for employee severance and operating
leases. These charges, if required, could significantly affect
results of operations and cash flows.
The Company
depends heavily on the availability of fuel and the ability to pass higher fuel
costs to customers. Fuel
prices have fluctuated significantly in recent years. In some
periods, the Company’s operating profit has been adversely affected because it
is not able to immediately fully offset the impact of higher fuel prices through
increased prices or fuel surcharges. The Company does not have any
long-term fuel purchase contracts, and has not entered into any other hedging
arrangements that protect against fuel price increases. Volatile fuel
prices and potential increases in fuel taxes will continue to affect the
Company. A significant increase in fuel costs and an inability to
pass increases on to customers or a shortage of fuel could adversely affect the
Company’s results of operations.
BHS may not be
able to sustain the expansion of its subscriber base at recently achieved growth
rates. BHS has
a history of significantly increasing its subscriber base each year as a result
of growth in new installations and a relatively low number of subscriber
disconnects. The majority of our subscribers are residents of
single-family households and we intend to continue to grow our subscriber base
through a number of sales channels, including relationships with new home
builders. As a result, BHS’ business benefited from strong growth in
the housing market through 2005. The housing market experienced a
downturn in 2006 and 2007, and a continued downturn in the housing market (new
construction and/or resale of existing houses) could have an impact on our
ability to continue to maintain strong growth in the subscriber
base. In addition, our disconnect rate has been favorably affected in
the past several years by the cumulative effect of improved subscriber selection
and retention processes and high-quality customer service. A
substantial number of disconnects cannot be prevented, including, for example,
disconnects that occur because of customer moves. If we fail to
continue to provide high-quality service or take other actions that have
improved the disconnect rates in the past, the disconnect rate could increase,
and the subscriber base growth rate could suffer. Slower growth in
the subscriber base from materially lower installations and/or materially higher
disconnects could adversely affect results of operations.
The Company has
significant obligations and liabilities related to its former coal
operations. The Company has
substantial pension and retiree medical obligations, many of which arose during
its long history of operating in the coal industry. The Company has
contributed cash to segregated trusts that pay benefits to satisfy these
obligations. The Company may have to make additional contributions to
fund the obligations. The amount of these obligations is
significantly impacted by factors that are not in the Company’s control,
including interest rates used to determine the present value of future payment
streams, investment returns, medical inflation rates, participation rates and
changes in laws and regulations. Changes in any of these factors
could have a significant effect on the amount of the Company’s obligations and
could materially and adversely affect the Company’s financial condition, results
of operations and cash flows. The Company also has ongoing
reclamation and remediation obligations, the future cost of which is from time
to time reviewed and adjusted, as necessary. The Company may also
incur future environmental and other liabilities that are presently unknown in
connection with these former operations.
BHS intends to
grow new lines of business and operating margins may
suffer. BHS intends to expand its presence in commercial alarm
installation and monitoring. As a result, the cost of investment in
new subscribers may continue to grow faster than installations and related
revenue as BHS develops the resources needed to achieve its
objectives. If BHS is unable to increase the subscriber base while
incurring the additional investment costs, BHS’ results of operations would be
adversely affected.
BHS’ earnings and
cash flow could be materially affected by a sudden shift in its customers’
selection of voice and data communications services. BHS’ operating
model relies on its customers’ selection and continued payment for high quality,
reliable telecommunications services. In recent years, a small but
increasing number of existing customers and prospective new customers
exclusively use wireless telephone service within their homes. Although BHS
monitoring service can be connected using wireless telephone service, its
solution is more expensive to the customer than its traditional product and
service package that uses wire-line telecommunications. In this
scenario, customer dissatisfaction could increase, driving up BHS’ disconnect
rate, as wireless service may be less reliable depending on the performance of
the wireless service provider. If there were a sudden shift to such
wireless services by a significant portion of BHS’ existing subscriber base,
BHS’ results of operations and cash flows could be adversely
affected.
BHS’ earnings and
cash flow could be materially affected by penalties assessed for false
alarms. BHS believes its false alarm rate compares favorably
to many other companies’ rates. Some local governments impose
assessments, fines, penalties and limitations on either subscribers or the alarm
companies for false alarms. A few municipalities have adopted
ordinances under which both permit and alarm dispatch fees are charged directly
to the alarm companies. BHS’ alarm service contracts generally allow
BHS to pass these charges on to customers. If more local governments
were to impose assessments, fines or penalties, and BHS was not able to pass the
increase in costs to its customers, the growth of BHS’ subscriber base could be
adversely affected.
BHS’ earnings and
cash flow could be materially affected by the refusal of police departments to
automatically respond to calls from monitored security service
companies. Police departments in a limited number of U.S.
cities are not required to automatically respond to calls from monitored
security service companies unless an emergency has been visually
verified. BHS has offered affected customers the option of receiving
response from private guard companies, which in most cases have contracted with
BHS. This increases the overall cost to customers. If more
police departments were to refuse to automatically respond to calls from
monitored security service companies without visual verification, BHS’ ability
to retain subscribers could be negatively impacted and results of operations and
cash flow could be materially and adversely affected.
BHS relies on
third party providers for the components of its security
systems. The components for the security systems that BHS
installs are manufactured by third parties. BHS is therefore
susceptible to interruptions in supply and to the receipt of components that do
not meet BHS’ high standards. BHS mitigates these risks through the
selection of vendors with strong reputations for producing quality
products. However, any interruption in supply could cause delays in
installations and repairs and the loss of current and potential
customers. Also, if a previously installed component were found to be
defective, BHS might not be able to recover the costs associated with its repair
or replacement and the diversion of BHS’ technical force to address such an
issue could affect subscriber and revenue growth.
BHS is exposed to
greater risks of liability for employee acts or omissions, or system failure,
than may be inherent in other businesses. Substantially all of BHS’
alarm monitoring product sales or services agreements contain provisions
limiting liability to customers in an attempt to reduce this
risk. However, in the event of litigation with respect to such
matters, there can be no assurance that these limitations will be
enforced.
BHS
carries insurance of various types, including general liability and professional
liability insurance in amounts management considers adequate and customary for
the industry. Some of BHS’ insurance policies, and the laws of
some states, may limit or prohibit insurance coverage for punitive or certain
other types of damages, or liability arising from gross
negligence. If the Company incurs increased losses related to
employee acts or omissions, or system failure, or if the Company is unable to
obtain adequate insurance coverage at reasonable rates, or if the Company is
unable to receive reimbursements from insurance carriers, the Company’s
financial condition and results of operations could be materially and adversely
affected.
The Company’s
business operates in regulated industries. The U.S. operations of
Brink's are subject to regulation by the U.S. Department of Transportation with
respect to safety of operations and equipment and financial
responsibility. Intrastate operations in the U.S. are subject to
regulation by state regulatory authorities and intraprovince operations in
Canada are subject to regulation by Canadian and provincial regulatory
authorities. Brink's International operations are regulated to
varying degrees by the countries in which they operate.
BHS
and its employees are subject to various U.S. federal, state and local consumer
protection, licensing and other laws and regulations. Most states in
which BHS operates have licensing laws directed specifically toward the
monitored security services industry. BHS' business relies heavily
upon wireline telephone service to communicate signals. Wireline
telephone companies are currently regulated by both the federal and state
governments. BHS' Canadian operation is subject to the laws of
Canada, British Columbia and Alberta.
Changes
in laws or regulations could require the Company to change the way it operates,
which could increase costs or otherwise disrupt operations. In
addition, failure to comply with any applicable laws or regulations could result
in substantial fines or revocation of the Company’s operating permits and
licenses. If laws and regulations were to change or the Company
failed to comply, the Company’s business, financial condition and results of
operations could be materially and adversely affected.
The Company could
be materially affected by an unfavorable outcome related to non-payment of
value-added taxes and custom duties. During 2004, the
Company determined that one of its non-U.S. Brink's business units had not paid
foreign customs duties and value-added taxes with respect to the importation of
various goods and services. The Company has been advised that there
could be civil and criminal penalties asserted for the non-payment of these
customs duties and value-added taxes. To date no penalties have been
asserted. The Company believes that the range of reasonably possible
losses related to customs duties penalties is between $0 and approximately $35
million. These penalties could be asserted at any
time. The business unit has discussed this matter with the
appropriate government authorities, provided an accounting of unpaid customs
duties and taxes and made payments covering its calculated unpaid value added
taxes. An adverse outcome in this matter could materially affect the
Company’s financial condition, results of operations and cash
flows.
The Company has
retained obligations from the sale of BAX Global. In January 2006 the
Company sold BAX Global. The Company retained some of the
obligations related to these operations, primarily for taxes owed prior to the
date of sale and for any amounts paid related to one pending litigation matter
for which losses could be between $0 and $11 million at the date of
sale. In addition, the Company provided indemnification customary for
these sorts of transactions. Future unfavorable developments related
to these matters could require the Company to record additional expenses or make
cash payments in excess of recorded liabilities. The occurrence of
these events could have a material adverse affect on the Company’s financial
condition, results of operations and cash flows.
The Company is
subject to covenants for credit facilities. The Company has credit
facilities with financial covenants, including a limit on the ratio of debt to
earnings before interest, taxes, depreciation, and amortization, limits on the
ability to pledge assets, limits on the use of proceeds of asset sales and
minimum coverage of interest costs. Although the Company believes
none of these covenants are presently restrictive to operations, the ability to
meet the financial covenants can be affected by changes in the Company’s results
of operations or financial condition. The Company cannot provide
assurance that it will meet these covenants. A breach of any of these
covenants could result in a default under existing credit
facilities. Upon the occurrence of an event of default under any of
our credit facilities, the lenders could cause amounts outstanding to be
immediately payable and terminate all commitments to extend further
credit. The occurrence of these events would have a significant
impact on the Company’s liquidity and cash flows.
The Company’s
effective income tax rate could change. The
Company operates in approximately 50 countries, all of which have different
income tax laws and associated income tax rates. The Company’s
effective income tax rate can be significantly affected by changes in the mix of
pretax earnings by country and the related income tax rates in those
countries. In addition, the Company’s effective income tax rate is
significantly affected by its estimate of its ability to realize deferred tax
assets, including those associated with net operating losses. Changes
in income tax laws, income apportionment, or estimates of the ability to realize
deferred tax assets, could significantly affect the Company’s effective income
tax rate, financial position and results of operations.
Forward-Looking
Information
This
document contains both historical and forward-looking
information. Words such as “anticipates,” “estimates,” “expects,”
“projects,” “intends,” “plans,” “believes,” “may,” “should” and similar
expressions may identify forward-looking information. Forward-looking
information in this document includes, but is not limited to, statements
regarding the strategic decision to spin-off BHS, the tax free nature and other
expected characteristics of the spin-off, competitive advantages at Brink’s
and BHS, expected revenue growth, cash flow and earnings for The Brink’s Company
and its subsidiaries in 2008 and through 2010, including revenue growth and
operating profit margin at Brink’s and revenue, profit and subscriber growth at
BHS, Brink’s pursuit of growth through acquisitions in new and existing markets,
the differentiation of Cash Logistics services, Brink’s cost structure, the
seasonality of Brink’s operating profit, employee relations, the lack of
interruptions in the BHS supply chain, BHS’ dealer due diligence process, BHS’
continued expansion into the commercial market, the effectiveness of BHS’
customer care efforts on false alarms, customer satisfaction and retention, the
disconnect rate at BHS, monitoring and service rates offered by BHS, significant
liabilities and ongoing expenses and cash outflows related to former coal
operations, the anticipated effective tax rate for 2008 and the Company’s future
tax position, expected improved Brink’s performance in EMEA, actions to improve
long-term performance, Brink’s expected revenue increases in Venezuela and the
increased risk of operational issues, the effect of the U.S. economy on BHS’
performance, the future disconnect rate at BHS, instability in the housing and
credit markets, anticipated difficulties in the BHT
business, increased market share through expanded relationships with major home
builders, possible increases in BHS’ investment per new subscriber, expected
additional professional, legal and advisory fees in 2008, expenses and cash
outflows related to former coal operations, expenses in continuing operations,
future contributions to and use of the VEBA and expected investment returns on
funds held by the VEBA, expected, future cash payments and expense levels for
black lung obligations, projected payments and expense for the primary U.S.
pension plan and its expected long-term rate of return, future pension plan
contributions, anticipated dividends from a real estate investment, the
assumption of additional liability by the buyer of Brink’s United Kingdom
domestic cash handling operations, the impact of exchange rates, the possibility
that Venezuela may be considered highly inflationary again, the possibility that
Brink’s Venezuela may be subject to less favorable exchange rates on dividend
remittances, capital expenditures in 2008, the adequacy of sources of liquidity
to meet the Company’s near term requirements, estimated contractual obligations
for the next five years, the Company’s borrowing capacity under the Letter of
Credit Facility and the Revolving Facility, the Company’s provision for
contingent income tax liabilities and interest, the outcome of pending
litigation, the outcome of the issue relating to the non-payment of customs
duties and value-added tax by a non-U.S.
subsidiary of
Brink’s, Incorporated, future realization of deferred tax assets, the carrying
value of Brink’s goodwill, estimates of future reconnection experience at BHS
and the impact of any change in estimates on BHS’ impairment charges, estimated
discount rates, the assumed inflation rate for a number of the Company’s benefit
plans, the impact of recent and future accounting rule changes, the likelihood
of losses due to non-performance by parties to hedging instruments, the use of
earnings from foreign subsidiaries and equity affiliates, future recognition of
unrecognized tax benefits and uncertain tax positions, and the contractual
indemnities associated with the sale of BAX Global, involve forward-looking
information which is subject to known and unknown risks, uncertainties, and
contingencies, which could cause actual results, performance or achievements, to
differ materially from those that are anticipated.
These risks, uncertainties and contingencies, many of which are beyond the
control of The Brink’s Company and its subsidiaries, include, but are not
limited to the ability of the Company to complete a successful spin-off of BHS,
the satisfaction of all conditions in order to complete a spin-off of
BHS, demand for the products and services of Brink’s and BHS, the ability to
identify and execute further cost and operational improvements and efficiencies
in the core businesses, the impact of continuing initiatives to control costs
and increase profitability, the ability of the businesses to cost effectively
match customer demand with appropriate resources, the willingness of Brink’s and
BHS’ customers to absorb future price increases and the actions of competitors,
the Company’s ability to identify strategic opportunities and integrate them
successfully, acquisitions and dispositions made in the future, Brink’s ability
to integrate recent acquisitions, corporate expenses due to the implementation
of the spin-off decision and shareholder initiatives, decisions by the Company’s
Board of Directors, Brink’s ability to perform currency conversion cash handling
services in Venezuela successfully and without adverse operational issues,
regulatory and labor issues and higher security threats in European countries,
the impact of restructuring and other actions responding to current market
conditions in European countries, the assumption of certain contractual
obligations by the buyer of Brink’s United Kingdom domestic cash handling
operations, the return to profitability of operations in jurisdictions where
Brink’s has recorded valuation adjustments, the input of governmental
authorities regarding the non-payment of customs duties and value-added tax, the
stability of the Venezuelan economy and changes in Venezuelan policy regarding
exchange rates for dividend remittances, variations in costs or expenses and
performance delays of any public or private sector supplier, service provider or
customer, the ability of the Company and its subsidiaries to obtain appropriate
insurance coverage at reasonable prices, positions taken by insurers with
respect to claims made and the financial condition of insurers, safety and
security performance, Brink’s loss experience, changes in insurance costs, risks
customarily associated with operating in foreign countries including changing
labor and economic conditions, political instability, restrictions on
repatriation of earnings and capital, nationalization, expropriation and other
forms of restrictive government actions, costs associated with information
technology and other ongoing contractual obligations, BHS’ ability to maintain
subscriber growth, the number of household moves, the level of home sales or new
home construction, potential instability in housing credit markets, the
performance of BHS’ equipment suppliers and dealers, BHS’ ability to
cost-effectively develop or incorporate new systems in a timely manner,
decisions regarding continued support of the developing commercial business, the
ability of the home security industry to dissuade law enforcement and
municipalities from refusing to respond to alarms, the willingness of BHS’
customers to pay for private response personnel or other alternatives to police
responses to alarms, estimated reconnection experience at BHS, costs associated
with the purchase and implementation of cash processing and security equipment,
changes in the scope or method of remediation or monitoring of the Company’s
former coal operations, the timing of the pass-through of certain costs to third
parties and the timing of approvals by governmental authorities relating to the
disposal of the coal assets, changes to estimated liabilities and assets in
actuarial assumptions due to payments made, investment returns, annual actuarial
revaluations, and periodic revaluations of reclamation liabilities, the funding
levels, accounting treatment, investment performance and costs of the company’s
pension plans and the VEBA, whether the Company’s assets or the VEBA’s assets
are used to pay benefits, projections regarding the number of participants in
and beneficiaries of the Company’s employee and retiree benefit plans, black
lung claims incidence, the number of dependents of mine workers for whom
benefits are provided, actual retirement experience of the former coal
operation’s employees, actual medical and legal expenses relating to benefits,
changes in inflation rates (including medical inflation) and interest rates,
changes in mortality and morbidity assumptions, mandatory or voluntary pension
plan contributions, discovery of new facts relating to civil suits, the addition
of claims or changes in relief sought by adverse parties, the cash, debt and tax
position and growth needs of the Company, the demand for capital by the Company
and the availability and cost of such capital, the satisfaction or waiver of
limitations on the use of proceeds contained in various of the Company’s
financing arrangements, the nature of the Company’s hedging relationships, the
financial performance of the Company, utilization of third-party advisors and
the ability of the Company to hire and retain corporate staff, changes in
employee obligations, overall domestic and international economic, political,
social and business conditions, capital markets performance, the strength of the
U.S. dollar relative to foreign currencies, foreign currency exchange rates,
changes in estimates and assumptions underlying the Company’s critical
accounting policies, as more fully described in the section “Application of
Critical Accounting Policies” but including the likelihood that net deferred tax
assets will be realized, discount rates, expectations of future performance, the
timing of deductibility of expenses, inflation, and the promulgation and
adoption of new accounting standards and interpretations, including SFAS 157,
SFAS 159, SFAS 141(R), and SFAS 160, anticipated return on assets, inflation,
the promulgation and adoption of new accounting standards and interpretations,
seasonality, pricing and other competitive industry factors, labor relations,
fuel and copper prices, new government regulations and interpretations of
existing regulations, legislative initiatives, judicial decisions, issuance of
permits, variations in costs or expenses and the ability of counterparties to
perform. The information included in this document is representative
only as of the date of this document, and The Brink’s Company undertakes no
obligation to update any information contained in this document.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
applicable.
Brink’s
Brink’s
has property and equipment in locations throughout the world. Branch
facilities generally have office space to support operations, a vault to
securely process and store valuables and a garage to house armored vehicles and
serve as a vehicle terminal. Many branches have additional space to
repair and maintain vehicles.
Brink’s
owns or leases armored vehicles, panel trucks and other vehicles that are
primarily service vehicles. Brink’s armored vehicles are of
bullet-resistant construction and are specially designed and equipped to provide
security for the crew and cargo.
The
following table discloses leased and owned facilities and vehicles for Brink’s
most significant operations as of December 31, 2007.
|
|
Facilities
|
|
|
Vehicles
|
|
Region
|
|
Leased
|
|
|
Owned
|
|
|
Total
|
|
|
Leased
|
|
|
Owned
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.
S.
|
|
|
173 |
|
|
|
24 |
|
|
|
197 |
|
|
|
1,972 |
|
|
|
361 |
|
|
|
2,333 |
|
Canada
|
|
|
42 |
|
|
|
13 |
|
|
|
55 |
|
|
|
435 |
|
|
|
73 |
|
|
|
508 |
|
EMEA
(a)
|
|
|
255 |
|
|
|
26 |
|
|
|
281 |
|
|
|
694 |
|
|
|
2,508 |
|
|
|
3,202 |
|
Latin
America
|
|
|
183 |
|
|
|
50 |
|
|
|
233 |
|
|
|
241 |
|
|
|
2,649 |
|
|
|
2,890 |
|
Asia
Pacific
|
|
|
33 |
|
|
|
- |
|
|
|
33 |
|
|
|
2 |
|
|
|
130 |
|
|
|
132 |
|
Total
|
|
|
686 |
|
|
|
113 |
|
|
|
799 |
|
|
|
3,344 |
|
|
|
5,721 |
|
|
|
9,065 |
|
(a)
|
Europe,
Middle East, and Africa
|
As
of December 31, 2007, the Company had approximately 6,500 Brink’s-owned
CompuSafeâ devices
located on customers’ premises, of which 6,400 are in North
America.
BHS
BHS
has 67 leased field office facilities located throughout the U.S. and one leased
office in Canada. BHS’ headquarters are located in Irving,
Texas. This owned facility houses many administrative and technical
support personnel. Additional administrative personnel are located in
portions of two nearby buildings in office spaces that are leased for terms
ending in 2010 and 2012. The primary Irving facility also serves as
one of two central monitoring facilities. The second owned monitoring
and service center is located near Knoxville, Tennessee.
BHS
leases approximately 1,600 vehicles which are used in the process of installing
and servicing its security systems.
BHS
retains ownership of most of the approximately 1.2 million systems currently
being monitored. When a customer cancels monitoring services, BHS
typically disables the system. In a limited number of cases, BHS
removes the equipment. When a customer cancels monitoring services
because of an impending household move or business relocation, the retention of
the BHS system at the site facilitates the marketing of monitoring services to
the subsequent homeowner or business.
ITEM
3. LEGAL PROCEEDINGS
Not
applicable.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
Not
applicable.
Executive
Officers of the Registrant
The
following is a list as of February 15, 2008, of the names and ages of the
executive and other officers of The Brink’s Company and the names and ages of
certain officers of its subsidiaries, indicating the principal positions and
offices held by each. There are no family relationships among any of
the officers named.
Name
|
Age
|
|
Positions
and Offices Held
|
Held
Since
|
|
|
|
|
|
Executive
Officers:
|
|
|
|
|
Michael
T. Dan
|
57
|
|
President,
Chief Executive Officer and Chairman of the Board
|
1998
|
James
B. Hartough
|
60
|
|
Vice
President –
Corporate Finance and Treasurer
|
1988
|
Frank
T. Lennon
|
66
|
|
Vice
President and Chief Administrative Officer
|
2005
|
Austin
F. Reed
|
56
|
|
Vice
President, General Counsel and Secretary
|
1994
|
Robert
T. Ritter
|
56
|
|
Vice
President and Chief Financial Officer
|
1998
|
|
|
|
|
|
Other
Officers:
|
|
|
|
|
Matthew
A. P. Schumacher
|
49
|
|
Controller
|
2001
|
Arthur
E. Wheatley
|
65
|
|
Vice
President – Risk
Management and Insurance
|
1988
|
|
|
|
|
|
Subsidiary
Officers:
|
|
|
|
|
Robert
B. Allen
|
54
|
|
President
of Brink’s Home Security, Inc.
|
2001
|
Executive
and other officers of The Brink’s Company are elected annually and serve at the
pleasure of its board of directors.
Mr.
Dan was elected President, Chief Executive Officer and Director of The Brink’s
Company in February 1998 and was elected Chairman of the Board effective January
1, 1999. He also serves as Chief Executive Officer of Brink’s,
Incorporated, a position he has held since July 1993. From August
1992 to July 1993 he served as President of North American operations of
Brink’s, Incorporated and as Executive Vice President of Brink’s, Incorporated
from 1985 to 1992.
Mr.
Lennon was appointed Vice President and Chief Administrative Officer in
2005. Prior to this position, he was the Vice President, Human
Resources and Administration from 1990 through 2005.
During
the fourth quarter of 2007, the Company announced the planned retirement of Mr.
Ritter who is expected to leave the Company after the 2007 Form 10-K and 2008
proxy statement have been filed and a successor has been named.
Messrs.
Allen, Hartough, Reed, Ritter, Schumacher and Wheatley have served in their
present positions for more than the past five years.
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
The
Company’s common stock trades on the New York Stock Exchange under the symbol
“BCO.” As of February 22, 2008, there were approximately 2,200
shareholders of record of common stock.
The
dividends declared by the Company and the high and low prices of its common
stock for each full quarterly period within the last two years are as
follows:
|
|
2007
Quarters
|
|
|
2006
Quarters
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per common share
|
|
$ |
0.0625 |
|
|
|
0.1000 |
|
|
|
0.1000 |
|
|
|
0.1000 |
|
|
$ |
0.0250 |
|
|
|
0.0625 |
|
|
|
0.0625 |
|
|
|
0.0625 |
|
Stock
prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
65.50 |
|
|
|
68.47 |
|
|
|
67.65 |
|
|
|
64.83 |
|
|
$ |
54.03 |
|
|
|
57.90 |
|
|
|
58.35 |
|
|
|
66.12 |
|
Low
|
|
|
57.77 |
|
|
|
61.44 |
|
|
|
52.42 |
|
|
|
55.69 |
|
|
|
46.90 |
|
|
|
49.98 |
|
|
|
52.40 |
|
|
|
52.10 |
|
See
note 16 to the consolidated financial statements for a description of
limitations of the ability of the Company to pay dividends in the
future.
The
following table provides information about common stock repurchases by the
Company during the quarter ended December 31, 2007.
|
|
|
|
(d)
Maximum Number
|
|
|
|
(c)
Total Number
|
(or
Approximate
|
|
|
|
of
Shares Purchased
|
Dollar
Value) of
|
|
(a)
Total Number
|
|
as
Part of Publicly
|
Shares
that May Yet
|
|
of
Shares
|
(b)
Average Price
|
Announced
Plans
|
be
Purchased Under
|
Period
|
Purchased
(1)
|
Paid
per Share
|
or
Programs
|
the
Plans or Programs
|
December
5 through
|
|
|
|
|
December 31, 2007
|
60,500
|
$60.30
|
60,500
|
$96,351,953
|
(1)
|
On
September 14, 2007, the Company’s board of directors authorized the
Company to make repurchases of up to $100 million of common stock from
time to time as market conditions warrant and as covenants under existing
agreements permit. The program does not require the Company to
acquire any specific numbers of shares and may be modified or discontinued
at any time.
|
The
following graph shows a five-year comparison of cumulative total returns for The
Brink’s Company common stock outstanding from December 31, 2002, to December 31,
2007, versus the S&P MidCap 400 Index and the S&P MidCap Diversified
Commercial & Professional Services Index.
Comparison
of Five-Year Cumulative Total Return Among
Brink’s
Common Stock, the S&P MidCap 400 Index and
the
S&P MidCap Diversified Commercial & Professional Services Index (1)
|
|
Years
Ended December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Brink's Company
|
|
$ |
100.00 |
|
|
|
123.14 |
|
|
|
215.96 |
|
|
|
262.52 |
|
|
|
351.62 |
|
|
|
330.48 |
|
S&P
MidCap 400 Index
|
|
$ |
100.00 |
|
|
|
135.62 |
|
|
|
157.97 |
|
|
|
177.81 |
|
|
|
196.16 |
|
|
|
211.81 |
|
S&P
MidCap Diversified Commercial & Professional Services
Index
|
|
$ |
100.00 |
|
|
|
129.89 |
|
|
|
174.76 |
|
|
|
187.85 |
|
|
|
209.01 |
|
|
|
206.57 |
|
Copyright
© 2007, Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. All rights reserved.
|
|
|
(1)
|
For
the line designated as “The Brink’s Company” the graph depicts the
cumulative return on $100 invested in The Brink’s Company’s Common
Stock. For the S&P MidCap 400 Index and the S&P MidCap
Diversified Commercial & Professional Services Index, cumulative
returns are measured on an annual basis for the periods from December 31,
2002 through December 31, 2007, with the value of each index set to $100
on December 31, 2002. Total return assumes reinvestment of dividends. The
Company chose the S&P MidCap 400 Index and the S&P MidCap
Diversified Commercial & Professional Services Index because the
Company is included in these indices, which broadly measure the
performance of mid-size companies in the United States
market.
|
ITEM
6. SELECTED FINANCIAL DATA
Five
Years in Review
(In
millions, except per share amounts)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
and Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
3,219.0 |
|
|
|
2,793.3 |
|
|
|
2,505.4 |
|
|
|
2,243.6 |
|
|
|
1,974.1 |
|
Income
from continuing operations
|
|
|
148.6 |
|
|
|
113.1 |
|
|
|
51.0 |
|
|
|
76.8 |
|
|
|
49.1 |
|
Income
(loss) from discontinued operations (a)
|
|
|
(11.3 |
) |
|
|
474.1 |
|
|
|
96.8 |
|
|
|
44.7 |
|
|
|
(19.7 |
) |
Cumulative
effect of change in accounting principle (b)
|
|
|
- |
|
|
|
- |
|
|
|
(5.4 |
) |
|
|
- |
|
|
|
- |
|
Net
income
|
|
$ |
137.3 |
|
|
|
587.2 |
|
|
|
142.4 |
|
|
|
121.5 |
|
|
|
29.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
$ |
1,118.4 |
|
|
|
981.9 |
|
|
|
867.4 |
|
|
|
914.0 |
|
|
|
873.2 |
|
Total
assets
|
|
|
2,394.3 |
|
|
|
2,188.0 |
|
|
|
3,036.9 |
|
|
|
2,692.7 |
|
|
|
2,548.6 |
|
Long-term
debt, less current maturities
|
|
|
89.2 |
|
|
|
126.3 |
|
|
|
251.9 |
|
|
|
181.6 |
|
|
|
221.5 |
|
Shareholders’
equity
|
|
|
1,046.3 |
|
|
|
753.8 |
|
|
|
837.5 |
|
|
|
688.5 |
|
|
|
495.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic,
net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
3.19 |
|
|
|
2.26 |
|
|
|
0.91 |
|
|
|
1.41 |
|
|
|
0.92 |
|
Discontinued operations
(a)
|
|
|
(0.24 |
) |
|
|
9.49 |
|
|
|
1.72 |
|
|
|
0.82 |
|
|
|
(0.37 |
) |
Cumulative effect of change in
accounting principle (b)
|
|
|
- |
|
|
|
- |
|
|
|
(0.10 |
) |
|
|
- |
|
|
|
- |
|
Net income
|
|
$ |
2.95 |
|
|
|
11.75 |
|
|
|
2.53 |
|
|
|
2.23 |
|
|
|
0.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted,
net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
3.16 |
|
|
|
2.24 |
|
|
|
0.89 |
|
|
|
1.39 |
|
|
|
0.92 |
|
Discontinued operations
(a)
|
|
|
(0.24 |
) |
|
|
9.39 |
|
|
|
1.70 |
|
|
|
0.81 |
|
|
|
(0.37 |
) |
Cumulative effect of change in
accounting principle (b)
|
|
|
- |
|
|
|
- |
|
|
|
(0.09 |
) |
|
|
- |
|
|
|
- |
|
Net income
|
|
$ |
2.92 |
|
|
|
11.64 |
|
|
|
2.50 |
|
|
|
2.20 |
|
|
|
0.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
$ |
0.3625 |
|
|
|
0.2125 |
|
|
|
0.1000 |
|
|
|
0.1000 |
|
|
|
0.1000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
46.5 |
|
|
|
50.0 |
|
|
|
56.3 |
|
|
|
54.6 |
|
|
|
53.1 |
|
Diluted
|
|
|
47.0 |
|
|
|
50.5 |
|
|
|
57.0 |
|
|
|
55.3 |
|
|
|
53.2 |
|
(a)
|
Income
(loss) from discontinued operations reflects the operations and gains and
losses on disposal of the Company’s former coal, natural gas, timber,
gold, BAX Global and Brink’s United Kingdom domestic cash handling
operations. Ongoing expenses related to former operations
primarily consist of postretirement and other employee benefits associated
with Company-sponsored pension plans and black lung obligations, and
administrative and legal expenses to oversee retained benefit
obligations. See notes 4, 17 and 21 to the consolidated
financial statements. Expenses related to Company-sponsored
pension and postretirement benefit obligations, black lung obligations and
related administrative costs are recorded as a component of continuing
operations after the respective disposal dates. Adjustments to
contingent liabilities are recorded within discontinued
operations.
|
(b)
|
The
Company’s 2005 results of operations includes a noncash after-tax charge
of $5.4 million or $0.09 per diluted share to reflect the cumulative
effect of a change in accounting principle pursuant to the adoption of FIN
47.
|
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE
BRINK’S COMPANY
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR
THE YEAR ENDED DECEMBER 31, 2007
TABLE
OF CONTENTS
|
Page
|
|
|
OPERATIONS
|
26
|
|
|
RESULTS
OF OPERATIONS
|
|
Overview of
Results
|
28
|
Consolidated
Review
|
30
|
Brink’s,
Incorporated
|
31
|
Brink’s Home Security,
Inc.
|
37
|
Corporate Expense – The Brink’s
Company
|
40
|
Former
Operations
|
40
|
Retained Liabilities and Assets
of Former Operations
|
41
|
Primary U.S. Pension
Plan
|
45
|
Other Operating Income,
Net
|
46
|
Nonoperating Income and
Expense
|
47
|
Income Taxes
|
48
|
Minority
Interest
|
49
|
Discontinued
Operations
|
50
|
Foreign
Operations
|
52
|
|
|
LIQUIDITY
AND CAPITAL RESOURCES
|
|
Overview
|
53
|
Summary of Cash Flow
Information
|
53
|
Operating
Activities
|
54
|
Investing
Activities
|
54
|
Business Segment Cash
Flows
|
55
|
Financing
Activities
|
57
|
Capitalization
|
58
|
Off Balance Sheet
Arrangements
|
60
|
Contractual
Obligations
|
61
|
Surety Bonds and Letters of
Credit
|
61
|
Contingent
Matters
|
62
|
|
|
APPLICATION
OF CRITICAL ACCOUNTING POLICIES
|
|
Deferred Tax Asset Valuation
Allowance
|
63
|
Goodwill, Other Intangible
Assets and Property and Equipment Valuations
|
64
|
Employee and Retiree Benefit
Obligations
|
65
|
|
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
69
|
Executive
Overview
The
Brink’s Company (along with its subsidiaries, the “Company”) conducts business
in the security industry in two segments:
· Brink’s, Incorporated
(“Brink’s”)
|
Brink’s
offers transportation and logistics management services for cash and
valuables throughout the world. These services include armored
car transportation, automated teller machine (“ATM”) replenishment and
servicing, currency deposit processing and cash management services
including cash logistics services (“Cash Logistics”), deploying and
servicing safes and safe control devices, including its patented
CompuSafe® service, coin sorting and wrapping, integrated check and cash
processing services (“Virtual Vault Services”), arranging the secure
transportation of valuables (“Global Services”), transporting, storing and
destroying sensitive information (“Secure Data Solutions”) and guarding
services, including airport security.
|
|
|
· Brink’s Home Security, Inc.
(“BHS”)
|
BHS
offers monitored security services in North America for owner-occupied,
single-family residences and, to a lesser extent, commercial
properties. BHS typically installs and owns the on-site
security systems and charges fees to monitor and service the
systems.
|
Management’s
approach to each of its security businesses is similar, with a focus on quality
service, the brand, risk management and a patient and disciplined approach to
markets. Management believes each business is a premium provider of
services in the markets that it serves. The Company’s marketing and
sales efforts are enhanced by its brands so the Company seeks to protect their
value. Since the Company’s services focus on handling, transporting,
protecting, and managing valuables, its employees strive to understand and
manage risk. Overlaying management’s approach is an understanding
that the Company must be disciplined and patient enough to charge fair prices
that reflect the value provided, the risk assumed and the need for an adequate
return for the Company’s investors.
The
business environments in which the Company’s security businesses operate around
the world are constantly changing. Management must continually adapt
to changes in the competitive landscapes, economies in different parts of the
world and even each customer’s level of business. To be successful,
management must be able to balance requirements of local laws and regulations,
risk, and the effects of changing demand on the utilization of its
resources. As a result, the Company operates largely on a
decentralized basis so local management can adjust operations to its unique
circumstances.
For
the same reasons that the Company operates on a decentralized basis, short-term
forecasts of performance are difficult to make with precision. As a
result, the Company does not provide detailed earnings forecasts.
The
Company measures financial performance on a long-term basis. The key
financial factors on which it focuses are:
|
·
|
Creation
of value through solid returns on
capital
|
|
·
|
Growth
in revenues and earnings
|
|
·
|
Generation
of cash flow
|
These
and similar measures are critical components of the Company’s incentive
compensation programs and performance evaluations.
On
January 31, 2006, the Company sold BAX Global Inc. (“BAX Global”), a wholly
owned freight transportation subsidiary, for approximately $1 billion in cash
and recorded a pretax gain of approximately $587 million. On August
5, 2007, the Company sold Brink’s United Kingdom domestic cash handling
operations. Both of these operations have been reported within
discontinued operations for all periods presented. See “Discontinued
Operations” for a description of the transactions and see “Liquidity and Capital
Resources” for a description of how the Company used the proceeds.
The
Company has significant liabilities associated with its former coal
operations. Since these liabilities generate ongoing expenses and
require significant cash outflows, the Company considers liability management
and funding to be an important activity.
Information
about the Company’s liabilities related to its former businesses is contained in
a number of sections of this report, including:
|
·
|
Retained
Liabilities and Assets of Former
Operations
|
|
·
|
Application
of Critical Accounting Policies
|
Disclosures
in the first section show five-year projections for estimated ongoing payments
and expense associated with the retained obligations of the former
operations. The second section discusses critical estimates used and
provides a sensitivity analysis for these estimates.
|
|
Years
Ended December 31,
|
|
|
%
change
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
148.6 |
|
|
|
113.1 |
|
|
|
51.0 |
|
|
|
31 |
|
|
|
122 |
|
Discontinued
operations
|
|
|
(11.3 |
) |
|
|
474.1 |
|
|
|
96.8 |
|
|
NM
|
|
|
|
200 |
+ |
Cumulative effect of change in
accounting principle
|
|
|
- |
|
|
|
- |
|
|
|
(5.4 |
) |
|
|
- |
|
|
NM
|
|
Net income
|
|
$ |
137.3 |
|
|
|
587.2 |
|
|
|
142.4 |
|
|
|
(77 |
) |
|
|
200 |
+ |
The
income items in the above table are reported after tax.
Continuing
Operations
2007
Income
from continuing operations was higher in 2007 compared to 2006 primarily due to
a $64.5 million improvement in operating profit driven by increases at Brink’s
and BHS and lower expenses related to former operations. Brink’s
operating profit increased primarily due to growth in Latin America, improved
performance in Europe and lower safety and security costs
worldwide. BHS operating profit improved due primarily to subscriber
growth. Interest expense decreased in 2007 as a result of reduced
debt levels. The effective tax rate for 2007 was approximately 1.3
percentage points lower than 2006 largely because of a change in the mix of
income and losses by jurisdiction.
The
Company’s income from continuing operations in 2008 could be adversely affected
by the U.S. economy as well as other economies around the world, if one or more
were to significantly decline.
2006
Income
from continuing operations was higher in 2006 compared to 2005 primarily due to
an $86.5 million improvement in operating profit driven by increases at Brink’s
and BHS and lower expenses related to former operations. This
improvement was partially offset by an $11.1 million increase ($7.3 million at
Corporate, $2.6 million at Brink’s and $1.2 million at BHS) in compensation
charges for stock options as a result of adopting Statement of Financial
Accounting Standards (“SFAS”) 123(R), Share Based Payment, on
January 1, 2006. Similar charges were not recorded in
2005. Brink’s operating profit increased primarily due to growth in
Latin America and France, lower restructuring costs in international operations,
and lower U.S. pension costs. BHS operating profit improved due
primarily to subscriber growth. Interest expense decreased in 2006 as
a result of reduced debt levels. The effective tax rate for 2006 was
approximately 4.4 percentage points lower than 2005 as a result of a lower level
of charges for valuation allowances, as further described
below.
Business
Segments
Brink’s
and BHS reported improved operating profit in both 2007 and 2006 over the
prior-year periods.
Brink’s. Revenues
in 2007 increased from 2006 primarily due to growth in existing operations with
particularly strong growth in Latin America and Europe, Middle East, and Africa
(“EMEA”). Exchange rate fluctuations favorably impacted reported
revenues in 2007 compared to 2006. Operating profit was higher in
2007 compared to 2006, largely due to stronger performance in EMEA and Latin
America and lower safety and security costs. In addition, operating
profit benefited from the weaker U.S. dollar.
Revenues
in 2006 increased from 2005 primarily due to growth in existing operations with
particularly strong growth in Latin America and EMEA. Exchange rate
fluctuations had little impact on revenues in 2006 compared to
2005. Operating profit was higher in 2006 versus 2005, largely due to
strong performance in Latin America, lower pension and other benefits expenses
in the U.S., and lower costs and improved margins in EMEA.
BHS. BHS reported
10% growth in revenues in 2007 and 12% in 2006. BHS experienced
strong growth in operating profit in 2007 (14%) and 2006 (15%) resulting
primarily from subscriber growth and improved efficiency from the providing of
recurring services to a larger subscriber base. The average number of
subscribers increased 10% both in 2007 over 2006 and in 2006 over
2005. Growth in operating profit in 2007 over 2006 was weaker than in
2006 over 2005 primarily as a result of selling and advertising expenses
increasing more rapidly than revenues. In addition, higher legal
settlement expenses were offset by insurance gains related to Hurricane
Katrina.
Former
Operations
Expenses
related to former operations in 2007 were $12.6 million lower than 2006 due to
lower pension and postretirement medical expenses.
Expenses
related to former operations in 2006 were $12.7 million lower than 2005 due to
earnings on the $225 million VEBA contribution made in the first quarter of
2006. The contribution was funded by proceeds from the sale of BAX
Global.
Income
Taxes
The
Company’s effective tax rate on income from continuing operations was 37.4% in
2007, 38.7% in 2006 and 43.1% in 2005. The effective tax rate varied
from statutory rates in these periods primarily due to changes in valuation
allowances for deferred tax assets and state income taxes. The
effective tax rate in 2005 was unusually high due to $10 million in new
valuation allowances, a higher amount of pretax losses incurred in countries for
which the Company does not recognize a tax benefit from losses, and the
recording of $3 million in additional tax on the repatriation of $49 million in
dividends under the American Jobs Creation Act.
The
Company currently estimates its 2008 effective tax rate will approximate 37% to
39%. The actual 2008 tax rate could be materially different from the
Company’s estimate.
