form_10-q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended March 31,
2008
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)
|
|
|
Virginia
|
|
54-1317776
|
|
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
|
|
incorporation
or organization)
|
|
Identification
No.)
|
|
1801 Bayberry Court,
Richmond, Virginia 23226-8100
(Address
of principal executive offices) (Zip Code)
(804)
289-9600
(Registrant's
telephone number, including area code)
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 whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer, accelerated
filer and smaller reporting company” in Rule 12b-2 of the Exchange
Act.
(Check
one): Large Accelerated Filer x Accelerated
Filer o Non-Accelerated
Filer o Smaller
Reporting Company 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 April 25, 2008, 47,397,320 shares of $1 par value common stock were
outstanding.
Part I - Financial
Information
Item 1. Financial
Statements
THE
BRINK’S COMPANY
and
subsidiaries
Consolidated
Balance Sheets
(Unaudited)
|
|
March
31,
|
|
|
December
31,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
207.2 |
|
|
|
196.4 |
|
Accounts receivable,
net
|
|
|
527.0 |
|
|
|
491.9 |
|
Prepaid expenses and
other
|
|
|
114.5 |
|
|
|
93.5 |
|
Deferred income
taxes
|
|
|
58.2 |
|
|
|
63.9 |
|
Total current
assets
|
|
|
906.9 |
|
|
|
845.7 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
1,158.7 |
|
|
|
1,118.4 |
|
Goodwill
|
|
|
151.2 |
|
|
|
141.3 |
|
Deferred
income taxes
|
|
|
81.9 |
|
|
|
90.1 |
|
Other
|
|
|
202.7 |
|
|
|
198.8 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
2,501.4 |
|
|
|
2,394.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$ |
17.4 |
|
|
|
12.4 |
|
Current maturities of long-term
debt
|
|
|
10.8 |
|
|
|
11.0 |
|
Accounts
payable
|
|
|
170.7 |
|
|
|
171.9 |
|
Income taxes
payable
|
|
|
11.2 |
|
|
|
14.9 |
|
Accrued
liabilities
|
|
|
441.3 |
|
|
|
429.7 |
|
Total current
liabilities
|
|
|
651.4 |
|
|
|
639.9 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
151.4 |
|
|
|
89.2 |
|
Accrued
pension costs
|
|
|
58.9 |
|
|
|
58.0 |
|
Postretirement
benefits other than pensions
|
|
|
107.0 |
|
|
|
111.9 |
|
Deferred
revenue
|
|
|
181.7 |
|
|
|
178.6 |
|
Deferred
income taxes
|
|
|
27.2 |
|
|
|
29.8 |
|
Minority
interest
|
|
|
74.3 |
|
|
|
68.2 |
|
Other
|
|
|
165.3 |
|
|
|
172.4 |
|
Total liabilities
|
|
|
1,417.2 |
|
|
|
1,348.0 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (notes 4, 5, 7 and 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
47.7 |
|
|
|
48.4 |
|
Capital in excess of par
value
|
|
|
457.9 |
|
|
|
452.6 |
|
Retained earnings
|
|
|
681.8 |
|
|
|
675.8 |
|
Accumulated other comprehensive
loss
|
|
|
(103.2 |
) |
|
|
(130.5 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders’
equity
|
|
|
1,084.2 |
|
|
|
1,046.3 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders’ equity
|
|
$ |
2,501.4 |
|
|
|
2,394.3 |
|
See
accompanying notes to consolidated financial statements.
THE
BRINK’S COMPANY
and
subsidiaries
Consolidated
Statements of Operations
(Unaudited)
|
|
Three
Months
|
|
|
|
Ended
March 31,
|
|
(In
millions, except per share amounts)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
920.6 |
|
|
|
740.5 |
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
681.7 |
|
|
|
564.7 |
|
Selling,
general and administrative expenses
|
|
|
140.6 |
|
|
|
112.4 |
|
Total expenses
|
|
|
822.3 |
|
|
|
677.1 |
|
Other
operating income (expense), net
|
|
|
(1.0 |
) |
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
97.3 |
|
|
|
64.3 |
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(2.5 |
) |
|
|
(2.5 |
) |
Interest
and other income, net
|
|
|
2.1 |
|
|
|
1.6 |
|
Income from continuing operations
before income taxes and
|
|
|
|
|
|
|
|
|
minority interest
|
|
|
96.9 |
|
|
|
63.4 |
|
Provision
for income taxes
|
|
|
34.0 |
|
|
|
25.3 |
|
Minority
interest
|
|
|
14.9 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations
|
|
|
48.0 |
|
|
|
31.1 |
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations, net of income taxes
|
|
|
2.1 |
|
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
50.1 |
|
|
|
28.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
1.03 |
|
|
|
0.67 |
|
Discontinued
operations
|
|
|
0.05 |
|
|
|
(0.05 |
) |
Net income
|
|
|
1.08 |
|
|
|
0.62 |
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
1.02 |
|
|
|
0.66 |
|
Discontinued
operations
|
|
|
0.04 |
|
|
|
(0.05 |
) |
Net income
|
|
|
1.07 |
|
|
|
0.61 |
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
46.5 |
|
|
|
46.3 |
|
Diluted
|
|
|
46.9 |
|
|
|
46.9 |
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid per common share
|
|
$ |
0.1000 |
|
|
|
0.0625 |
|
See
accompanying notes to consolidated financial statements.