Discontinued
Operations
On
January 31, 2006, the Company sold BAX Global for approximately $1 billion in
cash resulting in a pretax gain of approximately $587 million. On
August 5, 2007, the Company sold Brink’s United Kingdom domestic cash handling
operations. Both of these operations have been reported within
discontinued operations for all periods presented.
The
Company has accrued for significant contingencies related to benefits for former
coal employees. Revisions to estimated amounts related to these
contingent liabilities, including those related to obligations under the Coal Industry Retiree Health Benefit
Act of 1992 (“the Health Benefit Act”), are recorded in discontinued
operations.
In
2006, the Company recognized:
|
·
|
a
$148.3 million pretax benefit primarily as a result of a 2006 federal law
amending the Health Benefit Act that reduced the Company’s obligation for
healthcare and death benefits for former coal miners,
and
|
|
·
|
a
$9.9 million pretax benefit on the settlement of liabilities related to
two coal industry multi-employer pension
plans.
|
In
2005, the Company recognized $15.1 million of pretax income related to a final
settlement of claims for refund of Federal Black Lung Excise Tax
amounts.
Cumulative
Effect of a Change in Accounting Principle
On
December 31, 2005, the Company adopted the Financial Accounting Standard Board
(“FASB”) Interpretation 47, Accounting for Conditional Asset
Retirement Obligations (“FIN 47”). As a result, the Company
recorded the cumulative effect of a change in accounting principle of $5.4
million, net of tax, for conditional asset retirement obligations primarily
associated with leased facilities. See note 1 to the consolidated
financial statements.
Executive
Overview
|
|
Revenues
|
|
|
Operating
Profit
|
|
|
|
Years
Ended December 31,
|
|
|
%
change
|
|
|
Years
Ended December 31,
|
|
|
%
change
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
2,734.6 |
|
|
|
2,354.3 |
|
|
|
2,113.3 |
|
|
|
16 |
|
|
|
11 |
|
|
$ |
223.3 |
|
|
|
184.1 |
|
|
|
119.5 |
|
|
|
21 |
|
|
|
54 |
|
BHS
|
|
|
484.4 |
|
|
|
439.0 |
|
|
|
392.1 |
|
|
|
10 |
|
|
|
12 |
|
|
|
114.2 |
|
|
|
100.3 |
|
|
|
87.4 |
|
|
|
14 |
|
|
|
15 |
|
Business segments
|
|
|
3,219.0 |
|
|
|
2,793.3 |
|
|
|
2,505.4 |
|
|
|
15 |
|
|
|
11 |
|
|
|
337.5 |
|
|
|
284.4 |
|
|
|
206.9 |
|
|
|
19 |
|
|
|
37 |
|
Corporate
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(49.6 |
) |
|
|
(48.4 |
) |
|
|
(44.7 |
) |
|
|
2 |
|
|
|
8 |
|
Former
operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13.9 |
) |
|
|
(26.5 |
) |
|
|
(39.2 |
) |
|
|
(48 |
) |
|
|
(32 |
) |
|
|
$ |
3,219.0 |
|
|
|
2,793.3 |
|
|
|
2,505.4 |
|
|
|
15 |
|
|
|
11 |
|
|
$ |
274.0 |
|
|
|
209.5 |
|
|
|
123.0 |
|
|
|
31 |
|
|
|
70 |
|
2007
Revenues
in 2007 were 15% higher than 2006 primarily due to the effects of growth in
existing operations and favorable changes in foreign currency exchanges rates at
Brink’s and continuing growth in the subscriber base at BHS. The
Company’s operating profit increased by 31% in 2007 versus 2006 due to
significant operating profit growth in Latin America at Brink’s, continued
subscriber growth at BHS and lower costs related to former
operations.
2006
Revenues
in 2006 were 11% higher than 2005 primarily due to the effects of growth in
existing operations at Brink’s and continuing growth in the subscriber base of
BHS. The Company’s operating profit increased by 70% in 2006 versus
2005 due to improved performance and lower restructuring charges at Brink’s and
continued subscriber growth at BHS. These increases were partially
offset by higher corporate expenses due to $7.3 million of share-based
compensation costs recorded as a result of the adoption of SFAS 123(R) on
January 1, 2006.
The
Company froze the U.S. defined benefit pension plans effective December 31,
2005, and enhanced benefits for its U.S. defined contribution 401(k) plan
effective January 1, 2006. As a result, net expenses were lower in
2006 as follows:
|
·
|
Brink’s
– approximately $11.4 million
|
|
·
|
BHS
– approximately $2.5 million
|
|
·
|
Corporate
– approximately $1.9 million
|
Executive
Overview
Brink’s
provides services related to cash and other valuables to the financial
community, retailers and other businesses. These services include
securely transporting and handling valuable assets, managing and processing
currency and deposits and preparing and transmitting financial
information.
The
Company believes that Brink’s has significant competitive advantages
including:
|
·
|
reputation
for high-quality service
|
|
·
|
proprietary
cash processing and information
systems
|
|
·
|
high-quality
insurance coverage and general financial
strength
|
|
·
|
risk
management capabilities
|
|
·
|
the
ability to serve a customer in multiple markets through a global
network
|
Because
of Brink’s emphasis on managing the risks inherent in handling cash and
valuables and the high level of service provided, Brink’s believes it spends
more than its competitors on training and retaining people and on the facilities
and processes needed to provide quality services to customers.
As
a result of management’s emphasis on high-quality services and risk management,
Brink’s focuses its marketing and selling efforts on customers who appreciate
the value and breadth of the services delivered and the information
capabilities, risk management and financial strength underlying the Brink’s
approach to business.
In
order to earn an adequate return on capital employed in the business, Brink’s
focuses on the effective and efficient use of its resources and the adequacy of
pricing. First, Brink’s attempts to maximize the amount of business
which flows through its branches, vehicles and systems in order to obtain the
lowest costs possible without compromising safety, security or
service. Second, due to its higher costs of people and processes,
Brink’s generally charges higher prices than competitors that may not provide
the same level of service and risk management. The Company believes
that Brink’s operations are capable of generating operating profit margins at or
above 8% in 2008. The Company has established a goal to boost
operating margins to 10% by the end of 2010.
The
industries to which Brink’s provides services have been
consolidating. As a result, the strength of customers in these
industries has been increasing. Customers are seeking suppliers, such
as Brink’s, with broad geographic solutions, sophisticated outsourcing
capabilities and financial strength.
Operationally,
Brink’s performance may vary from period to period. Since revenues
are generated from charges per service performed or based on the value of goods
transported, revenues can be affected by both the level of activity in economies
and the volume of business for specific customers. As contracts
generally run for one or more years, there are costs which must be incurred to
prepare to service a new customer or to transition away from
one. Brink’s also periodically incurs costs to reduce operations when
volumes decline, including costs to reduce the number of employees and close or
consolidate branch and administrative facilities. In addition, safety
and security costs can vary from period to period depending on Company and
industry performance and cost of insurance coverage.
Cash
Logistics is a fully integrated solution that proactively manages the supply
chain of cash from point-of-sale through deposit at a bank. The
process includes cashier balancing and reporting, deposit processing and
consolidation, and electronic information exchange. Retail customers
use Brink’s Cash Logistics services to count and reconcile coins and currency in
a Brink’s secure environment, to prepare bank deposit information and to
replenish retail locations’ coins and currency in proper
denominations.
Because
Cash Logistics involves a higher level of service and more complex activities,
customers are willing to pay prices which result in higher
margins. The ability to offer Cash Logistics to customers also
differentiates Brink’s from many of its competitors. As a result,
management is committed and focused on continuing to grow Cash Logistics
revenue. Revenues from Cash Logistics, including coin and note
processing, were $434.3 million for 2007, $373.0 million for 2006 and $333.9
million for 2005.
Brink’s
revenues and related operating profit are generally higher in the second half of
the year, particularly in the fourth quarter, because of the generally increased
economic activity associated with the holiday season. As a result,
margins are typically lower in the first half than in the second half of the
year.
Summary
of Brink’s Results
|
|
Years
Ended December 31,
|
|
|
%
change
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America (a)
|
|
$ |
886.3 |
|
|
|
830.0 |
|
|
|
778.2 |
|
|
|
7 |
|
|
|
7 |
|
International
|
|
|
1,848.3 |
|
|
|
1,524.3 |
|
|
|
1,335.1 |
|
|
|
21 |
|
|
|
14 |
|
|
|
$ |
2,734.6 |
|
|
|
2,354.3 |
|
|
|
2,113.3 |
|
|
|
16 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America (a)
|
|
$ |
70.4 |
|
|
|
69.9 |
|
|
|
49.4 |
|
|
|
1 |
|
|
|
41 |
|
International
|
|
|
152.9 |
|
|
|
114.2 |
|
|
|
70.1 |
|
|
|
34 |
|
|
|
63 |
|
|
|
$ |
223.3 |
|
|
|
184.1 |
|
|
|
119.5 |
|
|
|
21 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
$ |
109.6 |
|
|
|
92.3 |
|
|
|
87.3 |
|
|
|
19 |
|
|
|
6 |
|
Capital
expenditures
|
|
|
141.6 |
|
|
|
113.5 |
|
|
|
107.3 |
|
|
|
25 |
|
|
|
6 |
|
2007
Overview
Revenues
at Brink’s were 16% higher in 2007 compared to 2006 primarily as a result of a
combination of the effects of Organic Revenue Growth, as defined later, and
favorable changes in currency exchange rates. Operating profit in
2007 was higher than 2006 largely as a result of strong performance in Latin
America, particularly in Venezuela, Brazil and Colombia, improved performance in
Europe and lower safety and security costs.
Supplemental
Revenue Analysis
The
following table and the similar table for 2006 (included in the 2006 Overview)
provide supplemental information related to Organic Revenue Growth which is not
required by U.S. generally accepted accounting principles
(“GAAP”). The Company defines Organic Revenue Growth as the change in
revenue from the prior year due to factors such as changes in prices for
products and services (including the effect of fuel surcharges), changes in
business volumes and changes in product mix. Estimates of changes due
to fluctuations in foreign currency exchange rates and the effects of new
acquisitions are excluded from Organic Revenue Growth.
The
supplemental Organic Revenue Growth information presented is non-GAAP financial
information that management uses to evaluate results of existing operations
without the effects of acquisitions, dispositions and currency exchange
rates. The Company believes that this information may help investors
evaluate the performance of the Company’s operations. The limitation
of this measure is that the effects of acquisitions, dispositions and changes in
values of foreign currencies cannot be completely separated from changes in
prices (including prices increased due to inflation) and volume of the base
business. This supplemental non-GAAP information does not affect net
income or any other reported amounts. This supplemental non-GAAP
information should be viewed in conjunction with the Company’s consolidated
statements of operations.
Revenue growth rates for operations
outside the U.S. include the effect of changes in currency exchange
rates. On occasion in this report, the change in revenue versus the
prior year has been disclosed using constant currency exchange rates in order to
provide information about growth rates without the impact of fluctuating foreign
currency exchange rates. Growth at constant-currency exchange rates
equates to growth as measured in local currency. This measurement of
growth using constant-currency exchange rates is higher than growth computed
using actual currency exchange rates when the U.S. dollar is strengthening and
lower when the U.S. dollar is weakening. Changes in currency exchange
rates increased segment operating profit by $9 million for 2007 compared to
2006, and the impact for 2006 compared to 2005 was not significant.
|
|
Year
Ended
|
|
|
%
change
|
|
(In
millions)
|
|
December
31,
|
|
|
from
2006
|
|
|
|
|
|
|
|
|
2006
Revenues
|
|
$ |
2,354.3 |
|
|
|
|
Effects
on revenue of:
|
|
|
|
|
|
|
|
Organic Revenue
Growth
|
|
|
212.9 |
|
|
|
9 |
|
Acquisitions and dispositions,
net
|
|
|
24.8 |
|
|
|
1 |
|
Changes in currency exchange
rates
|
|
|
142.6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
2007
Revenues
|
|
$ |
2,734.6 |
|
|
|
16 |
|
North
America
Revenues
increased in 2007 compared to 2006 primarily as the result of improvements in
all service lines, except U.S. Global Services. Operating profit in
2007 was higher than 2006 as increased operating profit in Canada on higher
revenues was partially offset by lower operating profit in the U.S. as a result
of increased expenses for sales and marketing, and a lower operating profit
contribution from U.S. Global Services operations. Operating profit
in 2007 included $1.0 million of other operating income in the U.S. for final
settlement of business interruption claims related to Hurricane
Katrina.
International
Revenues
increased in 2007 over 2006 in all regions except for
Asia-Pacific. Increased revenues in EMEA and Latin America were
primarily the result of Organic Revenue Growth and favorable changes in currency
exchange rates. Revenue decreased in Asia-Pacific primarily due to
the loss of a major customer in Australia during the second quarter of
2006. International operating profit in 2007 was higher due to the
effects of strong volumes in Latin America.
EMEA. Revenues
increased to $1,191.5 million in 2007 from $1,003.1 million in 2006, an increase
of $188.4 million or 19% (9% on a constant currency basis) largely as a result
of Organic Revenue Growth and favorable changes in currency exchange
rates.
Operating
profit increased 24% in 2007 compared to 2006 due to improved results in several
countries, partially offset by $2.1 million of impairment charges recorded on
long-lived assets and $2.4 million of restructuring charges.
The
Company is highly focused on improving pricing and performance in EMEA and
expects to continue to see operating margin improvements in 2008. If
operating margins do not improve in the near term, the Company may decide to
take actions to improve long-term performance. Restructuring charges
may result from these decisions and could lower margins in 2008.
Latin
America. Revenues increased to $594.2 million in 2007 from
$454.2 million in 2006, an increase of 31% (24% on a constant currency
basis). This increase was due primarily to price increases in
economies with relatively higher levels of inflation and higher volumes.
Increases in volume were a reflection of the overall improvement in Latin
American economies. Operating
profit in 2007 was 38% higher than in 2006 due to the above-mentioned price and
volume increases, and cost reduction and productivity improvements across the
region.
Venezuela
changed its national currency from the bolivar to the bolivar fuerte on January
1, 2008, and Brink’s performed additional cash handling services in late 2007 to
assist in the conversion. Brink’s expects increased revenue in
Venezuela during the first quarter of 2008 related to these
services. Due to the temporary increase in volume associated with the
conversion, there is an increased risk of operational issues. The
Company increased resources, training and established special procedures to
mitigate the risk.
Asia-Pacific. Revenues
decreased to $62.6 million in 2007 from $67.0 million in 2006, a decrease of 7%
(9% on a constant currency basis). This decrease was primarily due to
the loss of Australia’s largest customer during the second quarter of 2006,
partially offset by stronger performance in Hong Kong, Taiwan and
Japan.
The
Company restructured the Australian operation in 2006 after the loss of the
customer and recorded charges of $4.6 million. The charges
principally related to employee severance payments and lease obligations for
closed branches. Operating profit in 2007
was slightly lower than 2006, excluding the restructuring
charges.
2006
Overview
Revenues
at Brink’s were 11% higher in 2006 compared to 2005 primarily as a result of a
combination of the effects of Organic Revenue Growth and acquisitions of new
operations. Operating profit in 2006 was higher than 2005 largely as
a result of:
|
·
|
strong
performance in Latin America, particularly in Venezuela, Brazil and
Colombia,
|
|
·
|
improved
margins in the U.S. on lower pension and other benefits expenses,
and
|
|
·
|
lower
costs in EMEA including restructuring and severance expenses and improved
margins in some operations, particularly
France.
|
Supplemental
Revenue Analysis
|
|
Year
Ended
|
|
|
%
change
|
|
(In
millions)
|
|
December
31,
|
|
|
from
2005
|
|
|
|
|
|
|
|
|
2005
Revenues
|
|
$ |
2,113.3 |
|
|
|
|
Effects
on revenue of:
|
|
|
|
|
|
|
|
Organic Revenue
Growth
|
|
|
173.5 |
|
|
|
8 |
|
Acquisitions and dispositions,
net
|
|
|
39.3 |
|
|
|
2 |
|
Changes in currency exchange
rates
|
|
|
28.2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
2006
Revenues
|
|
$ |
2,354.3 |
|
|
|
11 |
|
North
America
Revenues
increased in 2006 compared to 2005 primarily as the result of increased volumes
in armored transportation, Global Services and Cash
Logistics. Operating profit in 2006 was higher than 2005, partially
as a result of higher revenues, but primarily as a result of lower expenses
related to pensions and other employee benefits in the U.S.
Pension
expense was $17.3 million lower during 2006 as a result of the Company’s
decision to freeze U.S. defined benefit pension plan benefits at December 31,
2005. This decrease was partially offset by a $5.9 million increase
in the expense associated with the U.S. defined contribution plans in 2006 as
these benefits were enhanced effective January 1, 2006.
International
Revenues
increased in 2006 over 2005 in all regions except for
Asia-Pacific. Increased revenue in EMEA was primarily the result of
Organic Revenue Growth and acquisitions. Revenue increases in Latin
America were primarily due to Organic Revenue Growth, including the effects of
inflation. The revenue decrease in Asia-Pacific was primarily due to
the loss of a major customer in Australia during the second quarter of
2006. International operating profit in 2006 was higher due to the
effects of strong volumes in EMEA and Latin America and lower restructuring
costs.
EMEA. Revenues
increased to $1,003.1 million in 2006 from $908.4 million in 2005, an increase
of $94.7 million or 10% (9% on a constant currency basis) largely as a result of
Organic Revenue Growth and acquisitions. In addition, 2006 revenues
were affected by competitive pressures. Brink’s acquired operations
in:
|
·
|
Mauritius
in the second quarter of 2006
|
|
·
|
Poland,
Hungary, and the Czech Republic (sold in January 2007) in the second
quarter of 2005
|
|
·
|
Luxembourg,
Scotland (sold with the United Kingdom domestic cash handling operations
in 2007) and Ireland in the first quarter of
2005
|
These
acquisitions increased revenues by approximately $36 million in 2006 over 2005
but did not have a significant impact on operating profit.
Operating
profit increased approximately $23 million in 2006 compared to 2005 due
to:
|
·
|
lower
restructuring and severance expenses which had been primarily recorded in
Belgium and the Netherlands in 2005. The actions leading to
such charges in 2005 improved operating profit in
2006
|
|
·
|
improved
operations in France
|
Latin
America. Revenues increased to $454.2 million in 2006 from
$355.1 million in 2005, an increase of 28% (26% on a constant currency
basis). This increase was due primarily to price increases in
economies with relatively higher levels of inflation and higher volumes,
particularly in Venezuela, Brazil, Colombia, Argentina and Chile. The
increase in volumes was a reflection of the overall improvement in Latin
American economies.
Operating
profit in 2006 was 67% higher than 2005 due to the above-mentioned volume
increases, and cost reduction and productivity improvements across the
region. The increase in operating profit in the region was also
bolstered by pricing improvement in Brazil.
Asia-Pacific. Revenues
decreased to $67.0 million in 2006 from $71.6 million in 2005, a decrease of 6%
(6% on a constant currency basis). This decrease was primarily due to
the loss of a major customer in Australia, partially offset by stronger
performance of the Global Service operations in Hong Kong and
Japan. The Company took actions to restructure the Australian
operation in 2006 and recorded charges of $4.6 million. The charges
principally related to paying or accruing employee severance payments and lease
obligations for closed branches. Excluding
the restructuring charges, operating profit in 2006 was about the same as
2005.
Executive
Overview
BHS
has reported strong growth in revenues and operating profit for several years
due to its ability to attract and retain customers through brand reputation and
quality service while operating as efficiently as possible consistent with the
desired level of service.
In
order to increase efficiency and effectiveness, BHS focuses on controlling
initial marketing and installation costs by matching sales representative
staffing levels with the number of sales opportunities and the size of the
technician workforce with available installation volume. BHS then
strives to keep customer service and monitoring costs low without detracting
from high-quality service levels.
The
Company believes customer retention is driven by disciplined customer selection
practices and high customer service levels. In order to obtain
customers who are less likely to disconnect, the Company seeks to attract
customers with solid credit scores and the willingness to pay reasonable
up-front fees. Once there is agreement to install an alarm system,
the Company provides a high-quality installation followed by continuing
high-quality customer service and alarm monitoring. BHS believes its
disconnect rate benefits from consistently following this strategy.
The
Company believes that the performance of the U.S. economy may affect the
performance of BHS. However, the Company believes this effect is not
as significant as it is for industries with close ties to national economic
performance. Since more household moves take place during the second
and third quarters of each year, the disconnect rate and related expenses are
typically higher in those quarters than in the first and fourth
quarters.
Summary
of Brink’s Home Security’s Results
|
|
Years
Ended December 31,
|
|
|
%
change
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
484.4 |
|
|
|
439.0 |
|
|
|
392.1 |
|
|
|
10 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring
services (a)
|
|
|
206.4 |
|
|
|
184.3 |
|
|
|
167.5 |
|
|
|
12 |
|
|
|
10 |
|
Investment
in new subscribers (b)
|
|
|
(92.2 |
) |
|
|
(84.0 |
) |
|
|
(80.1 |
) |
|
|
10 |
|
|
|
5 |
|
|
|
$ |
114.2 |
|
|
|
100.3 |
|
|
|
87.4 |
|
|
|
14 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
recurring revenues (c)
|
|
$ |
37.2 |
|
|
|
33.1 |
|
|
|
29.1 |
|
|
|
12 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization (d)
|
|
$ |
77.7 |
|
|
|
67.6 |
|
|
|
58.1 |
|
|
|
15 |
|
|
|
16 |
|
Impairment
charges from subscriber disconnects
|
|
|
50.4 |
|
|
|
47.1 |
|
|
|
45.2 |
|
|
|
7 |
|
|
|
4 |
|
Amortization
of deferred revenue (e)
|
|
|
(34.2 |
) |
|
|
(31.2 |
) |
|
|
(29.5 |
) |
|
|
10 |
|
|
|
6 |
|
Deferral
of subscriber acquisition costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(current year
payments)
|
|
|
(23.8 |
) |
|
|
(24.4 |
) |
|
|
(22.9 |
) |
|
|
(2 |
) |
|
|
7 |
|
Deferral
of revenue from new subscribers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(current year
receipts)
|
|
|
47.4 |
|
|
|
44.9 |
|
|
|
40.7 |
|
|
|
6 |
|
|
|
10 |
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security systems
|
|
$ |
(165.2 |
) |
|
|
(150.1 |
) |
|
|
(138.3 |
) |
|
|
10 |
|
|
|
9 |
|
Other (f)
|
|
|
(12.6 |
) |
|
|
(13.8 |
) |
|
|
(23.9 |
) |
|
|
(9 |
) |
|
|
(42 |
) |
Capital
expenditures
|
|
$ |
(177.8 |
) |
|
|
(163.9 |
) |
|
|
(162.2 |
) |
|
|
8 |
|
|
|
1 |
|
(a)
|
Reflects
operating profit generated from the existing subscriber base including the
amortization of deferred revenues.
|
(b)
|
Primarily
marketing and selling expenses, net of the deferral of subscriber
acquisition costs (primarily a portion of sales commissions) incurred in
the acquisition of new subscribers.
|
(c)
|
This
measure is reconciled below under the caption “Reconciliation of Non-GAAP
Measures – Monthly Recurring
Revenues.”
|
(d)
|
Includes
amortization of deferred subscriber acquisition
costs.
|
(e)
|
Includes
amortization of deferred revenue related to active subscriber accounts as
well as recognition of deferred revenue related to subscriber accounts
that disconnect.
|
(f)
|
Other
capital expenditures include the construction costs and equipment
purchased for the Knoxville, Tennessee, facility ($6.1 million in 2006 and
$7.4 million in 2005), which became operational in early
2006. Other capital expenditures also include $10.2 million in
2005 for the purchase of BHS’s headquarters in Irving, Texas, which was
formerly leased.
|
Overview
Operating
profit comprises recurring services minus the cost of the investment in new
subscribers. Recurring services reflect the monthly monitoring and service
earnings generated from the existing subscriber base, including the amortization
of deferred revenues. Non cash impairment charges from subscriber
disconnects, and depreciation and amortization expenses, including the
amortization of deferred subscriber acquisition costs, are also charged to
recurring services. Operating profits from recurring services are
affected by the size of the subscriber base, the amount of operational costs
including depreciation, the level of subscriber disconnect activity and changes
in the average monthly monitoring fee per subscriber.
Investment
in new subscribers is the net expense (primarily marketing and selling expenses)
incurred to add to the subscriber base every year. The amount of the
investment in new subscribers charged to income may be influenced by several
factors, including the growth rate of new subscriber installations and the level
of costs incurred to attract new subscribers. As a result, increases
in the rate of investment (the addition of new subscribers) may have a negative
effect on current operating profit but a positive impact on long-term operating
profit, cash flow and economic value.
Capital
expenditures are primarily for the equipment, labor and overhead costs
associated with system installations for new subscribers.
Subscriber
Activity
|
|
Years
Ended December 31,
|
|
|
%
change
|
|
(Subscriber
data in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of subscribers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
period
|
|
|
1,124.9 |
|
|
|
1,018.8 |
|
|
|
921.4 |
|
|
|
|
|
|
|
Installations (a)
|
|
|
180.8 |
|
|
|
175.0 |
|
|
|
167.3 |
|
|
|
3 |
|
|
|
5 |
|
Disconnects (a)
|
|
|
(81.8 |
) |
|
|
(68.9 |
) |
|
|
(69.9 |
) |
|
|
19 |
|
|
|
(1 |
) |
End of period (b)
|
|
|
1,223.9 |
|
|
|
1,124.9 |
|
|
|
1,018.8 |
|
|
|
9 |
|
|
|
10 |
|
Average
number of subscribers
|
|
|
1,176.1 |
|
|
|
1,072.5 |
|
|
|
972.8 |
|
|
|
10 |
|
|
|
10 |
|
Disconnect
rate (c)
|
|
|
7.0 |
% |
|
|
6.4 |
% |
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
(a)
|
Customers
who move from one location and then initiate a new monitoring agreement at
a new location are not included in either installations or
disconnects. Dealer accounts cancelled and charged back to the
dealer during the specified contract term are also excluded from
installations and disconnects. Inactive sites that are returned
to service reduce disconnects. 2005 disconnects include 4,700
disconnects as a result of Hurricane
Katrina.
|
(b)
|
The
total number of subscribers at December 31, 2007, includes approximately
58,000 commercial customers. The Company considers expansion of
BHS’ commercial customer base a significant growth
opportunity.
|
(c)
|
The
disconnect rate is a ratio, the numerator of which is the number of
customer cancellations during the period and the denominator of which is
the average number of customers during the period. The gross
number of customer cancellations is reduced for customers who move from
one location and then initiate a new monitoring agreement at a new
location, accounts charged back to the dealers because the customers
cancelled service during the specified contractual term, and inactive
sites that are returned to active service during the
period.
|
Installation
growth slowed to 3% in 2007, as compared to 5% in 2006 and double-digit growth
in prior years. Installation growth is primarily the result of
increased traditional branch installation volume as well as increased
installations through the growing dealer network. Installation growth
was hampered in 2007 and 2006 due to sluggish real estate activity in the
U.S. Despite slower installation growth rates in 2007 and 2006 as
compared to historical levels, the average number of subscribers increased 10%
during the year. This is because the number of installations (180,800
in 2007) continued to substantially exceed the number of disconnects (81,800 in
2007).
The
annualized disconnect rate for 2007 increased to 7.0% compared to 6.4% in
2006. The increase in the disconnect rate in 2007 over 2006 primarily
resulted from expiring multi-family housing agreements (0.4% of the 2007
disconnect rate) and technical adjustments during quarterly reconciliations
(approximately 0.2% of the 2007 disconnect rate). In 2005 the
annualized disconnect rate was 6.7% excluding the effects of Hurricane
Katrina. BHS has maintained a low disconnect rate in recent years by
improving subscriber selection and retention processes. Household moves are a
major driver of disconnects. The disconnect rate may not materially
improve in the future since some disconnects are beyond the Company’s control,
including customers moving and canceling service.
BHS
has observed a slowing in the rate of household moves in many regions of the
country throughout most of 2007 and 2006. Household moves, a primary
cause of disconnects, are also a significant contributor to installation
volume. Moreover, further instability in the housing and credit
markets could affect BHS’ ability to collect receivables from
customers.
In
2008, assuming little or no recovery in housing, BHS believes revenue and
operating profit growth should continue to be at least 10% while subscriber
growth should be in the high-single-digit percentage range. BHS
expects to continue to build its commercial alarm installation and monitoring
business in 2008, although difficulties are expected to continue in its BHT
business as a result of lower new home production in the U.S. BHS,
however, is seeking to increase market share through expanded relationships with
major home builders. As a result, the investment in new subscribers, on a per
new subscriber basis, may grow faster in the future.
2007
The
10% increase in BHS’ revenues in 2007 over 2006 was primarily due to the larger
subscriber base and higher average monitoring rates, partially offset by a
decline in Brink’s Home Technologies (“BHT”) pre-wire and trim-out
revenues. The larger subscriber base and higher monitoring rates also
contributed to a 12% increase in monthly recurring revenues for December 2007 as
compared to December 2006. BHS intends to continue to selectively
raise monitoring prices in the future.
Operating
profit increased $13.9 million in 2007 compared to 2006 due to higher profit
from recurring services, which was only partially offset by the increased cost
of investment in new subscribers. Higher profit from recurring
services in 2007 was primarily due to increased monitoring and service revenues
and cost efficiencies generated from the larger subscriber
base. Additionally, BHS recorded $2.3 million of insurance settlement
gains in 2007 for final settlement of property damage and business interruption
insurance claims related to Hurricane Katrina, offset by a $2.5 million increase
in legal settlement expenses. The insurance settlement gains are
included in other operating income in the statement of operations, and recurring
services in the BHS segment operating profit table. Higher investment
in new subscribers was primarily due to increased installation volume and higher
marketing expenses incurred in traditional branch operations, partially offset
by lower expenses, net of revenues, in BHT. The growth of investment
in new subscribers in 2007 compared to 2006 was greater than in the prior year
comparison as a result of increased advertising.
As
a result of the continuing slowdown in the new housing market, pre-wire activity
for homebuilders was down more than 32% in 2007 compared to 2006, and monitored
activations for completed homes decreased 18%.
2006
The
12% increase in BHS’ revenues in 2006 over 2005 was primarily due to the larger
subscriber base and slightly higher average monitoring rates. These
factors also contributed to a 14% increase in monthly recurring revenues for
December 2006 compared to December 2005.
Operating
profit increased $12.9 million in 2006 compared to 2005 due to higher profit
from recurring services, which was only slightly offset by the increased cost of
investment in new subscribers. Higher profit from recurring services
in 2006 was primarily due to incremental revenues and cost efficiencies
generated from the larger subscriber base, partially offset by initial costs of
starting up and integrating the operations of the new Knoxville facility with
those of the existing Irving, Texas, facility. Higher investment in
new subscribers was primarily due to increased installation
volume. The growth of investment in new subscribers in 2006 compared
to 2005 was less than in the prior year comparison as a result of slower
installation growth.
As
a result of the sharp slowdown in the new housing market in the second half of
the year, pre-wire activity for major homebuilders was down more than 10% for
the full year. However, monitored activations for completed homes
increased 7%.
The
construction of a second monitoring center in Knoxville, Tennessee, was
completed and the facility began operations in the first quarter of
2006. The Knoxville monitoring center provides additional service
capacity for the existing subscriber base, increases capacity to sustain
continued growth, and provides enhanced security and disaster recovery
capabilities. As expected, operating the new facility resulted in
additional general and administrative expense during 2006.
BHS’s
costs in 2006 related to retirement plans were $2.5 million lower than in the
prior year primarily as a result of the Company’s decision to freeze U.S.
defined benefit pension plan benefits at December 31, 2005.
Fuel
costs stabilized and copper prices declined during the second half of 2006 from
the elevated levels of early 2006, although the costs of both were generally
higher throughout 2006 than during much of 2005. These higher costs
have not significantly affected operating profit to date primarily because a
large portion of these costs are capitalized as part of the costs of installing
new monitoring sites.
Reconciliation
of Non-GAAP Measures – Monthly Recurring Revenues
The
purpose of this table is to reconcile monthly recurring revenues, a non-GAAP
measure, to revenues, its closest GAAP counterpart.
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
recurring revenues (“MRR”) (a)
|
|
$ |
37.2 |
|
|
|
33.1 |
|
|
|
29.1 |
|
Amounts
excluded from MRR:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
revenue
|
|
|
2.8 |
|
|
|
2.5 |
|
|
|
3.3 |
|
Other revenues (b)
|
|
|
1.6 |
|
|
|
2.1 |
|
|
|
2.5 |
|
Revenues
on a GAAP basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
December
|
|
|
41.6 |
|
|
|
37.7 |
|
|
|
34.9 |
|
January – November
|
|
|
442.8 |
|
|
|
401.3 |
|
|
|
357.2 |
|
January – December
|
|
$ |
484.4 |
|
|
|
439.0 |
|
|
|
392.1 |
|
(a)
|
MRR
is calculated based on the number of subscribers at period end multiplied
by the average fee per subscriber received in the last month of the period
for contracted monitoring and maintenance
services.
|
(b)
|
Revenues
that are not pursuant to monthly contractual
billings.
|
The
Company uses MRR to evaluate BHS’ performance, and believes the presentation of
MRR is useful to investors because the measure is widely used in the industry to
assess the amount of recurring revenues from subscriber fees that a home
security business produces. This supplemental non-GAAP information
should be reviewed in conjunction with the Company’s consolidated statements of
operations.
Corporate
Expense – The Brink’s Company
|
|
Years
Ended December 31,
|
|
|
%
change
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
expense
|
|
$ |
49.6 |
|
|
|
48.4 |
|
|
|
44.7 |
|
|
|
2 |
|
|
|
8 |
|
Corporate
expense in 2007 was higher than 2006 as a result of professional, legal and
advisory fees incurred related to initiatives by certain of the Company’s
shareholders and a proxy contest initiated by MMI Investments, L.P. (“MMI”), one
of the Company’s shareholders, over board of director candidates to be elected
at the 2008 annual meeting. The Company reached an agreement with MMI
on February 25, 2008, agreeing to reimburse up to $1 million of out-of-pocket
expenses incurred by MMI related to the proxy contest. In addition,
the Company expects corporate expense in 2008 to be higher as a result of
professional fees associated with the spin-off of BHS and recent shareholder
initiatives. After the spin-off (expected in the fourth quarter of
2008) expenses related to the spin-off will be classified within discontinued
operations.
Corporate
expense was higher in 2006 compared to 2005 due primarily to recording $7.3
million in 2006 of share-based compensation costs as a result of adopting a new
accounting standard, partially offset by lower professional and consulting fees
associated with Section 404 of the Sarbanes-Oxley Act of 2002 as the Company
outsourced less work during 2006. See notes 1 and 15 to the
consolidated financial statements for further information regarding the adoption
of SFAS 123(R), Share-Based
Payment.
For
the components of expense from former operations, see “Expenses in Continuing
Operations” within “Retained Liabilities and Assets of Former
Operations.”
Retained
Liabilities and Assets of Former Operations
Executive
Overview
The
Company has obligations which arose as the result of its long history of
operating in the coal industry. Since these obligations are complex
and potentially financially volatile, management believes it is important to
closely monitor and manage these obligations.
Some
of these obligations (reclamation, advance minimum royalties and workers’
compensation) have shorter terms and lesser values. The Company
expects the cash payments for these obligations to be concentrated over the next
few years and then end or decline significantly.
Other
obligations (retiree medical benefit plan and Black Lung) have longer terms and
higher estimated costs. Payments associated with these liabilities
are projected to be made over the next 60 years or more. These
liabilities are largely medical benefits-related, so medical inflation is an
important consideration. These obligations cover a pool of individuals that is
essentially capped since the Company no longer operates within the coal
industry. Since most of the covered individuals are, for the most
part, above or near normal retirement age, these obligations should see a steady
decrease in the number of participants and beneficiaries over time.
The
net present value of these obligations is a valuable tool for assessing their
fair value as of a point in time. However, such values will fluctuate
over time solely due to changes in market interest rates. As a
result, the Company believes the critical factor in evaluating each obligation
is the cash flow needed to satisfy it.
The
Company employs a team of employees, along with third parties, to monitor and
control these liabilities with a primary goal of reducing future cash
outflows. The primary activities of this group are to verify
participant eligibility, design and implement plans that provide the required
benefits at the lowest cost, and verify costs charged to the plans.
The
Company has established a VEBA to help manage the financial impact of the
retiree medical benefit plan obligation. The VEBA is used as a
tax-efficient way to fund this obligation. A well-funded VEBA should
help insulate the Company’s assets and cash flow from this
obligation. At December 31, 2007, the VEBA held investments with a
fair value of $460 million. The Company elected to begin using the
assets of the VEBA to fund benefit payments beginning January 1, 2007, and paid
$34 million of benefits from the VEBA in 2007.
The
Company refers to its various long-term liabilities and assets related to its
former operations as its “legacy” liabilities and assets.
The
legacy liabilities and assets in the following table are based on a variety of
estimates, including actuarial assumptions, as described in the Application of
Critical Accounting Policies and in the notes to the consolidated financial
statements. These estimated liabilities and assets will change in the
future to reflect payments made, investment returns, annual actuarial
revaluations, periodic revaluations of reclamation liabilities and other changes
in estimates. Actual amounts could differ materially from the
estimated amounts.
Summary
of Legacy Liabilities and Assets
|
|
December
31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Legacy
liabilities:
|
|
|
|
|
|
|
Company-sponsored retiree medical
(a):
|
|
|
|
|
|
|
Before Medicare subsidy and
VEBA
|
|
$ |
560.4 |
|
|
|
631.6 |
|
Medicare subsidy
value
|
|
|
(51.0 |
) |
|
|
(60.7 |
) |
VEBA asset value
|
|
|
(460.3 |
) |
|
|
(459.3 |
) |
Company-sponsored retiree
medical
|
|
|
49.1 |
|
|
|
111.6 |
|
|
|
|
|
|
|
|
|
|
Black lung (a)
|
|
|
47.5 |
|
|
|
46.7 |
|
Worker’s
compensation
|
|
|
21.7 |
|
|
|
22.8 |
|
Health Benefit Act
(b)
|
|
|
11.1 |
|
|
|
19.2 |
|
Other
|
|
|
13.5 |
|
|
|
12.6 |
|
Legacy
liabilities
|
|
$ |
142.9 |
|
|
|
212.9 |
|
|
|
|
|
|
|
|
|
|
Legacy
assets:
|
|
|
|
|
|
|
|
|
Other
|
|
$ |
2.9 |
|
|
|
10.6 |
|
Deferred tax assets
(c)
|
|
|
67.9 |
|
|
|
95.8 |
|
(a)
|
Company-sponsored
retiree medical liabilities and black lung liabilities are accounted for
in accordance with Statement of Financial Accounting Standards (“SFAS”)
106, Employers’
Accounting for Postretirement Benefits Other Than Pensions, as
amended.
|
(b)
|
Health
Benefit Act liabilities are accounted for in accordance with EITF 92-13,
Accounting for Estimated
Payments in Connection with the Coal Industry Retiree Health
Benefit Act of 1992 and, accordingly, the Company has accrued the
undiscounted estimate of its projected obligation. The Company
uses various assumptions to estimate its liability to The United Mine
Workers of America (“UMWA”) Combined Fund (the “Combined Fund”) for future
annual premiums, including the number of beneficiaries in future periods
and medical inflation.
|
(c)
|
The
Company has not yet taken deductions in its tax returns for most of the
net legacy liabilities associated with the former coal business, and has
recorded a deferred tax asset for this future benefit for these temporary
differences between book and tax
bases.
|
Under
the Health Benefit Act, the Company and various current and former subsidiaries
are jointly and severally liable for approximately $300 million of
postretirement medical and Health Benefit Act obligations in the above
table. The Company is reviewing the alternative means to lessen the
impact of joint and several liabilities as allowed by the Tax Relief and Health Care Act of
2006 (the “2006 Act”). The purchasers of the Company’s BAX
Global and natural resources assets have been indemnified by the Company for the
related contingent liability.
Projected
Payments and Expenses of Retained Retiree Liabilities and Administrative
Costs
The
following tables include the actual cash payments and GAAP expense (continuing
operations only) related to legacy liabilities for 2005, 2006 and 2007, and as
projected for the next five years.
Cash
Payments
(In
millions)
|
|
Actual
Payments
|
|
|
Projected
Payments
|
|
Years
Ending December 31,
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
benefits other than pensions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-sponsored medical plans
(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Medicare subsidy
(b)
|
|
$ |
36 |
|
|
|
38 |
|
|
|
37 |
|
|
$ |
40 |
|
|
|
43 |
|
|
|
44 |
|
|
|
45 |
|
|
|
46 |
|
Estimated effect of Medicare
subsidy
|
|
|
- |
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(4 |
) |
Benefit payments made from
VEBA
|
|
|
- |
|
|
|
- |
|
|
|
(34 |
) |
|
|
(40 |
) |
|
|
(43 |
) |
|
|
(44 |
) |
|
|
(45 |
) |
|
|
(46 |
) |
Subtotal
|
|
|
36 |
|
|
|
36 |
|
|
|
- |
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(4 |
) |
Health Benefit Act
|
|
|
8 |
|
|
|
7 |
|
|
|
6 |
|
|
|
4 |
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
Black lung
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
4 |
|
Withdrawal
liability
|
|
|
- |
|
|
|
20 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Workers’
compensation
|
|
|
5 |
|
|
|
4 |
|
|
|
3 |
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
Advance
minimum royalties
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
Reclamation
and inactive mine costs
|
|
|
5 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
Administration
and other
|
|
|
5 |
|
|
|
5 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
3 |
|
|
|
3 |
|
Cash
proceeds and receipts
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
64 |
|
|
|
79 |
|
|
|
20 |
|
|
$ |
14 |
|
|
|
12 |
|
|
|
11 |
|
|
|
9 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VEBA
contributions (a)
|
|
$ |
- |
|
|
|
225 |
|
|
|
- |
|
|
$ |
5 |
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
(a)
|
The
Company has contributed cash to a VEBA to be used to make future payments
for the Company’s retiree medical plans. The Company
reevaluates its contribution policy annually and is not obligated to fund
the VEBA. The Company may elect at any time to use either these
assets or its cash from operations to pay benefits for its retiree medical
plans. The Company began paying benefits from the VEBA in 2007,
and expects to continue paying benefits from the VEBA in 2008 and later
years. Beginning in 2008, the Company expects to contribute the
Medicare subsidy in the year after it is received to the
VEBA.
|
(b)
|
Future
projected payments for the next five years decreased from that projected
last year due to updated census data reflecting a lower plan participation
rate assumption.
|
Expenses
in Continuing Operations
(In
millions)
|
|
Actual
Expense
|
|
|
Projected
Expense
|
|
Years
Ending December 31,
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
benefits other than pensions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-sponsored medical
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Medicare subsidy and VEBA
(b)
|
|
$ |
54 |
|
|
|
53 |
|
|
|
49 |
|
|
$ |
45 |
|
|
|
44 |
|
|
|
44 |
|
|
|
43 |
|
|
|
42 |
|
Estimated effect of Medicare
subsidy
|
|
|
(6 |
) |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
Estimated investment income in
VEBA
|
|
|
(13 |
) |
|
|
(34 |
) |
|
|
(39 |
) |
|
|
(39 |
) |
|
|
(38 |
) |
|
|
(38 |
) |
|
|
(37 |
) |
|
|
(36 |
) |
Subtotal
|
|
|
35 |
|
|
|
13 |
|
|
|
4 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
Black lung
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
Pension
(a)
|
|
|
5 |
|
|
|
4 |
|
|
|
2 |
|
|
|
(7 |
) |
|
|
(9 |
) |
|
|
(10 |
) |
|
|
(12 |
) |
|
|
(13 |
) |
Administrative
and other
|
|
|
7 |
|
|
|
7 |
|
|
|
5 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
3 |
|
|
|
3 |
|
Other
income, net
|
|
|
(12 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
39 |
|
|
|
27 |
|
|
|
14 |
|
|
$ |
2 |
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
(6 |
) |
(a)
|
The
above projection does not assume any future pension contributions will be
made. If voluntary or required contributions are made,
projected expenses from that year forward would be reduced by the expected
long-term return on those
contributions.
|
(b)
|
Future
expenses for the next five years decreased from that projected last year
primarily due to a change in the discount rate during
2007.
|
The
above projected payments and expenses are estimated based on the same
assumptions used in determining the values of legacy liabilities at December 31,
2007. The actual amount of cash payments and GAAP expense in
future periods may be materially different than amounts
presented. The amounts paid or expensed in the future depend on many
factors, including inflation in health care and other costs, the ultimate impact
of the 2003 Medicare reform bill, discount rates, the level of contributions to
and the investment performance of the VEBA, whether the Company’s assets or VEBA
assets are used to pay benefits, the number of participants in various benefit
programs, and the level of administrative costs needed to manage the retained
liabilities.
Following
are comments covering the more significant legacy liabilities in the above
tables. For additional information, please see note 4 to the
consolidated financial statements. Each of these liabilities and
assets is affected by estimates and judgments. More information is
available at “Application of Critical Accounting Policies” later in Management’s
Discussion and Analysis.
Company-Sponsored
Retiree Medical Benefits Obligations and VEBA
The
Company provides postretirement health care benefits to eligible former coal
miners and their dependents. With the assistance of actuaries, the
Company annually reevaluates the estimated future cash flows, expenses and
current values of the obligations. Projected payments are expected to
increase each year for the next five years as a result of medical inflation and
as eligible participants attain retirement age. This increase will be
partially offset by reductions in the number of participants through
mortality.
The
net liability decreased to $49 million at December 31, 2007, from $112 million
at December 31, 2006, primarily due to the increase in the discount rate by 65
basis points to 6.4%.
A
VEBA has been established by the Company under Internal Revenue Code Section
501(c)(9). In general, a contribution made to the VEBA becomes
deductible for federal income tax purposes in the year in which it is
made. Investment earnings within the VEBA and distributions from the
VEBA to pay designated benefits or to reimburse the Company for designated
benefit payments have no federal income tax effect on the
Company. The Company can determine the timing and size of any payment
from the VEBA to cover expenses of eligible participants.
The
following table summarizes the activity in the VEBA for the last three
years:
|
|
Balance
at
|
|
|
|
|
|
|
|
|
Benefit
|
|
|
Balance
at
|
|
(In
millions)
|
|
January
1,
|
|
|
Contributions
|
|
|
Earnings
|
|
|
Payments
|
|
|
December
31,
|
|
2005
|
|
$ |
172 |
|
|
|
- |
|
|
|
13 |
|
|
|
- |
|
|
|
185 |
|
2006
|
|
|
185 |
|
|
|
225 |
|
|
|
49 |
|
|
|
- |
|
|
|
459 |
|
2007
|
|
|
459 |
|
|
|
- |
|
|
|
35 |
|
|
|
(34 |
) |
|
|
460 |
|
The
VEBA’s assets are allocated among active investment managers of equities and
fixed income securities. As of December 31, 2007, approximately 69%
of the VEBA assets are invested in equities and 31% are invested in fixed income
securities. The VEBA’s assets are being invested in a similar fashion
to the Company’s primary U.S. pension plan and the Company has estimated the
same expected long-term rate of return of 8.75% per year.
Black
Lung Obligations
The
Company makes payments to former miners who have been determined to have
pneumoconiosis (black lung disease). Such payments primarily cover
disability payments and condition-related medical expenses. These
payments stretch out over many years and have been discounted to a net present
value. Actuarial gains and losses are
deferred. Accumulated unrecognized gains and losses in excess of 10%
of the funded status are amortized into continuing expense over the average
remaining life expectancy of all participants (approximately 10
years).
The
black lung obligation increased to $47.5 million in 2007 from $46.7 million in
2006 largely due to several inactive miners filing new claims in 2007, partially
offset by the effect of increasing the discount rate by 35 basis points to 6.1%
as of December 31, 2007.
Future
cash payments are expected to gradually decline as the number of participants
declines through mortality. Future expense levels are also expected
to decline as the remaining value of the obligation declines.
Primary
U.S. Pension Plan
The
Company has a U.S. defined benefit pension plan for which benefit levels were
frozen effective December 31, 2005. As a result, participants in the
plan ceased earning additional benefits at December 31,
2005. Participants who have not met requirements for vesting are
continuing to accrue vesting service in accordance with terms of the
plans. Using actuarial assumptions as of December 31, 2007, the plan
had an accumulated benefit obligation (“ABO”) of approximately $710
million.
The
ABO represents the net present value of expected future cash flows discounted to
December 31, 2007 at 6.4%. The Company changed its method of
estimating its discount rate in 2007. As of December 31, 2007, the
discount rate used to measure the present value of the Company's benefit
obligations was derived using the cash flow matching method. Under
this method, the Company compares the plans' projected payment obligations by
year with the corresponding yields on the Citigroup Pension Discount Curve and
the Mercer Yield Curve. The cash flows are then discounted to their
present value and a discount rate is determined for each curve; the average of
the two discount rates is selected and is rounded to the nearest tenth of a
percentage point. As market interest rates fluctuate, the net present
value of the Company’s obligation will change. The impact of a one
percentage point (100 basis points) change in the discount rate used at December
31, 2007, would have been as follows:
|
|
Discount
Rates
|
|
|
|
Increased
|
|
|
Decreased
|
|
(In
millions)
|
|
by
1.0%
|
|
|
by
1.0%
|
|
|
|
|
|
|
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
ABO at December 31,
2007
|
|
$ |
(98 |
) |
|
|
98 |
|
2008 expense
|
|
|
(2 |
) |
|
|
9 |
|
At
December 31, 2007, the fair value of the plan’s assets was approximately $709
million. The Company uses a long-term rate of return assumption to
determine expected annual income from plan assets. This expected
annual income reduces future plan expense. The Company’s expected
long-term rate of return in 2008 is 8.75%. If the Company were to use
a different long-term rate of return assumption, annual pension expense would be
different.
The
historical and projected benefit payments and expense for the U.S. plan are set
out in the table below. The projected benefit payments and expense
reflect assumptions used in the valuation at December 31, 2007. These
assumptions are reviewed annually, and it is likely that they will change in
future years.
(In
millions)
|
|
Actual
|
|
|
Projected
|
|
Years
Ending December 31,
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
of benefits (paid from plan trust)
|
|
$ |
26 |
|
|
|
28 |
|
|
|
31 |
|
|
$ |
33 |
|
|
|
35 |
|
|
|
37 |
|
Expense
(income)
|
|
|
42 |
|
|
|
7 |
|
|
|
3 |
|
|
|
(14 |
) |
|
|
(17 |
) |
|
|
(19 |
) |
As
can be noted from the above table, freezing the plan significantly reduced
pension expense in 2006. The level of expense decreased slightly in
2007 primarily as a result of higher plan assets. The above expense
amounts were charged to the business segments in approximately the following
proportions: Brink’s – 38%, BHS – 4%, Corporate – 2%, former
operations – 56%.
The
amount of cash the Company may have to contribute in the future for the
Company’s primary U.S. pension plan is determined using a different set of
assumptions which are generally more conservative than the market-based
assumptions used under GAAP for financial accounting purposes.
The
Company voluntarily contributed $13 million to the primary U.S. pension plan in
2007. The Company currently projects $18 million of contributions to
be made to the primary U.S. pension plan over the next five years, but this
projection could change. These estimated future contributions are
higher than that projected last year as a result of the impact of the Pension Protection Act of
2006 which increased the minimum funding requirements for plan years
beginning in 2008. Actual investment returns and interest rates are
likely to differ from those assumed at December 31, 2007; this could result in a
change in projected contributions. Voluntary contributions have the
effect of reducing and potentially delaying later required
contributions.
The
pension plan’s benefits will be paid out over an extended period of
time. Accordingly, the Company takes a long-term approach to funding
levels and contribution policies. Historically, long-term returns on
assets invested have significantly exceeded the discount rate for pension
liabilities so it is expected that a portion of the future liability will be
funded by investment returns. On a GAAP basis, the plan was 99.9%
funded at December 31, 2007.
Other Operating Income, Net
Other
operating income, net, is a component of the operating segments’ previously
discussed operating profits.
|
|
Years
Ended December 31,
|
|
|
%
change
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hurricane
Katrina insurance settlement gains
|
|
$ |
3.3 |
|
|
|
- |
|
|
|
- |
|
|
NM
|
|
|
|
- |
|
Share
in earnings of equity affiliates
|
|
|
3.3 |
|
|
|
3.3 |
|
|
|
3.4 |
|
|
|
- |
|
|
|
(3 |
) |
Royalty
income
|
|
|
2.0 |
|
|
|
1.8 |
|
|
|
2.0 |
|
|
|
11 |
|
|
|
(10 |
) |
Gains
on sale of operating assets and mineral rights, net
|
|
|
4.6 |
|
|
|
0.4 |
|
|
|
9.6 |
|
|
200+
|
|
|
|
(96 |
) |
Foreign
currency transaction losses, net
|
|
|
(8.6 |
) |
|
|
(1.0 |
) |
|
|
(3.1 |
) |
|
200+
|
|
|
|
(68 |
) |
Impairment
losses
|
|
|
(2.5 |
) |
|
|
(1.5 |
) |
|
|
(1.3 |
) |
|
|
67 |
|
|
|
15 |
|
Other
|
|
|
2.5 |
|
|
|
2.9 |
|
|
|
4.5 |
|
|
|
(14 |
) |
|
|
(36 |
) |
Total
|
|
$ |
4.6 |
|
|
|
5.9 |
|
|
|
15.1 |
|
|
|
(22 |
) |
|
|
(61 |
) |
Insurance
settlement gains of $3.3 million were recorded in 2007 for final settlement of
property damage and business interruption insurance claims related to Hurricane
Katrina.
Impairment
losses of $2.5 million in 2007 include $2.0 million recorded by Brink’s related
to operations in a European country.
Gains
on sale of operating assets and mineral rights, net in 2005 included
$5.8 million related to a 2003 West Virginia coal asset sale due to the formal
transfer of liabilities in 2005 to the buyer. In addition, a $3.1
million gain on the sale of residual assets and mineral rights related to former
mining operations in Kentucky was recognized in 2005.
Nonoperating
Income and Expense
Interest
Expense
|
|
Years
Ended December 31,
|
|
|
%
change
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$ |
10.9 |
|
|
|
12.1 |
|
|
|
17.5 |
|
|
|
(10 |
) |
|
|
(31 |
) |
Interest
expense in 2007 was lower than in 2006 due to lower average debt
levels.
Interest
expense in 2006 decreased from 2005 levels due to the repayment of the Senior
Notes and other borrowings with a portion of the proceeds from the sale of BAX
Global, resulting in lower average debt levels.
Interest
and Other Income, Net
|
|
Years
Ended December 31,
|
|
|
%
change
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
8.7 |
|
|
|
13.9 |
|
|
|
4.7 |
|
|
|
(37 |
) |
|
|
196 |
|
Dividend
income from real estate investment
|
|
|
0.5 |
|
|
|
5.1 |
|
|
|
4.1 |
|
|
|
(90 |
) |
|
|
24 |
|
Senior
Notes prepayment make-whole amount
|
|
|
- |
|
|
|
(1.6 |
) |
|
|
- |
|
|
|
(100 |
) |
|
NM
|
|
Other,
net
|
|
|
1.3 |
|
|
|
(0.5 |
) |
|
|
0.5 |
|
|
NM
|
|
|
NM
|
|
Total
|
|
$ |
10.5 |
|
|
|
16.9 |
|
|
|
9.3 |
|
|
|
(38 |
) |
|
|
82 |
|
Interest
income was lower in 2007 than in 2006 due to lower average levels of marketable
securities, and interest income was higher in 2006 from 2005 due to the higher
average levels of marketable securities. The increase in marketable
securities in 2006 was the result of investing proceeds acquired with a portion
of the proceeds from the sale of BAX Global. The Company divested
these securities prior to December 31, 2006.
Dividend
income from a real estate investment was lower in 2007 due to lower real estate
activity. The Company does not expect to receive significant
dividends on its real estate investment in 2008.
The
Company made a $1.6 million make-whole payment associated with the prepayment of
the Senior Notes in 2006.
|
|
Provision
(benefit) for income taxes
|
|
|
Effective
tax rate
|
|
Years
Ended December 31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
millions)
|
|
|
(In
percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
102.2 |
|
|
|
82.9 |
|
|
|
49.5 |
|
|
|
37.4 |
% |
|
|
38.7 |
% |
|
|
43.1 |
% |
Discontinued
operations
|
|
|
(1.2 |
) |
|
|
267.2 |
|
|
|
(3.7 |
) |
|
|
9.6 |
% |
|
|
36.0 |
% |
|
|
(4.0 |
)% |
Overview
The
Company’s effective tax rate has varied in the past three years from the
statutory U.S. federal rate due to various factors, including:
|
·
|
changes
in valuation allowances
|
|
·
|
changes
in the geographical mix of earnings
|
|
·
|
timing
of benefit recognition for uncertain tax
positions
|
|
·
|
repatriation
of earnings in 2005
|
|
·
|
the
initial recognition of a net deferred tax benefit in 2005 recorded as a
result of the decision to sell the stock of BAX
Global
|
The
Company establishes or reverses valuation allowances for deferred tax assets
depending on all available information including historical and expected future
operating performance of its subsidiaries. Changes in judgment about
the future realization of deferred tax assets can result in significant
adjustments to the valuation allowances. Based on the Company’s
historical and future expected taxable earnings, management believes it is more
likely than not that the Company will realize the benefit of the deferred tax
assets, net of valuation allowances.
The
Company currently believes its effective income tax rate in 2008 will be
approximately 37% to 39%. The actual 2008 tax rate could be
materially different from the Company’s estimate.
Continuing
Operations
2007
The
effective income tax rate on continuing operations in 2007 was higher than the
35% U.S. statutory tax rate primarily due to a $3.0 million net increase in the
state tax expense and a $6.5 million increase related to a net increase in the
valuation allowance for non-U.S. deferred tax assets.
2006
The
effective income tax rate on continuing operations in 2006 was higher than the
35% U.S. statutory tax rate primarily due to $6.7 million of state income tax
expense and a $4.9 million net increase in the valuation allowance for non-U.S.
deferred tax assets, primarily related to European operations.
2005
The
effective income tax rate on continuing operations in 2005 was higher than the
35% U.S. statutory tax rate primarily as a result of new valuation allowances in
various countries in South America and Europe, the effects of losses in tax
jurisdictions for which the Company does not record a tax benefit for such
losses and $3 million of tax expense related to the repatriation of non-U.S.
earnings. This was partially offset by the favorable resolution of
contingent state income tax matters.
Discontinued
Operations
Discontinued
operations include the tax provision or benefit associated with the Company’s
BAX Global and other former businesses, and the resolution of associated
contingent tax matters.
2007
The income
tax benefit on the pretax loss from discontinued operations in 2007 was
lower than the 35% U.S. statutory tax rate due to tax benefits not
recognized related to losses at Brink’s United Kingdom domestic cash handling
operations.
2006
The
effective tax rate in 2006 approximated the U.S. statutory tax
rate.
2005
The
effective tax rate in 2005 was lower than the U.S. statutory tax rate primarily
as a result of an income tax benefit of $27.4 million recorded upon the
resolution of income tax matters with the Internal Revenue Service related to
the former natural resource business. In addition, the Company
recognized a $7.0 million net deferred tax benefit for the excess of the tax
basis over the carrying value of the Company’s investment in BAX Global as a
result of the Company’s decision to sell BAX Global’s stock.
Other
As
of December 31, 2007, the Company has not recorded U.S. federal deferred income
taxes on the majority of the undistributed earnings of foreign
subsidiaries in accordance with Accounting Principles Board Opinion 23,
Accounting for Income Taxes –
Special Areas, as amended. It is expected that these earnings
will be permanently reinvested in operations outside the U.S. It is
not practical to compute the estimated deferred tax liability on these
earnings.
|
|
Years
Ended December 31,
|
|
|
%
change
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
$ |
22.8 |
|
|
|
18.3 |
|
|
|
14.3 |
|
|
|
25 |
|
|
|
28 |
|
The
increase in minority interest in the last two years is primarily due to
increases in the earnings of Brink’s Venezuelan and Colombian subsidiaries,
which are not wholly owned.
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
United Kingdom domestic cash handling operations:
|
|
|
|
|
|
|
|
|
|
Gain on sale
|
|
$ |
1.5 |
|
|
|
- |
|
|
|
- |
|
Results from operations
(a)
|
|
|
(13.9 |
) |
|
|
(10.0 |
) |
|
|
(8.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
BAX
Global:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale
|
|
|
- |
|
|
|
586.7 |
|
|
|
(2.8 |
) |
Results from operations
(b)
|
|
|
- |
|
|
|
7.0 |
|
|
|
86.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to contingent liabilities and assets of former operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Benefit Act
liabilities
|
|
|
1.7 |
|
|
|
148.3 |
|
|
|
2.3 |
|
Withdrawal
liabilities
|
|
|
- |
|
|
|
9.9 |
|
|
|
6.1 |
|
Litigation settlement
gain
|
|
|
- |
|
|
|
- |
|
|
|
15.1 |
|
Reclamation
liabilities
|
|
|
(1.7 |
) |
|
|
0.6 |
|
|
|
(6.2 |
) |
Workers’ compensation
liabilities
|
|
|
(1.8 |
) |
|
|
(0.4 |
) |
|
|
0.4 |
|
Other
|
|
|
1.7 |
|
|
|
(0.8 |
) |
|
|
0.1 |
|
Income
(loss) from discontinued operations before income taxes
|
|
|
(12.5 |
) |
|
|
741.3 |
|
|
|
93.1 |
|
Income
tax (expense) benefit
|
|
|
1.2 |
|
|
|
(267.2 |
) |
|
|
3.7 |
|
Income
(loss) from discontinued operations
|
|
$ |
(11.3 |
) |
|
|
474.1 |
|
|
|
96.8 |
|
(a)
|
Revenues
of Brink’s United Kingdom domestic cash handling operations were $28.9
million in 2007 (partial year), $44.3 million in 2006 and $43.6 million in
2005.
|
(b)
|
Revenues
of BAX Global were $230.0 million in 2006 (partial year) and $2,899.4
million in 2005. In accordance with SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, BAX Global ceased depreciating
and amortizing long-lived assets after November 2005, the date that BAX
Global was classified as held for sale. Had BAX Global not
ceased depreciation and amortization, its pretax income would have been
$3.3 million lower in 2006 and $4.9 million lower in
2005.
|
Brink’s
United Kingdom Domestic Cash Handling Operations
During
2007, the Company sold Brink’s United Kingdom domestic cash handling operations
for $2.2 million in cash and recognized a $1.5 million gain on the
sale. The Company expects to recognize up to $1.4 million of
additional income in discontinued operations during future periods as the
assumption of remaining contractual obligations by the buyer is
completed. These operations recorded a $7.5 million impairment charge
in 2007, primarily related to writing down leasehold improvements and vehicles
to estimated fair value due to the loss of customers. These operations have been
reported as discontinued operations for all periods presented.
BAX
Global
On
January 31, 2006, the Company sold BAX Global, a wholly owned freight
transportation subsidiary, for approximately $1 billion in cash, resulting in a
pretax gain of approximately $587 million ($375 million after tax). The operating results of
BAX Global’s operations through the date of sale have been classified as
discontinued operations. See note 17 to the consolidated financial
statements.
Adjustments
to Contingent Assets and Liabilities of Former Operations
Health Benefit Act
Liabilities. The Company’s obligations under the Health
Benefit Act, as described in note 1 to the consolidated financial statements,
was reduced by $148.3 million in 2006, primarily due to the 2006
Act. The law significantly reduced the Company’s future estimated
payments to the Combined Fund.
Withdrawal
Liabilities. The Company withdrew from the UMWA 1950 and 1974
pension plans in June 2005 as the last employees working under UMWA labor
agreements left the Company. As a result of the withdrawal from these
coal-related plans, the Company settled its liabilities and made final payments
to the plans amounting to $20.4 million in July 2006. A pretax
benefit of $9.9 million related to this settlement was recorded in
2006.
Prior
to the 2006 settlement payment, the Company estimated the obligation based on
the funded status of the multi-employer plans at the most recent measurement
date. The change in the Company’s liability in 2005 was due to
changes in the UMWA plans’ unfunded liabilities.
Federal Black Lung Excise
Tax. In
1999, the U.S. District Court of the Eastern District of Virginia entered a
final judgment in favor of the Company, ruling that the Federal Black Lung
Excise Tax (“FBLET”) is unconstitutional as applied to export coal
sales. In December 2005, the Company reached a final settlement
agreement related to all claims for FBLET refunds and recorded a pretax gain of
$15.1 million.
Other. The Company
recorded expenses of $1.7 million in 2007 and $6.2 million in 2005 to reflect an
increase in the estimated cost of reclamation at its former coal
mines. Income of $0.6 million was recorded during 2006 to reflect a
decrease in estimated costs. The estimate of the cost of reclamation
may change in the future.
The
Company operates in approximately 50 countries outside the U.S., each with a
local currency other than the U.S. dollar. Because the financial results of the
Company are reported in U.S. dollars, they are affected by changes in the value
of various foreign currencies in relation to the U.S. dollar. Changes in
exchange rates may also affect transactions which are denominated in currencies
other than the functional currency. The diversity of foreign operations helps to
mitigate a portion of the impact that foreign currency fluctuations in any one
country may have on the translated results.
The
Company, from time to time, uses foreign currency forward contracts to hedge
transactional risks associated with foreign currencies, as discussed in Item 7A
below.
Brink’s
Venezuelan subsidiaries (“Brink’s Venezuela”) were considered to be operating in
a highly inflationary economy in 2002. Since
then, Venezuela’s economy has not been considered to be highly
inflationary. It is possible that Venezuela’s economy may be
considered highly inflationary again at some time in the future.
The
Company is exposed to certain risks when it operates in highly inflationary
economies, including the risk that
|
·
|
the
rate of price increases for services will not keep pace with cost
inflation
|
|
·
|
adverse
economic conditions in the highly inflationary country may discourage
business growth which could affect demand for the Company’s
services
|
|
·
|
the
devaluation of the currency may exceed the rate of inflation and reported
U.S. dollar revenues and profits may
decline
|
Brink’s
Venezuela is also subject to local laws and regulatory interpretations that
determine the exchange rate at which repatriating dividends may be
converted. It is possible that Brink’s Venezuela may be subject to
less favorable exchange rates on dividend remittances in the
future. The Company’s reported U.S. dollar revenues, earnings and
equity would be adversely affected if revenues and operating profits of Brink’s
Venezuela were to be reported using a less favorable currency exchange
rate.
The
Company is also subject to other risks customarily associated with doing
business in foreign countries, including labor and economic conditions,
political instability, controls on repatriation of earnings and capital,
nationalization, expropriation and other forms of restrictive action by local
governments. The future effects, if any, of these risks on the Company cannot be
predicted.
LIQUIDITY
AND CAPITAL RESOURCES
Over
the last three years, the Company has used the cash generated from operations
and the divestiture of BAX Global and other noncore businesses to repurchase
shares and strengthen its balance sheet by reducing debt and making
contributions to the VEBA. Cash flows in the last three years also
included significant cash payments associated with retained liabilities of the
former coal operations.
The
sale of BAX Global in January 2006 provided the Company with cash of
approximately $1 billion. In 2006, with the proceeds, the
Company:
|
·
|
repurchased
approximately 12.2 million shares of the Company’s common stock for
approximately $631 million
|
|
·
|
contributed
$225 million to a Voluntary Employees’ Beneficiary Association trust
(“VEBA”) designated to pay retiree medical obligations to former coal
operations employees
|
|
·
|
paid
$60 million to settle outstanding Senior
Notes
|
|
·
|
significantly
reduced other debt
|
|
·
|
paid
$67 million of its 2006 U.S. income tax
liability
|
|
·
|
paid
$20.4 million to settle obligations related to the withdrawal from two
multi-employer pension plans of the former coal
operations
|
Summary
Cash Flow Information
|
|
Years
Ended December 31,
|
|
|
$
change
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before contributions to VEBA and
primary U.S. pension plan
|
|
$ |
470.5 |
|
|
|
262.7 |
|
|
|
264.7 |
|
|
$ |
207.8 |
|
|
|
(2.0 |
) |
Contributions to VEBA and primary
U.S. pension plan
|
|
|
(13.0 |
) |
|
|
(225.0 |
) |
|
|
- |
|
|
|
212.0 |
|
|
|
(225.0 |
) |
Subtotal
|
|
|
457.5 |
|
|
|
37.7 |
|
|
|
264.7 |
|
|
|
419.8 |
|
|
|
(227.0 |
) |
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s United Kingdom domestic
cash handling operations
|
|
|
(3.5 |
) |
|
|
(5.5 |
) |
|
|
(4.9 |
) |
|
|
2.0 |
|
|
|
(0.6 |
) |
BAX Global
|
|
|
- |
|
|
|
5.8 |
|
|
|
54.2 |
|
|
|
(5.8 |
) |
|
|
(48.4 |
) |
Federal Black Lung Excise Tax
refunds
|
|
|
- |
|
|
|
15.1 |
|
|
|
- |
|
|
|
(15.1 |
) |
|
|
15.1 |
|
Settlement of pension plan
withdrawal liabilities
|
|
|
- |
|
|
|
(20.4 |
) |
|
|
- |
|
|
|
20.4 |
|
|
|
(20.4 |
) |
Other
|
|
|
(0.3 |
) |
|
|
(0.4 |
) |
|
|
- |
|
|
|
0.1 |
|
|
|
(0.4 |
) |
Operating
activities
|
|
|
453.7 |
|
|
|
32.3 |
|
|
|
314.0 |
|
|
|
421.4 |
|
|
|
(281.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(319.6 |
) |
|
|
(277.7 |
) |
|
|
(270.0 |
) |
|
|
(41.9 |
) |
|
|
(7.7 |
) |
Net proceeds from disposal
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s United Kingdom domestic
cash handling operations
|
|
|
2.2 |
|
|
|
- |
|
|
|
- |
|
|
|
2.2 |
|
|
|
- |
|
BAX Global (a)
|
|
|
- |
|
|
|
1,010.5 |
|
|
|
- |
|
|
|
(1,010.5 |
) |
|
|
1,010.5 |
|
Natural resource
interests
|
|
|
- |
|
|
|
- |
|
|
|
5.0 |
|
|
|
- |
|
|
|
(5.0 |
) |
Acquisitions
|
|
|
(13.4 |
) |
|
|
(14.4 |
) |
|
|
(53.2 |
) |
|
|
1.0 |
|
|
|
38.8 |
|
Purchases of marketable
securities, net
|
|
|
(0.5 |
) |
|
|
(9.6 |
) |
|
|
(6.0 |
) |
|
|
9.1 |
|
|
|
(3.6 |
) |
Other
|
|
|
13.5 |
|
|
|
5.6 |
|
|
|
3.4 |
|
|
|
7.9 |
|
|
|
2.2 |
|
Subtotal
|
|
|
(317.8 |
) |
|
|
714.4 |
|
|
|
(320.8 |
) |
|
|
(1,032.2 |
) |
|
|
1,035.2 |
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s United Kingdom domestic
cash handling operations
|
|
|
0.3 |
|
|
|
(1.5 |
) |
|
|
(1.6 |
) |
|
|
1.8 |
|
|
|
0.1 |
|
BAX Global
|
|
|
- |
|
|
|
(5.2 |
) |
|
|
(72.8 |
) |
|
|
5.2 |
|
|
|
67.6 |
|
Investing
activities
|
|
|
(317.5 |
) |
|
|
707.7 |
|
|
|
(395.2 |
) |
|
|
(1,025.2 |
) |
|
|
1,102.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows before financing activities
|
|
$ |
136.2 |
|
|
|
740.0 |
|
|
|
(81.2 |
) |
|
$ |
(603.8 |
) |
|
|
821.2 |
|
(a)
|
Net
of $90.3 million of cash held by BAX Global at the date of
sale.
|
2007
Operating
cash flow from continuing operations increased by $419.8 million in 2007
compared to 2006 primarily due to the $225 million contribution to the VEBA in
2006, partially offset by a $13 million contribution in 2007 to the primary U.S.
pension plan. This $212 million decrease in cash outflow for 2007 was
augmented by higher operating profit, lower working capital usage and lower cash
paid for income taxes. Also, beginning in 2007, the Company did not
use its cash to pay for coal-related retiree benefits. These amounts
were instead paid by the VEBA. This improved cash flows from
operations in 2007 compared to 2006, which included $38 million of direct
benefit payments to retirees.
2006
Operating
cash flows from continuing operations decreased by $227.0 million in 2006
compared to 2005 primarily due to a $225 million contribution to the VEBA made
in 2006. In addition, higher cash flows from operating
activities from Brink’s were partially offset by higher U.S. federal tax
payments related to the sale of BAX Global. Operating cash flows from
discontinued operations in 2006 includes $15.1 million of FBLET refunds, as well
as payments of $20.4 million in 2006 to settle the Company’s withdrawal
liabilities related to multi-employer pension plans.
Continuing
Operations
Investing
cash flows decreased by $1.0 billion in 2007 compared to 2006 primarily as the
result of the receipt of approximately $1 billion from the sale of BAX Global in
2006. Cash from investing activities in 2007 included $41.9
million of higher capital expenditures compared to 2006.
Capital
Expenditures
|
|
Years
Ended December 31,
|
|
|
$
change
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
141.6 |
|
|
|
113.5 |
|
|
|
107.3 |
|
|
$ |
28.1 |
|
|
|
6.2 |
|
BHS
|
|
|
177.8 |
|
|
|
163.9 |
|
|
|
162.2 |
|
|
|
13.9 |
|
|
|
1.7 |
|
Corporate
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
(0.1 |
) |
|
|
(0.2 |
) |
Capital
expenditures
|
|
$ |
319.6 |
|
|
|
277.7 |
|
|
|
270.0 |
|
|
$ |
41.9 |
|
|
|
7.7 |
|
Capital
expenditures in 2007 were $41.9 million higher than in 2006. Brink’s
capital expenditures were primarily for new facilities, cash processing and
security equipment, armored vehicles, and information technology. BHS
capital expenditures were higher in 2007 as the result of the addition of more
new subscribers than in the prior year.
Capital
expenditures in 2008 are currently expected to range from $185 million to $195
million at BHS, reflecting an increase in customer
installations. Expected capital expenditures for 2008 at Brink’s
range from $155 million to $165 million, reflecting higher spending on branches,
vehicles and safes.
Proceeds
from Dispositions
Cash
flows from investing activities in 2007 included $2.2 million of cash proceeds
related to the disposition of Brink’s United Kingdom domestic cash handling
operations.
Cash
flows from investing activities included cash proceeds of approximately $1
billion in 2006 from the sale of BAX Global. Sales of natural
resource businesses provided cash of $5.0 million in 2005.
Acquisitions
As
previously described, Brink’s made a number of acquisitions in the last three
years including several operations in Europe. Cash paid for
acquisitions totaled $13.4 million in 2007, $14.4 million in 2006 and $53.2
million in 2005.
Discontinued
Operations
Cash
used for investing activities for discontinued operations increased by $7.0
million in 2007 from 2006 primarily as a result of the sale of BAX Global in
January 2006. Cash used for investing activities for discontinued
operations was lower in 2006 compared to 2005 because capital expenditures at
BAX Global were included in the Company’s consolidated cash flow for only one
month in 2006.
Business
Segment Cash Flows
The
Company’s cash flows before financing activities for each of the operating
segments are presented below.
|
|
Years
Ended December 31,
|
|
|
$
change
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows before financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
113.9 |
|
|
|
77.8 |
|
|
|
(5.0 |
) |
|
$ |
36.1 |
|
|
|
82.8 |
|
BHS
|
|
|
18.6 |
|
|
|
11.7 |
|
|
|
14.6 |
|
|
|
6.9 |
|
|
|
(2.9 |
) |
Subtotal of business
segments
|
|
|
132.5 |
|
|
|
89.5 |
|
|
|
9.6 |
|
|
|
43.0 |
|
|
|
79.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and former
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from disposal
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BAX Global (a)
|
|
|
- |
|
|
|
1,010.5 |
|
|
|
- |
|
|
|
(1,010.5 |
) |
|
|
1,010.5 |
|
Natural resource
interests
|
|
|
- |
|
|
|
- |
|
|
|
5.0 |
|
|
|
- |
|
|
|
(5.0 |
) |
Contributions to VEBA and primary
U.S. pension plan
|
|
|
(13.0 |
) |
|
|
(225.0 |
) |
|
|
- |
|
|
|
212.0 |
|
|
|
(225.0 |
) |
Purchases of marketable
securities, net
|
|
|
(0.5 |
) |
|
|
(9.6 |
) |
|
|
(6.0 |
) |
|
|
9.1 |
|
|
|
(3.6 |
) |
Other
|
|
|
20.7 |
|
|
|
(113.3 |
) |
|
|
(64.7 |
) |
|
|
134.0 |
|
|
|
(48.6 |
) |
Subtotal of continuing
operations
|
|
|
139.7 |
|
|
|
752.1 |
|
|
|
(56.1 |
) |
|
|
(612.4 |
) |
|
|
808.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s United Kingdom domestic
cash handling operations
|
|
|
(3.2 |
) |
|
|
(7.0 |
) |
|
|
(6.5 |
) |
|
|
3.8 |
|
|
|
(0.5 |
) |
BAX Global
|
|
|
- |
|
|
|
0.6 |
|
|
|
(18.6 |
) |
|
|
(0.6 |
) |
|
|
19.2 |
|
Federal Black Lung Excise Tax
refunds
|
|
|
- |
|
|
|
15.1 |
|
|
|
- |
|
|
|
(15.1 |
) |
|
|
15.1 |
|
Settlement of pension plan
withdrawal liabilities
|
|
|
- |
|
|
|
(20.4 |
) |
|
|
- |
|
|
|
20.4 |
|
|
|
(20.4 |
) |
Other
|
|
|
(0.3 |
) |
|
|
(0.4 |
) |
|
|
- |
|
|
|
0.1 |
|
|
|
(0.4 |
) |
Cash
flows before financing activities
|
|
$ |
136.2 |
|
|
|
740.0 |
|
|
|
(81.2 |
) |
|
$ |
(603.8 |
) |
|
|
821.2 |
|
(a)
|
Net
of $90.3 million of cash held by BAX Global at the date of
sale.
|
Overview
Cash
flows before financing activities from the Company’s business segments totaled
$231.6 million over the last three years. The sale of BAX Global in
2006 for approximately $1 billion also contributed significantly to that year’s
cash flows before financing activities. Using this cash, the Company
made a $225 million voluntary contribution to its VEBA. Cash flows
before financing activities in 2006 and 2005 also included significant annual
cash payments associated with retained liabilities of the former coal
operations.
Brink’s
Cash
flows before financing activities increased $36.1 million in 2007 over 2006
primarily due to higher operating profit. This increase was partially
offset by higher capital expenditures.
Cash
flows before financing activities at Brink’s increased by $82.8 million in 2006
due to a higher operating profit in 2006 and a $38.8 million decrease in cash
used for acquisitions.
BHS
The
$6.9 million year-over-year increase in cash flows before financing activities
at BHS in 2007 is primarily due to higher cash flows from operations as a result
of higher operating profit and lower growth in new installations, partially
offset by higher capital expenditures.
The
$2.9 million decrease in BHS’ cash flows before financing activities in 2006 is
primarily due to a higher income tax rate, partially offset by higher
earnings.
Corporate
and Former Operations
Other
cash flows related to corporate and former operations improved in 2007 as a
result of a decision to pay a majority of postretirement medical benefits using
assets held by the VEBA beginning January 1, 2007, instead of using corporate
cash. The Company paid $38 million in 2006 and $36 million in 2005
from corporate cash for coal-related medical plan benefits for
retirees. In addition, federal U.S. tax payments were $60 million
lower in 2007 compared to 2006. The Company paid $67 million in 2006
of estimated U.S. income tax liability, principally as a result of the large
gain on the sale of BAX Global. The Company did not pay U.S. federal
income taxes in 2005.
The
Company received approximately $1 billion in net proceeds for the sale of BAX
Global during 2006. The Company immediately contributed $225 million
to the VEBA.
The
Company received $5.0 million in total net proceeds during 2005 from the sale of
substantially all of its remaining natural resource interests.
Discontinued
Operations
Cash
flows before financing activities from discontinued operations in 2006 included
only one month of operations for BAX Global compared to a full year in
2005. Additionally in 2006, the Company received $15.1 million in
FBLET refunds and paid $20.4 million to settle two multi-employer pension plan
withdrawal liabilities.
Summary
of Financing Activities
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
borrowings (repayments) of debt:
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$ |
(23.2 |
) |
|
|
5.6 |
|
|
|
11.3 |
|
Revolving Facility
|
|
|
(33.5 |
) |
|
|
(68.3 |
) |
|
|
99.4 |
|
Senior Notes
|
|
|
- |
|
|
|
(76.7 |
) |
|
|
(18.3 |
) |
Other
|
|
|
(5.2 |
) |
|
|
(9.4 |
) |
|
|
(14.9 |
) |
Net borrowings (repayments) of
debt
|
|
|
(61.9 |
) |
|
|
(148.8 |
) |
|
|
77.5 |
|
Repurchase
of common stock of the Company
|
|
|
(2.7 |
) |
|
|
(630.9 |
) |
|
|
- |
|
Dividends
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders of the
Company
|
|
|
(16.5 |
) |
|
|
(10.1 |
) |
|
|
(5.5 |
) |
Minority interests in
subsidiaries
|
|
|
(7.2 |
) |
|
|
(9.0 |
) |
|
|
(6.7 |
) |
Proceeds
from exercise of stock options and other
|
|
|
18.0 |
|
|
|
21.0 |
|
|
|
26.9 |
|
Discontinued
operations, net
|
|
|
(14.8 |
) |
|
|
(5.2 |
) |
|
|
1.4 |
|
Cash flows from financing
activities
|
|
$ |
(85.1 |
) |
|
|
(783.0 |
) |
|
|
93.6 |
|
During
2007, the Company purchased 60,500 shares of its common stock at an average
cost of $60.30. The purchases were settled in 2007 ($2.7 million) and
in January 2008 ($0.9 million). During 2006, the Company used $630.9
million to purchase 12.2 million shares of its common stock, at an average cost
of $51.80 per share. These shares include 10.4 million shares
purchased at $51.20 per share in a $530 million Dutch auction self-tender offer
on April 11, 2006.
The
Company made scheduled payments of $18.3 million in 2006 and 2005 related to its
Senior Notes. On March 31, 2006, the Company prepaid the outstanding
$58.4 million balance of its Senior Notes and made a make-whole payment of $1.6
million. The Senior Notes were terminated upon
prepayment. In addition, the Company significantly reduced
other debt during 2006.
The
Company’s operating liquidity needs are typically financed by short-term debt
and the Revolving Facility, described below.
Dividends
Quarterly
Dividends Paid
|
|
Quarter
|
|
|
|
|
(In
cents per share)
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2.50 |
|
|
|
2.50 |
|
|
|
2.50 |
|
|
|
2.50 |
|
|
|
10.00 |
|
2006
|
|
|
2.50 |
|
|
|
6.25 |
(a) |
|
|
6.25 |
|
|
|
6.25 |
|
|
|
21.25 |
|
2007
|
|
|
6.25 |
|
|
|
10.00 |
(b) |
|
|
10.00 |
|
|
|
10.00 |
|
|
|
36.25 |
|
(a)
|
The
dividend was increased to an annual rate of 25 cents per share beginning
with the dividend paid in the second quarter of
2006.
|
(b)
|
The
dividend was increased to an annual rate of 40 cents per share beginning
with the dividend paid in the second quarter of
2007.
|
On January 25, 2008, the board declared
a regular quarterly dividend of 10 cents per share payable on March 3,
2008. Future dividends are dependent on the earnings, financial
condition, cash flow and business requirements of the Company, as determined by
the board of directors. At December 31, 2007, approximately $120
million of shareholders’ equity was not available for dividends to shareholders
due to limitations imposed by the Company’s Revolving Facility and other lending
arrangements (see note 12 to the consolidated financial
statements).
The
Company uses a combination of debt, leases and equity to capitalize its
operations. As of December 31, 2007, debt as a percentage of
capitalization (defined as total debt and shareholders’ equity) was 10% compared
to 18% at December 31, 2006. The decrease resulted from the reduction
in debt of $57.6 million combined with an increase in equity of $292.5
million. Equity increased in 2007 primarily as a result of the
generation of $148.6 million in income from continuing operations and $130.9
million of other comprehensive income.