THE
BRINK’S COMPANY
and
subsidiaries
Consolidated
Statement of Shareholders’ Equity
Three
months ended March 31, 2008
(Unaudited)
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
in
Excess
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
of
Par
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
(In
millions)
|
|
Shares
(a)
|
|
|
Stock
|
|
|
Value
|
|
|
Earnings
|
|
|
Loss
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2007
|
|
|
48.4 |
|
|
$ |
48.4 |
|
|
|
452.6 |
|
|
|
675.8 |
|
|
|
(130.5 |
) |
|
|
1,046.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
50.1 |
|
|
|
- |
|
|
|
50.1 |
|
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
27.3 |
|
|
|
27.3 |
|
Shares
repurchased and retired
|
|
|
(0.7 |
) |
|
|
(0.7 |
) |
|
|
(7.4 |
) |
|
|
(39.5 |
) |
|
|
- |
|
|
|
(47.6 |
) |
Dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4.5 |
) |
|
|
- |
|
|
|
(4.5 |
) |
Share-based
compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
expense
|
|
|
- |
|
|
|
- |
|
|
|
1.1 |
|
|
|
- |
|
|
|
- |
|
|
|
1.1 |
|
Proceeds from exercise of
stock options
|
|
|
- |
|
|
|
- |
|
|
|
2.7 |
|
|
|
- |
|
|
|
- |
|
|
|
2.7 |
|
Excess tax benefit of stock
compensation
|
|
|
- |
|
|
|
- |
|
|
|
6.7 |
|
|
|
- |
|
|
|
- |
|
|
|
6.7 |
|
Other share-based benefit
programs
|
|
|
- |
|
|
|
- |
|
|
|
2.2 |
|
|
|
(0.1 |
) |
|
|
- |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2008
|
|
|
47.7 |
|
|
$ |
47.7 |
|
|
|
457.9 |
|
|
|
681.8 |
|
|
|
(103.2 |
) |
|
|
1,084.2 |
|
(a)
|
Includes
1.6 million shares at March 31, 2008, held by The Brink’s Company Employee
Benefits Trust that have not been allocated to participants (1.7 million
shares at December 31, 2007).
|
See
accompanying notes to consolidated financial statements.
THE
BRINK’S COMPANY
and
subsidiaries
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
Three
Months
|
|
|
|
Ended
March 31,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
50.1 |
|
|
|
28.7 |
|
Adjustments
to reconcile net income to net cash provided (used) by operating
activities:
|
|
|
|
|
|
|
|
|
(Income) loss from discontinued
operations, net of tax
|
|
|
(2.1 |
) |
|
|
2.4 |
|
Depreciation and
amortization
|
|
|
50.4 |
|
|
|
43.4 |
|
Impairment
charges:
|
|
|
|
|
|
|
|
|
Subscriber
disconnects
|
|
|
11.9 |
|
|
|
11.2 |
|
Other
|
|
|
0.1 |
|
|
|
0.1 |
|
Amortization of deferred
revenue
|
|
|
(8.6 |
) |
|
|
(8.0 |
) |
Deferred income
taxes
|
|
|
9.5 |
|
|
|
9.4 |
|
Provision for uncollectible
accounts receivable
|
|
|
3.5 |
|
|
|
2.6 |
|
Compensation expense for stock
options
|
|
|
1.1 |
|
|
|
1.4 |
|
Other operating,
net
|
|
|
17.1 |
|
|
|
10.4 |
|
Postretirement expense (credits),
net of funding:
|
|
|
|
|
|
|
|
|
Pension
|
|
|
(3.5 |
) |
|
|
1.2 |
|
Other than
pension
|
|
|
(2.4 |
) |
|
|
(3.1 |
) |
Changes in operating assets and
liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(19.9 |
) |
|
|
4.1 |
|
Accounts payable, income taxes
payable and accrued liabilities
|
|
|
(32.6 |
) |
|
|
(3.0 |
) |
Deferral of subscriber
acquisition cost
|
|
|
(6.3 |
) |
|
|
(5.8 |
) |
Deferral of revenue from new
subscribers
|
|
|
12.0 |
|
|
|
12.1 |
|
Prepaid and other current
assets
|
|
|
(17.7 |
) |
|
|
(20.0 |
) |
Other, net
|
|
|
(2.9 |
) |
|
|
7.4 |
|
Discontinued operations,
net
|
|
|
- |
|
|
|
(1.4 |
) |
Net cash provided by operating
activities
|
|
|
59.7 |
|
|
|
93.1 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(77.3 |
) |
|
|
(69.7 |
) |
Acquisitions
|
|
|
- |
|
|
|
(2.5 |
) |
Cash
proceeds from disposal
|
|
|
0.7 |
|
|
|
1.6 |
|
Other,
net
|
|
|
0.4 |
|
|
|
1.7 |
|
Discontinued
operations, net
|
|
|
- |
|
|
|
(0.1 |
) |
Net cash used by investing
activities
|
|
|
(76.2 |
) |
|
|
(69.0 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Revolving
credit facilities borrowings (repayments), net
|
|
|
65.9 |
|
|
|
(6.3 |
) |
Long
term debt:
|
|
|
|
|
|
|
|
|
Additions
|
|
|
- |
|
|
|
1.1 |