Summary
of Debt, Equity and Other Liquidity Information
|
|
Amount
available
|
|
|
|
|
|
|
|
|
|
under
credit facilities
|
|
|
Outstanding
Balance
|
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
(In
millions)
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
$
change (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-currency revolving
facilities
|
|
$ |
66 |
|
|
$ |
4.6 |
|
|
|
27.4 |
|
|
$ |
(22.8 |
) |
Revolving
Facility
|
|
|
381 |
|
|
|
19.0 |
|
|
|
52.1 |
|
|
|
(33.1 |
) |
Letter of Credit
Facility
|
|
|
14 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Dominion Terminal Associates
bonds
|
|
|
- |
|
|
|
43.2 |
|
|
|
43.2 |
|
|
|
- |
|
Other
|
|
|
- |
|
|
|
45.8 |
|
|
|
47.5 |
|
|
|
(1.7 |
) |
Debt
|
|
$ |
461 |
|
|
$ |
112.6 |
|
|
|
170.2 |
|
|
$ |
(57.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
$ |
1,046.3 |
|
|
|
753.8 |
|
|
$ |
292.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Liquidity Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
|
|
|
$ |
196.4 |
|
|
|
137.2 |
|
|
$ |
59.2 |
|
Net Debt (Cash)
(b)
|
|
|
|
|
|
|
(83.8 |
) |
|
|
33.0 |
|
|
|
(116.8 |
) |
(a)
|
In
addition to cash borrowings and repayments, the change in the debt balance
also includes changes in currency exchange rates and new capital lease
agreements.
|
(b)
|
See
reconciliation of Non-GAAP measure
below.
|
Reconciliation
of Net Debt (Cash) to GAAP Measures
|
|
December
31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$ |
12.4 |
|
|
|
33.4 |
|
Long-term
debt
|
|
|
100.2 |
|
|
|
136.8 |
|
Debt
|
|
|
112.6 |
|
|
|
170.2 |
|
Less
cash and cash equivalents
|
|
|
(196.4 |
) |
|
|
(137.2 |
) |
Net
Debt (Cash) (a)
|
|
|
(83.8 |
) |
|
|
33.0 |
|
(a)
|
Net
Debt (Cash) is a non-GAAP measure. Net Debt (Cash) is equal to
short-term debt plus the current and noncurrent portion of long-term debt
(“Debt” in the tables), less cash and cash
equivalents.
|
The
supplemental Net Debt (Cash) information is non-GAAP financial information that
management believes is an important measure to evaluate the Company’s financial
leverage. This supplemental non-GAAP information should be reviewed
in conjunction with the Company’s consolidated balance sheets. The
Company’s Net Debt (Cash) position at December 31, 2007, as compared to December
31, 2006, improved primarily due to cash generated from operating
activities.
Debt
The
Company has an unsecured $400 million revolving bank credit facility (the
“Revolving Facility”) with a syndicate of banks. The Revolving
Facility’s interest rate is based on LIBOR plus a margin, prime rate, or
competitive bid. The Revolving Facility allows the Company to borrow
(or otherwise satisfy credit needs) on a revolving basis over a five-year term
ending August 2011. As of December 31, 2007, $381.0 million was
available under the Revolving Facility.
The
Company has an unsecured $150 million credit facility with a bank to provide
letters of credit and other borrowing capacity over a five-year term ending in
December 2009 (the “Letter of Credit Facility”). As of December 31,
2007, $13.6 million was available for use under this revolving credit
facility. The Revolving Facility and the multi-currency revolving
credit facilities described below are also used for the issuance of letters of
credit and bank guarantees.
The
Company has three unsecured multi-currency revolving bank credit facilities
totaling $93.8 million at December 31, 2007, of which $66.1 million was
unused. In February 2008, the €30 million multi-currency facility
expired and was not renewed. When rates are favorable, the Company
also borrows from other banks under short-term uncommitted
agreements. Various foreign subsidiaries maintain other secured and
unsecured lines of credit and overdraft facilities with a number of
banks.
The
Company’s Brink’s and BHS subsidiaries have guaranteed the Revolving Facility
and the Letter of Credit Facility. The Revolving Facility, the Letter
of Credit Facility and the multi-currency revolving bank credit facilities
contain various financial and other covenants. The financial
covenants, among other things, limit the Company’s total indebtedness, limit
asset sales, limit the use of proceeds on asset sales, and provide for
minimum coverage of interest costs. The credit agreements do not
provide for the acceleration of payments should the Company's credit rating be
reduced. If the Company were not to comply with the terms of its
various loan agreements, the repayment terms could be accelerated and the
commitments could be withdrawn. An acceleration of the repayment
terms under one agreement could trigger the acceleration of the repayment terms
under the other loan agreements. The Company was in compliance with
all financial covenants at December 31, 2007.
The
Company has guaranteed $43.2 million of bonds issued by the Peninsula
Ports Authority of Virginia. The guarantee originated as part of the
Company’s former interest in Dominion Terminal Associates, a deep water coal
terminal. The Company continues to pay interest on and guarantee payment of the
$43.2 million principal amount and ultimately will have to pay for the
retirement of the bonds in accordance with the terms of the
guarantee. The bonds bear a fixed interest rate of 6.0% and mature in
2033. The bonds may mature prior to 2033 upon the occurrence of
specified events such as the determination that the bonds are taxable or the
failure of the Company to abide by the terms of its guarantee.
The
Company believes it has adequate sources of liquidity to meet its near-term
requirements.
Equity
At
December 31, 2007, the Company had 100 million shares of common stock authorized
and 48.4 million shares issued and outstanding. As further discussed
below, between April 11, 2006 and February 22, 2008, the Company purchased
approximately 12.4 million shares of its common stock for $645.8
million. The shares purchased represented 21% of the 58.7 million
shares outstanding on December 31, 2005. Shares held by The
Brink’s Company Employee Benefits Trust (the “Employee Benefits Trust”) that
have not been allocated to participants under various benefit plans (1.7 million
at December 31, 2007) are excluded from earnings per share calculations since
they are treated as treasury shares for the calculation of earnings per
share.
Dutch
Auction
On
March 8, 2006, the Company’s board of directors authorized a “Dutch auction”
self-tender offer to purchase up to 10 million shares of the Company’s common
stock. Under certain circumstances up to an additional 2% of the
outstanding common stock was authorized to be purchased in the tender
offer. The tender offer began on March 9, 2006, and expired on April
6, 2006, and was subject to the terms and conditions described in the offering
materials mailed to the Company’s shareholders and filed with the Securities and
Exchange Commission. On April 11, 2006, the Company purchased
10,355,263 shares in the tender offer at $51.20 per share for a total of
approximately $530.2 million in cash. The Company incurred $0.7
million in costs associated with the purchase.
Share
Purchase Programs
2006
Program. Following the self-tender offer, the board authorized
additional Company common stock purchases of up to $100 million from time to
time as market conditions warranted and as covenants under existing agreements
permitted (the “2006 Program”). The 2006 Program did not require any
specific number of shares be purchased. Under the 2006 Program, the
Company used $100 million to purchase 1,823,118 shares of common stock between
May 22 and October 5, 2006, at an average price of $54.85 per
share. The Company has no remaining authority under the 2006
Program.
2007 Program. On
September 14, 2007, the Company’s board of directors authorized the purchase of
up to $100 million of the Company’s outstanding common shares (the “2007
Program”). The repurchase authorization does not have an expiration
date and potential share repurchases will depend on a variety of
factors. Under the 2007 Program, the Company used $3.6 million to
purchase 60,500 shares of common stock between December 5, 2007, and December
31, 2007, at an average price of $60.30 per share. As of December 31,
2007, the Company had $96.4 million under the 2007 Program available to purchase
shares. In 2008, through February 22, 2008, another 206,800 shares
were purchased for $11.2 million at an average cost of $54.39 per
share.
Preferred
Stock
At
December 31, 2007, the Company has the authority to issue up to 2.0 million
shares of preferred stock, par value $10 per share.
Series
A Preferred Stock Rights Agreement
On
September 25, 2007, the “Expiration Date” occurred under the Amended and
Restated Rights Agreement, dated as of September 1, 2003, between the Company
and American Stock Transfer & Trust Company (successor to Equiserve Trust
Company, N.A.), as amended by Amendment No. 1 thereto, dated September 25, 2006,
between the Company and American Stock Transfer & Trust Company (the “Rights
Agreement”). As a result, the Rights Agreement and the rights issued
thereunder expired by their own terms and each share of common stock, par value
$1.00 per share, of the Company no longer is accompanied by a right to purchase,
under certain circumstances, one one-thousandth of a share of Series A
Participating Cumulative Preferred Stock of the Company. Prior to
expiration, the Rights Agreement gave holders of common stock the right to
purchase Series A Participating Cumulative Preferred Stock if, among other
things, a third-party accumulated more than 15% of the voting rights of all
outstanding common stock.
Off
Balance Sheet Arrangements
The
Company has operating leases that are described in the notes to the consolidated
financial statements. See note 14 for operating leases that have
residual value guarantees or other terms that cause the agreement to be
considered a variable interest. The Company uses operating leases to
lower its cost of financings. The Company believes operating leases
are an important component of its capital structure.
The
following table reflects the contractual obligations of the Company as of
December 31, 2007.
|
|
Estimated
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Later
|
|
|
|
|
(In
millions)
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
obligations
|
|
$ |
3.4 |
|
|
|
2.1 |
|
|
|
2.1 |
|
|
|
23.7 |
|
|
|
1.8 |
|
|
|
45.6 |
|
|
|
78.7 |
|
Capital lease
obligations
|
|
|
7.6 |
|
|
|
6.9 |
|
|
|
4.2 |
|
|
|
1.3 |
|
|
|
0.4 |
|
|
|
1.1 |
|
|
|
21.5 |
|
Operating lease
obligations
|
|
|
88.7 |
|
|
|
68.0 |
|
|
|
51.0 |
|
|
|
34.1 |
|
|
|
25.7 |
|
|
|
66.2 |
|
|
|
333.7 |
|
Purchase
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service contracts
|
|
|
11.2 |
|
|
|
9.8 |
|
|
|
9.7 |
|
|
|
9.2 |
|
|
|
0.7 |
|
|
|
1.3 |
|
|
|
41.9 |
|
Other
|
|
|
11.7 |
|
|
|
0.5 |
|
|
|
0.1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
12.3 |
|
Other long-term liabilities
reflected on the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company’s balance sheet under
GAAP -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
non-coal related workers
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other claims
|
|
|
24.0 |
|
|
|
14.3 |
|
|
|
6.0 |
|
|
|
3.3 |
|
|
|
2.5 |
|
|
|
15.1 |
|
|
|
65.2 |
|
Uncertain tax positions
(b)
|
|
|
10.8 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10.8 |
|
Subtotal
|
|
|
157.4 |
|
|
|
101.6 |
|
|
|
73.1 |
|
|
|
71.6 |
|
|
|
31.1 |
|
|
|
129.3 |
|
|
|
564.1 |
|
Legacy liabilities
(a)
|
|
|
10.0 |
|
|
|
8.0 |
|
|
|
7.0 |
|
|
|
6.0 |
|
|
|
4.0 |
|
|
|
135.7 |
|
|
|
170.7 |
|
Total
|
|
$ |
167.4 |
|
|
|
109.6 |
|
|
|
80.1 |
|
|
|
77.6 |
|
|
|
35.1 |
|
|
|
265.0 |
|
|
|
734.8 |
|
(a)
|
The
projected payments for liabilities related to former operations (legacy
liabilities) are discussed in “Results of Operations – Retained
Liabilities and Assets of Former Operations.” The Company began
using the assets of the VEBA to fund benefit payments in
2007. As a result, the contractual obligations table above does
not include any cash outflows the Company expects to be paid by the
VEBA. The Company estimates the following cash payments using
VEBA assets for the next 5 years: $40 million in 2008, $43 million in
2009, $44 million in 2010, $45 million in 2011 and $46 million in
2012. The Company may elect at any time to use either these
assets or its corporate cash to pay benefits for its retiree medical
plans. Estimated payments above exclude administration and
other costs.
|
(b)
|
The
Company has accrued for uncertain tax positions, pursuant to FASB
Interpretation 48, Accounting for Uncertainty in
Income Taxes – an interpretation of SFAS 109, in the amount of
$25.5 million in 2007. Included in the total is $10.8 million
expected to be settled within one year. The expected timing of
the cash settlement for the remaining $14.7 million is currently not
reasonably estimable.
|
Surety
Bonds and Letters of Credit
The
Company is required by various state and federal laws to provide security with
regard to its obligations to pay workers’ compensation benefits, reclaim lands
used for mining by the Company’s former coal operations and satisfy other
obligations. As of December 31, 2007, the Company had outstanding
surety bonds with third parties totaling approximately $40.7 million that it has
arranged in order to satisfy various security requirements. Most of
these bonds provide financial security for obligations which have already been
recorded as liabilities. Surety bonds are typically renewable on a
yearly basis; however, there can be no assurance the bonds will be renewed or
that premiums in the future will not increase.
The
Company believes that it has adequate available borrowing capacity under its
Letter of Credit Facility and its Revolving Facility to provide letters of
credit or other collateral to secure its obligations if the remaining surety
bonds are not renewed.
The
Company has issued letters of credit of $136.4 million under its $150 million
Letter of Credit Facility, described in “Debt” above. At December 31,
2007, all of these issued letters of credit were being used to secure various
obligations.
Income
Tax
The
Company and its subsidiaries are subject to tax examinations in various U.S. and
foreign jurisdictions. The Company has accrued approximately $26
million for unrecognized tax benefits at December 31, 2007. The
amount of the unrecognized tax benefits has been measured in accordance with
FASB Interpretation 48, Accounting for Uncertainty in Income
Taxes – an interpretation of SFAS 109 (“FIN 48”). The amount of tax
benefits ultimately recognized for open tax periods at December 31, 2007, will
depend on the final outcome of the various issues that may arise during an
examination, and the tax benefit recognized may be materially different from
that amount as measured under FIN 48.
Former
Operations
The
Company has recorded estimated liabilities for contingent obligations, including
those for premiums to the Combined Fund, coal-related workers’ compensation
claims and reclamation obligations. These are discussed in more
detail at “Results of Operations – Retained Liabilities and Assets of Former
Operations – Legacy Liabilities and Assets.”
BAX
Global, a former business unit of the Company, is defending a claim related to
the apparent diversion by a third party of goods being transported for a
customer. Although BAX Global is defending this claim vigorously and
believes that its defenses have merit, it is possible that this claim ultimately
may be decided in favor of the claimant. If so, the Company
expects that the ultimate amount of reasonably possible unaccrued losses could
range from $0 to $11 million. The Company has contractually
indemnified the purchaser of BAX Global for this contingency.
Value-added
taxes (“VAT”) and customs duties
During
2004, the Company determined that one of its non-U.S. Brink’s business units had
not paid customs duties and VAT with respect to the importation of certain goods
and services. The Company was advised that civil and criminal
penalties could be asserted for the non-payment of these customs duties and
VAT. Although no penalties have been asserted to date, they could be
asserted at any time. The business unit has provided the appropriate
government authorities with an accounting of unpaid customs duties and VAT and
has made payments covering its calculated unpaid VAT. The
Company believes that the range of reasonably possible losses is between $0.4
million and $3.0 million for potential penalties on unpaid VAT and has accrued
$0.4 million. The Company believes that the range of possible losses
for unpaid customs duties and associated penalties, none of which has been
accrued, is between $0 and $35 million. The Company believes that the
assertion of the penalties on unpaid customs duties would be excessive and would
vigorously defend against any such assertion. The Company does not
expect to be assessed interest charges in connection with any penalties that may
be asserted. The Company continues to diligently pursue the timely
resolution of this matter and, accordingly, the Company’s estimate of the
potential losses could change materially in future periods. The
assertion of potential penalties may be material to the Company’s financial
position and results of operations.
APPLICATION
OF CRITICAL ACCOUNTING POLICIES
The
application of accounting principles requires the use of assumptions, estimates
and judgments which are the responsibility of management. Management
makes estimates and judgments based on, among other things, knowledge of
operations, markets, historical trends and likely future changes, similarly
situated businesses and, when appropriate, the opinions of advisors with
relevant knowledge and experience. Many assumptions, estimates and
judgments are straightforward; others are not. Reported results could
have been materially different had management used a different set of
assumptions, estimates and judgments.
Deferred
Tax Asset Valuation Allowance
It
is common for companies to record expenses and accruals before the related
payments are actually made. In the U.S., and most other countries and
tax jurisdictions, many deductions for tax return purposes cannot be taken until
the expenses are paid. Similarly, some tax credits and tax loss carry
forwards cannot be used until future periods when sufficient taxable income is
generated. In these circumstances, under GAAP, companies accrue for the tax
benefit expected to be received in future years if, in the judgment of
management, it is “more likely than not” that the company will receive the tax
benefits. These benefits (deferred tax assets) are often offset, in
whole or in part, by the effects of deferred tax liabilities which relate
primarily to deductions available for tax return purposes under existing tax
laws and regulations before such costs are reported as expenses under
GAAP.
As
of December 31, 2007, the Company had approximately $124 million of net deferred
tax assets on its consolidated balance sheet. A significant amount of
the Company’s deferred tax assets relates to expected future tax deductions
arising from retiree medical and other coal-related expenses the Company has
already recorded in its financial statements. For more details
associated with this net balance, see note 5 to the accompanying consolidated
financial statements.
Since
there is no absolute assurance that these assets will be ultimately realized,
management reviews the Company’s deferred tax positions to determine if it is
more likely than not that the assets will be realized. Periodic reviews include,
among other things, the nature and amount of the taxable income and expense
items, the expected timing when assets will be used or liabilities will be
required to be reported and the reliability of historical profitability of
businesses expected to provide future earnings. Furthermore, management
considers tax-planning strategies it can use to increase the likelihood that the
tax assets will be realized. If after conducting the periodic review,
management determines that the realization of the tax asset does not meet the
“more-likely-than-not” criteria, an offsetting valuation allowance is recorded
thereby reducing net earnings and the deferred tax asset in that
period. For these reasons and since changes in estimates can
materially affect net earnings, management believes the accounting estimate
related to deferred tax asset valuation allowances is a critical accounting
estimate.
Due
to its expectation that the historical profitability of the Company’s U.S.
portion of the Brink’s and BHS operations will continue and the lengthy period
over which coal-related liabilities will become available for deduction on tax
returns, management has concluded that it is more likely than not that these
U.S. federal net deferred tax assets will be realized.
For
U.S. state jurisdictions and non-U.S. jurisdictions, the Company has evaluated
its ability to fully utilize the net deferred tax assets on an individual
jurisdiction basis. Due to a recent history of losses in some
non-U.S. jurisdictions and doubts about whether future operating performance
will be sufficiently profitable to realize deferred tax assets, the Company has
approximately $56 million of valuation allowances at December 31,
2007.
Among
other things, should tax statutes, the timing of deductibility of expenses or
expectations for future performance change, the Company could decide to adjust
its valuation allowances, which would increase or decrease tax expense, possibly
materially.
Goodwill,
Other Intangible Assets and Property and Equipment Valuations
Accounting
Policies
At
December 31, 2007, the Company had property and equipment of $1,118.4 million,
goodwill of $141.3 million and other intangible assets of $25.5 million, net of
accumulated depreciation and amortization. The Company reviews these
assets for possible impairment using the guidance in SFAS 142, Goodwill and Other Intangible
Assets, for goodwill and SFAS 144, Accounting for the Impairment or Disposal of
Long-lived Assets, for other intangible assets and property and
equipment. The review for impairment requires the use of significant
judgments about the future performance of the Company’s operating subsidiaries
and, as such, the Company believes they represent critical accounting
estimates.
Application
of Accounting Policies
Goodwill
Goodwill
is reviewed for impairment at least annually. The Company estimates
the fair value of Brink’s, the only reporting unit that has goodwill, primarily
using estimates of future cash flows. The fair value of the reporting
unit is compared to its carrying value to determine if an impairment is
indicated. To date, no impairment has been identified. Due
to a history of profitability and cash flow generation, the carrying value of
goodwill of Brink’s is believed to be appropriate.
Other
Intangible Assets and Property and Equipment
To
determine if an impairment exists related to long-lived assets besides goodwill,
the Company compares estimates of the future undiscounted net cash flows of
groups of assets to their carrying value when events or changes in circumstances
indicate the carrying amount may not be recoverable. 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.
Prior
to selling a portion of its United Kingdom operation, Brink’s recognized in 2007
a $7.5 million impairment charge. Besides this, Brink’s has had no
other significant impairments of property and equipment in the last three
years.
Each
quarter, when BHS customers disconnect their monitoring service, BHS records an
impairment charge based on the carrying value of the related security systems
determined to be permanently disconnected which takes into account future
expected reconnections. Future expected reconnections are estimated
using historical data. Should the estimate of future reconnection
experience change, BHS’s impairment charges would be affected.
Employee
and Retiree Benefit Obligations
The
Company provides its employees and retirees benefits through Company-sponsored
plans, including defined benefit pension plans and retiree medical benefit plans
and under statutory requirements (e.g., black lung and workers’ compensation
obligations).
The
primary benefits which require the Company to make cash payments over an
extended period of years are:
|
·
|
Retiree
medical obligation
|
|
·
|
Workers’
compensation obligation
|
Accounting
Policy
The
Company accounts for its pension plans under SFAS 87, Employers’ Accounting for Pensions, as
amended. The Company accounts for its retiree medical obligations and
Black Lung obligations under SFAS 106, Employers’ Accounting for
Postretirement Benefits Other Than Pensions, as
amended. Following annual remeasurements, the Company records changes
in liabilities and associated expenses as required under these accounting
standards.
As
is normal for these benefits, cash payments will be made for periods ranging
from the current year to over seventy years from now for some of these
benefits. The amount of the cash payments and related expenses will
be affected over time by inflation, salary increases, investment returns and
market interest rates, changes in the numbers of plan participants and changes
in the benefit obligations and/or laws and regulations covering the benefit
obligations. Because of the inherent volatility of these items and
because the obligations are significant, the Company believes these represent
critical accounting estimates.
The
critical accounting estimates that determine the carrying values of liabilities
and the resulting annual expense are discussed below. The plans that
are affected by the assumptions discussed are identified parenthetically in the
relevant title.
Application
of Accounting Policy
Discount
Rate (Pension, Retiree Medical and Black Lung)
A
discount rate is used to determine the present value of future payments. The
rate should reflect returns expected from high-quality bonds and will fluctuate
over time with market interest rates. In general, the Company’s liability
changes in an inverse relationship to interest rates, i.e. the lower the
discount rate, the higher the associated plan obligation.
The
Company changed its method of estimating its discount rate in
2007. As of December 31, 2007, the discount rate used to measure the
present value of the Company's benefit obligations was derived using the cash
flow matching method. Under this method, the Company compares the
plans' projected payment obligations by year with the corresponding yields on
the Citigroup Pension Discount Curve and the Mercer Yield Curve. The cash flows
are then discounted to their present value and a discount rate is determined for
each curve; the average of the two discount rates is selected and is rounded to
the nearest tenth of a percentage point. As of December 31, 2007, the
Company selected a discount rate of 6.4% for the U.S. pension plans and retiree
medical plans, and a discount rate of 6.1% for the Black Lung
obligations.
Prior
to 2007, the Company selected a discount rate for its plan obligations after
reviewing published long-term yield information for a small number of
high-quality fixed-income securities (e.g. Moody’s Aa bond
yields). The Company’s advisors also calculated yields for the
broader range of long-term high-quality securities with maturities in line with
expected payments. After considering these factors, the Company
selected a discount rate of 5.75% as of December 31, 2006.
Sensitivity
Analysis
The
discount rate selected at year end affects the valuations of plan obligations at
year end and calculations of net periodic expenses for the following
year.
The
tables below compare hypothetical plan obligation valuations as of December 31,
2007, and estimated expenses for 2008 if the Company had used discount rates
that were 100 basis points lower or higher.
Plan
Obligations at December 31, 2007
|
|
Hypothetical
|
|
|
Actual
|
|
|
Hypothetical
|
|
(In
millions)
|
|
5.4%
|
|
|
6.4%
|
|
|
7.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary
U.S. pension plan accumulated benefit obligation
|
|
$ |
808.0 |
|
|
|
709.8 |
|
|
|
611.7 |
|
Coal-related
retiree medical accumulated postretirement benefit obligation
(“APBO”)
|
|
|
563.5 |
|
|
|
509.3 |
|
|
|
464.0 |
|
|
|
Hypothetical
|
|
|
Actual
|
|
|
Hypothetical
|
|
(In
millions)
|
|
5.1%
|
|
|
6.1%
|
|
|
7.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Black
Lung APBO
|
|
$ |
50.9 |
|
|
|
47.5 |
|
|
|
43.9 |
|
Projected
2008 Expense (Benefit)
|
|
Hypothetical
|
|
|
Actual
|
|
|
Hypothetical
|
|
(In
millions)
|
|
5.4%
|
|
|
6.4%
|
|
|
7.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary
U.S. pension plan
|
|
$ |
(4.9 |
) |
|
|
(13.6 |
) |
|
|
(15.1 |
) |
Coal-related
retiree medical
|
|
|
2.7 |
|
|
|
1.1 |
|
|
|
(0.3 |
) |
|
|
Hypothetical
|
|
|
Actual
|
|
|
Hypothetical
|
|
(In
millions)
|
|
5.1%
|
|
|
6.1%
|
|
|
7.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Black
Lung
|
|
$ |
3.7 |
|
|
|
3.6 |
|
|
|
3.4 |
|
Return
on Assets (Pension and Retiree Medical)
The
Company’s primary U.S. defined benefit pension plan had assets at December 31,
2007, valued at approximately $709 million. This pension plan’s
assets are invested primarily using actively managed accounts with asset
allocation targets of 47.5% domestic equities and 22.5% international equities,
both of which include a broad array of market capitalization sizes and
investment styles, and 30% fixed income securities. The Company’s
policy does not permit certain investments, including investments in The Brink’s
Company common stock, unless part of a commingled fund. Fixed-income
investments must have an investment grade rating at the time of purchase.
Assets are rebalanced on a quarterly basis if actual allocations of assets are
outside predetermined ranges. Among other factors, the performance of
asset groups and investment managers will affect the long-term rate of
return.
The
Company-sponsored retiree medical plan had assets in a VEBA at December 31,
2007, valued at approximately $460 million. The assets in the VEBA
are invested and managed on a similar basis to the pension
plan. Accordingly, the same long-term rate of return assumption is
used for the VEBA.
Pension
accounting principles require companies to use estimates of expected asset
returns over long periods of time. The Company selects the expected
long-term rate of return assumption using advice from its investment advisor and
its actuary considering the plan’s asset allocation targets and expected overall
investment manager performance and a review of its most recent ten-year and
twenty year historical average compounded rate of return. After
following the above process, the Company selected 8.75% as its expected
long-term rate of return as of December 31, 2007 and 2006.
It
is unlikely that in any given year the actual rate of return will be the same as
the assumed long-term rate of return. In general, if actual returns
exceed the expected long-term rate of return, future levels of expense will go
down and vice-versa. Over the last ten years, the annual returns of
the Company’s primary pension plan have fluctuated from a high of a 27.5% gain
(2003) to a low of a 9.3% loss (2002) and averaged, on a compounded basis, 8.5%,
net of fees, per annum over the period. During that time period,
there were six years in which returns exceeded the assumed long-term rate of
return and four years, the three years ended December 31, 2002 and the year
ended December 31, 2007, with returns below the assumed long-term rate of
return.
If
the Company were to use a different long-term rate of return assumption, it
would affect annual pension expense but would have no immediate effect on
funding requirements. For every hypothetical change of 100 basis
points in the assumed long-term rate of return on plan assets, the Company’s
U.S. annual pension plan expense in 2007 would have increased or decreased by
approximately $6 million before tax. Similarly, the 2007 benefit of
investment income in the VEBA would have increased or decreased by approximately
$4 million.
The
reduction (or “credit”) to pension expense associated with the assumed
investment return fluctuates based on the level of plan assets (over time, the
higher the level of assets, the higher the credit and vice versa) and the
assumed rate of return (the higher the rate, the higher the credit and vice
versa).
For
the pension plan, the Company calculates expected investment returns by applying
the expected long-term rate of return to the market-related value of plan
assets. The market-related value of the plan assets is different from
the actual or fair-market value of the assets. The actual or
fair-market value is the value of the assets at a point in time that is
available to make payments to pensioners and to cover any transaction
costs. The market-related value recognizes changes in fair-value on a
straight-line basis over five years. This recognition method spreads
the effects of year-over-year volatility in the financial markets over several
years.
The
Company has elected to calculate expected investment returns on assets in the
VEBA by applying the expected long-term rate of return to the fair market value
of the assets at year end. This method is likely to cause the credit
to earnings from the VEBA’s expected return to fluctuate more than the similar
credit in the pension plan.
Salary
Inflation (Pension)
Historically,
pension expense and liabilities varied with the expected rate of salary
increases – the higher or lower the annual increase, the higher or lower the
liability and expense. Since the Company has frozen benefits under
the U.S. defined benefit pension plan, this assumption will no longer affect
future pension expense and liability for that plan.
Medical
Inflation (Retiree Medical)
Changes
in medical inflation will affect liability and expense amounts differently for
the Company’s plans. There is a direct link between medical inflation and
expected spending for postretirement medical benefits under the
Company-sponsored plan for 2007 and for later years.
For
the Company-sponsored retiree medical plan, the Company assumed an inflation
rate of 8.2% for 2008, and projects this rate to decline to 5% by
2013. The average annual increase for medical inflation in the plan
for the last five years has been below 8%. Because of the volatility
of medical inflation it is likely that there will be future adjustments to these
estimates, although the direction and extent of these adjustments cannot be
predicted at the present time.
If
the Company had assumed that the health care cost trend rates would be 100 basis
points higher in each future year, the APBO for the coal-related retiree medical
benefit plan would have been approximately $57 million higher at December 31,
2007, and the expense for 2007 would have been $3.5 million
higher. If the Company had assumed that the future health care cost
trend rate would be 100 basis points lower, the APBO would have been
approximately $48 million lower at December 31, 2007, and the related 2007
expenses would have been $3.0 million lower.
Workers’
Compensation
Besides
the effects of changes in medical costs, worker’s compensation costs are
affected by the severity and types of injuries, changes in state and federal
regulations and their application and the quality of programs which assist an
employee’s return to work. The Company’s liability for future
payments for workers’ compensation claims is evaluated annually with the
assistance of its actuary.
Numbers
of Participants (All Plans)
The
valuations of all of these benefit plans are affected by the life expectancy of
the participants. Accordingly, the Company relies on actuarial information to
predict the number and life expectancy of participants. The Company
uses the following mortality table for its major plans.
Plan
|
Mortality
table
|
|
Retiree
medical
|
RP-2000 Employee,
Annuitant and Combined Healthy Blue Collar
|
|
Black
Lung
|
1983
Group Annuity Mortality
|
|
Primary
U.S. pension
|
RP-2000
Combined Healthy Blue Collar
|
|
The
2007 number of participants by major plan is as follows:
Plan
|
Number
of participants
|
|
Coal-related
|
5,045
|
|
All other
|
1,727
|
|
Total
retiree medical
|
6,772
|
|
Black
Lung
|
777
|
|
Primary
U.S. pension
|
22,416
|
|
Since
the Company is no longer operating in the coal industry, it anticipates that the
number of participants in the coal-related postretirement medical plan and the
number of participants receiving benefits under black lung regulations will
decline over time due to mortality. Since the U.S. pension plan has
been frozen, the number of its participants should also decline over
time.
Changes
in Laws (All Plans)
The
Company’s valuations of its liabilities are determined under existing laws and
regulations. Changes in laws and regulations which affect the ultimate level of
liabilities and expense are reflected once the changes are final and their
impact can be reasonably estimated. Recent changes in laws that
provide government subsidies for amounts paid for pharmaceuticals for
medicare-eligible medical plan participants have reduced the Company’s
liability.
RECENT
ACCOUNTING PRONOUNCEMENTS
Adopted
Standards
The
Company adopted FASB Interpretation 48, Accounting for Uncertainty in Income
Taxes – an interpretation of SFAS 109,
effective January 1, 2007. This
interpretation clarifies the accounting for uncertainty in income taxes
recognized in an entity’s financial statements in accordance with SFAS 109,
Accounting for Income
Taxes. It prescribes a recognition threshold and
measurement attribute for financial statement disclosure of tax positions taken
or expected to be taken on a tax return. The adoption of this
interpretation increased retained earnings at January 1, 2007, by $7.0
million.
The
Company adopted Statement of Financial Accounting Standard (“SFAS”) 123(R),
Share-Based Payment,
effective January 1, 2006. Prior to adopting SFAS 123(R), the Company
accounted for share-based compensation using the intrinsic-value method under
Accounting Principles Board Opinion 25, Accounting for Stock Issued
to Employees,
(“APB 25”) as permitted by SFAS 123, Accounting for
Stock-Based Compensation, the predecessor to SFAS
123(R). Under the intrinsic-value method no share-based compensation
cost was recognized as all options granted had an exercise price equal to the
market value of the underlying common stock on the date of
grant. SFAS 123(R) eliminates the use of the intrinsic-value method
of accounting and requires companies to recognize the cost of employee services
received in exchange for awards of equity instruments based on the fair value of
those awards. In addition, SFAS 123(R) requires additional accounting
and disclosures for the income tax and cash flow effects of share-based payment
arrangements.
The
Company adopted SFAS 123(R) using the “modified prospective” transition
method. Under the modified prospective transition method, the Company
began recognizing share-based compensation costs on January 1, 2006, but did not
restate prior periods. The amount of compensation cost recognized was
computed based on the requirements of SFAS 123(R) for share-based awards
granted, modified or settled in 2006, and based on the requirements of SFAS 123
for the unvested portion of awards granted prior to 2006. Under SFAS
123(R), cash flows from the benefit of tax deductions for stock options in
excess of compensation cost are classified in the consolidated statements of
cash flows as a financing activity. Under SFAS 123, these cash flows
were included in operating activities and the prior-year amounts have not been
reclassified. In addition, under SFAS 123(R), the Company no longer
separately reports The Brink’s Company Employee Benefits Trust (the “Employee
Benefits Trust”) in its consolidated statement of shareholders’ equity and
consolidated balance sheet; it is now offset with capital in excess of par
value. See note 15 to the consolidated financial statements for more
information and for the required pro forma disclosures under SFAS 123 for
periods prior to 2006.
The
Company adopted SFAS 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans – an amendment of FASB
Statements No. 87, 88, 106, and 132(R), effective December 31,
2006. Prior to the adoption of SFAS 158, the Company accounted for
its pension plans under SFAS 87, Employers’ Accounting for Pensions,
as previously amended, and for its Company-sponsored retiree medical
plans and black lung obligations under SFAS 106, Employers’ Accounting for
Postretirement Benefits Other Than Pensions, as previously amended. SFAS
158 requires companies to recognize the funded status of a defined benefit
postretirement plan (other than a multi-employer plan) as an asset or liability
in its balance sheet and to recognize changes in funded status through
comprehensive income in the year in which the changes occur. The
adoption of SFAS 158 reduced the amount of consolidated equity reported by the
Company as of December 31, 2006, by $162.9 million. In addition, SFAS
158 requires current liability classification when the actuarial present value
of benefits payable in the next twelve months exceeds the fair value of plan
assets. See note 4 to the consolidated financial statements for more
information.
The
Company adopted Securities and Exchange Commission Staff Accounting Bulletin 108
(“SAB 108”), effective December 31, 2006, which is codified as SAB Topic 1.N,
Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements. SAB 108 requires companies to quantify
misstatements using both a balance sheet and an income statement approach (“dual
method” approach) and to evaluate whether either approach results in an error
that is material in light of relevant quantitative and qualitative
factors. Prior to the adoption of SAB 108, the Company evaluated
errors using only the income statement approach.
The
Company had previously identified that it had been incorrectly applying its
accounting policy for recording impairment charges upon subscriber disconnects
at BHS. Prior to the adoption of SAB 108, the Company determined this
incorrect application was not material to the financial statements using the
income statement approach. The correction of this application was
considered material using the dual method approach due to the impact on the
trend of segment operating profit of BHS. Upon adoption of SAB 108,
to correctly apply its accounting policy to subscriber disconnects, the Company
recorded a $3.8 million ($2.4 million after tax) increase to retained earnings
in 2006.
In
March 2005, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation 47, Accounting
for Conditional Asset
Retirement Obligations (“FIN 47”), an interpretation of SFAS 143, Asset Retirement Obligations.
FIN 47 clarifies that the term “conditional asset retirement obligation” as used
in SFAS 143 includes a legal obligation associated with the retirement of a
tangible long-lived asset in which the timing and/or method of settlement is
conditional on a future event that may or may not be within the control of the
entity. An entity is required to recognize a liability for the fair
value of a conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated, even if conditional on a future
event. The Company has conditional asset retirement obligations
primarily associated with leased facilities. The Company adopted FIN
47 on December 31, 2005, and recognized the following:
(In
millions)
|
|
|
|
|
|
|
|
Adjustment
at December 31, 2005
|
|
|
|
Increase
in assets:
|
|
|
|
Leasehold
improvements
|
|
$ |
3.8 |
|
Noncurrent deferred income tax
asset
|
|
|
0.9 |
|
|
|
|
4.7 |
|
Increase
in liabilities - asset retirement obligations
|
|
|
(10.1 |
) |
Cumulative
effect of change in accounting principle, net of tax (a)
|
|
$ |
(5.4 |
) |
(a)
|
Includes
$1.0 million of cumulative effect of change in accounting principle, net
of tax, related to BAX Global and $0.9 million related to Brink’s United
Kingdom domestic cash handling
operations.
|
Standards
Not Yet Adopted
In
September 2006, the FASB issued SFAS 157, Fair Value
Measurements. SFAS 157 defines fair value, establishes a
framework for measuring fair value under GAAP, and expands disclosure of fair
value measurements. SFAS 157 emphasizes that fair value is a
market-based measurement, not an entity-specific measurement, and states that a
fair value measurement should be determined based on assumptions that market
participants would use in pricing the asset or liability. The Company
is required to adopt SFAS 157 in the first quarter of 2008, however, in February
2008, the FASB issued FSP 157-2, Partial Deferral of the Effective
Date of SFAS 157, which would delay the effective date of SFAS 157 for
all nonrecurring fair value measurements of nonfinancial assets and nonfinancial
liabilities. The Company does not expect that the implementation of
SFAS 157, as it relates to the Company’s financial assets and financial
liabilities, will have a material effect on the Company’s results of operations
or financial position. The Company is currently evaluating the
potential impact, if any, as it relates to the Company’s nonfinancial assets and
liabilities.
In
February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Liabilities – Including an amendment of FASB Statement No.
115. SFAS 159 permits entities to choose to measure certain
financial assets and liabilities at fair value (the “fair value
option”). Unrealized gains and losses, arising subsequent to the
election of the fair value option, are reported in earnings. The
Company is required to adopt SFAS 159 in the first quarter of
2008. The Company does not expect that the implementation SFAS 159
will have a material effect on the Company’s results of operations or financial
position.
In
December 2007, the FASB issued SFAS 141(R), Business
Combinations. SFAS 141(R) establishes requirements for an
acquirer to record the assets acquired, liabilities assumed, and any related
noncontrolling interest related to the acquisition of a controlled subsidiary,
measured at fair value as of the acquisition date. The Company is
required to adopt SFAS 141(R) in the first quarter of 2009. The
Company is currently evaluating the potential impact, if any, of the adoption of
SFAS 141(R) on the Company’s results of operations and financial
position.
In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements. SFAS 160 amends Accounting
Research Bulletin (“ARB”) 51 to establish accounting and reporting standards for
the noncontrolling interest in a subsidiary, as well as for the deconsolidation
of a subsidiary. Specificially, SFAS 160 clarifies that
noncontrolling interests in a subsidiary should be reported as equity in the
consolidated financial statements. The Company is required to adopt
SFAS 160 in the first quarter of 2009. The Company has $68.2 million
at December 31, 2007, and $51.8 million at December 31, 2006, of minority
interest classified as noncurrent liabilities; upon adoption of SFAS 160, these
amounts will be classified as part of shareholders’
equity. Accordingly, the adoption of this standard will increase
equity and decrease liabilities, however, the Company does not currently expect
that the implementation of SFAS 160 will have a material effect on the Company’s
results of operations.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The
Company’s operations have activities in approximately 50 countries. These
operations expose the Company to a variety of market risks, including the
effects of changes in interest rates, commodity prices and foreign currency
exchange rates. These financial and commodity exposures are monitored
and managed by the Company as an integral part of its overall risk management
program.
The
Company periodically uses various derivative and non-derivative financial
instruments, as discussed below, to hedge its interest rate, commodity prices
and foreign currency exposures when appropriate. The risk that counterparties to
these instruments may be unable to perform is minimized by limiting the
counterparties used to major financial institutions with investment grade credit
ratings. The Company does not expect to incur a loss from the failure
of any counterparty to perform under the agreements. The Company does
not use derivative financial instruments for purposes other than hedging
underlying financial or commercial exposures.
The
sensitivity analyses discussed below for the market risk exposures were based on
the facts and circumstances in effect at December 31, 2007. Actual
results will be determined by a number of factors that are not under
management’s control and could vary materially from those
disclosed.
The
Company uses both fixed and floating rate debt and leases to finance its
operations. Floating rate obligations, including the Company’s Revolving
Facility, expose the Company to fluctuations in cash flows due to changes in the
general level of interest rates. Fixed rate obligations, including
the Company’s Dominion Terminal Associates debt, are subject to fluctuations in
fair values as a result of changes in interest rates.
Based
on the contractual interest rates on the floating rate debt at December 31,
2007, a hypothetical 10% increase in rates would increase cash outflows by
approximately $0.3 million over a twelve-month period. In other
words, the Company’s weighted average interest rate on its floating rate
instruments was 6.5% per annum at December 31, 2007. If that average
rate were to increase by 0.6 percentage points to 7.1%, the cash outflows
associated with these instruments would increase by $0.3 million
annually. The effect on the fair value of the Company’s Dominion
Terminal Associates debt for a hypothetical 10% decrease in the yield curve from
year-end 2007 levels would result in a $3.6 million increase in the fair value
of this debt.