|
Repayments
|
|
|
(5.0 |
) |
|
|
(4.2 |
) |
Short-term
borrowings (repayments), net
|
|
|
3.5 |
|
|
|
(5.7 |
) |
Repurchase
shares of common stock of The Brink’s Company
|
|
|
(44.5 |
) |
|
|
(0.3 |
) |
Dividends
to:
|
|
|
|
|
|
|
|
|
Shareholders of The Brink’s
Company
|
|
|
(4.5 |
) |
|
|
(2.8 |
) |
Minority interest holders in
subsidiaries
|
|
|
(1.1 |
) |
|
|
(1.0 |
) |
Proceeds
from exercise of stock options
|
|
|
2.7 |
|
|
|
4.5 |
|
Excess
tax benefits associated with stock compensation
|
|
|
6.6 |
|
|
|
3.2 |
|
Other,
net
|
|
|
- |
|
|
|
0.1 |
|
Discontinued
operations, net
|
|
|
- |
|
|
|
(11.1 |
) |
Net cash provided (used) by
financing activities
|
|
|
23.6 |
|
|
|
(22.5 |
) |
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
3.7 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
|
Increase
|
|
|
10.8 |
|
|
|
2.4 |
|
Balance at beginning of
period
|
|
|
196.4 |
|
|
|
137.2 |
|
Balance at end of
period
|
|
$ |
207.2 |
|
|
|
139.6 |
|
See
accompanying notes to consolidated financial statements.
THE
BRINK’S COMPANY
and
subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Note
1 – Basis of presentation
The
Brink’s Company (along with its subsidiaries, the “Company”) has two operating
segments:
· Brink’s,
Incorporated (“Brink’s”)
· Brink’s
Home Security, Inc. (“BHS”)
On
February 25, 2008, the board of directors approved a plan to separate the
Company into two independent publicly traded companies through a spin-off of
100% of BHS. The Brink's Company will continue to operate Brink's,
its secure transportation and cash management unit. The spin-off of
BHS is expected to take the form of a tax-free stock distribution to The Brink's
Company shareholders and be completed in the fourth quarter of
2008. After the distribution, the Company will report expenses
related to the spin-off and BHS’ results of operations, including previously
reported results, within discontinued operations.
The
Company’s unaudited consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (“GAAP”) for
interim financial reporting and applicable quarterly reporting regulations of
the Securities and Exchange Commission (the “SEC”). Accordingly, the
unaudited consolidated financial statements do not include all of the
information and notes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for interim periods are not
necessarily indicative of the results that may be expected for the full
year. For further information, refer to the Company’s Annual Report
on Form 10-K for the year ended December 31, 2007.
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, legal
contingencies and income taxes.
Recently
Adopted Accounting Standards
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) 157, Fair Value
Measurements. In February 2008, the FASB issued FASB Staff
Position 157-2, Partial
Deferral of the Effective Date of SFAS 157, which delayed the effective
date of SFAS 157 for all nonrecurring fair value measurements of nonfinancial
assets and nonfinancial liabilities. The Company adopted SFAS 157,
effective January 1, 2008 for financial assets and financial
liabilities. 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 implementation of
SFAS 157, as it relates to the Company’s financial assets and financial
liabilities, did not have a material effect on the Company’s results of
operations or financial position. The Company is currently evaluating
the potential impact, if any, on its nonfinancial assets and
liabilities.
The Company adopted SFAS 159,
The
Fair Value Option for Financial Assets and Liabilities – Including an amendment
of FASB Statement No. 115,
effective January 1, 2008. 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 has not elected the fair value option for existing assets or liabilities
upon adoption. Therefore, the implementation of SFAS 159 did not have
an effect on the Company’s results of operations or financial
position.
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.
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.
BHS
offers monitored security services in North America primarily 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.
|
|
Three
Months
|
|
|
|
Ended
March 31,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Brink’s
|
|
$ |
792.8 |
|
|
|
625.8 |
|
BHS
|
|
|
127.8 |
|
|
|
114.7 |
|
Revenues
|
|
$ |
920.6 |
|
|
|
740.5 |
|
|
|
|
|
|
|
|
|
|
Operating
profit:
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
82.0 |
|
|
|
51.0 |
|
BHS
|
|
|
32.0 |
|
|
|
28.2 |
|
Business
segments
|
|
|
114.0 |
|
|
|
79.2 |
|
Corporate
|
|
|
(16.1 |
) |
|
|
(11.6 |
) |
Former operations
|
|
|
(0.6 |
) |
|
|
(3.3 |
) |
Operating profit
|
|
$ |
97.3 |
|
|
|
64.3 |
|
Note
3 – Earnings per share
Shares
used to calculate earnings per share are as follows:
|
|
Three
Months
|
|
|
|
Ended
March 31,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
|
Basic
|
|
|
46.5 |
|
|
|
46.3 |
|
Effect of dilutive stock
options
|
|
|
0.4 |
|
|
|
0.6 |
|
Diluted
|
|
|
46.9 |
|
|
|
46.9 |
|
|
|
|
|
|
|
|
|
|
Antidilutive
stock options excluded from denominator
|
|
|
0.6 |
|
|
|
0.2 |
|
Shares
of the Company’s common stock held by The Brink’s Company Employee Benefits
Trust (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 1.6 million unallocated shares at March 31, 2008, and 2.0 million
unallocated shares at March 31, 2007.
Note
4 – Employee and retiree benefits
Pension
plans
The
Company has various defined benefit plans for eligible employees.
The
components of net periodic pension cost (credit) for the Company’s pension plans
were as follows:
(In
millions)
|
|
U.S.
Plans
|
|
|
Non-U.S.
Plans
|
|
|
Total
|
|
Three
months ended March 31,
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
- |
|
|
|
- |
|
|
|
2.4 |
|
|
|
2.0 |
|
|
|
2.4 |
|
|
|
2.0 |
|
Interest
cost on projected benefit obligation
|
|
|
11.4 |
|
|
|
10.8 |
|
|
|
3.2 |
|
|
|
2.4 |
|
|
|
14.6 |
|
|
|
13.2 |
|
Return
on assets – expected
|
|
|
(14.8 |
) |
|
|
(13.4 |
) |
|
|
(3.1 |
) |
|
|
(2.3 |
) |
|
|
(17.9 |
) |
|
|
(15.7 |
) |
Amortization
of losses
|
|
|
0.3 |
|
|
|
2.7 |
|
|
|
0.9 |
|
|
|
0.8 |
|
|
|
1.2 |
|
|
|
3.5 |
|
Net
periodic pension cost (credit)
|
|
$ |
(3.1 |
) |
|
|
0.1 |
|
|
|
3.4 |
|
|
|
2.9 |
|
|
|
0.3 |
|
|
|
3.0 |
|
Postretirement
benefits other than pensions
Company-Sponsored
Plans
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 (credit) related to
Company-sponsored plans were as follows:
(In
millions)
|
|
Coal-related
plans
|
|
|
Other
plans
|
|
|
Total
|
|
Three
months ended March 31,
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
- |
|
|
|
- |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Interest
cost on accumulated postretirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit
obligations
|
|
|
7.9 |
|
|
|
7.9 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
8.1 |
|
|
|
8.1 |
|
Return
on assets – expected
|
|
|
(9.6 |
) |
|
|
(9.6 |
) |
|
|
- |
|
|
|
- |
|
|
|
(9.6 |
) |
|
|
(9.6 |
) |
Amortization
of losses
|
|
|
2.0 |
|
|
|
3.0 |
|
|
|
(0.1 |
) |
|
|
- |
|
|
|
1.9 |
|
|
|
3.0 |
|
Curtailment
gain
|
|
|
- |
|
|
|
- |
|
|
|
(2.0 |
) |
|
|
- |
|
|
|
(2.0 |
) |
|
|
- |
|
Net
periodic postretirement cost (credit)
|
|
$ |
0.3 |
|
|
|
1.3 |
|
|
|
(1.8 |
) |
|
|
0.3 |
|
|
|
(1.5 |
) |
|
|
1.6 |
|
In
January 2008, Brink’s announced the freezing of the Canadian postretirement
benefit plan. Some employees will not meet the eligibility
requirement to receive benefits. As a result, the Company recorded a
$2.0 million curtailment gain.