The
Company, primarily through its Brink’s operations, has exposure to the effects
of foreign currency exchange rate fluctuations on the results of all of its
foreign operations. The Company’s foreign operations generally use
local currencies to conduct business but their results are reported in U.S.
dollars.
The
Company is exposed periodically to the foreign currency rate fluctuations that
affect transactions not denominated in the functional currency of domestic and
foreign operations. To mitigate these exposures, the Company, from time to time,
enters into foreign currency forward contracts. At December 31, 2007,
no foreign currency forward contracts were outstanding. The Company
does not use derivative financial instruments to hedge investments in foreign
subsidiaries since such investments are long-term in nature.
The
effects of a hypothetical simultaneous 10% appreciation in the U.S. dollar from
year-end 2007 levels against all other currencies of countries in which the
Company has continuing operations are as follows:
|
|
Hypothetical
Effects
|
|
(In
millions)
|
|
Increase/
(decrease)
|
|
|
|
|
|
Translation
of 2007 earnings into U.S. dollars
|
|
$ |
(6.3 |
) |
Transactional
exposures
|
|
|
0.5 |
|
Translation
of net assets of foreign subsidiaries
|
|
|
(51.6 |
) |
The
hypothetical foreign currency effects above detail the consolidated impact of a
simultaneous change in the value of a large number of foreign currencies
relative to the U. S. dollar. The foreign currency exposure impact
related to a change in an individual currency could be significantly
different.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE
BRINK’S COMPANY
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2007
TABLE
OF CONTENTS
|
Page
|
|
|
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
|
73
|
|
|
REPORTS
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
74
|
|
|
CONSOLIDATED
FINANCIAL STATEMENTS
|
|
Consolidated Balance
Sheets
|
76
|
Consolidated Statements of
Operations
|
77
|
Consolidated Statements of
Comprehensive Income
|
78
|
Consolidated Statements of
Shareholders’ Equity
|
79
|
Consolidated Statements of Cash
Flows
|
80
|
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Note 1 – Summary of Significant
Accounting Policies
|
81
|
Note 2 – Segment
Information
|
88
|
Note 3 – Earnings Per
Share
|
90
|
Note 4 – Employee and Retiree
Benefits
|
91
|
Note 5 – Income
Taxes
|
100
|
Note 6 – Property and
Equipment
|
103
|
Note 7 –
Acquisitions
|
103
|
Note 8 – Goodwill and Other
Intangible Assets
|
104
|
Note 9 – Other
Assets
|
104
|
Note 10 – Accrued
Liabilities
|
105
|
Note 11 – Other
Liabilities
|
105
|
Note 12 – Long-Term
Debt
|
105
|
Note 13 – Accounts
Receivable
|
108
|
Note 14 – Operating
Leases
|
108
|
Note 15 – Share-Based
Compensation Plans
|
109
|
Note 16 – Capital
Stock
|
112
|
Note 17 – Discontinued
Operations
|
114
|
Note 18 – Supplemental Cash Flow
Information
|
116
|
Note 19 – Other Operating
Income, Net
|
116
|
Note 20 – Interest and Other
Nonoperating Income (Expense), Net
|
116
|
Note 21 – Other Commitments and
Contingencies
|
117
|
Note 22 – Selected Quarterly Financial Data (unaudited)
|
118
|
Note
23 – Subsequent Event |
118
|
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934. The Company’s internal control over financial
reporting is designed to provide reasonable assurance to the Company’s
management and board of directors regarding the preparation and fair
presentation of published financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2007. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in “Internal Control –
Integrated Framework”.
Based on our assessment, we believe that, as of December 31, 2007, the
Company’s internal control over financial reporting is effective based on those
criteria.
KPMG
LLP, the independent registered public accounting firm which audits the
Company’s consolidated financial statements, has issued an attestation report of
the Company’s internal control over financial reporting. KPMG’s
attestation report appears on page 74.
REPORT
of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Shareholders
The
Brink’s Company:
We
have audited The Brink’s Company’s (the “Company”) internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the
accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over financial
reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In
our opinion, The Brink’s Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
The Brink’s Company and subsidiaries as of December 31, 2007 and 2006, and the
related consolidated statements of operations, comprehensive income,
shareholders’ equity and cash flows for each of the years in the three-year
period ended December 31, 2007, and our report dated February 27, 2008 expressed an
unqualified opinion on those consolidated financial statements.
/s/
KPMG LLP
Richmond,
Virginia
February
27, 2008
REPORT
of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Shareholders
The
Brink’s Company:
We
have audited the accompanying consolidated balance sheets of The Brink’s Company
and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the
related consolidated statements of operations, comprehensive income,
shareholders’ equity and cash flows for each of the years in the three-year
period ended December 31, 2007. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Brink’s Company
and subsidiaries as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2007, in conformity with U.S. generally accepted accounting
principles.
As
disclosed in note 1 to the consolidated financial statements, the Company
adopted the provisions of Financial Accounting Standards Board Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes, effective January 1, 2007, Statement of
Financial Accounting Standards No. 123R, Share-Based Payment,
effective January 1, 2006, Statement of Financial Accounting Standards
No. 158, Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans, effective
December 31, 2006, and Securities and Exchange Commission Staff Accounting
Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements, effective December 31,
2006.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), The Brink’s Company’s internal
control over financial reporting as of December 31, 2007, based on criteria
established in Internal
Control - Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February
27, 2008 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
/s/
KPMG LLP
Richmond,
Virginia
February
27, 2008
THE
BRINK’S COMPANY
and
subsidiaries
Consolidated
Balance Sheets
|
|
December
31,
|
|
(In
millions, except per share amounts)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
196.4 |
|
|
|
137.2 |
|
Accounts receivable (net of
allowance: 2007 – $10.8; 2006 – $11.6)
|
|
|
491.9 |
|
|
|
469.4 |
|
Prepaid expenses and
other
|
|
|
93.5 |
|
|
|
72.4 |
|
Deferred income
taxes
|
|
|
63.9 |
|
|
|
71.8 |
|
Total current
assets
|
|
|
845.7 |
|
|
|
750.8 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
1,118.4 |
|
|
|
981.9 |
|
Goodwill
|
|
|
141.3 |
|
|
|
124.0 |
|
Deferred
income taxes
|
|
|
90.1 |
|
|
|
142.2 |
|
Other
|
|
|
198.8 |
|
|
|
189.1 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
2,394.3 |
|
|
|
2,188.0 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$ |
12.4 |
|
|
|
33.4 |
|
Current maturities of long-term
debt
|
|
|
11.0 |
|
|
|
10.5 |
|
Accounts payable
|
|
|
171.9 |
|
|
|
142.8 |
|
Income taxes
payable
|
|
|
14.9 |
|
|
|
33.9 |
|
Accrued
liabilities
|
|
|
429.7 |
|
|
|
386.1 |
|
Total current
liabilities
|
|
|
639.9 |
|
|
|
606.7 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
89.2 |
|
|
|
126.3 |
|
Accrued
pension costs
|
|
|
58.0 |
|
|
|
135.5 |
|
Postretirement
benefits other than pensions
|
|
|
111.9 |
|
|
|
180.1 |
|
Deferred
revenue
|
|
|
178.6 |
|
|
|
164.5 |
|
Deferred
income taxes
|
|
|
29.8 |
|
|
|
20.8 |
|
Minority
interest
|
|
|
68.2 |
|
|
|
51.8 |
|
Other
|
|
|
172.4 |
|
|
|
148.5 |
|
Total liabilities
|
|
|
1,348.0 |
|
|
|
1,434.2 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingent liabilities (notes 4, 5, 12, 14, 17 and 21)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Common stock, par value $1 per
share:
|
|
|
|
|
|
|
|
|
Shares authorized:
100.0
|
|
|
|
|
|
|
|
|
Shares issued and outstanding:
2007 – 48.4; 2006 – 48.5
|
|
|
48.4 |
|
|
|
48.5 |
|
Capital in excess of par
value
|
|
|
452.6 |
|
|
|
414.7 |
|
Retained earnings
|
|
|
675.8 |
|
|
|
552.0 |
|
Accumulated other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
Benefit plan experience
loss
|
|
|
(146.3 |
) |
|
|
(236.3 |
) |
Benefit plan prior service
cost
|
|
|
(7.4 |
) |
|
|
(8.8 |
) |
Foreign currency
translation
|
|
|
22.0 |
|
|
|
(17.7 |
) |
Unrealized gains on marketable
securities
|
|
|
1.2 |
|
|
|
1.4 |
|
Accumulated other comprehensive
loss
|
|
|
(130.5 |
) |
|
|
(261.4 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders’
equity
|
|
|
1,046.3 |
|
|
|
753.8 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders’ equity
|
|
$ |
2,394.3 |
|
|
|
2,188.0 |
|
See
accompanying notes to consolidated financial statements.
THE
BRINK’S COMPANY
Consolidated
Statements of Operations
|
|
Years
Ended December 31,
|
|
(In
millions, except per share amounts)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
3,219.0 |
|
|
|
2,793.3 |
|
|
|
2,505.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
2,450.8 |
|
|
|
2,131.3 |
|
|
|
2,000.1 |
|
Selling,
general and administrative expenses
|
|
|
498.8 |
|
|
|
458.4 |
|
|
|
397.4 |
|
Total expenses
|
|
|
2,949.6 |
|
|
|
2,589.7 |
|
|
|
2,397.5 |
|
Other
operating income, net
|
|
|
4.6 |
|
|
|
5.9 |
|
|
|
15.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
274.0 |
|
|
|
209.5 |
|
|
|
123.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(10.9 |
) |
|
|
(12.1 |
) |
|
|
(17.5 |
) |
Interest
and other income, net
|
|
|
10.5 |
|
|
|
16.9 |
|
|
|
9.3 |
|
Income from continuing operations
before income taxes and minority interest
|
|
|
273.6 |
|
|
|
214.3 |
|
|
|
114.8 |
|
Provision
for income taxes
|
|
|
102.2 |
|
|
|
82.9 |
|
|
|
49.5 |
|
Minority
interest
|
|
|
22.8 |
|
|
|
18.3 |
|
|
|
14.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations
|
|
|
148.6 |
|
|
|
113.1 |
|
|
|
51.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations, net of income taxes
|
|
|
(11.3 |
) |
|
|
474.1 |
|
|
|
96.8 |
|
Income
before cumulative effect of change in accounting principle
|
|
|
137.3 |
|
|
|
587.2 |
|
|
|
147.8 |
|
Cumulative
effect of change in accounting principle, net of income taxes
(a)
|
|
|
- |
|
|
|
- |
|
|
|
(5.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
137.3 |
|
|
|
587.2 |
|
|
|
142.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
3.19 |
|
|
|
2.26 |
|
|
|
0.91 |
|
Discontinued
operations
|
|
|
(0.24 |
) |
|
|
9.49 |
|
|
|
1.72 |
|
Cumulative effect of change in
accounting principle
|
|
|
- |
|
|
|
- |
|
|
|
(0.10 |
) |
Net income
|
|
|
2.95 |
|
|
|
11.75 |
|
|
|
2.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
3.16 |
|
|
|
2.24 |
|
|
|
0.89 |
|
Discontinued
operations
|
|
|
(0.24 |
) |
|
|
9.39 |
|
|
|
1.70 |
|
Cumulative effective of change in
accounting principle
|
|
|
- |
|
|
|
- |
|
|
|
(0.09 |
) |
Net income
|
|
|
2.92 |
|
|
|
11.64 |
|
|
|
2.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
46.5 |
|
|
|
50.0 |
|
|
|
56.3 |
|
Diluted
|
|
|
47.0 |
|
|
|
50.5 |
|
|
|
57.0 |
|
(a)
|
As
discussed in note 1, the Company adopted FIN 47 during 2005 on a
cumulative basis as of December 31, 2005, resulting in a change in the
Company’s method of accounting for conditional asset retirement
obligations. Pro forma amounts, assuming the new method of
accounting for conditional retirement obligations was applied
retroactively, are presented in note
1.
|
See
accompanying notes to consolidated financial statements.
THE
BRINK’S COMPANY
and
subsidiaries
Consolidated
Statements of Comprehensive Income
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
137.3 |
|
|
|
587.2 |
|
|
|
142.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit plan
experience:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net experience gains arising
during the year
|
|
|
112.6 |
|
|
|
- |
|
|
|
- |
|
Tax provision related to gains
arising during the year
|
|
|
(40.8 |
) |
|
|
- |
|
|
|
- |
|
Reclassification adjustment for
amortization of prior net experience loss included in net
income
|
|
|
27.1 |
|
|
|
- |
|
|
|
- |
|
Tax benefit related to
reclassification adjustment
|
|
|
(8.9 |
) |
|
|
- |
|
|
|
- |
|
Benefit plan experience
gain
|
|
|
90.0 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit plan prior service
cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit from plan
amendment during the year
|
|
|
0.1 |
|
|
|
- |
|
|
|
- |
|
Reclassification adjustment for
amortization of prior service cost included in net income
|
|
|
1.3 |
|
|
|
- |
|
|
|
- |
|
Benefit plan prior service
cost
|
|
|
1.4 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability
adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to minimum pension
liability
|
|
|
- |
|
|
|
90.0 |
|
|
|
(33.3 |
) |
Tax benefit (provision) related
to minimum pension liability adjustment
|
|
|
- |
|
|
|
(31.7 |
) |
|
|
11.6 |
|
Reclassification for sale of BAX
Global Inc.
|
|
|
- |
|
|
|
11.1 |
|
|
|
- |
|
Minimum pension liability
adjustments, net of tax
|
|
|
- |
|
|
|
69.4 |
|
|
|
(21.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency:
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments arising
during the year
|
|
|
39.9 |
|
|
|
29.0 |
|
|
|
(32.3 |
) |
Tax benefit (provision) related
to translation adjustments
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
2.3 |
|
Reclassification adjustment for
sales of foreign subsidiaries
|
|
|
(0.1 |
) |
|
|
(12.9 |
) |
|
|
- |
|
Foreign currency translation
adjustments, net of tax
|
|
|
39.7 |
|
|
|
16.0 |
|
|
|
(30.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net gains on
marketable securities arising during the year
|
|
|
1.1 |
|
|
|
2.0 |
|
|
|
1.2 |
|
Tax provision related to
unrealized net gains on marketable securities
|
|
|
(0.4 |
) |
|
|
(0.7 |
) |
|
|
(0.4 |
) |
Reclassification adjustment for
net gains realized in net income
|
|
|
(1.4 |
) |
|
|
(1.0 |
) |
|
|
(0.2 |
) |
Tax provision related to
reclassification adjustment
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.1 |
|
Unrealized net gains on
marketable securities, net of tax
|
|
|
(0.2 |
) |
|
|
0.7 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
130.9 |
|
|
|
86.1 |
|
|
|
(51.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$ |
268.2 |
|
|
|
673.3 |
|
|
|
91.4 |
|
See
accompanying notes to consolidated financial statements.
THE
BRINK’S COMPANY
and
subsidiaries
Consolidated
Statements of Shareholders’ Equity
Years
Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
in
Excess
|
|
|
|
|
|
Employee
|
|
|
Other
|
|
|
|
|
|
|
Shares
|
|
|
Common
|
|
|
of
Par
|
|
|
Retained
|
|
|
Benefits
|
|
|
Comprehensive
|
|
|
|
|
(In
millions)
|
|
(a)
|
|
|
Stock
|
|
|
Value
|
|
|
Earnings
|
|
|
Trust
|
|
|
Loss
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2004
|
|
|
56.7 |
|
|
$ |
56.7 |
|
|
|
457.4 |
|
|
|
352.9 |
|
|
|
(44.9 |
) |
|
|
(133.6 |
) |
|
|
688.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
142.4 |
|
|
|
- |
|
|
|
- |
|
|
|
142.4 |
|
Other
comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(51.0 |
) |
|
|
(51.0 |
) |
Dividends
($0.10 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5.5 |
) |
|
|
- |
|
|
|
- |
|
|
|
(5.5 |
) |
Retire
shares of common stock
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
(2.1 |
) |
|
|
(1.8 |
) |
|
|
- |
|
|
|
- |
|
|
|
(4.0 |
) |
Employee
Benefits Trust:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to
trust
|
|
|
2.1 |
|
|
|
2.1 |
|
|
|
65.0 |
|
|
|
- |
|
|
|
(67.1 |
) |
|
|
- |
|
|
|
- |
|
Remeasurement
|
|
|
- |
|
|
|
- |
|
|
|
22.5 |
|
|
|
- |
|
|
|
(22.5 |
) |
|
|
- |
|
|
|
- |
|
Proceeds
from exercise of stock options
|
|
|
- |
|
|
|
- |
|
|
|
(26.4 |
) |
|
|
- |
|
|
|
58.0 |
|
|
|
- |
|
|
|
31.6 |
|
Tax
benefit of stock options exercised
|
|
|
- |
|
|
|
- |
|
|
|
15.1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15.1 |
|
Other
share-based benefit programs
|
|
|
- |
|
|
|
- |
|
|
|
(0.9 |
) |
|
|
- |
|
|
|
21.3 |
|
|
|
- |
|
|
|
20.4 |
|
Balance
as of December 31, 2005
|
|
|
58.7 |
|
|
|
58.7 |
|
|
|
530.6 |
|
|
|
488.0 |
|
|
|
(55.2 |
) |
|
|
(184.6 |
) |
|
|
837.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
587.2 |
|
|
|
- |
|
|
|
- |
|
|
|
587.2 |
|
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
86.1 |
|
|
|
86.1 |
|
Shares
repurchased (see note 16):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
“Dutch auction” self-tender
offer
|
|
|
(10.4 |
) |
|
|
(10.4 |
) |
|
|
(89.0 |
) |
|
|
(431.5 |
) |
|
|
- |
|
|
|
- |
|
|
|
(530.9 |
) |
Other
|
|
|
(1.8 |
) |
|
|
(1.8 |
) |
|
|
(15.9 |
) |
|
|
(82.3 |
) |
|
|
- |
|
|
|
- |
|
|
|
(100.0 |
) |
Dividends
($0.2125 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(10.1 |
) |
|
|
- |
|
|
|
- |
|
|
|
(10.1 |
) |
Retire
shares of common stock
|
|
|
- |
|
|
|
- |
|
|
|
(0.7 |
) |
|
|
(1.5 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2.2 |
) |
Shares
issued to Employee Benefits Trust
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(see notes 1 and
16)
|
|
|
2.0 |
|
|
|
2.0 |
|
|
|
(2.0 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Share-based
compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense
(b)
|
|
|
- |
|
|
|
- |
|
|
|
17.7 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17.7 |
|
Proceeds from exercise of stock
options
|
|
|
- |
|
|
|
- |
|
|
|
18.6 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
18.6 |
|
Excess tax benefit of stock
options exercised
|
|
|
- |
|
|
|
- |
|
|
|
6.1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6.1 |
|
Other share-based benefit
programs
|
|
|
- |
|
|
|
- |
|
|
|
4.5 |
|
|
|
(0.2 |
) |
|
|
- |
|
|
|
- |
|
|
|
4.3 |
|
Adoption
of new accounting standards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Financial Accounting
Standard
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(“SFAS”) 123(R) (see notes 1 and
16)
|
|
|
- |
|
|
|
- |
|
|
|
(55.2 |
) |
|
|
- |
|
|
|
55.2 |
|
|
|
- |
|
|
|
- |
|
SFAS 158, net of income taxes of
$110.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(see notes 1 and
4)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(162.9 |
) |
|
|
(162.9 |
) |
Securities and Exchange
Commission
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staff Accounting Bulletin 108,
net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income taxes of $1.4 (see note
1)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2.4 |
|
|
|
- |
|
|
|
- |
|
|
|
2.4 |
|
Balance
as of December 31, 2006
|
|
|
48.5 |
|
|
|
48.5 |
|
|
|
414.7 |
|
|
|
552.0 |
|
|
|
- |
|
|
|
(261.4 |
) |
|
|
753.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
137.3 |
|
|
|
- |
|
|
|
- |
|
|
|
137.3 |
|
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
130.9 |
|
|
|
130.9 |
|
Shares
repurchased (see note 16)
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
(0.5 |
) |
|
|
(3.0 |
) |
|
|
- |
|
|
|
- |
|
|
|
(3.6 |
) |
Dividends
($0.3625 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(16.5 |
) |
|
|
- |
|
|
|
- |
|
|
|
(16.5 |
) |
Share-based
compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
expense
|
|
|
- |
|
|
|
- |
|
|
|
11.7 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11.7 |
|
Proceeds from exercise of stock
options
|
|
|
- |
|
|
|
- |
|
|
|
12.6 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
12.6 |
|
Excess tax benefit of stock
options exercised
|
|
|
- |
|
|
|
- |
|
|
|
5.9 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5.9 |
|
Other share-based benefit
programs
|
|
|
- |
|
|
|
- |
|
|
|
8.4 |
|
|
|
(0.3 |
) |
|
|
- |
|
|
|
- |
|
|
|
8.1 |
|
Retire
shares of common stock
|
|
|
- |
|
|
|
- |
|
|
|
(0.2 |
) |
|
|
(0.7 |
) |
|
|
- |
|
|
|
- |
|
|
|
(0.9 |
) |
Adoption
of - Financial Accounting Standards Board
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interpretation 48 (see notes 1 and
5)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7.0 |
|
|
|
- |
|
|
|
- |
|
|
|
7.0 |
|
Balance
as of December 31, 2007
|
|
|
48.4 |
|
|
$ |
48.4 |
|
|
|
452.6 |
|
|
|
675.8 |
|
|
|
- |
|
|
|
(130.5 |
) |
|
|
1,046.3 |
|
(a)
|
Includes
1.7 million shares at December 31, 2007, held by The Brink’s Company
Employee Benefits Trust that have not been allocated to participants
(2.3 million shares at December 31, 2006, 1.2 million shares at December
31, 2005, and 1.1 million shares at December 31,
2004).
|
(b)
|
Includes
amounts classified as discontinued
operations.
|
See
accompanying notes to consolidated financial statements.
THE
BRINK’S COMPANY
and
subsidiaries
Consolidated
Statements of Cash Flows
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
137.3 |
|
|
|
587.2 |
|
|
|
142.4 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) loss from discontinued
operations, net of tax
|
|
|
11.3 |
|
|
|
(474.1 |
) |
|
|
(96.8 |
) |
Cumulative effect of change in
accounting principle
|
|
|
- |
|
|
|
- |
|
|
|
5.4 |
|
Depreciation and
amortization
|
|
|
187.7 |
|
|
|
160.6 |
|
|
|
146.1 |
|
Impairment
charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriber
disconnects
|
|
|
50.4 |
|
|
|
47.1 |
|
|
|
45.2 |
|
Other
|
|
|
2.5 |
|
|
|
1.5 |
|
|
|
1.3 |
|
Amortization of deferred
revenue
|
|
|
(34.2 |
) |
|
|
(31.2 |
) |
|
|
(29.5 |
) |
Deferred income
taxes
|
|
|
19.5 |
|
|
|
151.3 |
|
|
|
11.8 |
|
Provision for uncollectible
accounts receivable
|
|
|
10.5 |
|
|
|
7.9 |
|
|
|
3.5 |
|
Compensation expense for stock
options
|
|
|
11.7 |
|
|
|
11.1 |
|
|
|
- |
|
Other operating,
net
|
|
|
23.2 |
|
|
|
25.0 |
|
|
|
15.8 |
|
Postretirement benefit funding
(more) less than expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
(7.3 |
) |
|
|
9.8 |
|
|
|
37.5 |
|
Other than
pension
|
|
|
(5.3 |
) |
|
|
(257.4 |
) |
|
|
(11.5 |
) |
Change in operating assets and
liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(8.5 |
) |
|
|
(49.6 |
) |
|
|
(42.2 |
) |
Accounts payable, income taxes
payable and accrued liabilities
|
|
|
28.9 |
|
|
|
(170.8 |
) |
|
|
16.8 |
|
Deferral of subscriber
acquisition cost
|
|
|
(23.8 |
) |
|
|
(24.4 |
) |
|
|
(22.9 |
) |
Deferral of revenue from new
subscribers
|
|
|
47.4 |
|
|
|
44.9 |
|
|
|
40.7 |
|
Prepaid and other current
assets
|
|
|
(7.5 |
) |
|
|
(14.2 |
) |
|
|
(2.5 |
) |
Other, net
|
|
|
13.7 |
|
|
|
13.0 |
|
|
|
3.6 |
|
Discontinued operations,
net
|
|
|
(3.8 |
) |
|
|
(5.4 |
) |
|
|
49.3 |
|
Net cash provided by operating
activities
|
|
|
453.7 |
|
|
|
32.3 |
|
|
|
314.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(319.6 |
) |
|
|
(277.7 |
) |
|
|
(270.0 |
) |
Acquisitions
|
|
|
(13.4 |
) |
|
|
(14.4 |
) |
|
|
(53.2 |
) |
Marketable
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
(1.8 |
) |
|
|
(1,663.7 |
) |
|
|
(7.2 |
) |
Sales
|
|
|
1.3 |
|
|
|
1,654.1 |
|
|
|
1.2 |
|
Cash
proceeds from disposal of:
|
|
|
|
|
|
|
|
|
|
|
|
|
BAX Global, net of $90.3 of cash
disposed
|
|
|
- |
|
|
|
1,010.5 |
|
|
|
- |
|
Natural resource
interests
|
|
|
- |
|
|
|
- |
|
|
|
5.0 |
|
Other property and
equipment
|
|
|
10.6 |
|
|
|
5.1 |
|
|
|
3.7 |
|
Other,
net
|
|
|
5.1 |
|
|
|
0.5 |
|
|
|
(0.3 |
) |
Discontinued
operations, net
|
|
|
0.3 |
|
|
|
(6.7 |
) |
|
|
(74.4 |
) |
Net cash provided (used) by
investing activities
|
|
|
(317.5 |
) |
|
|
707.7 |
|
|
|
(395.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
6.9 |
|
|
|
2.9 |
|
|
|
0.2 |
|
Repayments
|
|
|
(12.1 |
) |
|
|
(89.0 |
) |
|
|
(33.4 |
) |
Revolving
credit facilities borrowings (repayments), net
|
|
|
(33.5 |
) |
|
|
(68.3 |
) |
|
|
99.4 |
|
Short-term
borrowings (repayments), net
|
|
|
(23.2 |
) |
|
|
5.6 |
|
|
|
11.3 |
|
Repurchase
shares of common stock of The Brink’s Company
|
|
|
(2.7 |
) |
|
|
(630.9 |
) |
|
|
- |
|
Dividends
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders of The Brink’s
Company
|
|
|
(16.5 |
) |
|
|
(10.1 |
) |
|
|
(5.5 |
) |
Minority interest holders in
subsidiaries
|
|
|
(7.2 |
) |
|
|
(9.0 |
) |
|
|
(6.7 |
) |
Proceeds
from exercise of stock options
|
|
|
12.6 |
|
|
|
18.6 |
|
|
|
28.3 |
|
Excess
tax benefits from exercise of stock options
|
|
|
5.8 |
|
|
|
5.1 |
|
|
|
- |
|
Other,
net
|
|
|
(0.4 |
) |
|
|
(2.7 |
) |
|
|
(1.4 |
) |
Discontinued
operations, net
|
|
|
(14.8 |
) |
|
|
(5.2 |
) |
|
|
1.4 |
|
Net cash provided (used) by
financing activities
|
|
|
(85.1 |
) |
|
|
(783.0 |
) |
|
|
93.6 |
|
Effect
of exchange rate changes on cash
|
|
|
8.1 |
|
|
|
5.4 |
|
|
|
(6.6 |
) |
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease)
|
|
|
59.2 |
|
|
|
(37.6 |
) |
|
|
5.8 |
|
Balance at beginning of
year
|
|
|
137.2 |
|
|
|
96.2 |
|
|
|
169.0 |
|
Amount held by BAX Global at
December 31, 2005
|
|
|
- |
|
|
|
78.6 |
|
|
|
(78.6 |
) |
Balance at end of
year
|
|
$ |
196.4 |
|
|
|
137.2 |
|
|
|
96.2 |
|
See accompanying notes to
consolidated financial statements.
THE
BRINK’S COMPANY
and
subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – Summary of Significant Accounting Policies
Basis
of Presentation
The
Brink’s Company (along with its subsidiaries, the “Company”) conducts business
in the security industry, through two wholly owned subsidiaries:
|
·
|
Brink’s,
Incorporated (“Brink’s”)
|
|
·
|
Brink’s
Home Security, Inc. (“BHS”)
|
The
Company expects to distribute its interest in BHS to the shareholders of The
Brink’s Company in the fourth quarter of 2008, as further discussed in note
23. After the distribution, the Company will report BHS' results
of operations, including previously reported results, within discontinued
operations.
On
January 31, 2006, the Company sold BAX Global Inc. (“BAX Global”), a wholly
owned freight transportation subsidiary, for approximately $1 billion in cash
and recorded a pretax gain of approximately $587 million. On August
5, 2007, the Company sold Brink’s United Kingdom domestic cash handling
operations. Both of these operations have been reported within
discontinued operations for all periods presented. In prior
years, the Company sold its natural resource businesses and interests, and
adjustments to contingent liabilities of these former operations have also been
reported within discontinued operations. The Company has significant
liabilities associated with its former coal operations and expects to have
ongoing expenses and cash outflows related to these obligations. See
notes 4, 17 and 21.
Principles
of Consolidation
The
consolidated financial statements include the accounts of The Brink’s Company
and the subsidiaries it controls. Control is determined based on
ownership rights or, when applicable, based on whether the Company is considered
to be the primary beneficiary of a variable interest entity. The
Company’s interest in 20%- to 50%-owned companies that are not controlled are
accounted for using the equity method (“equity affiliates”), unless the Company
does not sufficiently influence the management of the investee. Other
investments are accounted for as cost-method investments or as
available-for-sale marketable securities. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Revenue
Recognition
Brink’s. Revenue is
recognized when services are performed. Services related to armored
car transportation, ATM servicing, cash logistics and coin sorting and wrapping
are performed in accordance with the terms of customer contracts, which have
prices that are fixed and determinable. Brink’s assesses the
customer’s ability to meet the contractual terms, including payment terms,
before entering into contracts. Customer contracts generally are
automatically extended after the initial contract period until either party
terminates the agreement.
BHS. Monitoring revenues are
recognized monthly as services are provided pursuant to the terms of subscriber
contracts, which have contract prices that are fixed and
determinable. BHS assesses the subscriber’s ability to meet the
contract terms, including payment terms, before entering into the
contract. Generally, nonrefundable installation revenues and a
portion of the related direct costs of acquiring new subscribers (primarily
sales commissions) are deferred and recognized over an estimated 15 year
subscriber relationship period. When an installation is identified
for disconnection, any unamortized deferred revenues and deferred costs related
to that installation are recognized at that time.
BAX Global (discontinued
operation). Revenues related to transportation services were
recognized, together with related variable transportation costs, on the date
shipments depart from facilities en route to destination
locations. BAX Global and its customers agreed to the terms of the
shipments, including pricing, prior to shipment. Pricing terms were
fixed and determinable, and BAX Global only agreed to shipments when it believed
that the collectibility of related billings was reasonably
assured. Export freight service revenues were shared among the origin
and destination countries.
Taxes
collected from customers. Taxes collected from customers and
remitted to governmental authorities are not included in revenues in the
consolidated statements of operations.
Cash
and Cash Equivalents
Cash
and cash equivalents include cash on hand, demand deposits and investments with
original maturities of three months or less.
Trade
Accounts Receivable
Trade
accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is the Company’s best
estimate of the amount of probable credit losses on the Company’s existing
accounts receivable. The Company determines the allowance based on
historical write-off experience. The Company reviews its allowance
for doubtful accounts quarterly. Account balances are charged off
against the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation is calculated
principally on the straight-line method based on the estimated useful lives of
individual assets or classes of assets.
Leased
property and equipment meeting capital lease criteria are capitalized at the
lower of the present value of the related lease payments or the fair value of
the leased asset at the inception of the lease. Amortization is
calculated on the straight-line method based on the lease term.
Leasehold
improvements are recorded at cost. Amortization is calculated
principally on the straight-line method over the lesser of the estimated useful
life of the leasehold improvement or lease term. Renewal periods are
included in the lease term when the renewal is determined to be reasonably
assured.
Estimated
Useful Lives
|
Years
|
|
Buildings
|
10
to 25
|
|
Building
leasehold improvements
|
3
to 10
|
|
Security
systems
|
15
|
|
Vehicles
|
3
to 10
|
|
Capitalized
software
|
3
to 5
|
|
Other
machinery and equipment
|
3
to 10
|
|
Machinery
and equipment leasehold improvements
|
3
to 10
|
|
Expenditures
for routine maintenance and repairs on property and equipment are charged to
expense. Major renewals, betterments and modifications are
capitalized and amortized over the lesser of the remaining life of the asset or,
if applicable, the lease term. Major maintenance of aircraft used by
BAX Global (discontinued operation) was capitalized when incurred and amortized
over flying time to the next scheduled maintenance date.
BHS
retains ownership of most security systems installed at subscriber locations.
Costs for those systems are capitalized and depreciated over the estimated lives
of the assets. Costs capitalized as part of security systems include equipment
and materials used in the installation process, direct labor required to install
the equipment at subscriber sites, and other costs associated with the
installation process. These other costs include the cost of vehicles
used for installation purposes and the portion of telecommunication, facilities
and administrative costs incurred primarily at BHS’ branches that are associated
with the installation process. In 2007, direct labor and other costs
represented approximately 69% of the amounts capitalized, while equipment and
materials represented approximately 31% of amounts capitalized. In
addition to regular straight-line depreciation expense each period, the Company
charges to expense the carrying value of security systems estimated to be
permanently disconnected based on each period’s actual disconnects and
historical reconnection experience.
Part
of the costs related to the development or purchase of internal-use software is
capitalized and amortized over the estimated useful life of the
software. Costs that are capitalized include external direct costs of
materials and services to develop or obtain the software, and internal costs,
including compensation and employee benefits for employees directly associated
with a software development project.
Goodwill
and Other Intangible Assets
Goodwill
is recognized for the excess of the purchase price over the fair value of
tangible and identifiable intangible net assets of businesses
acquired. Intangible assets arising from business acquisitions
include covenants not to compete, customer lists and other identifiable
intangibles. Intangible assets that are subject to amortization have,
at December 31, 2007, average remaining useful lives ranging from 1 to 8 years
and are amortized primarily on a straight-line basis.
Impairment
of Long-Lived Assets
Goodwill
is tested for impairment at least annually by comparing the carrying value of
each reporting unit to its estimated fair value. The Company bases
its estimates of fair value on projected future cash flows. The
Company completed goodwill impairment tests during each of the last three years
with no impairment charges required.
Long-lived
assets other than goodwill are reviewed for impairment when events or changes in
circumstances indicate the carrying value of an asset may not be
recoverable.
For
long-lived assets other than goodwill that are to be held and used in
operations, an impairment is indicated when the estimated total undiscounted
cash flow associated with the asset or group of assets is less than carrying
value. If impairment exists, an adjustment is made to write the asset down to
its fair value, and a loss is recorded as the difference between the carrying
value and fair value.
Long-lived
assets held for sale are carried at the lower of carrying value or fair value
less cost to sell. Fair values are determined based on quoted market
values, discounted cash flows or internal and external appraisals, as
applicable.
Pension
and Other Postretirement Benefit Plans
The
Company accounts for its pension plans under Statement of Financial Accounting
Standard (“SFAS”) 87, Employers’ Accounting for Pensions, as
amended. The Company accounts for other postretirement benefit plans
under SFAS 106, Employers’
Accounting for Postretirement Benefits Other Than Pensions, as
amended. See “New Accounting Standards – Adopted Standards,” below
for an amendment to SFAS 87 and 106 that was effective December 31,
2006.
The
Company changed its method of estimating its discount rate in
2007. As of December 31, 2007, the discount rate used to measure the
present value of the Company’s benefit obligations was derived using the cash
flow matching method. Under this method, the Company compares the
plans’ projected payment obligations by year with the corresponding yields on
the Citigroup Pension Discount Curve and the Mercer Yield Curve. The cash flows
are then discounted to their present value and a discount rate is determined for
each curve; the average of the two discount rates is selected and is rounded to
the nearest tenth of a percentage point. The effect of the change in
estimate was to increase other comprehensive income in 2007 by $46.3
million.
Prior
to 2007, the Company selected a discount rate for its plan obligations after
reviewing published long-term yield information for a small number of
high-quality fixed-income securities (e.g. Moody’s Aa bond yields) and yields
for the broader range of long-term high-quality securities with maturities in
line with expected payments.
Assets
of pension and other postretirement benefit plans are invested primarily using
actively managed accounts of equities, which include a broad array of market
capitalization sizes and investment styles, and fixed income
securities. The Company’s policy does not permit certain investments,
including investments in The Brink’s Company common stock, unless part of a
commingled fund. Fixed-income investments must have an investment
grade rating at the time of purchase. Assets are rebalanced on a
quarterly basis if actual allocations of assets are outside predetermined
ranges. Among other factors, the performance of asset groups and
investment managers will affect the long-term rate of return.
The
Company selects the expected long-term rate of return assumption for its U.S.
pension plan and retiree medical plans using advice from its investment advisor
and its actuary considering the plan’s asset allocation targets and expected
overall investment manager performance and a review of its most recent ten-year
and twenty-year historical average compounded rate of return.
Benefit
plan experience gains and losses are recognized in other comprehensive
income. Accumulated net benefit plan experience gains and losses that
exceed 10% of the greater of a plan’s benefit obligation or plan assets at the
beginning of the year are amortized into earnings from other comprehensive
income on a straight-line basis. The amortization period for pension
plans is the average remaining service period of employees expected to receive
benefits under the plans. The amortization period for other
postretirement plans is primarily the average remaining life expectancy of
inactive participants.
Health
Benefit Act Liabilities
The
Company is obligated to pay premiums to the United Mine Workers Association
Combined Benefit Fund pursuant to rules established by the Coal Industry Retiree Health Benefit
Act of 1992, as amended (the “Health Benefit Act”). Health
Benefit Act liabilities are recorded when they are probable and estimable in
accordance with Emerging Issues Task Force (“EITF”) 92-13, Accounting for Estimated Payments in
Connection with the Coal Industry Retiree Health Benefit Act of
1992. The
Tax Relief and Health Care Act of 2006 (the “2006 Act”) substantially
reduced the Health Benefit Act obligations of the Company and provided elective
mechanisms to reduce the impact of joint and several liability on the Company
and its assets. The Company recorded a $148.3 million pretax gain
within discontinued operations during 2006 primarily due to the effects of the
2006 Act.
Income
Taxes
Deferred
tax assets and liabilities are recorded to recognize the expected future tax
benefits or costs of events that have been reported in different years for
financial statement purposes than tax purposes. 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. Management periodically reviews recorded deferred tax assets
to determine if it is more-likely-than-not that they will be
realized. If management determines it is not more-likely-than-not
that a deferred tax asset will be realized, an offsetting valuation allowance is
recorded, reducing earnings and the deferred tax asset in that
period. See “New Accounting Standards-Adopted Standards” below for
more information.
Foreign
Currency Translation
The
Company’s consolidated financial statements are reported in U.S.
dollars. A substantial amount of the Company’s business is transacted
in other currencies due to the large number of countries in which the Company
operates. In addition, the Company’s foreign subsidiaries maintain
their records primarily in the currency of the country in which they
operate. Accordingly, income, expense and balance sheet values must
be translated into U.S. dollars. The value of assets and liabilities
of foreign subsidiaries are translated into U.S. dollars using rates of exchange
at the balance sheet date and translation adjustments are recorded in other
comprehensive income (loss). Revenues and expenses are translated at
rates of exchange in effect during the year. Transaction gains and
losses, and translation adjustments relating to subsidiaries in countries with
highly inflationary economies, are included in net income. No
subsidiaries operated in highly inflationary economies during the three years
ended December 31, 2007.
Concentration
of Credit Risks
Financial
instruments which potentially subject the Company to concentrations of credit
risks are principally cash and cash equivalents and accounts
receivables. Cash and cash equivalents are held by major financial
institutions. The Company routinely assesses the financial strength
of significant customers and this assessment, combined with the large number and
geographic diversity of its customers, limits the Company’s concentration of
risk with respect to accounts receivable.
Use
of Estimates
In
accordance with U.S. generally accepted accounting principles (“GAAP”),
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. The most significant estimates used by management are
related to goodwill and other long-lived assets, pension and other
postretirement benefit obligations, and deferred tax assets.
New
Accounting Standards
Adopted
Standards
The
Company adopted FASB Interpretation 48, Accounting for Uncertainty in Income
Taxes – an interpretation of SFAS 109
(“FIN 48”), effective
January 1, 2007. This interpretation clarifies the accounting for
uncertainty in income taxes recognized in an entity’s financial statements in
accordance with SFAS 109,
Accounting for Income Taxes. It prescribes a recognition
threshold and measurement attribute for financial statement disclosure of tax
positions taken or expected to be taken on a tax return. The adoption
of this interpretation increased retained earnings at January 1, 2007, by $7.0
million.
The
Company adopted SFAS 123(R), Share-Based Payment,
effective January 1, 2006. Prior to adopting SFAS 123(R), the Company
accounted for share-based compensation using the intrinsic-value method under
Accounting Principles Board Opinion 25, Accounting for Stock Issued
to Employees,
(“APB 25”) as permitted by SFAS 123, Accounting for Stock-Based
Compensation, the predecessor to SFAS 123(R). Under the
intrinsic-value method no share-based compensation cost was recognized as all
options granted had an exercise price equal to the market value of the
underlying common stock on the date of grant. SFAS 123(R) eliminates
the use of the intrinsic-value method of accounting and requires companies to
recognize the cost of employee services received in exchange for awards of
equity instruments based on the fair value of those awards. In
addition, SFAS 123(R) requires additional accounting and disclosures for the
income tax and cash flow effects of share-based payment
arrangements.