The market value of the Voluntary Employees' Beneficiary Association
trust's assets at March 31, 2008, was approximately $418 million.
Pneumoconiosis
(Black Lung) Obligations
The
Company is self-insured with respect to almost all of its black lung
obligations. The components of net periodic postretirement benefit
cost related to black lung obligations were as follows:
|
|
Three
Months
|
|
|
|
Ended
March 31,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Interest
cost on APBO
|
|
$ |
0.7 |
|
|
|
0.6 |
|
Amortization
of losses
|
|
|
0.2 |
|
|
|
0.3 |
|
Net
periodic postretirement cost
|
|
$ |
0.9 |
|
|
|
0.9 |
|
Note
5 – Income taxes
|
|
Three
Months
|
|
|
|
Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Continuing
operations
|
|
|
|
|
|
Provision
for income taxes (in millions)
|
|
$ |
34.0 |
|
|
|
25.3 |
|
Effective
tax rate
|
|
|
35.1 |
% |
|
|
39.9 |
% |
|
|
|
|
|
|
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
Provision
for income taxes (in millions)
|
|
$ |
0.8 |
|
|
|
0.3 |
|
Effective
tax rate
|
|
|
27.6 |
% |
|
NM
|
The
effective income tax rate on continuing operations in the first quarter of 2008
was slightly higher than the 35% U.S. statutory tax rate primarily due to a $2.8
million tax charge resulting from the decision to spin-off BHS, and $1.7 million
of state tax expense, partially offset by a $4.4 million decrease in the
non-U.S. tax provision, primarily due to the mix of earnings in the foreign
jurisdictions.
The
effective income tax rate on continuing operations in the first quarter of 2007
was higher than the 35% U.S. statutory tax rate primarily due to a $4.1
million increase in the valuation allowances for non-U.S. jurisdictions
and $1.0 million of state tax expense. This was partially offset
by a $0.7 million benefit related to the Company's foreign tax credit
position.
Note
6 – Capital stock
Common
stock
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
repurchase authorization does not have an expiration date and potential share
repurchases will depend on a variety of factors. Under the 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. The Company used an additional $36.9 million to purchase
594,300 shares of common stock between January 1, 2008, and March 31, 2008, at
an average price of $62.16 per share. As of March 31, 2008, the
Company had $59.4 million under the program available to purchase
shares. From April 1, 2008, through April 25, 2008, another 204,000
shares were purchased for $13.9 million at an average cost of $68.00 per
share.
Note
7 – Discontinued operations
|
|
Three
Months
|
|
|
|
Ended
March 31,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Results
of Brink’s United Kingdom domestic cash handling operations
(a)
|
|
$ |
- |
|
|
|
(2.5 |
) |
Adjustments
to contingent liabilities of former operations
|
|
|
2.9 |
|
|
|
0.4 |
|
Income
(loss) from discontinued operations before income taxes
|
|
|
2.9 |
|
|
|
(2.1 |
) |
Provision
for income taxes
|
|
|
0.8 |
|
|
|
0.3 |
|
Income
(loss) from discontinued operations
|
|
$ |
2.1 |
|
|
|
(2.4 |
) |
(a)
|
Brink’s
United Kingdom domestic cash handling operations were sold in August
2007. Revenues of the operations were $11.0 million for the
first quarter of 2007.
|
Note
8 – Supplemental cash flow information
|
|
Three
Months
|
|
|
|
Ended
March 31,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
Interest
|
|
$ |
1.8 |
|
|
|
1.6 |
|
Income taxes, net
|
|
|
25.4 |
|
|
|
14.7 |
|
Note
9 – Comprehensive income
|
|
Three
Months
|
|
|
|
Ended
March 31,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
50.1 |
|
|
|
28.7 |
|
Other
comprehensive income (loss), net of reclasses and taxes:
|
|
|
|
|
|
|
|
|
Benefit plan experience
loss
|
|
|
1.9 |
|
|
|
4.4 |
|
Benefit plan prior service
cost
|
|
|
0.3 |
|
|
|
0.2 |
|
Foreign currency translation
adjustments
|
|
|
25.8 |
|
|
|
3.6 |
|
Marketable
securities
|
|
|
(0.7 |
) |
|
|
- |
|
Other comprehensive
income
|
|
|
27.3 |
|
|
|
8.2 |
|
Comprehensive
income
|
|
$ |
77.4 |
|
|
|
36.9 |
|
Note
10 – Commitments and contingent matters
Operating
leases
The
Company has made residual value guarantees of approximately $72.1 million at
March 31, 2008, related to operating leases, principally for trucks and other
vehicles.
BAX
Global litigation
BAX
Global 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 believes that the ultimate amount of
reasonably possible unaccrued losses could range from $0 to $13
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
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.
Other
The
Company is involved in various other lawsuits and claims in the ordinary course
of business. The Company has recorded accruals for losses that are
considered probable and reasonably estimable. Management believes
that the ultimate disposition of these matters will not have a material adverse
effect on the liquidity or financial position of the Company, however, losses
from these matters or changes in estimates of losses for these matters may
result in income or expense in any one accounting period that is material in
comparison to the earnings of that period.
THE
BRINK’S COMPANY
and
subsidiaries
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The
Brink’s Company (along with its subsidiaries, the “Company”) has two operating
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 primarily for
owner-occupied, single-family residences. To a lesser extent,
BHS offers security services for commercial and multi-family
properties. BHS typically installs and owns the on-site
security systems and charges fees to monitor and service the
systems.
|
On
February 25, 2008, the board of directors approved a plan to separate the
Company into two independent publicly traded companies through a spin-off of
100% of BHS. The Brink's Company will continue to operate Brink's,
its secure transportation and cash management unit. The spin-off of
BHS is expected to take the form of a tax-free stock distribution to The Brink's
Company shareholders and be completed in the fourth quarter of
2008. After the distribution, the Company will report expenses
related to the spin-off and BHS’ results of operations, including previously
reported results, 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 its former
coal operations.
|
|
Three
Months
|
|
|
|
Ended
March 31,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Income
(loss) from:
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
48.0 |
|
|
|
31.1 |
|
Discontinued
operations
|
|
|
2.1 |
|
|
|
(2.4 |
) |
Net income
|
|
$ |
50.1 |
|
|
|
28.7 |
|
The
income (loss) items in the above table are reported after tax.
Income
from continuing operations increased by about 54% in the first quarter of 2008
versus the first quarter of the prior year primarily due to improved performance
at Brink’s and BHS. Brink’s operating profit increased in the first
quarter of 2008 from the prior-year period primarily due to a significant
increase in operating profit in Latin America on higher revenues from solid
growth in several countries and a nonrecurring benefit from a one-time project
(the “conversion project” is discussed further below in Brink’s International
section) partially offset by lower operating profit in North
America. BHS continued a trend of reporting higher operating
profit.
Corporate
expenses in the first quarter of 2008 were higher than the prior year due to
consulting expenses related to a strategy review, proxy matters and the initial
steps to implement the planned spin-off of BHS. Expenses related to
former operations in the first quarter of 2008 were lower primarily due to lower
costs for pension and other postretirement benefits.
|
|
Three
Months
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
792.8 |
|
|
|
625.8 |
|
|
|
27 |
|
BHS
|
|
|
127.8 |
|
|
|
114.7 |
|
|
|
11 |
|
Revenues
|
|
$ |
920.6 |
|
|
|
740.5 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
82.0 |
|
|
|
51.0 |
|
|
|
61 |
|
BHS
|
|
|
32.0 |
|
|
|
28.2 |
|
|
|
14 |
|
Business segments
|
|
|
114.0 |
|
|
|
79.2 |
|
|
|
44 |
|
Corporate
|
|
|
(16.1 |
) |
|
|
(11.6 |
) |
|
|
39 |
|
Former operations
|
|
|
(0.6 |
) |
|
|
(3.3 |
) |
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
97.3 |
|
|
|
64.3 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(2.5 |
) |
|
|
(2.5 |
) |
|
|
- |
|
Interest
and other income, net
|
|
|
2.1 |
|
|
|
1.6 |
|
|
|
31 |
|
Income from continuing operations
before
|
|
|
|
|
|
|
|
|
|
|
|
|
income taxes and minority
interest
|
|
|
96.9 |
|
|
|
63.4 |
|
|
|
53 |
|
Provision
for income taxes
|
|
|
34.0 |
|
|
|
25.3 |
|
|
|
34 |
|
Minority
interest
|
|
|
14.9 |
|
|
|
7.0 |
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations
|
|
|
48.0 |
|
|
|
31.1 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income
taxes
|
|
|
2.1 |
|
|
|
(2.4 |
) |
|
NM
|
|
Net income
|
|
$ |
50.1 |
|
|
|
28.7 |
|
|
|
75 |
|
Revenues
- Consolidated
The
Company’s consolidated revenue during the 2008 first quarter increased from the
prior-year period as a result of revenue growth at both operating segments.
Brink’s revenues in the first quarter of 2008 increased over the prior-year
period due to growth in existing operations, favorable changes in foreign
currency exchange rates and revenues associated with the conversion
project. There will be additional revenue from the conversion project
in the second quarter of 2008 but at a substantially reduced
level. The conversion project is expected to provide insignificant or
no benefit after the second quarter. BHS’ revenues increased year
over year primarily as a result of growth in the subscriber base.