The
Company adopted SFAS 123(R) using the “modified prospective” transition
method. Under the modified prospective transition method, the Company
began recognizing share-based compensation costs on January 1, 2006, but did not
restate prior periods. The amount of compensation cost recognized was
computed based on the requirements of SFAS 123(R) for share-based awards
granted, modified or settled in 2006, and based on the requirements of SFAS 123
for the unvested portion of awards granted prior to 2006. Under SFAS
123(R), cash flows from the benefit of tax deductions for stock options in
excess of compensation cost are classified in the consolidated statements of
cash flows as a financing activity. Under SFAS 123, these cash flows
were included in operating activities and the prior-year amounts have not been
reclassified. In addition, under SFAS 123(R), the Company no longer
separately reports The Brink’s Company Employee Benefits Trust (the “Employee
Benefits Trust”) in its consolidated statement of shareholders’ equity and
consolidated balance sheet; it is now offset with capital in excess of par
value. See note 15 for more information and for the required pro
forma disclosures under SFAS 123 for periods prior to 2006.
The
Company adopted SFAS 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans – an amendment of FASB
Statements No. 87, 88, 106, and 132(R), effective December 31,
2006. Prior to the adoption of SFAS 158, the Company accounted for
its pension plans under SFAS 87, Employers’ Accounting for
Pensions, as previously
amended, and for its Company-sponsored retiree medical plans and black lung
obligations under SFAS 106, Employers’ Accounting for
Postretirement Benefits Other Than Pensions, as previously
amended. SFAS 158 requires companies to recognize the funded status
of a defined benefit postretirement plan (other than a multi-employer plan) as
an asset or liability in its balance sheet and to recognize changes in funded
status through comprehensive income in the year in which the changes
occur. The adoption of SFAS 158 reduced the amount of consolidated
equity reported by the Company as of December 31, 2006, by $162.9
million. In addition, SFAS 158 requires current liability
classification when the actuarial present value of benefits payable in the next
twelve months exceeds the fair value of plan assets. See note 4 for
more information.
The
changes in the balance sheet at December 31, 2006, arising from the adoption of
SFAS 158 are included below:
|
|
December
31, 2006
|
|
|
|
Before
adoption of
|
|
|
Changes
due to
|
|
|
After
adoption of
|
|
(In
millions)
|
|
SFAS
158
|
|
|
SFAS
158
|
|
|
SFAS
158
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent
deferred income tax asset
|
|
$ |
32.0 |
|
|
|
110.2 |
|
|
|
142.2 |
|
Accrued
liabilities
|
|
|
432.9 |
|
|
|
(46.8 |
) |
|
|
386.1 |
|
Accrued
pension costs
|
|
|
94.5 |
|
|
|
41.0 |
|
|
|
135.5 |
|
Postretirement
benefits other than pensions
|
|
|
(98.8 |
) |
|
|
278.9 |
|
|
|
180.1 |
|
Accumulated
other comprehensive loss
|
|
|
(98.5 |
) |
|
|
(162.9 |
) |
|
|
(261.4 |
) |
The
Company adopted Securities and Exchange Commission (“SEC”) Staff Accounting
Bulletin 108 (“SAB 108”), effective December 31, 2006, which is codified as SAB
Topic 1.N, Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial
Statements. SAB 108 requires companies to quantify
misstatements using both a balance sheet and an income statement approach (“dual
method” approach) and to evaluate whether either approach results in an error
that is material in light of relevant quantitative and qualitative
factors. Prior to the adoption of SAB 108, the Company evaluated
errors using only the income statement approach.
The
Company had previously identified that it had been incorrectly applying its
accounting policy for recording impairment charges upon subscriber disconnects
at BHS. Prior to the adoption of SAB 108, the Company determined this
incorrect application was not material to the financial statements using the
income statement approach. The correction of this application was
considered material using the dual method approach due to the impact on the
trend of segment operating profit of BHS. Upon adoption of SAB 108,
to correctly apply its accounting policy to subscriber disconnects, the Company
recorded a $3.8 million ($2.4 million after tax) increase to retained earnings
in 2006.
In
March 2005, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation 47, Accounting
for Conditional Asset
Retirement Obligations (“FIN 47”), an interpretation of SFAS 143, Asset Retirement
Obligations. FIN 47 clarifies that the term “conditional asset
retirement obligation” as used in SFAS 143 includes a legal obligation
associated with the retirement of a tangible long-lived asset in which the
timing and/or method of settlement is conditional on a future event that may or
may not be within the control of the entity. An entity is required to
recognize a liability for the fair value of a conditional asset retirement
obligation if the fair value of the liability can be reasonably estimated, even
if conditional on a future event. The Company has conditional asset
retirement obligations primarily associated with leased
facilities. The Company adopted FIN 47 on December 31, 2005, and
recognized the following:
(In
millions)
|
|
|
|
|
|
|
|
Adjustment
at December 31, 2005
|
|
|
|
Increase
in assets:
|
|
|
|
Leasehold
improvements
|
|
$ |
3.8 |
|
Noncurrent deferred income tax
asset
|
|
|
0.9 |
|
|
|
|
4.7 |
|
Increase
in liabilities – asset retirement obligations
|
|
|
(10.1 |
) |
Cumulative
effect of change in accounting principle, net of tax (a)
|
|
$ |
(5.4 |
) |
(a)
|
Includes
$1.0 million of cumulative effect of change in accounting principle, net
of tax, related to BAX Global and $0.9 million related to Brink’s United
Kingdom domestic cash handling
operations.
|
If
the Company had adopted FIN 47 on January 1, 2003, the adoption date of SFAS
143, net income and earnings per share in 2005 would have been the following on
a pro forma basis:
|
|
Year
Ended December 31,
|
|
(In
millions, except per share amounts)
|
|
2005
|
|
|
|
|
|
Net
income, as reported
|
|
$ |
142.4 |
|
Add
back cumulative effect
|
|
|
5.4 |
|
Less
total depreciation and interest accretion expense, net of
tax
|
|
|
(1.6 |
) |
Pro
forma net income
|
|
$ |
146.2 |
|
|
|
|
|
|
Net
income per common share:
|
|
|
|
|
Basic:
|
|
|
|
|
As reported
|
|
$ |
2.53 |
|
Pro forma
|
|
|
2.60 |
|
Diluted:
|
|
|
|
|
As reported
|
|
$ |
2.50 |
|
Pro forma
|
|
|
2.57 |
|
The
pro forma amounts were measured using the same information, assumptions and
interest rates used to measure the liability for conditional asset retirement
obligations recognized upon adoption of FIN 47.
Standards
Not Yet Adopted
In
September 2006, the FASB issued SFAS 157, Fair Value
Measurements. SFAS 157 defines fair value, establishes a
framework for measuring fair value under GAAP, and expands disclosure of fair
value measurements. SFAS 157 emphasizes that fair value is a
market-based measurement, not an entity-specific measurement, and states that a
fair value measurement should be determined based on assumptions that market
participants would use in pricing the asset or liability. The Company
is required to adopt SFAS 157 in the first quarter of 2008, however, in February
2008, the FASB issued FSP 157-2, Partial Deferral of the Effective
Date of SFAS 157, which would delay the effective date of SFAS 157 for
all nonrecurring fair value measurements of nonfinancial assets and nonfinancial
liabilities. The Company does not expect that the implementation of
SFAS 157, as it relates to the Company’s financial assets and financial
liabilities, will have a material effect on the Company’s results of operations
or financial position. The Company is currently evaluating the
potential impact, if any, as it relates to the Company’s nonfinancial assets and
liabilities.
In
February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Liabilities – Including an amendment of FASB Statement No.
115. SFAS 159 permits entities to choose to measure certain
financial assets and liabilities at fair value (the “fair value
option”). Unrealized gains and losses, arising subsequent to the
election of the fair value option, are reported in earnings. The
Company is required to adopt SFAS 159 in the first quarter of
2008. The Company does not expect that the implementation of SFAS 159
will have a material effect on the Company’s results of operations or financial
position.
In
December 2007, the FASB issued SFAS 141(R), Business
Combinations. SFAS 141(R) establishes requirements for an
acquirer to record the assets acquired, liabilities assumed, and any related
noncontrolling interest related to the acquisition of a controlled subsidiary,
measured at fair value as of the acquisition date. The Company is
required to adopt SFAS 141(R) in the first quarter of 2009. The
Company is currently evaluating the potential impact, if any, of the adoption of
SFAS 141(R) on the Company’s results of operations and financial
position.
In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements. SFAS 160 amends Accounting
Research Bulletin (“ARB”) 51 to establish accounting and reporting standards for
the noncontrolling interest in a subsidiary, as well as for the deconsolidation
of a subsidiary. Specificially, SFAS 160 clarifies that
noncontrolling interests in a subsidiary should be reported as equity in the
consolidated financial statements. The Company is required to adopt
SFAS 160 in the first quarter of 2009. The Company has $68.2
million at December 31, 2007, and $51.8 million at December 31, 2006, of
minority interest classified as noncurrent liabilities; upon adoption of SFAS
160, these amounts will be classified as part of shareholders’
equity. Accordingly, the adoption of this standard will increase
equity and decrease liabilities, however, the Company does not currently expect
that the implementation of SFAS 160 will have a material effect on the Company’s
results of operations.
Note
2 – Segment Information
The
Company conducts business in two operating segments: Brink’s and
BHS. These segments are identified by the Company based on how
resources are allocated and operating decisions are made. Management
evaluates performance and allocates resources based on operating profit or loss,
excluding corporate allocations.
The
Company expects to distribute its interest in BHS to the shareholders of The
Brink’s Company in the fourth quarter of 2008, as further discussed in note
23. After the distribution, the Company will report BHS' results
of operations, including previously reported results, within discontinued
operations.
Brink’s
primary services include:
|
·
|
Cash-in-transit
(“CIT”) armored car transportation
|
|
·
|
Automated
teller machine (“ATM”) replenishment and
servicing
|
|
·
|
Global
Services - arranging secure long-distance transportation of
valuables
|
|
·
|
Cash
Logistics – supply chain management of cash; from point-of-sale through
transport, vaulting and bank
deposit
|
|
·
|
Guarding
services, including airport
security
|
|
·
|
Secure
Data Solutions - transporting, storing and destroying sensitive
information
|
Brink’s
operates in approximately 50 countries.
During
the third quarter of 2007, Brink’s recorded a $2.0 million impairment charge to
write down long-lived assets to estimated fair value. The charge was
recorded as part of other operating income, net, due to expected future
operating losses and negative operating cash flows associated with these
assets.
BHS
offers monitored security services in North America for owner-occupied,
single-family residences and, to a lesser extent, commercial
properties. BHS typically installs and owns the on-site security
systems and charges fees to monitor and service the systems.
|
|
Revenues
|
|
|
Operating
Profit
|
|
|
|
Years
Ended December 31,
|
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
2,734.6 |
|
|
|
2,354.3 |
|
|
|
2,113.3 |
|
|
$ |
223.3 |
|
|
|
184.1 |
|
|
|
119.5 |
|
BHS
|
|
|
484.4 |
|
|
|
439.0 |
|
|
|
392.1 |
|
|
|
114.2 |
|
|
|
100.3 |
|
|
|
87.4 |
|
Business Segments
|
|
|
3,219.0 |
|
|
|
2,793.3 |
|
|
|
2,505.4 |
|
|
|
337.5 |
|
|
|
284.4 |
|
|
|
206.9 |
|
Corporate
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(49.6 |
) |
|
|
(48.4 |
) |
|
|
(44.7 |
) |
Former
operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13.9 |
) |
|
|
(26.5 |
) |
|
|
(39.2 |
) |
|
|
$ |
3,219.0 |
|
|
|
2,793.3 |
|
|
|
2,505.4 |
|
|
$ |
274.0 |
|
|
|
209.5 |
|
|
|
123.0 |
|
|
|
Capital
Expenditures
|
|
|
Depreciation
and Amortization
|
|
|
|
Years
Ended December 31,
|
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
141.6 |
|
|
|
113.5 |
|
|
|
107.3 |
|
|
$ |
104.6 |
|
|
|
88.8 |
|
|
|
84.2 |
|
BHS
|
|
|
177.8 |
|
|
|
163.9 |
|
|
|
162.2 |
|
|
|
65.6 |
|
|
|
57.1 |
|
|
|
49.1 |
|
Corporate
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.7 |
|
|
|
0.7 |
|
Property and
equipment
|
|
|
319.6 |
|
|
|
277.7 |
|
|
|
270.0 |
|
|
|
170.6 |
|
|
|
146.6 |
|
|
|
134.0 |
|
Amortization
of BHS deferred subscriber acquisition costs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
12.1 |
|
|
|
10.5 |
|
|
|
9.0 |
|
Amortization
of Brink’s intangible assets
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5.0 |
|
|
|
3.5 |
|
|
|
3.1 |
|
|
|
$ |
319.6 |
|
|
|
277.7 |
|
|
|
270.0 |
|
|
$ |
187.7 |
|
|
|
160.6 |
|
|
|
146.1 |
|
|
|
Assets
|
|
|
|
December
31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Business
Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
1,517.3 |
|
|
|
1,334.9 |
|
|
|
1,096.7 |
|
BHS
|
|
|
716.3 |
|
|
|
646.3 |
|
|
|
585.1 |
|
Business Segments
|
|
|
2,233.6 |
|
|
|
1,981.2 |
|
|
|
1,681.8 |
|
Corporate
|
|
|
93.7 |
|
|
|
95.1 |
|
|
|
89.3 |
|
Former
natural resource operations and interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax
assets
|
|
|
58.7 |
|
|
|
95.1 |
|
|
|
255.1 |
|
Other residual coal
assets
|
|
|
8.3 |
|
|
|
16.6 |
|
|
|
34.2 |
|
Discontinued
operations
|
|
|
- |
|
|
|
- |
|
|
|
976.5 |
|
|
|
$ |
2,394.3 |
|
|
|
2,188.0 |
|
|
|
3,036.9 |
|
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Other
BHS Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
charges from subscriber disconnects
|
|
$ |
50.4 |
|
|
|
47.1 |
|
|
|
45.2 |
|
Amortization
of deferred revenue
|
|
|
(34.2 |
) |
|
|
(31.2 |
) |
|
|
(29.5 |
) |
Deferral
of subscriber acquisition costs (current year payments)
|
|
|
(23.8 |
) |
|
|
(24.4 |
) |
|
|
(22.9 |
) |
Deferral
of revenue from new subscribers (current year receipts)
|
|
|
47.4 |
|
|
|
44.9 |
|
|
|
40.7 |
|
|
|
Long-Lived
Assets (a)
|
|
|
Revenues
|
|
|
|
December
31,
|
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France
|
|
$ |
180.8 |
|
|
|
160.8 |
|
|
|
145.9 |
|
|
$ |
628.8 |
|
|
|
546.5 |
|
|
|
508.1 |
|
Venezuela
|
|
|
61.3 |
|
|
|
50.2 |
|
|
|
34.6 |
|
|
|
224.9 |
|
|
|
171.7 |
|
|
|
129.0 |
|
Other
|
|
|
328.9 |
|
|
|
280.9 |
|
|
|
234.8 |
|
|
|
1,146.5 |
|
|
|
928.7 |
|
|
|
803.0 |
|
Subtotal
|
|
|
571.0 |
|
|
|
491.9 |
|
|
|
415.3 |
|
|
|
2,000.2 |
|
|
|
1,646.9 |
|
|
|
1,440.1 |
|
United
States
|
|
|
797.4 |
|
|
|
716.7 |
|
|
|
644.6 |
|
|
|
1,218.8 |
|
|
|
1,146.4 |
|
|
|
1,065.3 |
|
|
|
$ |
1,368.4 |
|
|
|
1,208.6 |
|
|
|
1,059.9 |
|
|
$ |
3,219.0 |
|
|
|
2,793.3 |
|
|
|
2,505.4 |
|
(a)
|
Long-lived
assets include property and equipment, net; goodwill; other intangible
assets, net; and deferred
charges.
|
Revenues
are recorded in the country where service is initiated or
performed. No single customer represents more than 10% of total
revenue.
|
|
December
31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005(a)
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets outside the U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe,
Middle East and Africa
|
|
$ |
349.1 |
|
|
|
246.3 |
|
|
|
190.5 |
|
Latin
America
|
|
|
173.9 |
|
|
|
133.5 |
|
|
|
123.9 |
|
Asia
Pacific
|
|
|
33.6 |
|
|
|
32.7 |
|
|
|
166.1 |
|
Other
|
|
|
48.7 |
|
|
|
34.6 |
|
|
|
38.4 |
|
|
|
$ |
605.3 |
|
|
|
447.1 |
|
|
|
518.9 |
|
(a)
|
Includes
$222.2 million in 2005 related to BAX
Global.
|
|
|
December
31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in unconsolidated equity affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
12.6 |
|
|
|
10.4 |
|
|
|
10.2 |
|
Other
|
|
|
4.7 |
|
|
|
4.8 |
|
|
|
5.5 |
|
|
|
$ |
17.3 |
|
|
|
15.2 |
|
|
|
15.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
of earnings of unconsolidated equity affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
3.0 |
|
|
|
3.0 |
|
|
|
3.0 |
|
Other
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
$ |
3.3 |
|
|
|
3.3 |
|
|
|
3.4 |
|
Undistributed
earnings of equity affiliates included in consolidated retained earnings
approximated $8.1 million at December 31, 2007, $7.1 million at December 31,
2006, and $8.7 million at December 31, 2005.
Note
3 – Earnings Per Share
Shares
used to calculate earnings per share are as follows:
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
46.5 |
|
|
|
50.0 |
|
|
|
56.3 |
|
Effect
of dilutive stock options
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.7 |
|
Diluted
|
|
|
47.0 |
|
|
|
50.5 |
|
|
|
57.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive
stock options excluded from denominator
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
- |
|
Shares
of the Company’s common stock held by the Employee Benefits Trust that have not
been allocated to participants under the Company’s various benefit plans are
excluded from earnings per share calculations since they are treated as treasury
shares for the calculation of earnings per share. The Employee
Benefits Trust held 1.7 million unallocated shares at December 31, 2007, 2.3
million unallocated shares at December 31, 2006, and 1.2 million unallocated
shares at December 31, 2005.
Note
4 – Employee and Retiree Benefits
The
employee benefit plans and other liabilities described below cover eligible
employees and retirees. The measurement date for all plans is December
31.
Pension
Plans
The
Company has various defined-benefit pension plans covering eligible current and
former employees. Benefits under most plans are based on salary and
years of service. Effective December 31, 2005, the Company froze
benefit levels for its U.S. defined benefit pension plans. As a
result, participants in the U.S. defined benefit pension plans ceased to earn
additional benefits after 2005, although participants who had not met
requirements for vesting continue to accrue vesting service in accordance with
the terms of the plans.
The
Company’s policy is to fund at least the minimum actuarially determined amounts
required by applicable regulations. On September 7, 2007, the Company
made a voluntary contribution to its primary U.S. pension plan of $13
million.
The
weighted-average assumptions used in determining the net pension cost and
benefit obligations for the Company’s pension plans were as
follows:
|
|
U.S.
Plans
|
|
|
Non-U.S.
Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension cost
|
|
|
5.8 |
% |
|
|
5.5 |
% |
|
|
5.8 |
% |
|
|
4.8 |
% |
|
|
4.8 |
% |
|
|
5.3 |
% |
Benefit obligation at year
end
|
|
|
6.4 |
% |
|
|
5.8 |
% |
|
|
5.5 |
% |
|
|
5.5 |
% |
|
|
4.8 |
% |
|
|
4.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
long-term rate of return on assets -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension cost
|
|
|
8.8 |
% |
|
|
8.8 |
% |
|
|
8.8 |
% |
|
|
5.6 |
% |
|
|
5.8 |
% |
|
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
rate of increase in salaries (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension cost
|
|
|
N/A |
(b) |
|
|
N/A |
(b) |
|
|
5.0 |
% |
|
|
3.0 |
% |
|
|
3.1 |
% |
|
|
3.2 |
% |
Benefit obligation at year
end
|
|
|
N/A |
(b) |
|
|
N/A |
(b) |
|
|
N/A |
(b) |
|
|
3.0 |
% |
|
|
3.0 |
% |
|
|
3.1 |
% |
(a)
|
Salary
scale assumptions are determined through historical experience and vary by
age and industry.
|
(b)
|
The
U.S. plan benefits were frozen at December 31, 2005, and pension benefit
payments will be based on salaries earned through December 31,
2005.
|
The
RP-2000 Combined Healthy Blue Collar mortality table and the RP-2000 Combined
Healthy White Collar mortality table were used to estimate the expected lives of
participants in the U.S. pension plans. Expected lives of
participants in non-U.S. pension plans were estimated using mortality tables in
the country of operation.
The
net pension cost for the Company’s pension plans is as follows:
(In
millions)
|
|
U.S.
Plans
|
|
|
Non-U.S.
Plans
|
|
|
Total
|
|
Years
Ended December 31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
- |
|
|
|
- |
|
|
|
28.2 |
|
|
$ |
9.2 |
|
|
|
8.0 |
|
|
|
10.1 |
|
|
$ |
9.2 |
|
|
|
8.0 |
|
|
|
38.3 |
|
Interest
cost on PBO
|
|
|
44.2 |
|
|
|
42.0 |
|
|
|
43.8 |
|
|
|
10.3 |
|
|
|
8.7 |
|
|
|
10.6 |
|
|
|
54.5 |
|
|
|
50.7 |
|
|
|
54.4 |
|
Return
on assets - expected
|
|
|
(53.5 |
) |
|
|
(50.6 |
) |
|
|
(49.9 |
) |
|
|
(10.0 |
) |
|
|
(8.4 |
) |
|
|
(10.0 |
) |
|
|
(63.5 |
) |
|
|
(59.0 |
) |
|
|
(59.9 |
) |
Amortization
of losses
|
|
|
13.3 |
|
|
|
17.1 |
|
|
|
22.9 |
|
|
|
3.1 |
|
|
|
3.3 |
|
|
|
3.3 |
|
|
|
16.4 |
|
|
|
20.4 |
|
|
|
26.2 |
|
Curtailment
loss
|
|
|
- |
|
|
|
- |
|
|
|
0.2 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.2 |
|
Net
pension cost
|
|
$ |
4.0 |
|
|
|
8.5 |
|
|
|
45.2 |
|
|
$ |
12.6 |
|
|
|
11.6 |
|
|
|
14.0 |
|
|
$ |
16.6 |
|
|
|
20.1 |
|
|
|
59.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
4.0 |
|
|
|
8.3 |
|
|
|
33.3 |
|
|
$ |
11.9 |
|
|
|
10.2 |
|
|
|
8.8 |
|
|
$ |
15.9 |
|
|
|
18.5 |
|
|
|
42.1 |
|
Discontinued
operations
|
|
|
- |
|
|
|
0.2 |
|
|
|
11.9 |
|
|
|
0.7 |
|
|
|
1.4 |
|
|
|
5.2 |
|
|
|
0.7 |
|
|
|
1.6 |
|
|
|
17.1 |
|
Net
pension cost
|
|
$ |
4.0 |
|
|
|
8.5 |
|
|
|
45.2 |
|
|
$ |
12.6 |
|
|
|
11.6 |
|
|
|
14.0 |
|
|
$ |
16.6 |
|
|
|
20.1 |
|
|
|
59.2 |
|
Changes
in the projected benefit obligation (“PBO”) and plan assets for the Company’s
pension plans are as follows:
(In
millions)
|
|
U.S.
Plans
|
|
|
Non-U.S.
Plans
|
|
|
Total
|
|
Years
Ended December 31,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBO
at beginning of year
|
|
$ |
765.8 |
|
|
|
764.3 |
|
|
|
206.1 |
|
|
|
232.4 |
|
|
|
971.9 |
|
|
|
996.7 |
|
Service
cost
|
|
|
- |
|
|
|
- |
|
|
|
9.2 |
|
|
|
8.0 |
|
|
|
9.2 |
|
|
|
8.0 |
|
Interest
cost
|
|
|
44.2 |
|
|
|
42.0 |
|
|
|
10.3 |
|
|
|
8.7 |
|
|
|
54.5 |
|
|
|
50.7 |
|
Plan
participant contributions
|
|
|
- |
|
|
|
- |
|
|
|
3.2 |
|
|
|
2.4 |
|
|
|
3.2 |
|
|
|
2.4 |
|
Plan
amendments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13.7 |
|
|
|
- |
|
|
|
13.7 |
|
Plan
settlements
|
|
|
- |
|
|
|
- |
|
|
|
(0.9 |
) |
|
|
- |
|
|
|
(0.9 |
) |
|
|
- |
|
Acquisitions
|
|
|
- |
|
|
|
- |
|
|
|
0.8 |
|
|
|
- |
|
|
|
0.8 |
|
|
|
- |
|
Benefits
paid
|
|
|
(31.6 |
) |
|
|
(29.0 |
) |
|
|
(6.5 |
) |
|
|
(5.8 |
) |
|
|
(38.1 |
) |
|
|
(34.8 |
) |
Actuarial
gains
|
|
|
(47.7 |
) |
|
|
(11.5 |
) |
|
|
(18.4 |
) |
|
|
(5.5 |
) |
|
|
(66.1 |
) |
|
|
(17.0 |
) |
Foreign
currency exchange effects
|
|
|
- |
|
|
|
- |
|
|
|
26.9 |
|
|
|
15.4 |
|
|
|
26.9 |
|
|
|
15.4 |
|
Sale
of BAX Global
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(63.2 |
) |
|
|
- |
|
|
|
(63.2 |
) |
Other
|
|
|
- |
|
|
|
- |
|
|
|
2.2 |
|
|
|
- |
|
|
|
2.2 |
|
|
|
- |
|
PBO
at end of year
|
|
$ |
730.7 |
|
|
|
765.8 |
|
|
|
232.9 |
|
|
|
206.1 |
|
|
|
963.6 |
|
|
|
971.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year
|
|
$ |
677.3 |
|
|
|
620.0 |
|
|
|
157.9 |
|
|
|
171.2 |
|
|
|
835.2 |
|
|
|
791.2 |
|
Return
on assets – actual
|
|
|
49.5 |
|
|
|
85.8 |
|
|
|
8.2 |
|
|
|
14.9 |
|
|
|
57.7 |
|
|
|
100.7 |
|
Plan
participant contributions
|
|
|
- |
|
|
|
- |
|
|
|
3.2 |
|
|
|
2.4 |
|
|
|
3.2 |
|
|
|
2.4 |
|
Employer
contributions
|
|
|
13.6 |
|
|
|
0.5 |
|
|
|
10.2 |
|
|
|
8.4 |
|
|
|
23.8 |
|
|
|
8.9 |
|
Plan
settlements
|
|
|
- |
|
|
|
- |
|
|
|
(0.9 |
) |
|
|
- |
|
|
|
(0.9 |
) |
|
|
- |
|
Benefits
paid
|
|
|
(31.6 |
) |
|
|
(29.0 |
) |
|
|
(6.5 |
) |
|
|
(5.8 |
) |
|
|
(38.1 |
) |
|
|
(34.8 |
) |
Foreign
currency effects
|
|
|
- |
|
|
|
- |
|
|
|
22.0 |
|
|
|
10.5 |
|
|
|
22.0 |
|
|
|
10.5 |
|
Sale
of BAX Global
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(43.7 |
) |
|
|
- |
|
|
|
(43.7 |
) |
Other
|
|
|
- |
|
|
|
- |
|
|
|
1.8 |
|
|
|
- |
|
|
|
1.8 |
|
|
|
- |
|
Fair
value of plan assets at end of year
|
|
$ |
708.8 |
|
|
|
677.3 |
|
|
|
195.9 |
|
|
|
157.9 |
|
|
|
904.7 |
|
|
|
835.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status
|
|
$ |
(21.9 |
) |
|
|
(88.5 |
) |
|
|
(37.0 |
) |
|
|
(48.2 |
) |
|
|
(58.9 |
) |
|
|
(136.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current, included in accrued
liabilities
|
|
$ |
0.7 |
|
|
|
0.9 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.9 |
|
|
|
1.2 |
|
Noncurrent
|
|
|
21.2 |
|
|
|
87.6 |
|
|
|
36.8 |
|
|
|
47.9 |
|
|
|
58.0 |
|
|
|
135.5 |
|
Net
pension liability
|
|
$ |
21.9 |
|
|
|
88.5 |
|
|
|
37.0 |
|
|
|
48.2 |
|
|
|
58.9 |
|
|
|
136.7 |
|
Changes
in accumulated other comprehensive income (loss) of the Company’s pension plans
are as follows:
(In
millions)
|
|
U.S.
Plans
|
|
|
Non-U.S.
Plans
|
|
|
Total
|
|
Years
Ended December 31,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
plan experience loss recognized in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
year
|
|
$ |
(122.1 |
) |
|
|
- |
|
|
|
(31.6 |
) |
|
|
- |
|
|
|
(153.7 |
) |
|
|
- |
|
Net experience gains arising
during the year
|
|
|
43.7 |
|
|
|
- |
|
|
|
16.1 |
|
|
|
- |
|
|
|
59.8 |
|
|
|
- |
|
Reclassification adjustment
for amortization of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
experience loss included in
net income
|
|
|
13.3 |
|
|
|
- |
|
|
|
1.6 |
|
|
|
- |
|
|
|
14.9 |
|
|
|
- |
|
Adoption of SFAS 158
(a)
|
|
|
- |
|
|
|
(122.1 |
) |
|
|
- |
|
|
|
(31.6 |
) |
|
|
- |
|
|
|
(153.7 |
) |
End of year
|
|
$ |
(65.1 |
) |
|
|
(122.1 |
) |
|
|
(13.9 |
) |
|
|
(31.6 |
) |
|
|
(79.0 |
) |
|
|
(153.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
plan prior service cost recognized in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
year
|
|
$ |
- |
|
|
|
- |
|
|
|
(13.6 |
) |
|
|
- |
|
|
|
(13.6 |
) |
|
|
- |
|
Reclassification adjustment
for amortization of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior service cost included in
net income
|
|
|
- |
|
|
|
- |
|
|
|
1.5 |
|
|
|
- |
|
|
|
1.5 |
|
|
|
- |
|
Adoption of SFAS 158
(a)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13.6 |
) |
|
|
- |
|
|
|
(13.6 |
) |
End of year
|
|
$ |
- |
|
|
|
- |
|
|
|
(12.1 |
) |
|
|
(13.6 |
) |
|
|
(12.1 |
) |
|
|
(13.6 |
) |
The
Company estimates that $2.8 million of experience loss and $1.6 million of prior
service cost will be amortized from accumulated other comprehensive income into
net pension cost during 2008.
The
actuarial gain in 2007 was primarily due to higher discount
rates. The actuarial gain in 2006 is primarily due to an increase in
the discount rate and changes to employee census data.
Information
comparing plan assets to plan obligations as of December 31, 2007 and 2006 are
aggregated below. The ABO differs from the PBO in that the ABO is the
obligation earned through the date noted. The PBO includes
assumptions about future compensation levels for plans that have not been
frozen.
|
|
ABO
Greater
|
|
|
Plan
Assets
|
|
|
|
|
(In
millions)
|
|
Than
Plan Assets
|
|
|
Greater
Than ABO
|
|
|
Total
|
|
December
31,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBO
|
|
$ |
779.9 |
|
|
|
902.0 |
|
|
|
183.7 |
|
|
|
69.9 |
|
|
|
963.6 |
|
|
|
971.9 |
|
ABO
|
|
|
774.8 |
|
|
|
893.9 |
|
|
|
167.2 |
|
|
|
60.2 |
|
|
|
942.0 |
|
|
|
954.1 |
|
Fair
value of plan assets
|
|
|
728.6 |
|
|
|
774.5 |
|
|
|
176.1 |
|
|
|
60.7 |
|
|
|
904.7 |
|
|
|
835.2 |
|
The
Company’s weighted-average asset allocations at December 31, 2007 and 2006 by
asset category are as follows:
(In
millions, except percentages)
|
|
U.S.
Plans
|
|
|
Non-U.S.
Plans (a)
|
|
December
31,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
Target
|
|
|
Actual
|
|
|
Target
|
|
|
Actual
|
|
|
Target
|
|
|
Actual
|
|
|
Target
|
|
|
Actual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
70 |
% |
|
|
68 |
% |
|
|
70 |
% |
|
|
71 |
% |
|
|
48 |
% |
|
|
49 |
% |
|
|
47 |
% |
|
|
50 |
% |
Debt
securities
|
|
|
30 |
% |
|
|
32 |
% |
|
|
30 |
% |
|
|
29 |
% |
|
|
52 |
% |
|
|
51 |
% |
|
|
53 |
% |
|
|
50 |
% |
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
assets at fair value
|
|
|
|
|
|
$ |
708.8 |
|
|
|
|
|
|
|
677.3 |
|
|
|
|
|
|
|
195.9 |
|
|
|
|
|
|
|
157.9 |
|
Actual
return on assets during year
|
|
|
|
|
|
$ |
49.5 |
|
|
|
|
|
|
|
85.8 |
|
|
|
|
|
|
|
8.2 |
|
|
|
|
|
|
|
14.9 |
|
(a)
|
Targets
for non-U.S. asset allocations are weighted
averages.
|
Based
on December 31, 2007, data, assumptions and funding regulations, the Company
does not currently plan to make a contribution to the primary U.S. plan for the
plan year 2007. A $13 million contribution was made during the third
quarter of 2007 for plan year 2006. There are limits to the amount of
benefits which can be paid to participants from a U.S. qualified pension
plan. The Company maintains a nonqualified U.S. plan to pay benefits
for those eligible current and former employees in the U.S. whose benefits
exceed the regulatory limits.
The
Company expects to contribute approximately $0.9 million to its supplemental
U.S. pension plan and $12.5 million to its non-U.S. pension plans in
2008.
The
Company’s projected benefit payments at December 31, 2007, for each of the next
five years and the aggregate five years thereafter are as follows:
(In
millions)
|
|
U.S.
Plans
|
Non-U.S.
Plans
|
Total
|
|
|
|
|
|
|
|
2008
|
$
|
34.3
|
5.7
|
40.0
|
|
2009
|
|
36.1
|
6.3
|
42.4
|
|
2010
|
|
38.0
|
7.5
|
45.5
|
|
2011
|
|
40.0
|
7.5
|
47.5
|
|
2012
|
|
42.4
|
8.8
|
51.2
|
|
2013
through 2017
|
|
248.7
|
55.7
|
304.4
|
|
Total
|
$
|
439.5
|
91.5
|
531.0
|
|
Termination
Benefits
The
Company periodically restructures operations and is required to pay termination
benefits pursuant to contractual or legal requirements. These
termination benefits are recorded pursuant to the provisions of SFAS 88, Employers’ Accounting for Settlement
and Curtailments of Defined Benefit Pension Plans and Termination
Benefits.
During
2007, one of the Company’s Brink’s European subsidiaries resized its operations
and accrued $2.4 million in termination benefits.
During
2006, the Company’s Brink’s Australian subsidiary lost its largest
customer. The Company took actions to restructure the subsidiary in
the second and third quarters, and recorded charges of $2.6 million for
termination benefits.
During
2005, one of the Company’s Brink’s European subsidiaries resized its operations
and accrued $6.1 million in termination benefits. During 2006, the
Company reduced this estimate by $0.4 million.
Multi-employer
Pension Plans
The
Company contributes to multi-employer pension plans in a few of its non-U.S.
subsidiaries. Multi-employer pension expense for continuing
operations was $2.0 million in 2007, $1.8 million in 2006 and $2.9 million in
2005.
In
2006, the Company settled its multi-employer pension withdrawal liabilities
related to the Company’s former coal operations and made final payments to the
plans of $20.4 million, resulting in a $9.9 million pretax gain recognized in
discontinued operations. During 2005, the Company reduced its
estimated withdrawal liability by $6.1 million and recognized a gain in
discontinued operations.
Savings
Plans
The
Company sponsors various defined contribution plans to help eligible employees
provide for retirement. Employees’ eligible contributions to the
primary U.S. 401(k) plan were matched at 125% during 2007 and 2006 and 75% in
2005. Participants were formerly allowed to invest in common stock of
the Company, but during January 2008, all Company stock investments have been
reallocated to other investments. The Company’s matching contribution
expense is as follows:
(In
millions)
|
|
U.S.
401(k)
|
|
|
Other
Plans
|
|
|
Total
|
|
Years
Ended December 31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
18.0 |
|
|
|
16.5 |
|
|
|
6.5 |
|
|
$ |
1.1 |
|
|
|
1.9 |
|
|
|
2.4 |
|
|
$ |
19.1 |
|
|
|
18.4 |
|
|
|
8.9 |
|
Discontinued
operations
|
|
|
- |
|
|
|
0.5 |
|
|
|
3.6 |
|
|
|
0.2 |
|
|
|
0.7 |
|
|
|
4.5 |
|
|
|
0.2 |
|
|
|
1.2 |
|
|
|
8.1 |
|
|
|
$ |
18.0 |
|
|
|
17.0 |
|
|
|
10.1 |
|
|
$ |
1.3 |
|
|
|
2.6 |
|
|
|
6.9 |
|
|
$ |
19.3 |
|
|
|
19.6 |
|
|
|
17.0 |
|
Postretirement
Benefits Other Than Pensions
Summary
The
Company has obligations for various postretirement benefits other than
pensions. The related liability amounts recorded on the balance
sheets for the last two years are detailed below.
|
|
December
31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Company-sponsored
medical benefits
|
|
$ |
62.8 |
|
|
|
126.5 |
|
Black
Lung
|
|
|
47.5 |
|
|
|
46.7 |
|
Health
Benefit Act
|
|
|
11.1 |
|
|
|
19.2 |
|
|
|
$ |
121.4 |
|
|
|
192.4 |
|
|
|
|
|
|
|
|
|
|
Included
in:
|
|
|
|
|
|
|
|
|
Current, included in accrued
liabilities
|
|
$ |
9.5 |
|
|
|
12.3 |
|
Noncurrent
|
|
|
111.9 |
|
|
|
180.1 |
|
|
|
$ |
121.4 |
|
|
|
192.4 |
|
Company-Sponsored
Medical Benefits
The
Company provides postretirement health care benefits (the “Company-sponsored
plans”) for eligible current and former employees in the U.S. and Canada,
including former employees of the former coal operations (the “coal-related”
plans). The components of net periodic postretirement cost related to
Company-sponsored plans were as follows:
(In
millions)
|
|
Coal-related
plans
|
|
|
Other
plans
|
|
|
Total
|
|
Years
Ended December 31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
0.2 |
|
|
|
0.3 |
|
|
|
1.0 |
|
|
$ |
0.2 |
|
|
|
0.3 |
|
|
|
1.0 |
|
Interest
cost on accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
postretirement
benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations
(“APBO”)
|
|
|
31.2 |
|
|
|
31.8 |
|
|
|
33.9 |
|
|
|
0.8 |
|
|
|
0.9 |
|
|
|
1.5 |
|
|
|
32.0 |
|
|
|
32.7 |
|
|
|
35.4 |
|
Return
on assets – expected
|
|
|
(38.6 |
) |
|
|
(34.2 |
) |
|
|
(15.1 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(38.6 |
) |
|
|
(34.2 |
) |
|
|
(15.1 |
) |
Amortization
of (gains) losses
|
|
|
11.4 |
|
|
|
15.1 |
|
|
|
15.7 |
|
|
|
(0.3 |
) |
|
|
(0.1 |
) |
|
|
0.3 |
|
|
|
11.1 |
|
|
|
15.0 |
|
|
|
16.0 |
|
Net
periodic postretirement cost
|
|
$ |
4.0 |
|
|
|
12.7 |
|
|
|
34.5 |
|
|
$ |
0.7 |
|
|
|
1.1 |
|
|
|
2.8 |
|
|
$ |
4.7 |
|
|
|
13.8 |
|
|
|
37.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
4.0 |
|
|
|
12.7 |
|
|
|
34.5 |
|
|
$ |
0.7 |
|
|
|
1.0 |
|
|
|
1.3 |
|
|
$ |
4.7 |
|
|
|
13.7 |
|
|
|
35.8 |
|
Discontinued
operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.1 |
|
|
|
1.5 |
|
|
|
- |
|
|
|
0.1 |
|
|
|
1.5 |
|
Net
periodic postretirement cost
|
|
$ |
4.0 |
|
|
|
12.7 |
|
|
|
34.5 |
|
|
$ |
0.7 |
|
|
|
1.1 |
|
|
|
2.8 |
|
|
$ |
4.7 |
|
|
|
13.8 |
|
|
|
37.3 |
|
Changes
in the APBO and plan assets for Company-sponsored plans are as
follows:
(In
millions)
|
|
Coal-related
plans
|
|
|
Other
plans
|
|
|
Total
|
|
Years
Ended December 31,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APBO
at beginning of year
|
|
$ |
570.9 |
|
|
|
633.0 |
|
|
$ |
14.9 |
|
|
|
26.0 |
|
|
$ |
585.8 |
|
|
|
659.0 |
|
Service
cost
|
|
|
- |
|
|
|
- |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
0.3 |
|
Interest
cost
|
|
|
31.2 |
|
|
|
31.8 |
|
|
|
0.8 |
|
|
|
0.9 |
|
|
|
32.0 |
|
|
|
32.7 |
|
Plan
amendments
|
|
|
- |
|
|
|
- |
|
|
|
(0.1 |
) |
|
|
- |
|
|
|
(0.1 |
) |
|
|
- |
|
Benefits
paid
|
|
|
(37.1 |
) |
|
|
(37.8 |
) |
|
|
(0.9 |
) |
|
|
(0.6 |
) |
|
|
(38.0 |
) |
|
|
(38.4 |
) |
Medicare
subsidy received
|
|
|
3.0 |
|
|
|
2.3 |
|
|
|
- |
|
|
|
- |
|
|
|
3.0 |
|
|
|
2.3 |
|
Actuarial
gain, net
|
|
|
(58.7 |
) |
|
|
(58.4 |
) |
|
|
(1.9 |
) |
|
|
(3.0 |
) |
|
|
(60.6 |
) |
|
|
(61.4 |
) |
Foreign
currency exchange effects
|
|
|
- |
|
|
|
- |
|
|
|
0.8 |
|
|
|
- |
|
|
|
0.8 |
|
|
|
- |
|
Sale
of BAX Global
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8.7 |
) |
|
|
- |
|
|
|
(8.7 |
) |
APBO
at end of year
|
|
$ |
509.3 |
|
|
|
570.9 |
|
|
$ |
13.8 |
|
|
|
14.9 |
|
|
$ |
523.1 |
|
|
|
585.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year
|
|
$ |
459.3 |
|
|
|
185.3 |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
459.3 |
|
|
|
185.3 |
|
Employer
contributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments to
beneficiaries
|
|
|
- |
|
|
|
35.5 |
|
|
|
0.9 |
|
|
|
0.6 |
|
|
|
0.9 |
|
|
|
36.1 |
|
Payments to VEBA
|
|
|
- |
|
|
|
225.0 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
225.0 |
|
Return
on assets – actual
|
|
|
35.1 |
|
|
|
49.0 |
|
|
|
- |
|
|
|
- |
|
|
|
35.1 |
|
|
|
49.0 |
|
Benefits
paid
|
|
|
(37.1 |
) |
|
|
(37.8 |
) |
|
|
(0.9 |
) |
|
|
(0.6 |
) |
|
|
(38.0 |
) |
|
|
(38.4 |
) |
Medicare
subsidy received
|
|
|
3.0 |
|
|
|
2.3 |
|
|
|
- |
|
|
|
- |
|
|
|
3.0 |
|
|
|
2.3 |
|
Fair
value of plan assets at end of year
|
|
$ |
460.3 |
|
|
|
459.3 |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
460.3 |
|
|
|
459.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status
|
|
$ |
(49.0 |
) |
|
|
(111.6 |
) |
|
$ |
(13.8 |
) |
|
|
(14.9 |
) |
|
$ |
(62.8 |
) |
|
|
(126.5 |
) |
Changes
in accumulated other comprehensive income (loss) of the Company’s postretirement
plans are as follows:
(In
millions)
|
|
Coal-related
plans
|
|
|
Other
plans
|
|
|
Total
|
|
Years
Ended December 31,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
plan experience gain (loss) recognized in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
year
|
|
$ |
(229.8 |
) |
|
|
- |
|
|
$ |
0.9 |
|
|
|
- |
|
|
$ |
(228.9 |
) |
|
|
- |
|
Net experience gains arising
during the year
|
|
|
55.2 |
|
|
|
- |
|
|
|
1.9 |
|
|
|
- |
|
|
|
57.1 |
|
|
|
- |
|
Reclassification adjustment
for amortization of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
experience loss (gains)
included in net income
|
|
|
11.4 |
|
|
|
- |
|
|
|
(0.1 |
) |
|
|
- |
|
|
|
11.3 |
|
|
|
- |
|
Adoption of SFAS 158
(a)
|
|
|
- |
|
|
|
(229.8 |
) |
|
|
- |
|
|
|
0.9 |
|
|
|
- |
|
|
|
(228.9 |
) |
End of year
|
|
$ |
(163.2 |
) |
|
|
(229.8 |
) |
|
$ |
2.7 |
|
|
|
0.9 |
|
|
$ |
(160.5 |
) |
|
|
(228.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
plan prior service credit recognized in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
year
|
|
$ |
- |
|
|
|
- |
|
|
$ |
1.9 |
|
|
|
- |
|
|
$ |
1.9 |
|
|
|
- |
|
Prior service credit from plan
amendments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during the
year
|
|
|
- |
|
|
|
- |
|
|
|
0.1 |
|
|
|
- |
|
|
|
0.1 |
|
|
|
- |
|
Reclassification adjustment
for amortization of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior service credit included
in net income
|
|
|
- |
|
|
|
- |
|
|
|
(0.2 |
) |
|
|
- |
|
|
|
(0.2 |
) |
|
|
- |
|
Adoption of SFAS 158
(a)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1.9 |
|
|
|
- |
|
|
|
1.9 |
|
End of year
|
|
$ |
- |
|
|
|
- |
|
|
$ |
1.8 |
|
|
|
1.9 |
|
|
$ |
1.8 |
|
|
|
1.9 |
|
The
Company estimates that $8.1 million of experience loss and $0.2 million of prior
service credit will be amortized from accumulated other comprehensive income
into net periodic postretirement cost during 2008.