Operating
Profit - Consolidated
The
Company’s consolidated operating profit in the first quarter compared to the
same period last year increased as a result of operating profit growth from both
operating segments. Brink’s operating profit included significant
operating profit growth in Latin America including the favorable impact of
activities related to the conversion project. Operating profit in
Europe, Middle East, and Africa (“EMEA”) was slightly lower than the prior-year
quarter as lower operating results in France were partially offset by
improvements in several other countries. North American operating
profit was lower than the prior-year quarter due primarily to higher
expenses. BHS’ operating profit for the current quarter improved due
to incremental revenues and lower Home Technology installation expense,
partially offset by higher marketing costs. BHS’ operating profit in
2007 also includes $0.4 million of other operating income from the partial
settlement of insurance claims related to Hurricane Katrina.
Corporate
expense in the first quarter of 2008 included approximately $6 million of
professional, legal and advisory fees incurred related to strategic reviews
conducted by the Company, proxy matters and the initial steps to implement the
planned spin-off of BHS. The Company expects to incur an additional
$10 million to $15 million of professional, legal and advisory fees during the
remainder of 2008 related to the proposed spin-off of BHS.
Expenses
related to former operations were lower in the first quarter of 2008 compared to
the same period last year primarily due to lower pension and other
postretirement expenses.
|
|
Three
Months
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
North America (a)
|
|
$ |
230.3 |
|
|
|
211.2 |
|
|
|
9 |
|
International
|
|
|
562.5 |
|
|
|
414.6 |
|
|
|
36 |
|
|
|
$ |
792.8 |
|
|
|
625.8 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America (a)
|
|
$ |
13.4 |
|
|
|
18.3 |
|
|
|
(27 |
) |
International
|
|
|
68.6 |
|
|
|
32.7 |
|
|
|
110 |
|
|
|
$ |
82.0 |
|
|
|
51.0 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
$ |
29.7 |
|
|
|
24.7 |
|
|
|
20 |
|
Capital
expenditures
|
|
|
31.5 |
|
|
|
26.2 |
|
|
|
20 |
|
(a) U.S.
and Canada.
Revenues
– Brink’s
Revenues
at Brink’s were higher in the first quarter of 2008 compared to the prior-year
period as a result of a combination of the effects of Organic Revenue Growth, as
defined later, favorable changes in currency exchange rates and
the conversion project.
Operating
Profit – Brink’s
Operating
profit in the first quarter of 2008 was higher than in the prior-year period
primarily as a result of strong performance in Latin America, including
conversion project activities. In EMEA, operating profit for the
first quarter of 2008 was slightly lower than in the prior-year period as a
result of lower results in France partially offset by improved performance in
several other countries. North American operating profit in the first
quarter was lower than in the prior-year period due largely to higher spending
on labor, transportation and selling, general and administrative
expenses. Results also included the benefit of reductions in
postretirement benefit obligations in Canada, partially offset by the net effect
of changes in the amount of accruals for legal claims. Due to
inflationary pressures, especially related to wage increases in Latin America,
and lower conversion project work, second-quarter 2008 operating margin for
Brink’s is expected to approximate 7%.
Brink’s
expects to generate operating profit margins of approximately 9% in
2008.
Supplemental
Revenue Analysis
The
following table provides 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 period 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 price increases 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 did not materially
affect period to period comparisons of segment operating profit for the periods
presented herein.
|
|
Three
Months
|
|
|
%
change
|
|
(In
millions)
|
|
Ended
March 31,
|
|
|
from
prior period
|
|
|
|
|
|
|
|
|
2006
Revenues
|
|
$ |
548.4 |
|
|
|
|
Effects
on revenue of:
|
|
|
|
|
|
|
|
Organic Revenue
Growth
|
|
|
47.7 |
|
|
|
9 |
|
Acquisitions and dispositions,
net
|
|
|
6.3 |
|
|
|
1 |
|
Changes in currency exchange
rates
|
|
|
23.4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
2007
Revenues
|
|
|
625.8 |
|
|
|
14 |
|
Effects
on revenue of:
|
|
|
|
|
|
|
|
|
Organic Revenue
Growth
|
|
|
95.9 |
|
|
|
16 |
|
Acquisitions and dispositions,
net
|
|
|
7.7 |
|
|
|
1 |
|
Changes in currency exchange
rates
|
|
|
63.4 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
2008
Revenues
|
|
$ |
792.8 |
|
|
|
27 |
|
North
America
North
American revenues increased 9% to $230.3 million in the first quarter of 2008
compared to $211.2 million in the same period for 2007 as the result of
increases in all service lines. Operating profit in the first quarter
of 2008 decreased $4.9 million compared to the same period in 2007 due to higher
spending on labor, transportation and selling, general and administrative
expenses. Results also included the benefit of reductions in
postretirement benefit obligations in Canada, partially offset by the net effect
of changes in the amount of accruals for legal claims.