The
APBO for each of the plans was determined using the unit credit method and an
assumed discount rate as follows:
Company-sponsored
plans
|
2007
|
2006
|
2005
|
|
|
|
|
Weighted-average
discount rate:
|
|
|
|
Postretirement
cost
|
5.8%
|
5.5%
|
5.8%
|
Benefit
obligation at year end
|
6.4%
|
5.8%
|
5.5%
|
Expected
long-term rate of return on assets – postretirement cost
|
8.8%
|
8.8%
|
8.8%
|
For
Company-sponsored coal-related plans, the assumed health care cost trend rate
used to compute the 2007 APBO is 8.2% for 2008, declining ratably to 5% in 2013
and thereafter (in 2006: 9% for 2007 declining ratably to 5% in 2012 and
thereafter). Other plans in the U.S. provide for fixed-dollar value
coverage for eligible participants and, accordingly, are not adjusted for
inflation.
The
RP-2000 Employee, Annuitant and Combined Healthy Blue Collar mortality tables
are primarily used to estimate expected lives of participants.
The
table below shows the estimated effects of a one percentage point change in the
assumed health care cost trend rates for each future year.
|
|
Effect
of Change in Assumed Health Care Trend Rates
|
(In
millions)
|
|
Increase
1%
|
Decrease
1%
|
|
|
|
|
Higher
(lower):
|
|
|
|
Service and interest cost in
2007
|
$
|
3.6
|
(3.0)
|
APBO at December 31,
2007
|
|
57.5
|
(48.9)
|
The
Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the “Medicare Act”) provides
for a prescription drug benefit under Medicare as well as a federal subsidy to
sponsors of retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to Medicare prescription drug
benefits. Because of the broadness of coverage provided under the
Company’s plan, the Company believes that the plan benefits are at least
actuarially equivalent to the Medicare benefits. The estimated effect
of the legislation has been recorded as a reduction to the APBO, as permitted by
FSP 106-1, Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003. The estimated value of the
projected federal subsidy assumes no changes in participation rates and assumes
that the subsidy is received in the year after claims are paid. The
estimated reduction in per capita claim costs for participants over 65 years old
was 12%.
The
Company’s net periodic postretirement costs were approximately $5.7 million
lower in 2007, $6.2 million lower in 2006 and $6.1 million lower in 2005 due to
the Medicare Act as a result of lower amortization of losses. The
estimated net present value of the subsidy, reflected as a reduction to the
APBO, was approximately $51 million at December 31, 2007, and $61 million at
December 31, 2006.
The
coal-related plans had an actuarial gain in 2007 primarily related to the
increase in the discount rate.
The
coal-related plans had an actuarial gain in 2006 primarily related to changes in
assumptions for the participation rate for retirees and the increase in discount
rate.
The
Company’s asset allocations for investments in the VEBA trust at December 31,
2007 and 2006 by asset class are as follows:
|
|
December
31,
|
|
|
December
31,
|
|
(In
millions, except percentages)
|
|
2007
|
|
|
2006
|
|
|
|
Target
|
|
|
Actual
|
|
|
Target
|
|
|
Actual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
70 |
% |
|
|
69 |
% |
|
|
70 |
% |
|
|
72 |
% |
Debt
securities
|
|
|
30 |
% |
|
|
31 |
% |
|
|
30 |
% |
|
|
28 |
% |
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
assets at fair value
|
|
|
|
|
|
$ |
460.3 |
|
|
|
|
|
|
$ |
459.3 |
|
Actual
return on assets during year
|
|
|
|
|
|
$ |
35.1 |
|
|
|
|
|
|
$ |
49.0 |
|
In
January 2006, the Company contributed $225 million to the VEBA with a portion of
the proceeds from the sale of BAX Global. The Company determines
whether it will make other discretionary contributions on an annual basis,
although it does not currently expect to make further significant contributions
in the next several years.
The
Company’s projected benefit payments at December 31, 2007, for each of the next
five years and the aggregate five years thereafter are as follows:
|
|
Before
Medicare Subsidy
|
|
|
|
|
|
Medicare
|
|
|
Net
Projected
|
|
(In
millions)
|
|
Coal-related
Plans (b)
|
|
|
Other
Plans
|
|
|
Subtotal
|
|
|
Subsidy
(a)
|
|
|
Payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$ |
40.4 |
|
|
|
0.8 |
|
|
|
41.2 |
|
|
|
(3.0 |
) |
|
|
38.2 |
|
2009
|
|
|
42.5 |
|
|
|
0.9 |
|
|
|
43.4 |
|
|
|
(3.2 |
) |
|
|
40.2 |
|
2010
|
|
|
44.0 |
|
|
|
0.8 |
|
|
|
44.8 |
|
|
|
(3.4 |
) |
|
|
41.4 |
|
2011
|
|
|
45.1 |
|
|
|
0.8 |
|
|
|
45.9 |
|
|
|
(3.5 |
) |
|
|
42.4 |
|
2012
|
|
|
45.6 |
|
|
|
0.7 |
|
|
|
46.3 |
|
|
|
(3.6 |
) |
|
|
42.7 |
|
2013
through 2017
|
|
|
222.6 |
|
|
|
4.3 |
|
|
|
226.9 |
|
|
|
(19.3 |
) |
|
|
207.6 |
|
Total
|
|
$ |
440.2 |
|
|
|
8.3 |
|
|
|
448.5 |
|
|
|
(36.0 |
) |
|
|
412.5 |
|
(a)
|
Only
the coal-related plans are expected to meet the requirements to receive
the Medicare subsidy.
|
(b)
|
The
Company expects to make most of the payments for these benefits through
the use of assets in the VEBA.
|
Pneumoconiosis
(Black Lung) Obligations
The
Company is self-insured with respect to almost all black lung
obligations. The components of net periodic postretirement benefit
cost related to black lung obligations were as follows:
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Interest
cost on APBO
|
|
$ |
2.8 |
|
|
|
2.6 |
|
|
|
2.9 |
|
Amortization
of losses
|
|
|
0.9 |
|
|
|
1.1 |
|
|
|
1.2 |
|
Net
periodic postretirement cost
|
|
$ |
3.7 |
|
|
|
3.7 |
|
|
|
4.1 |
|
Changes
in the APBO and funded status for black lung obligations are as
follows:
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
APBO
and funded status at beginning of year
|
|
$ |
46.7 |
|
|
|
51.7 |
|
Interest
costs
|
|
|
2.8 |
|
|
|
2.6 |
|
Benefits
paid
|
|
|
(6.3 |
) |
|
|
(6.4 |
) |
Actuarial
(gain) loss, net
|
|
|
4.3 |
|
|
|
(1.2 |
) |
APBO
and funded status at end of year
|
|
$ |
47.5 |
|
|
|
46.7 |
|
Changes
in accumulated other comprehensive income (loss) of the Company’s black lung
plan are as follows:
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Benefit
plan experience loss recognized in
|
|
|
|
|
|
|
accumulated other comprehensive
income (loss):
|
|
|
|
|
|
|
Beginning of
year
|
|
$ |
(9.8 |
) |
|
|
- |
|
Net experience losses arising
during the year
|
|
|
(4.3 |
) |
|
|
- |
|
Reclassification adjustment
for amortization of
|
|
|
|
|
|
|
|
|
experience loss included in
net income
|
|
|
0.9 |
|
|
|
- |
|
Adoption of SFAS 158
(a)
|
|
|
- |
|
|
|
(9.8 |
) |
End of year
|
|
$ |
(13.2 |
) |
|
|
(9.8 |
) |
The
Company estimates that $0.9 million of the benefit plan experience loss will be
amortized from accumulated other comprehensive income (loss) into net periodic
postretirement cost during 2008.
The
1983 Group Annuity Mortality table is used to estimate expected lives of
participants. The following are the other key actuarial assumptions
for the black lung obligations:
Black
Lung Benefits
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Discount
rate:
|
|
|
|
|
|
|
Postretirement
cost
|
|
|
5.8 |
% |
|
|
5.5 |
% |
Benefit obligation at year
end
|
|
|
6.1 |
% |
|
|
5.8 |
% |
Medical
cost inflation
|
|
|
8.0 |
% |
|
|
8.0 |
% |
The
Company’s projected benefit payments for black lung benefits at December 31,
2007, for each of the next five years and the aggregate five years thereafter
are as follows:
|
|
Projected
|
|
(In
millions)
|
|
Payments
|
|
|
|
|
|
2008
|
|
$ |
5.1 |
|
2009
|
|
|
4.9 |
|
2010
|
|
|
4.7 |
|
2011
|
|
|
4.6 |
|
2012
|
|
|
4.4 |
|
2013
through 2017
|
|
|
19.0 |
|
Total
|
|
$ |
42.7 |
|
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes and minority
interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
136.9 |
|
|
|
113.6 |
|
|
|
45.1 |
|
Foreign
|
|
|
136.7 |
|
|
|
100.7 |
|
|
|
69.7 |
|
|
|
$ |
273.6 |
|
|
|
214.3 |
|
|
|
114.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
federal
|
|
$ |
26.3 |
|
|
|
(125.3 |
) |
|
|
(0.3 |
) |
State
|
|
|
3.8 |
|
|
|
15.0 |
|
|
|
1.9 |
|
Foreign
|
|
|
52.6 |
|
|
|
41.9 |
|
|
|
36.1 |
|
|
|
|
82.7 |
|
|
|
(68.4 |
) |
|
|
37.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
federal
|
|
|
22.3 |
|
|
|
156.1 |
|
|
|
10.0 |
|
State
|
|
|
0.8 |
|
|
|
(3.7 |
) |
|
|
(2.1 |
) |
Foreign
|
|
|
(3.6 |
) |
|
|
(1.1 |
) |
|
|
3.9 |
|
|
|
|
19.5 |
|
|
|
151.3 |
|
|
|
11.8 |
|
|
|
$ |
102.2 |
|
|
|
82.9 |
|
|
|
49.5 |
|
The
Company’s U.S. entities file a consolidated U.S. federal income tax
return. The U.S. federal current income tax benefit on continuing
operations in 2006 was offset by U.S. federal current tax expense included in
income from discontinued operations.
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
provision (benefit) for income taxes allocable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
102.2 |
|
|
|
82.9 |
|
|
|
49.5 |
|
Discontinued
operations
|
|
|
(1.2 |
) |
|
|
267.2 |
|
|
|
(3.7 |
) |
Change
in accounting principle
|
|
|
- |
|
|
|
- |
|
|
|
(0.9 |
) |
Other
comprehensive income (loss)
|
|
|
49.7 |
|
|
|
32.1 |
|
|
|
(13.6 |
) |
Shareholders’
equity
|
|
|
(12.9 |
) |
|
|
(114.9 |
) |
|
|
(15.1 |
) |
|
|
$ |
137.8 |
|
|
|
267.3 |
|
|
|
16.2 |
|
Rate
Reconciliation
The
following table reconciles the difference between the actual tax provision from
continuing operations and the amounts obtained by applying the statutory U.S.
federal income tax rate of 35% in each year to the income from continuing
operations before income taxes.
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense computed at 35% statutory rate
|
|
$ |
95.8 |
|
|
|
75.0 |
|
|
|
40.1 |
|
Increases
(reductions) in taxes due to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to valuation
allowances
|
|
|
6.5 |
|
|
|
4.9 |
|
|
|
15.6 |
|
State income taxes,
net
|
|
|
3.0 |
|
|
|
6.7 |
|
|
|
(0.9 |
) |
Medicare subsidy of postretirement
costs
|
|
|
(2.0 |
) |
|
|
(2.1 |
) |
|
|
(2.1 |
) |
Repatriation of foreign earnings
under the AJCA
|
|
|
- |
|
|
|
- |
|
|
|
2.9 |
|
Foreign income
taxes
|
|
|
(2.7 |
) |
|
|
(2.6 |
) |
|
|
(0.3 |
) |
Foreign tax credit
carryover
|
|
|
- |
|
|
|
- |
|
|
|
(3.9 |
) |
Taxes on undistributed earnings of
foreign affiliates
|
|
|
1.4 |
|
|
|
0.5 |
|
|
|
0.7 |
|
Other
|
|
|
0.2 |
|
|
|
0.5 |
|
|
|
(2.6 |
) |
Actual
income tax expense on continuing operations
|
|
$ |
102.2 |
|
|
|
82.9 |
|
|
|
49.5 |
|
Components
of Deferred Tax Assets and Liabilities
|
|
December
31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
|
Deferred
revenue
|
|
$ |
82.5 |
|
|
|
75.1 |
|
Postretirement
benefits other than pensions
|
|
|
46.8 |
|
|
|
74.3 |
|
Pension
liabilities
|
|
|
20.1 |
|
|
|
51.1 |
|
Workers’
compensation and other claims
|
|
|
40.5 |
|
|
|
41.9 |
|
Other
assets and liabilities
|
|
|
83.2 |
|
|
|
88.9 |
|
Net
operating loss carryforwards
|
|
|
51.2 |
|
|
|
50.3 |
|
Alternative
minimum and other tax credits
|
|
|
1.3 |
|
|
|
3.0 |
|
Subtotal
|
|
|
325.6 |
|
|
|
384.6 |
|
Valuation
allowances
|
|
|
(56.0 |
) |
|
|
(54.3 |
) |
Total
deferred tax assets
|
|
|
269.6 |
|
|
|
330.3 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
103.7 |
|
|
|
92.8 |
|
Prepaid
assets
|
|
|
28.0 |
|
|
|
26.1 |
|
Other
assets and miscellaneous
|
|
|
14.2 |
|
|
|
19.1 |
|
Total
deferred tax liabilities
|
|
|
145.9 |
|
|
|
138.0 |
|
Net
deferred tax asset
|
|
$ |
123.7 |
|
|
|
192.3 |
|
|
|
|
|
|
|
|
|
|
Included
in:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$ |
63.9 |
|
|
|
71.8 |
|
Noncurrent assets
|
|
|
90.1 |
|
|
|
142.2 |
|
Current liabilities, included in
accrued liabilities
|
|
|
(0.5 |
) |
|
|
(0.9 |
) |
Noncurrent
liabilities
|
|
|
(29.8 |
) |
|
|
(20.8 |
) |
Net
deferred tax asset
|
|
$ |
123.7 |
|
|
|
192.3 |
|
Valuation
Allowances
Valuation
allowances relate to deferred tax assets in various state and non-U.S.
jurisdictions. Based on the Company’s historical and expected future
taxable earnings, and a consideration of available tax-planning strategies,
management believes it is more likely than not that the Company will realize the
benefit of the existing deferred tax assets, net of valuation allowances, at
December 31, 2007.
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowances:
|
|
|
|
|
|
|
|
|
|
Beginning of
year
|
|
$ |
54.3 |
|
|
|
42.1 |
|
|
|
55.8 |
|
Expiring tax
credits
|
|
|
(0.9 |
) |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
Acquisitions and
dispositions
|
|
|
(0.8 |
) |
|
|
(1.2 |
) |
|
|
(30.1 |
) |
Changes in judgment about deferred
tax assets (a)
|
|
|
2.7 |
|
|
|
1.4 |
|
|
|
10.0 |
|
Other changes in deferred tax
assets, charged to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
(1.1 |
) |
|
|
7.1 |
|
|
|
9.6 |
|
Other comprehensive
income
|
|
|
(3.7 |
) |
|
|
0.7 |
|
|
|
0.5 |
|
Foreign currency exchange
effects
|
|
|
5.5 |
|
|
|
4.7 |
|
|
|
(3.2 |
) |
End of year
|
|
$ |
56.0 |
|
|
|
54.3 |
|
|
|
42.1 |
|
(a)
|
Includes
amounts charged to income from continuing and discontinued operations and
is based on beginning-of-year balances of deferred tax
assets.
|
Undistributed
Foreign Earnings
As
of December 31, 2007, the Company has not recorded U.S. federal deferred income
taxes on the majority of the undistributed earnings of foreign
subsidiaries in accordance with Accounting Principles Board Opinion 23,
Accounting for Income Taxes –
Special Areas, as amended. It is expected that these earnings
will be permanently reinvested in operations outside the U.S. It is
not practical to compute the estimated deferred tax liability on these
earnings.
The
Company repatriated cash of $71.2 million in 2005, including $22.4 million
related to BAX Gobal’s non-U.S. subsidiaries, under the repatriation provision
of the American Jobs Creation
Act of 2004 (“AJCA”). The Company recognized
$3.6 million of additional income tax expense in 2005, including $0.7 million
included as a component of discontinued operations, related to the
repatriation.
Net
Operating Losses
The
gross amount of the net operating loss carryforwards as of December 31, 2007,
was $193.8 million. The tax benefit of net operating loss
carryforwards, before valuation allowances, as of December 31, 2007 was $51.2
million, and expires as follows:
(In
millions)
|
|
|
Federal
|
|
|
State
|
|
|
Foreign
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
of expiration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008-2012 |
|
|
$ |
- |
|
|
|
- |
|
|
|
4.1 |
|
|
|
4.1 |
|
2013-2017 |
|
|
|
- |
|
|
|
- |
|
|
|
0.1 |
|
|
|
0.1 |
|
2018 and
thereafter
|
|
|
|
- |
|
|
|
2.0 |
|
|
|
2.7 |
|
|
|
4.7 |
|
Unlimited
|
|
|
|
- |
|
|
|
- |
|
|
|
42.3 |
|
|
|
42.3 |
|
|
|
|
|
$ |
- |
|
|
|
2.0 |
|
|
|
49.2 |
|
|
|
51.2 |
|
Uncertain
Tax Positions
As
described in note 1, effective January 1, 2007, the Company adopted FIN 48 and
recorded a cumulative-effect adjustment of $7.0 million, reducing the amount of
unrecognized tax benefits, interest, and penalties and increasing the balance of
retained earnings. A reconciliation of the beginning and ending
amount of unrecognized tax benefits is as follows:
|
|
Year
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
|
|
|
Uncertain
tax positions:
|
|
|
|
Beginning of year (after $7.0
million FIN 48 cumulative effect adjustment)
|
|
$ |
17.3 |
|
Increases related to prior-year
tax positions
|
|
|
0.8 |
|
Decreases related to prior-year
tax positions
|
|
|
(1.6 |
) |
Increases related to
current-year tax positions
|
|
|
10.5 |
|
Settlements
|
|
|
(0.2 |
) |
Effect of the expiration of
statutes of limitation
|
|
|
(1.3 |
) |
End of year
|
|
$ |
25.5 |
|
Included
in the balance of unrecognized tax benefits at December 31, 2007, are potential
benefits of approximately $23.5 million that, if recognized, would impact the
effective tax rate on income from continuing operations. Also
included in the balance of unrecognized tax benefits at December 31, 2007, are
benefits of approximately $2.0 million that, if recognized, would impact the
effective tax rate on income from discontinued operations.
The
Company recognizes accrued interest and penalties related to unrecognized tax
benefits in income tax expense. Interest and penalties included in
income tax expense amounted to $1.0 million in 2007 and $1.4 million in
2006. Income of $0.3 million was recorded in 2005. The
Company had accrued penalties and interest of $2.4 million at December 31, 2007,
and $2.6 million at December 31, 2006.
The
Company and its subsidiaries file income tax returns in the U.S. federal, and
various state and foreign jurisdictions. With few exceptions, as of
December 31, 2007, the Company was no longer subject to U.S. federal, state and
local, or non-U.S. income tax examinations by tax authorities for years before
2003. However, it is reasonably possible that unrecognized tax
benefits for previously amended tax returns in the amount of $7.2 million will
be recognized by the end of 2008. Additionally, due to statute of
limitations expirations and audit settlements, it is reasonably possible that
approximately $3.6 million of currently remaining unrecognized tax positions,
each of which are individually insignificant, may be recognized by the end of
2008.
Note
6 – Property and Equipment
The
following table presents the Company’s property and equipment that is classified
as held and used:
|
|
December
31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
36.5 |
|
|
|
30.3 |
|
Buildings
|
|
|
191.5 |
|
|
|
161.1 |
|
Leasehold
improvements
|
|
|
175.1 |
|
|
|
159.6 |
|
Security
systems
|
|
|
840.2 |
|
|
|
742.2 |
|
Vehicles
|
|
|
263.4 |
|
|
|
230.8 |
|
Capitalized
software
|
|
|
121.6 |
|
|
|
98.5 |
|
Other
machinery and equipment
|
|
|
529.4 |
|
|
|
368.0 |
|
|
|
|
2,157.7 |
|
|
|
1,790.5 |
|
Accumulated
depreciation and amortization
|
|
|
(1,039.3 |
) |
|
|
(808.6 |
) |
Property
and equipment, net
|
|
$ |
1,118.4 |
|
|
|
981.9 |
|
Amortization
of capitalized software costs included in continuing operations was $15.8
million in 2007, $13.7 million in 2006 and $13.1
million in 2005.
The
Company has acquired security operations in various countries over the last
three years. These operations have all been included in the Company’s
Brink’s operating segment.
|
Acquisition
completed
|
|
|
|
(In
millions)
|
in
the quarter ended
|
|
Purchase
price
|
|
|
|
|
|
|
Luxembourg,
Scotland (a) and Ireland
|
March
31, 2005
|
|
$ |
41.9 |
|
Poland,
Hungary and the Czech Republic (a)
|
June
30, 2005
|
|
|
10.7 |
|
Other
|
|
|
|
0.6 |
|
2005
|
|
|
$ |
53.2 |
|
|
|
|
|
|
|
Mauritius
|
June
30, 2006
|
|
$ |
10.7 |
|
Other
|
|
|
|
3.7 |
|
2006
|
|
|
$ |
14.4 |
|
|
|
|
|
|
|
France
|
June
30, 2007
|
|
$ |
6.3 |
|
Other
|
|
|
|
7.1 |
|
2007
|
|
|
$ |
13.4 |
|
(a)
|
Scotland
and the Czech Republic were sold in
2007.
|
These
acquisitions have been accounted for as business combinations. Under
the purchase method of accounting, assets acquired and liabilities assumed from
these operations are recorded at fair value on the date of
acquisition. The consolidated statements of operations include the
results of operations for each acquired entity from the date of
acquisition. The results of the acquired operations were not material
to the Company’s consolidated statements of operations for the periods
presented.
The
purchase prices of recent acquisitions have been preliminarily allocated based
on estimates of fair value of assets acquired and liabilities
assumed. The final valuation of net assets is expected to be
completed as soon as possible, but not later than one year from the acquisition
date.
Note
8 – Goodwill and Other Intangible Assets
Goodwill
Goodwill
resulted from acquiring businesses that are now part of the Company’s Brink’s
operating segment. The changes in the carrying amount of goodwill for
the years ended December 31, 2007 and 2006 are as follows:
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Goodwill:
|
|
|
|
|
|
|
Beginning of
year
|
|
$ |
124.0 |
|
|
|
103.8 |
|
Acquisitions
|
|
|
7.5 |
|
|
|
9.5 |
|
Adjustments (a)
|
|
|
(3.0 |
) |
|
|
(0.4 |
) |
Foreign currency exchange
effects
|
|
|
12.8 |
|
|
|
11.1 |
|
End of year
|
|
$ |
141.3 |
|
|
|
124.0 |
|
(a)
|
Purchase
accounting adjustment occurring in the year following the acquisition and
adjustments to valuation allowances for deferred tax
assets.
|
Other
Intangible Assets
|
|
December
31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Finite-lived
intangible assets
|
|
$ |
40.7 |
|
|
|
33.2 |
|
Accumulated
amortization
|
|
|
(15.2 |
) |
|
|
(9.3 |
) |
Intangible
assets, net
|
|
$ |
25.5 |
|
|
|
23.9 |
|
The
Company’s other intangible assets are included in other assets on the balance
sheet (see note 9) and consist primarily of customer lists and covenants not to
compete.
|
|
December
31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Deferred
subscriber acquisition costs
|
|
$ |
83.2 |
|
|
|
78.8 |
|
Intangible
assets, net (see note 8)
|
|
|
25.5 |
|
|
|
23.9 |
|
Investment
in unconsolidated entities:
|
|
|
|
|
|
|
|
|
Cost method
|
|
|
23.4 |
|
|
|
23.4 |
|
Equity method
|
|
|
17.3 |
|
|
|
15.2 |
|
Marketable
securities
|
|
|
26.3 |
|
|
|
24.8 |
|
Other
|
|
|
23.1 |
|
|
|
23.0 |
|
Other
assets
|
|
$ |
198.8 |
|
|
|
189.1 |
|
Note
10 – Accrued Liabilities
|
|
December
31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Payroll
and other employee liabilities
|
|
$ |
149.0 |
|
|
|
129.7 |
|
Taxes,
except income taxes
|
|
|
91.9 |
|
|
|
78.1 |
|
Deferred
revenue
|
|
|
39.6 |
|
|
|
34.5 |
|
Workers’
compensation and other claims
|
|
|
27.6 |
|
|
|
25.8 |
|
Postretirement
benefits other than pensions (see notes 1 and 4)
|
|
|
9.5 |
|
|
|
12.3 |
|
Other
|
|
|
112.1 |
|
|
|
105.7 |
|
Accrued
liabilities
|
|
$ |
429.7 |
|
|
|
386.1 |
|
Note
11 – Other Liabilities
|
|
December
31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Workers’
compensation and other claims
|
|
$ |
59.4 |
|
|
|
62.4 |
|
Other
|
|
|
113.0 |
|
|
|
86.1 |
|
Other
liabilities
|
|
$ |
172.4 |
|
|
|
148.5 |
|
|
|
December
31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Bank
credit facilities:
|
|
|
|
|
|
|
Revolving Facility (year-end
weighted average interest
|
|
|
|
|
|
|
rate of 5.3% in 2007
and 5.1% in 2006)
|
|
$ |
19.0 |
|
|
|
52.1 |
|
Other non-U.S. dollar denominated
facilities (year-end weighted
|
|
|
|
|
|
|
|
|
average interest rate of 6.1% in
2007 and 8.0% in 2006)
|
|
|
16.5 |
|
|
|
19.6 |
|
|
|
|
35.5 |
|
|
|
71.7 |
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
Capital leases (average rates:
7.2% in 2007 and 6.0% in 2006)
|
|
|
21.5 |
|
|
|
21.9 |
|
Dominion Terminal Associates 6.0%
bonds, due 2033
|
|
|
43.2 |
|
|
|
43.2 |
|
|
|
|
|
|
|
|
|
|
Total long-term
debt
|
|
|
100.2 |
|
|
|
136.8 |
|
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt:
|
|
|
|
|
|
|
|
|
Bank credit
facilities
|
|
|
3.4 |
|
|
|
2.4 |
|
Capital leases
|
|
|
7.6 |
|
|
|
8.1 |
|
Total current maturities of
long-term debt
|
|
|
11.0 |
|
|
|
10.5 |
|
|
|
|
|
|
|
|
|
|
Total
long-term debt excluding current maturities
|
|
$ |
89.2 |
|
|
|
126.3 |
|
The
Company has an unsecured $400 million revolving bank credit facility (the
“Revolving Facility”) with a syndicate of banks. The Revolving
Facility’s interest rate is based on LIBOR plus a margin, prime rate, or
competitive bid. The Revolving Facility allows the Company to borrow
(or otherwise satisfy credit needs) on a revolving basis over a five-year term
ending August 2011. As of December 31, 2007, $381.0 million was
available under the Revolving Facility. Amounts outstanding under the
Revolving Facility were denominated in Canadian dollars as of December 31, 2007,
and primarily in U.S. dollars as of December 31, 2006.
The
margin on LIBOR borrowings, which can range from 0.140% to 0.575% depending on
the Company’s credit rating, was 0.270% at December 31, 2007. When
borrowings and letters of credit under the Revolving Facility are in excess of
$200 million, the applicable interest rate is increased by 0.100% or
0.125%. The Company also pays an annual facility fee on the Revolving
Facility based on the Company's credit rating. The facility fee,
which can range from 0.060% to 0.175%, was 0.080% as of December 31,
2007.
The
Company has an unsecured $150 million credit facility with a bank to provide
letters of credit and other borrowing capacity over a five-year term ending in
December 2009 (the “Letter of Credit Facility”). As of December 31,
2007, $13.6 million was available for use under this revolving credit
facility. The Revolving Facility and the multi-currency revolving
credit facilities described below are also used for the issuance of letters of
credit and bank guarantees.
The
Company has three unsecured multi-currency revolving bank credit facilities
totaling $93.8 million in available credit at December 31, 2007, of which $66.1
million was unused. In February 2008, the €30 million multi-currency
facility expired and was not renewed. When rates are favorable, the
Company also borrows from other banks under short-term uncommitted
agreements. Various foreign subsidiaries maintain other secured and
unsecured lines of credit and overdraft facilities with a number of
banks.
Minimum
repayments of long-term debt are as follows:
(In
millions)
|
|
Capital
leases
|
|
|
Other
long-term debt
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$ |
7.6 |
|
|
|
3.4 |
|
|
|
11.0 |
|
2009
|
|
|
6.9 |
|
|
|
2.1 |
|
|
|
9.0 |
|
2010
|
|
|
4.2 |
|
|
|
2.1 |
|
|
|
6.3 |
|
2011
|
|
|
1.3 |
|
|
|
23.7 |
|
|
|
25.0 |
|
2012
|
|
|
0.4 |
|
|
|
1.8 |
|
|
|
2.2 |
|
Later
years
|
|
|
1.1 |
|
|
|
45.6 |
|
|
|
46.7 |
|
Total
|
|
$ |
21.5 |
|
|
|
78.7 |
|
|
|
100.2 |
|
Capital
Leases
Property
under capital leases are included in property and equipment as
follows:
|
|
December
31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Asset
class:
|
|
|
|
|
|
|
Buildings
|
|
$ |
17.3 |
|
|
|
16.2 |
|
Vehicles
|
|
|
36.4 |
|
|
|
47.8 |
|
Machinery and
equipment
|
|
|
10.4 |
|
|
|
5.2 |
|
|
|
|
64.1 |
|
|
|
69.2 |
|
Less: accumulated
amortization
|
|
|
(35.3 |
) |
|
|
(41.2 |
) |
Total
|
|
$ |
28.8 |
|
|
|
28.0 |
|
The
Company’s Brink’s and BHS subsidiaries have guaranteed the Revolving Facility
and the Letter of Credit Facility. The Revolving Facility, the Letter
of Credit Facility and the multi-currency revolving bank credit facilities
contain various financial and other covenants. The financial
covenants, among other things, limit the Company’s total indebtedness, limit
asset sales, limit the use of proceeds on asset sales, and provide for minimum
coverage of interest costs. The credit agreements do not provide for
the acceleration of payments should the Company's credit rating be
reduced. If the Company were not to comply with the terms of its
various loan agreements, the repayment terms could be accelerated and the
commitments could be withdrawn. An acceleration of the repayment
terms under one agreement could trigger the acceleration of the repayment terms
under the other loan agreements. The Company was in compliance with
all financial covenants at December 31, 2007.
The
Company has guaranteed $43.2 million of bonds issued by the Peninsula Ports
Authority of Virginia. The guarantee originated as part of the
Company’s former interest in Dominion Terminal Associates, a deep water coal
terminal. The Company continues to pay interest on and guarantee
payment of the $43.2 million principal amount and ultimately will have to pay
for the retirement of the bonds in accordance with the terms of the
guarantee. The bonds bear a fixed interest rate of 6.0% and mature in
2033. The bonds may mature prior to 2033 upon the occurrence of
specified events such as the determination that the bonds are taxable or the
failure of the Company to abide by the terms of its guarantee.
At
December 31, 2007, the Company had undrawn unsecured letters of credit and
guarantees totaling $179.4 million, including $136.4 million issued under the
Letter of Credit Facility, and $23.0 million issued under the multi-currency
revolving bank credit facilities. These letters of credit primarily
support the Company’s obligations under various self-insurance programs and
credit facilities.
Fair
Value
The
fair value of the Company’s floating-rate short-term and long-term debt
approximates the carrying amount. The fair value of the Company’s significant
fixed rate long-term debt is described below. Fair value is estimated
by discounting the future cash flows using rates for similar debt instruments at
the valuation date.
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
(In
millions)
|
|
Fair
Value
|
|
|
Carrying
Values
|
|
|
Fair
Value
|
|
|
Carrying
Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DTA
bonds
|
|
$ |
47.7 |
|
|
|
43.2 |
|
|
|
52.5 |
|
|
|
43.2 |
|
Note
13 – Accounts Receivable
|
|
December
31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Trade
|
|
$ |
474.4 |
|
|
|
432.6 |
|
Other
|
|
|
28.3 |
|
|
|
48.4 |
|
|
|
|
502.7 |
|
|
|
481.0 |
|
Allowance
for doubtful accounts
|
|
|
(10.8 |
) |
|
|
(11.6 |
) |
Accounts
receivable, net
|
|
$ |
491.9 |
|
|
|
469.4 |
|
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
Beginning of
year
|
|
$ |
11.6 |
|
|
|
11.3 |
|
|
|
26.7 |
|
Provision for uncollectible
accounts receivable (a)
|
|
|
10.9 |
|
|
|
7.9 |
|
|
|
6.8 |
|
Write offs less
recoveries
|
|
|
(12.6 |
) |
|
|
(7.8 |
) |
|
|
(12.0 |
) |
Charge to other accounts
(b)
|
|
|
0.4 |
|
|
|
(0.6 |
) |
|
|
(9.1 |
) |
Foreign currency exchange
effects
|
|
|
0.5 |
|
|
|
0.8 |
|
|
|
(1.1 |
) |
End of year
|
|
$ |
10.8 |
|
|
|
11.6 |
|
|
|
11.3 |
|
(a)
|
Includes
amounts charged to income from continuing and discontinued
operations.
|
(b)
|
Includes
amounts reclassified in 2005 to assets held for
sale.
|
Note
14 – Operating Leases
The
Company leases facilities, vehicles, computers and other equipment under
long-term operating and capital leases with varying terms. Most of the operating
leases contain renewal and/or purchase options. The Company expects
that in the normal course of business, the majority of operating leases will be
renewed or replaced by other leases.
As
of December 31, 2007, future minimum lease payments under noncancellable
operating leases with initial or remaining lease terms in excess of one year are
included below.
(In
millions)
|
|
Facilities
|
|
|
Vehicles
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$ |
47.7 |
|
|
|
34.1 |
|
|
|
6.9 |
|
|
|
88.7 |
|
2009
|
|
|
36.7 |
|
|
|
25.3 |
|
|
|
6.0 |
|
|
|
68.0 |
|
2010
|
|
|
28.1 |
|
|
|
18.2 |
|
|
|
4.7 |
|
|
|
51.0 |
|
2011
|
|
|
20.4 |
|
|
|
12.7 |
|
|
|
1.0 |
|
|
|
34.1 |
|
2012
|
|
|
15.7 |
|
|
|
9.4 |
|
|
|
0.6 |
|
|
|
25.7 |
|
Later
years
|
|
|
53.3 |
|
|
|
12.2 |
|
|
|
0.7 |
|
|
|
66.2 |
|
|
|
$ |
201.9 |
|
|
|
111.9 |
|
|
|
19.9 |
|
|
|
333.7 |
|
The
table above includes lease payments for the initial accounting lease term and
all renewal periods for most vehicles under operating leases used in Brink’s and
BHS’ U.S. operations. If the Company were to not renew these leases,
it would be subject to a residual value guarantee. The Company’s
maximum residual value guarantee was $67.6 million at December 31,
2007. If the Company continues to renew the leases and pays all of
the lease payments for the vehicles that have been included in the above table,
this residual value guarantee will reduce to zero at the end of the final
renewal period. In addition, the Company has $4.9 million of maximum
guaranteed residuals on another operating lease.
Net
rent expense included in continuing operations amounted to $98.5 million in
2007, $86.8 million in 2006 and $82.0 million in 2005.
Note
15 – Share-Based Compensation Plans
Stock
Option Plans
The
Company has stock incentive plans to encourage employees and nonemployee
directors to remain with the Company and to more closely align their interests
with those of the Company’s shareholders.
The
2005 Equity Incentive Plan (the “2005 Plan”) permits grants of stock options,
restricted stock, stock appreciation rights, performance stock and other
share-based awards. Through December 31, 2007, only stock options
have been granted under the 2005 Plan.
The
Company has outstanding stock options granted to employees under a prior stock
incentive plan, the 1988 Stock Option Plan (the “1988 Plan”). The
Company provides stock incentive awards to directors through the Non-Employee
Directors’ Stock Option Plan (the “Directors’ Plan”).
General
Terms
Options
are granted at a price not less than the average quoted market price on the date
of grant. All grants to employees in the last three years under the
2005 Plan have a maximum term of six years and either vest over three years from
the date of grant or vest 100% at the end of the third year. Options
granted under the 2005 Plan continue to vest if an employee retires under one of
the Company’s pension plans. Directors’ Plan options are granted with
a maximum term of ten years and vest in full at the end of six
months.
If
a change in control were to occur (as defined in the plan documents), certain
options may become immediately vested.
Option
Activity
The
table below summarizes the activity in all plans for options of the Company’s
common stock.
|
|
|
|
|
|
|
|
Weighed-Average
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Weighted-
Average
|
|
|
Remaining
Contractual
|
|
|
Intrinsic
Value
|
|
|
|
(in
thousands)
|
|
|
Exercise
Price Per Share
|
|
|
Term
(in years)
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2004
|
|
|
3,269 |
|
|
$ |
23.24 |
|
|
|
|
|
|
|
Granted
|
|
|
699 |
|
|
|
35.95 |
|
|
|
|
|
|
|
Exercised
|
|
|
(1,498 |
) |
|
|
21.06 |
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(131 |
) |
|
|
26.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2005
|
|
|
2,339 |
|
|
|
28.25 |
|
|
|
|
|
|
|
Granted
|
|
|
610 |
|
|
|
55.11 |
|
|
|
|
|
|
|
Exercised
|
|
|
(750 |
) |
|
|
24.82 |
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(69 |
) |
|
|
39.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
2,130 |
|
|
|
36.77 |
|
|
|
|
|
|
|
Granted
|
|
|
636 |
|
|
|
63.60 |
|
|
|
|
|
|
|
Exercised
|
|
|
(489 |
) |
|
|
25.78 |
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(31 |
) |
|
|
50.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
2,246 |
|
|
$ |
46.57 |
|
|
|
4.2 |
|
|
$ |
32.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of
the above, as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
1,052 |
|
|
$ |
35.50 |
|
|
|
3.2 |
|
|
$ |
25.5 |
|
Expected to vest in future periods
(a)
|
|
|
1,163 |
|
|
$ |
56.20 |
|
|
|
5.0 |
|
|
$ |
6.5 |
|
(a)
|
The
number of options expected to vest takes into account an estimate of
expected forfeitures.
|
The
intrinsic value of a stock option is the difference between the market price of
the shares underlying the option and exercise price of the
option. The market price at December 31, 2007, was $59.74 per
share. The total intrinsic value of options exercised was $17.8
million ($36.42 per share) in 2007, $20.5 million ($27.37 per share) in 2006,
and $33.1 million ($22.07 per share) in 2005. Excluding the 2006
modified options, the total fair value of options vested was $7.9 million for
2007, $4.8 million for 2006 and $5.7 million for 2005.
There
were 0.9 million shares of exercisable options with a weighted-average exercise
price of $26.31 per share at December 31, 2006, and 0.8 million shares of
exercisable options with a weighted-average exercise price of $22.77 per share
at December 31, 2005.
There
are 3.5 million shares underlying options that are authorized, but not yet
granted.
Method
and Assumptions Used to Estimate Fair Value of Options
The
fair value of each stock option grant is estimated at the time of grant using
the Black-Scholes option-pricing model. If a different option-pricing
model had been used, results may have been different.
The
fair value of options that vest entirely at the end of a fixed period, generally
three years, is estimated using a single option approach and, except for
those granted to employees eligible to retire under one of the Company’s pension
plans, is generally amortized on a straight-line basis over the vesting
period. The fair value of options that vest ratably over three years
is estimated using a multiple-option approach and, except for those granted to
employees eligible to retire under one of the Company’s pension plans, is
generally amortized on a straight-line basis over each separate vesting
period. Options granted under the plans generally provide for
continued vesting if the participants were to elect retirement under one of the
Company’s pension plans. Upon adoption of SFAS 123(R), compensation
cost related to new stock option grants that continue to vest upon retirement is
recognized over the period from the grant date to the retirement-eligible
date. If the Company had applied this provision prior to the adoption
of SFAS 123(R), compensation cost would have been $0.9 million lower in 2007 and
$1.8 million lower in 2006. A forfeiture rate of 8% was used in 2007
and in 2006 to estimate the number of options for which vesting is not expected
to occur.
The
fair value of options granted and modified during the three years ended December
31, 2007, was calculated using the following estimated weighted-average
assumptions. In 2006, the Company recognized compensation expense related
to all options held by employees of BAX Global that were modified to accelerate
vesting provisions. The fair value of options accelerated during 2006
was calculated using the noted estimated weighted-average
assumptions.
|
|
Options
Granted
|
|
|
Options
Modified
|
|
|
|
Years
Ended December 31,
|
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares underlying options, in thousands
|
|
|
636 |
|
|
|
610 |
|
|
|
699 |
|
|
|
328 |
|
Weighted-average
exercise price per share
|
|
$ |
63.60 |
|
|
|
55.11 |
|
|
|
35.95 |
|
|
|
25.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions
used to estimate fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected dividend yield
(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
|
0.6 |
% |
|
|
0.5 |
% |
|
|
0.4 |
% |
|
|
0.3 |
% |
Range
|
|
|
0.6 |
% |
|
|
0.4%-0.5 |
% |
|
|
0.4%-0.5 |
% |
|
|
0.2%-0.3 |
% |
Expected volatility
(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
|
27 |
% |
|
|
32 |
% |
|
|
34 |
% |
|
|
29 |
% |
Range
|
|
|
26%-31 |
% |
|
|
30%-36 |
% |
|
|
33%-34 |
% |
|
|
26%-32 |
% |
Risk-free interest rate
(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
|
4.9 |
% |
|
|
5.0 |
% |
|
|
3.8 |
% |
|
|
4.1 |
% |
Range
|
|
|
4.9%-5.0 |
% |
|
|
4.6%-5.2 |
% |
|
|
3.8%-4.4 |
% |
|
|
3.7%-4.7 |
% |
Expected term in years
(d):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
|
3.8 |
|
|
|
4.3 |
|
|
|
4.1 |
|
|
|
0.5 |
|
Range
|
|
|
2.1-6.1 |
|
|
|
2.7-7.0 |
|
|
|
3.0-7.0 |
|
|
|
0.3-0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
fair value estimates at grant date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
$ |
10.7 |
|
|
|
11.0 |
|
|
|
7.8 |
|
|
|
6.6 |
|
Fair value per
share
|
|
$ |
16.84 |
|
|
|
18.04 |
|
|
|
11.21 |
|
|
|
20.11 |
|
(a)
|
The
expected dividend yield was calculated by annualizing the cash dividend
declared by the Company and dividing that result by the closing stock
price on the date of declaration. Dividends are not paid on
options.
|
(b)
|
The
expected volatility was estimated after reviewing the historical
volatility of the Company’s stock using daily close
prices.
|
(c) |
The
risk-free interest rate was based on yields on U.S. Treasury debt at the
time of the grant or modification. |
(d) |
The
expected term of the options was based on the Company's historical option
exercise data, option expiration and post-vesting cancellation
behavior. |
Adoption
of SFAS 123(R) in 2006
As
discussed in note 1, the Company adopted SFAS 123(R) on January 1,
2006. The effect of adopting SFAS 123(R) on the consolidated
statements of operations for 2007 and 2006 is as follows:
|
|
Years
Ended December 31,
|
|
(In millions, except per share
amounts)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expense
|
|
$ |
11.7 |
|
|
|
11.1 |
|
Income
from continuing operations before income taxes and minority
interest
|
|
|
(11.7 |
) |
|
|
(11.1 |
) |
Provision
for income taxes
|
|
|
(4.1 |
) |
|
|
(3.9 |
) |
Income
from continuing operations
|
|
|
(7.6 |
) |
|
|
(7.2 |
) |
Income
from discontinued operations, net of taxes of $1.9 (a)
|
|
|
- |
|
|
|
(4.7 |
) |
Net
income
|
|
$ |
(7.6 |
) |
|
|
(11.9 |
) |
|
|
|
|
|
|
|
|
|
Net
income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.16 |
) |
|
|
(0.24 |
) |
Diluted
|
|
|
(0.16 |
) |
|
|
(0.24 |
) |
(a)
|
In
conjunction with the sale of BAX Global in the first quarter of 2006,
328,247 options held by BAX Global employees were modified to become
immediately vested. This modification resulted in additional
pretax compensation expense of $6.6 million ($4.7 million after tax) and
is included in the calculation of the gain on sale of BAX
Global. The weighted-average exercise price of these options
was $25.67. All of the accelerated options were exercised in
2006.
|
As
of December 31, 2007, $4.3 million of total unrecognized compensation cost
related to previously granted stock options is expected to be recognized over a
weighted-average period of 1.4 years.
Pro Forma Disclosures of 2005
Earnings Required By SFAS 123
The
following table illustrates the pro forma effect on net income and earnings per
share if the fair value-based method under SFAS 123 had been applied in
2005:
|
|
Year
Ended December 31,
|
|
(In millions, except per share
amounts)
|
|
2005
|
|
|
|
|
|
Net
income:
|
|
|
|
As reported
|
|
$ |
142.4 |
|
Less: share-based compensation
expense determined
|
|
|
|
|
under fair-value method, net of
related tax effects
|
|
|
(4.1 |
) |
Pro forma
|
|
$ |
138.3 |
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
Basic, as reported
|
|
$ |
2.53 |
|
Basic, pro forma
|
|
|
2.46 |
|
Diluted, as
reported
|
|
$ |
2.50 |
|
Diluted, pro forma
|
|
|
2.43 |
|
Other
Share-Based Compensation
The
Company has a deferred compensation plan that allows participants to defer a
portion of their compensation into common stock units. The plan held
953,953 common stock units at December 31, 2007, and 881,400 common stock units
at December 31, 2006. During February 2008, the Company distributed
513,503 shares of common stock to participants who had elected to withdraw
vested units from the plan.
Common
Stock
At
December 31, 2007, the Company had 100 million shares of common stock authorized
and 48.4 million shares issued and outstanding. As further discussed
below, between April 11, 2006 and February 22, 2008, the Company purchased
approximately 12.4 million shares of its common stock for $645.8
million. The shares purchased represented 21% of the 58.7 million
shares outstanding on December 31, 2005.
Dutch
Auction
On
March 8, 2006, the Company’s board of directors authorized a “Dutch auction”
self-tender offer to purchase up to 10 million shares of the Company’s common
stock. Under certain circumstances up to an additional 2% of the
outstanding common stock was authorized to be purchased in the tender
offer. The tender offer began on March 9, 2006, and expired on April
6, 2006, and was subject to the terms and conditions described in the offering
materials mailed to the Company’s shareholders and filed with the Securities and
Exchange Commission. On April 11, 2006, the Company purchased
10,355,263 shares in the tender offer at $51.20 per share for a total of
approximately $530.2 million in cash. The Company incurred $0.7
million in costs associated with the purchase.
Share
Purchase Programs
2006
Program. Following the self-tender offer, the board authorized
additional Company common stock purchases of up to $100 million from time to
time as market conditions warranted and as covenants under existing agreements
permitted (the “2006 Program”). The 2006 Program did not require any
specific number of shares be purchased. Under the 2006 Program, the
Company used $100 million to purchase 1,823,118 shares of common stock between
May 22 and October 5, 2006, at an average price of $54.85 per
share. The Company has no remaining authority under the 2006
Program.
2007 Program. On
September 14, 2007, the Company’s board of directors authorized the purchase of
up to $100 million of the Company’s outstanding common shares (the “2007
Program”). The repurchase authorization does not have an expiration
date and potential share repurchases will depend on a variety of
factors. Under the 2007 Program, the Company used $3.6 million to
purchase 60,500 shares of common stock between December 5, 2007, and December
31, 2007, at an average price of $60.30 per share. As of December 31,
2007, the Company had $96.4 million under the 2007 Program available to purchase
shares. In 2008, through February 22, 2008, another 206,800 shares
were purchased for $11.2 million at an average cost of $54.39 per
share.
Dividends
The
Company paid regular quarterly dividends on its Common Stock during the last
three years. On January 25, 2008, the board declared a regular
quarterly dividend of 10 cents per share payable on March 3,
2008. Future dividends are dependent on the earnings, financial
condition, cash flow and business requirements of the Company, as determined by
the board of directors. At December 31, 2007, approximately $120
million of shareholders’ equity was not available for dividends to shareholders
due to limitations imposed by the Company’s Revolving Facility and other lending
arrangements (see note 12).
The
Employee Benefits Trust holds shares of the Company’s common stock to fund
obligations under compensation and employee benefit programs that provide for
the issuance of stock. The Company issued 2.0 million shares in 2006
and 2.1 million shares in 2005 of common stock to the Employee Benefits
Trust. Prior to 2006, shares held by the Employee Benefits Trust that
have not been allocated to employees were accounted for at fair value as a
reduction of shareholders’ equity similar to treasury
stock. Beginning in 2006, under SFAS 123(R), the Company no longer
separately reports the Employee Benefits Trust in its consolidated statement of
shareholders’ equity and consolidated balance sheet; it is now offset with
capital in excess of par value. Through 2007, shares of common
stock were voted by the trustee in the same proportion as the shares of common
stock voted by the Company’s employees participating in the Company’s 401(k)
plan. The Company’s 401(k) plan divested all shares of Company common
stock in January 2008. The Company expects to amend the trust in 2008
to adopt a new method of voting shares held by the trust. Until the trust
is amended, shares of the trust will not be voted in matters voted on by
shareholders.
At
December 31, 2007, the Company has the authority to issue up to 2.0 million
shares of preferred stock, par value $10 per share.
Series
A Preferred Stock Rights Agreement
On
September 25, 2007, the “Expiration Date” occurred under the Amended and
Restated Rights Agreement, dated as of September 1, 2003, between the Company
and American Stock Transfer & Trust Company (successor to Equiserve Trust
Company, N.A.), as amended by Amendment No. 1 thereto, dated September 25, 2006,
between the Company and American Stock Transfer & Trust Company (the “Rights
Agreement”). As a result, the Rights Agreement and the rights issued
thereunder expired by their own terms and each share of common stock, par value
$1.00 per share, of the Company no longer is accompanied by a right to purchase,
under certain circumstances, one one-thousandth of a share of Series A
Participating Cumulative Preferred Stock of the
Company. Prior to expiration, the Rights Agreement gave holders of
common stock the right to purchase Series A Participating Cumulative Preferred
Stock if, among other things, a third-party accumulated more than 15% of the
voting rights of all outstanding common stock.
Note
17 – Discontinued Operations
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
United Kingdom domestic cash handling operations:
|
|
|
|
|
|
|
|
|
|
Gain on sale
|
|
$ |
1.5 |
|
|
|
- |
|
|
|
- |
|
Results from operations
(a)
|
|
|
(13.9 |
) |
|
|
(10.0 |
) |
|
|
(8.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
BAX
Global:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale
|
|
|
- |
|
|
|
586.7 |
|
|
|
(2.8 |
) |
Results from operations
(b)
|
|
|
- |
|
|
|
7.0 |
|
|
|
86.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to contingent liabilities and assets of former operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Benefit Act
liabilities
|
|
|
1.7 |
|
|
|
148.3 |
|
|
|
2.3 |
|
Withdrawal
liabilities
|
|
|
- |
|
|
|
9.9 |
|
|
|
6.1 |
|
Litigation settlement
gain
|
|
|
- |
|
|
|
- |
|
|
|
15.1 |
|
Reclamation
liabilities
|
|
|
(1.7 |
) |
|
|
0.6 |
|
|
|
(6.2 |
) |
Workers’ compensation
liabilities
|
|
|
(1.8 |
) |
|
|
(0.4 |
) |
|
|
0.4 |
|
Other
|
|
|
1.7 |
|
|
|
(0.8 |
) |
|
|
0.1 |
|
Income
(loss) from discontinued operations before income taxes
|
|
|
(12.5 |
) |
|
|
741.3 |
|
|
|
93.1 |
|
Income
tax (expense) benefit
|
|
|
1.2 |
|
|
|
(267.2 |
) |
|
|
3.7 |
|
Income
(loss) from discontinued operations
|
|
$ |
(11.3 |
) |
|
|
474.1 |
|
|
|
96.8 |
|
(a)
|
Revenues
of Brink’s United Kingdom domestic cash handling operations were $28.9
million in 2007 (partial year), $44.3 million in 2006 and $43.6 million in
2005.
|
(b)
|
Revenues
of BAX Global were $230.0 million in 2006 (partial year) and $2,899.4
million in 2005. In accordance with SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, BAX Global ceased depreciating
and amortizing long-lived assets after November 2005, the date that BAX
Global was classified as held for sale. Had BAX Global not
ceased depreciation and amortization, its pretax income would have been
$3.3 million lower in 2006 and $4.9 million lower in
2005.
|
Brink’s
United Kingdom Domestic Cash Handling Operations
During
2007, the Company sold Brink’s United Kingdom domestic cash handling operations
for $2.2 million in cash and recognized a $1.5 million gain on the
sale. The Company expects to recognize up to $1.4 million of
additional income in discontinued operations during future periods as the
assumption of remaining contractual obligations by the buyer is
completed. These operations recorded a $7.5 million impairment charge
in 2007, primarily related to writing down leasehold improvements and vehicles
to estimated fair value due to the loss of customers. These operations have been
reported as discontinued operations for all periods presented.
BAX
Global
On
January 31, 2006, the Company sold BAX Global, a wholly owned freight
transportation subsidiary, for approximately $1 billion in cash, resulting in a
pretax gain of approximately $587 million ($375 million after
tax). The Company has either retained or indemnified the purchaser
for some pre-sale liabilities including those for income taxes and for existing
litigation as discussed in note 21. The resolution of these matters
is expected to take several years. BAX Global’s results of operations
have been reported as discontinued operations for all periods
presented.
Interest
Expense
Interest
expense included in discontinued operations was $0.6 million in 2007, $1.3
million in 2006 and $3.1 million in 2005. Interest expense recorded
in discontinued operations includes only interest on third-party borrowings made
directly by BAX Global and Brink’s United Kingdom domestic cash handling
operations. The Company has not allocated other consolidated interest
expense to discontinued operations. Discounts and other fees of BAX
Global’s accounts receivable securitization program were $2.7 million in
2005.
Adjustments
to Contingent Assets and Liabilities of Former Operations
Ongoing
expenses related to former operations, including expenses related to
Company-sponsored postretirement benefit obligations, black lung obligations,
pension obligations and expenditures for legal fees and other administrative
activities, are classified within continuing operations. Adjustments
to contingent assets and liabilities related to former operations, including
those related to reclamation matters, worker’s compensation claims,
multi-employer pension plan withdrawal liabilities, the Health Benefit Act
liabilities and remaining legal contingencies are reported within discontinued
operations.
Federal
Black Lung Excise Tax
In
1999, the U.S. District Court of the Eastern District of Virginia entered a
final judgment in favor of the Company, ruling that the Federal Black Lung
Excise Tax (“FBLET”) is unconstitutional as applied to export coal sales. In
December 2005, the Company reached a final settlement agreement related to all
remaining claims for FBLET refunds and recorded a pretax gain of $15.1
million.
Other
The
Company recorded expenses of $1.7 million in 2007 and $6.2 million in 2005 to
reflect an increase in the estimated cost of reclamation at its former coal
mines. Income of $0.6 million was recorded during 2006 to reflect a
decrease in estimated costs. The estimate of the cost of reclamation
may change in the future.
Income
Taxes Related to Discontinued Operations
Discontinued
operations include the tax provision or benefit associated with the Company’s
BAX Global and other former businesses, and the resolution of associated
contingent tax matters.
The income
tax benefit on the pretax loss from discontinued operations in 2007 was lower
than the 35% U.S. statutory tax rate due to tax benefits not
recognized related to losses at Brink’s United Kingdom domestic cash
handling operations.
The
effective tax rate in 2006 approximated the U.S. statutory tax
rate.
The
effective tax rate in 2005 was lower than the U.S. statutory tax rate primarily
as a result of an income tax benefit of $27.4 million recorded upon the
resolution of income tax matters with the Internal Revenue Service related to
the former natural resource business. In addition, the Company
recognized a $7.0 million net deferred tax benefit for the excess of the tax
basis over the carrying value of the Company’s investment in BAX Global as a
result of its decision to sell BAX Global’s stock.
Note
18 – Supplemental Cash Flow Information
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
10.1 |
|
|
|
12.3 |
|
|
|
23.9 |
|
Income taxes, net
(a)
|
|
|
65.5 |
|
|
|
118.7 |
|
|
|
70.4 |
|
(a)
|
Without
the gain on sale of BAX Global and the related use of proceeds, cash paid
for income taxes in 2006 would have been approximately $75
million.
|
Note
19 – Other Operating Income, Net
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Hurricane
Katrina insurance settlement gains
|
|
$ |
3.3 |
|
|
|
- |
|
|
|
- |
|
Share
in earnings of equity affiliates
|
|
|
3.3 |
|
|
|
3.3 |
|
|
|
3.4 |
|
Royalty
income
|
|
|
2.0 |
|
|
|
1.8 |
|
|
|
2.0 |
|
Gains
on sale of operating assets and mineral rights, net
|
|
|
4.6 |
|
|
|
0.4 |
|
|
|
9.6 |
|
Foreign
currency transaction losses, net
|
|
|
(8.6 |
) |
|
|
(1.0 |
) |
|
|
(3.1 |
) |
Impairment
losses
|
|
|
(2.5 |
) |
|
|
(1.5 |
) |
|
|
(1.3 |
) |
Other
|
|
|
2.5 |
|
|
|
2.9 |
|
|
|
4.5 |
|
Total
|
|
$ |
4.6 |
|
|
|
5.9 |
|
|
|
15.1 |
|
Insurance
settlement gains of $3.3 million were recorded in 2007 for final settlement of
property damage and business interruption insurance claims related to Hurricane
Katrina.
Impairment
losses of $2.5 million in 2007 include $2.0 million recorded by Brink’s related
to operations in a European country.
Gains
on sale of operating assets and mineral rights, net in 2005 included
$5.8 million related to a 2003 West Virginia coal asset sale due to the formal
transfer of liabilities in 2005 to the buyer. In addition, a $3.1
million gain on the sale of residual assets and mineral rights related to former
mining operations in Kentucky was recognized in 2005.
Note
20 – Interest and Other Nonoperating Income (Expense), Net
|
|
Years
Ended December 31,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
8.7 |
|
|
|
13.9 |
|
|
|
4.7 |
|
Dividend
income from real estate investment
|
|
|
0.5 |
|
|
|
5.1 |
|
|
|
4.1 |
|
Senior
Notes prepayment make-whole amount
|
|
|
- |
|
|
|
(1.6 |
) |
|
|
- |
|
Other,
net
|
|
|
1.3 |
|
|
|
(0.5 |
) |
|
|
0.5 |
|
Total
|
|
$ |
10.5 |
|
|
|
16.9 |
|
|
|
9.3 |
|
Note
21 – Other Commitments and Contingencies
Surety
Bonds and Letters of Credit
The
Company is required by various state and federal laws to provide security with
regard to its obligations to pay workers’ compensation benefits, reclaim lands
used for mining by the Company’s former coal operations and satisfy other
obligations. As of December 31, 2007, the Company had outstanding
surety bonds with third parties totaling approximately $40.7 million that it has
arranged in order to satisfy various security requirements. Most of
these bonds provide financial security for obligations which have already been
recorded as liabilities. Surety bonds are typically renewable on a
yearly basis; however, there can be no assurance the bonds will be renewed or
that premiums in the future will not increase.
The
Company believes that it has adequate available borrowing capacity under its
Letter of Credit Facility and its Revolving Facility to provide letters of
credit or other collateral to secure its obligations if the remaining surety
bonds are not renewed.
The
Company has issued letters of credit of $136.4 million under its $150 million
Letter of Credit Facility, described in “Long-Term Debt” above. At
December 31, 2007, all of these issued letters of credit were being used to
secure various obligations.
Former
Operations
At
December 31, 2007, the Company had obligations of $8.2 million (at net present
value) under mineral lease agreements that give it the right to access and mine
coal properties in exchange for required minimum annual
payments. These agreements require that the Company pay royalties to
lessors based on production of coal or minimum amounts if coal is not
produced.
BAX
Global, a former business unit of the Company, is defending a claim related to
the apparent diversion by a third party of goods being transported for a
customer. Although BAX Global is defending this claim vigorously and
believes that its defenses have merit, it is possible that this claim ultimately
may be decided in favor of the claimant. If so, the Company expects
that the ultimate amount of reasonably possible unaccrued losses could range
from $0 to $11 million. The Company has contractually indemnified the
purchaser of BAX Global for this contingency.
Value-added
taxes (“VAT”) and customs duties
During
2004, the Company determined that one of its non-U.S. Brink’s business units had
not paid customs duties and VAT with respect to the importation of certain goods
and services. The Company was advised that civil and criminal
penalties could be asserted for the non-payment of these customs duties and
VAT. Although no penalties have been asserted to date, they could be
asserted at any time. The business unit has provided the appropriate
government authorities with an accounting of unpaid customs duties and VAT and
has made payments covering its calculated unpaid VAT. The Company
believes that the range of reasonably possible losses is between $0.4 million
and $3.0 million for potential penalties on unpaid VAT and has accrued $0.4
million. The Company believes that the range of possible losses for
unpaid customs duties and associated penalties, none of which has been accrued,
is between $0 and $35 million. The Company believes that the assertion of the
penalties on unpaid customs duties would be excessive and would vigorously
defend against any such assertion. The Company does not expect to be
assessed interest charges in connection with any penalties that may be
asserted. The Company continues to diligently pursue the timely
resolution of this matter and, accordingly, the Company’s estimate of the
potential losses could change materially in future periods. The
assertion of potential penalties may be material to the Company’s financial
position and results of operations.
Purchase
Obligations
At
December 31, 2007, the Company had noncancelable commitments for $54.2 million
in equipment purchases, and information technology and other
services.
Note
22 – Selected Quarterly Financial Data (unaudited)
|
|
2007
Quarters
|
|
|
2006
Quarters
|
|
(In
millions, except per share amounts)
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
740.5 |
|
|
|
778.7 |
|
|
|
817.0 |
|
|
|
882.8 |
|
|
$ |
653.1 |
|
|
|
685.6 |
|
|
|
709.5 |
|
|
|
745.1 |
|
Operating
profit
|
|
|
64.3 |
|
|
|
59.2 |
|
|
|
60.5 |
|
|
|
90.0 |
|
|
|
46.8 |
|
|
|
44.1 |
|
|
|
54.4 |
|
|
|
64.2 |
|
Income
(loss) from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
31.1 |
|
|
|
33.1 |
|
|
|
30.0 |
|
|
|
54.4 |
|
|
$ |
25.5 |
|
|
|
22.3 |
|
|
|
25.7 |
|
|
|
39.6 |
|
Discontinued
operations
|
|
|
(2.4 |
) |
|
|
(4.8 |
) |
|
|
(4.1 |
) |
|
|
- |
|
|
|
377.9 |
|
|
|
8.4 |
|
|
|
0.8 |
|
|
|
87.0 |
|
Net
income
|
|
$ |
28.7 |
|
|
|
28.3 |
|
|
|
25.9 |
|
|
|
54.4 |
|
|
$ |
403.4 |
|
|
|
30.7 |
|
|
|
26.5 |
|
|
|
126.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
0.67 |
|
|
|
0.71 |
|
|
|
0.64 |
|
|
|
1.17 |
|
|
$ |
0.44 |
|
|
|
0.45 |
|
|
|
0.55 |
|
|
|
0.86 |
|
Discontinued
operations
|
|
|
(0.05 |
) |
|
|
(0.10 |
) |
|
|
(0.09 |
) |
|
|
- |
|
|
|
6.55 |
|
|
|
0.17 |
|
|
|
0.02 |
|
|
|
1.88 |
|
Net income
|
|
$ |
0.62 |
|
|
|
0.61 |
|
|
|
0.56 |
|
|
|
1.17 |
|
|
$ |
6.99 |
|
|
|
0.62 |
|
|
|
0.57 |
|
|
|
2.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
0.66 |
|
|
|
0.70 |
|
|
|
0.64 |
|
|
|
1.16 |
|
|
$ |
0.44 |
|
|
|
0.45 |
|
|
|
0.54 |
|
|
|
0.85 |
|
Discontinued
operations
|
|
|
(0.05 |
) |
|
|
(0.10 |
) |
|
|
(0.08 |
) |
|
|
- |
|
|
|
6.48 |
|
|
|
0.17 |
|
|
|
0.02 |
|
|
|
1.86 |
|
Net income
|
|
$ |
0.61 |
|
|
|
0.60 |
|
|
|
0.55 |
|
|
|
1.15 |
|
|
$ |
6.92 |
|
|
|
0.62 |
|
|
|
0.56 |
|
|
|
2.71 |
|
(a)
|
The
Company’s results of operations in the fourth quarter of 2006 included a
$149.4 million pretax benefit in discontinued operations related to a
reduction in the Company’s obligation under the Health Benefit
Act. The Company recorded a reduction to expenses of
approximately $2.9 million in the fourth quarter of 2006 in its Brink’s
segment to reflect a revision to the estimate for the allowance for
doubtful accounts.
|
Earnings
per share amounts for each quarter are required to be computed
independently. As a result, their sum may not equal the annual
earnings per share.
Note
23 – Subsequent Event
On
February 25, 2008, the board of directors approved a strategic decision to
spin-off BHS in a tax-free stock distribution to the shareholders of the
Company. Immediately after the spin-off, BHS will be owned
directly by the shareholders receiving shares in the distribution. In
addition, these shareholders will retain their shares in the Company, whose
operations will consist primarily of Brink’s, its secure transportation and cash
management services unit. The distribution, which is expected to be
completed in the fourth quarter of 2008, is subject to a number of customary
conditions, including execution of appropriate inter-company agreements, filing
of required documents with the Securities and Exchange Commission and receipt of
an opinion of counsel or a private letter ruling from the Internal Revenue
Service that the spin-off will be tax-free to the Company’s
shareholders.
After the distribution, the
Company will report BHS' results of operations, including previously
reported results, within discontinued operations.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not
applicable.
ITEM
9A. CONTROLS AND PROCEDURES
Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934, the Company carried
out an evaluation, with the participation of the Company’s management, including
the Company’s Chief Executive Officer and Vice President and Chief Financial
Officer, of the effectiveness of the Company’s disclosure controls and
procedures (as defined under Rule 13a-15(e) under the Securities Exchange Act of
1934) as of the end of the period covered by this report. Based upon
that evaluation, the Company’s Chief Executive Officer and Vice President and
Chief Financial Officer concluded that the Company’s disclosure controls and
procedures are effective in ensuring that information required to be disclosed
by the Company in the reports that it files or submits under the Securities
Exchange Act of 1934, is recorded, processed, summarized and reported, within
the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to management, including the
Company’s Chief Executive Officer and Vice President and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
There
has been no change in the Company’s internal control over financial reporting
during the quarter ended December 31, 2007, that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Reference
is made to pages 73 and 74 for Management’s Annual Report on Internal Control
over Financial Reporting and the Attestation Report of the Registered Public
Accounting Firm.
ITEM
9B. OTHER INFORMATION
Not
applicable.
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
Company has adopted a Business Code of Ethics that applies to all of the
directors, officers and employees (including the Chief Executive Officer, Chief
Financial Officer and Controller) and has posted the Code on the Company’s
website. The Company intends to satisfy the disclosure requirement
under Item 5.05 of Form 8-K relating to amendments to or waivers from any
provision of the Business Code of Ethics applicable to the Chief Executive
Officer, Chief Financial Officer or Controller by posting this information on
the website. The internet address is www.brinkscompany.com.
The
information regarding executive officers is included in this report following
Item 4, under the caption “Executive Officers of the
Registrant.” Other information required by Item 10 is herein
incorporated by reference to the Company’s definitive proxy statement to be
filed pursuant to Regulation 14A within 120 days after December 31,
2007.
ITEM
11. EXECUTIVE COMPENSATION
The
information required by Item 11 is incorporated by reference to the Company’s
definitive proxy statement to be filed pursuant to Regulation 14A within 120
days after December 31, 2007.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
The
information required by Item 12 is incorporated by reference to the Company’s
definitive proxy statement to be filed pursuant to Regulation 14A within 120
days after December 31, 2007.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The
information required by Item 13 is incorporated by reference to the Company’s
definitive proxy statement to be filed pursuant to Regulation 14A within 120
days after December 31, 2007.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
information required by Item 14 is incorporated by reference to the Company’s
definitive proxy statement to be filed pursuant to Regulation 14A within 120
days after December 31, 2007.
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
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1.
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All
financial statements – see pages 72 – 118.
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2.
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Financial
statement schedules – not applicable.
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3.
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Exhibits
– see exhibit index.
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Undertaking
For
the purposes of complying with the amendments to the rules governing Form S-8
(effective July 13, 1990) under the Securities Act of 1933, the undersigned
Registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into Registrant’s Registration Statements on Form S-8 Nos. 2-64258,
33-2039, 33-21393, 33-23333, 33-69040, 33-53565, 333-02219, 333-78631,
333-78633, 333-70758, 333-70772, 333-70766, 333-70762 and
333-146673. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Signatures
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on February 27, 2008.
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The
Brink’s Company
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(Registrant)
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By
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/s/
M. T. Dan
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(M.
T. Dan,
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Chairman,
President and
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Chief
Executive Officer)
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Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated, on February 27, 2008.
Signatures |
Title |
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R.
G. Ackerman*
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Director
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B.
C. Alewine*
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Director
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J.
R. Barker*
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Director
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M.
C. Breslawsky*
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Director
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J.
S. Brinzo*
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Director
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/s/ M.
T. Dan
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Chairman,
President and
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(M.
T. Dan)
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Chief
Executive Officer
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(principal
executive officer)
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T.
R. Hudson Jr.*
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Director
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M.
D. Martin*
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Director
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L.
J. Mosner*
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Director
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/s/ R.
T. Ritter
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Vice
President
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(R.
T. Ritter)
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and
Chief Financial Officer
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(principal
financial officer and principal accounting officer)
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C.
S. Sloane*
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Director
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T.
Smart*
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Director
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R.
L. Turner*
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Director
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*By
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/s/ M.
T. Dan
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(M.
T. Dan, Attorney-in-Fact)
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Exhibit
Index
Each
exhibit listed as a previously filed document is hereby incorporated by
reference to such document.
Exhibit
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Number
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Description
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2(i)
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Shareholders’
Agreement, dated as of January 10, 1997, between Brink’s Security
International, Inc., and Valores Tamanaco, C.A. Exhibit 10(w)
to the Registrant’s Annual Report on Form 10-K for the year ended December
31, 1998.
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3(i)
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Amended
and Restated Articles of Incorporation of the
Registrant. Exhibit 3(i) to the Registrant’s Current Report on
Form 8-K filed November 20, 2007.
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3(ii)
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Amended
and Restated Bylaws of the Registrant. Exhibit 3(ii) to the
Registrant’s Current Report on Form 8-K filed February 25,
2008.
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10(a)*
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Key
Employees Incentive Plan, as amended and restated as of November 16,
2007.
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10(b)*
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Key
Employees’ Deferred Compensation Program, as amended and restated as of
November 16, 2007.
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10(c)*
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(i) Pension
Equalization Plan as amended and restated, effective as of July 16,
2007. Exhibit 10 to the Registrant’s Quarterly Report on Form
10-Q for the quarter ended June 30, 2007.
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(ii) Amended
and Restated Trust Agreement, dated December 1, 1997, between the
Registrant and Chase Manhattan Bank, as Trustee (the “Trust
Agreement”). Exhibit 10(e)(ii) to the Registrant’s Annual
Report on Form 10-K for the year ended December 31, 1997 (the “1997
Form 10-K”).
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(iii) Amendment
No. 1 to Trust Agreement, dated as of August 18, 1999. Exhibit
10(c)(iii) to the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 1999 (the “1999 Form 10-K”).
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(iv) Amendment
No. 2 to Trust Agreement, dated as of July 26, 2001. Exhibit
10(c)(iv) to the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2002 (the “2002 Form 10-K”).
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(v) Amendment
No. 3 to Trust Agreement, dated as of September 18,
2002. Exhibit 10(c)(v) to the 2002 Form
10-K.
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(vi) Amendment
No. 4 to Trust Agreement, dated as of September 22,
2003. Exhibit 10.1 to the Registrant’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2003 (the “Third Quarter 2003
Form 10-Q”).
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(vii) Amendment
No. 5 to Trust Agreement, dated as of September 20,
2004. Exhibit 10.1 to the Registrant’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2004.
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(viii) Amendment
No. 6 to Trust Agreement, dated as of November 22,
2004. Exhibit 99.4 to the Registrant’s Current Report on Form
8-K filed November 22, 2004.
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10(d)*
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Executive
Salary Continuation Plan. Exhibit 10(e) to the Registrant’s
Annual Report on Form 10-K for the year ended December 31, 1991 (the “1991
Form 10-K”).
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10(e)*
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1988
Stock Option Plan, as amended and restated as of January 14,
2000. Exhibit 10(f) to the 1999
Form 10-K.
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10(f)*
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2005
Equity Incentive Plan, as amended and restated as of November 16,
2007.
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10(g)*
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Form
of Option Agreement for options granted under 2005 Equity Incentive
Plan. Exhibit 99 to the Registrant’s Current Report on Form 8-K
filed July 13, 2005.
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10(h)*
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Management
Performance Improvement Plan, as amended and restated as of November 16,
2007.
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10(i)*
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(i) Form
of change in control agreement replacing all prior change in control
agreements and amendments and modifications thereto, between the
Registrant (or a subsidiary) and various officers of the
Registrant. Exhibit 10(l)(ii) to the 1997 Form
10-K.
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(ii) Form
of First Amendment to change in control agreement. Exhibit 10.2
to the Registrant’s Current Report on Form 8-K filed March 28,
2007.
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10(j)*
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Form
of severance agreement between the Registrant (or a subsidiary) and
various officers of the Registrant. Exhibit 10(o)(ii) to the
1997 Form 10-K.
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10(k)*
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(i) Employment
Agreement dated as of May 4, 1998, between the Registrant and Michael T.
Dan. Exhibit 10(a) to the Registrant’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998 (the “Third Quarter 1998 Form
10-Q”).
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(ii) Amendment
No. 1 to Employment Agreement between the Registrant and Michael T.
Dan. Exhibit 10 to the Registrant’s Quarterly Report on Form
10-Q for the quarter ended June 30, 2002.
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(iii) Amendment
No. 2 to Employment Agreement between the Registrant and Michael T.
Dan. Exhibit 10 to the Registrant’s Current Report on Form 8-K
filed March 10, 2006.
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10(l)*
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(i) Executive
Agreement dated as of May 4, 1998, between the Registrant and Michael T.
Dan. Exhibit 10(b) to the Third Quarter 1998 Form 10-Q.
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(ii) First
Amendment to Executive Agreement, dated as of March 28, 2007, among The
Brink’s Company, Brink’s, Incorporated and Michael T.
Dan. Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed
March 28, 2007.
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10(m)*
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(i) Executive
Agreement dated as of August 7, 1998, between the Registrant and Robert T.
Ritter. Exhibit 10(c) to the Third Quarter 1998 Form
10-Q.
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(ii) Form
of First Amendment to Executive Agreement. Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K filed March 28,
2007.
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10(n)*
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Severance
Agreement dated as of August 7, 1998, between the Registrant and Robert T.
Ritter. Exhibit 10(d) to the Third Quarter 1998 Form
10-Q.
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10(o)*
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Form
of Indemnification Agreement entered into by the Registrant with its
directors and officers. Exhibit 10(l) to the 1991 Form
10-K.
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10(p)*
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(i) Retirement
Plan for Non-Employee Directors, as amended. Exhibit 10(g) to
the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994 (the “Third Quarter 1994 Form
10-Q”).
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(ii) Form
of letter agreement dated as of September 16, 1994, between the Registrant
and its Non-Employee Directors pursuant to Retirement Plan for
Non-Employee Directors. Exhibit 10(h) to the Third Quarter 1994
Form 10-Q.
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10(q)*
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Non-Employee
Directors’ Stock Option Plan, as amended and restated as of July 8,
2005. Exhibit 10.2 to the Registrant’s Quarterly Report on Form
10-Q for the quarter ended June 30, 2005 (the “Second Quarter 2005 Form
10-Q”).
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10(r)*
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Directors’
Stock Accumulation Plan, as amended and restated as of November 16,
2007.
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10(s)*
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Plan
for Deferral of Directors’ Fees, as amended and restated as of November
16, 2007.
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10(t)
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(i) Trust
Agreement for The Brink’s Company Employee Welfare Benefit
Trust. Exhibit 10(t) to the 1999
Form 10-K.
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(ii) First
Amendment of The Brink’s Company Employee Welfare Benefit Trust, dated as
of November 1, 2001.
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(iii) Second
Amendment of The Brink’s Company Employee Welfare Benefit Trust, dated as
of September 30, 2003.
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10(u)
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(i) $43,160,000
Bond Purchase Agreement, dated September 17, 2003, among the Peninsula
Ports Authority of Virginia, Dominion Terminal Associates, Pittston
Coal Terminal Corporation and the Registrant. Exhibit 10.2(i)
to the Third Quarter 2003 Form 10-Q.
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(ii) Loan
Agreement between the Peninsula Ports Authority of Virginia and Dominion
Terminal Associates, dated September 1, 2003. Exhibit 10.2(ii)
to the Third Quarter 2003 Form 10-Q.
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(iii) Indenture
and Trust between the Peninsula Ports Authority of Virginia and Wachovia
Bank, National Association (“Wachovia”), as trustee, dated September 1,
2003. Exhibit 10.2(iii) to the Third Quarter 2003 Form
10-Q.
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(iv) Parent
Company Guaranty Agreement, dated September 1, 2003, made by the
Registrant for the benefit of Wachovia. Exhibit 10.2(iv)
to the Third Quarter 2003 Form 10-Q.
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(v) Continuing
Disclosure Undertaking between the Registrant and Wachovia, dated
September 24, 2003. Exhibit 10.2(v) to the Third Quarter 2003
Form 10-Q.
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(vi) Coal
Terminal Revenue Refunding Bond (Dominion Terminal Associates Project –
Brink’s Issue) Series 2003. Exhibit 10.2(vi) to the Third Quarter
2003 Form 10-Q.
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10(v)
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$150,000,000
Credit Agreement, dated as of November 18, 2004, between the Registrant
and ABN AMRO Bank N.V. Exhibit 99.1 to the Registrant’s Current
Report on Form 8-K filed November 18, 2004.
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10(w)
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(i) Credit
Agreement, dated July 13, 2005, among the Registrant, certain of its
subsidiaries and ABN AMRO Bank N.V. Exhibit 99 to the
Registrant’s Current Report on Form 8-K filed July 15,
2005.
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(ii) First
Amendment to Credit Agreement, entered into as of December 22, 2006, by
and among the Registrant, Brink’s, Incorporated and ABN AMRO Bank
N.V. Exhibit 10.2 to the Registrant’s Current Report on Form
8-K filed December 22, 2006.
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10(x)
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$400,000,000
Credit Agreement among the Registrant, as Parent Borrower, the Subsidiary
Borrowers referred to therein, certain of Parent Borrower’s
Subsidiaries, as Guarantors, Various Lenders, Bank of Tokyo-Mitsubishi UFJ
Trust Company, as Documentation Agent, Bank of America, N.A. and JPMorgan
Chase Bank, N.A., as Syndication Agents, and Wachovia Bank, National
Association, as Administrative Agent, an Issuing Lender and Swingline
Lender, dated as of August 11, 2006. Exhibit 10(ee) to the
Registrant’s Current Report on Form 8-K filed August 11,
2006.
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10(y)
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Stock
Purchase Agreement, dated as of November 15, 2005, by and among BAX
Holding Company, BAX Global Inc., The Brink’s Company and Deutsche Bahn
AG. Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
filed November 16, 2005.
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21
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Subsidiaries
of the Registrant.
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23
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Consent
of Independent Registered Public Accounting Firm.
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24
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Powers
of Attorney.
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31
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Rule
13a-14(a)/15d-14(a) Certifications.
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32
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Section
1350 Certifications.
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99(a)*
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Amendment
to Pension-Retirement Plan relating to preservation of assets of the
Pension-Retirement Plan upon a change in control. Exhibit 99 to the
Registrant’s Annual Report on Form 10-K for the year ended December 31,
1992.
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*Management
contract or compensatory plan or arrangement.