International
Revenues
increased in the first quarter of 2008 over the prior-year period in all
regions. Revenue increases in EMEA and Latin America were primarily
the result of Organic Revenue Growth, favorable changes in currency exchange
rates and the conversion project. International operating profit in
the first quarter of 2008 was higher than the 2007 period primarily due to the
effects of strong volumes in Latin America, including the conversion
project.
EMEA. Revenues
increased to $332.4 million in the first quarter of 2008 compared to $270.4
million from the same period last year, an increase of 23% (8% on a constant
currency basis) largely as a result of both Organic Revenue Growth and favorable
changes in currency exchange rates. Operating profit was slightly
lower in the first quarter of 2008 due to lower results in France partially
offset by improvements in several countries.
Latin
America. Revenues increased to $211.0 million in the first
quarter of 2008 from $129.5 million in the first quarter of 2007, an increase of
63% (51% on a constant currency basis) primarily due to higher volumes across
the region, normal inflationary price increases, favorable changes in currency
exchange rates and the conversion project. Operating profit in the
first quarter of 2008 was significantly higher than in the first quarter of 2007
primarily due to the above-mentioned volume and price increases, combined with
productivity improvements across the region. Brink’s has concluded
negotiations with employee bargaining units which will lead to higher costs in
the second quarter. This is expected to reduce margins from first
quarter levels.
The Conversion
Project. Venezuela changed its national currency from the
bolivar to the bolivar fuerte on January 1, 2008, and Brink’s performed
additional cash handling services to assist in the conversion. During
the first quarter of 2008, Brink’s estimated that it recorded approximately $35
million of incremental revenue related to these services. The Company
expects to record approximately $10 million in additional revenues during the
remainder of 2008 associated with the conversion project with most occurring in
the second quarter.
The
conversion project activities utilized existing assets, personnel and other
resources which also serviced normal operations. Due to the temporary
significant increase in volume and special security and reconciliation
procedures, Brink’s increased resources and training and established special
procedures to mitigate risks and, accordingly, increased its
costs. There were higher costs in late 2007 related to this
project. There may be wind down costs to be incurred in future
quarters after the conversion project ends.
Asia-Pacific. Revenues
increased slightly to $19.1 million in the first quarter of 2008 from $14.7
million in the first quarter of 2007, an increase of 30% (22% on a constant
currency basis). Operating profit in the first quarter of 2008 was
higher than in 2007, reflecting improvements in the Company’s Hong Kong and
Global Services operations.
|
|
Three
Months
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
127.8 |
|
|
|
114.7 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring
services (a)
|
|
$ |
56.8 |
|
|
|
50.8 |
|
|
|
12 |
|
Investment
in new subscribers (b)
|
|
|
(24.8 |
) |
|
|
(22.6 |
) |
|
|
10 |
|
|
|
$ |
32.0 |
|
|
|
28.2 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
recurring revenues (c)
|
|
$ |
38.3 |
|
|
|
34.2 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization (d)
|
|
$ |
20.6 |
|
|
|
18.5 |
|
|
|
11 |
|
Impairment
charges from
|
|
|
|
|
|
|
|
|
|
|
|
|
subscriber
disconnects
|
|
|
11.9 |
|
|
|
11.2 |
|
|
|
6 |
|
Amortization
of deferred revenue (e)
|
|
|
(8.6 |
) |
|
|
(8.0 |
) |
|
|
8 |
|
Deferral
of subscriber acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
costs (current year
payments)
|
|
|
(6.3 |
) |
|
|
(5.8 |
) |
|
|
9 |
|
Deferral
of revenue from new
|
|
|
|
|
|
|
|
|
|
|
|
|
subscribers (current year
receipts)
|
|
|
12.0 |
|
|
|
12.1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Security systems
|
|
$ |
(43.2 |
) |
|
|
(41.1 |
) |
|
|
5 |
|
Other
|
|
|
(2.6 |
) |
|
|
(2.3 |
) |
|
|
13 |
|
Capital
expenditures
|
|
$ |
(45.8 |
) |
|
|
(43.4 |
) |
|
|
6 |
|
(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.
|
Revenues
- BHS
The
11% increase in BHS’ revenues in the first quarter of 2008 over the comparable
2007 period was primarily due to a larger subscriber base and a 3% increase
in average monitoring rates. The larger subscriber base and
higher average monitoring and service rates also contributed to a 12% increase
in monthly recurring revenues for March 2008 as compared to March
2007.
Operating
Profit - BHS
Operating
profit increased $3.8 million for the first quarter of 2008 compared to the same
quarter in 2007 as higher profit from recurring services was partially offset by
increased investment in new subscribers. Higher profit from recurring
services in the first quarter of 2008 was primarily due to incremental revenues
generated from the larger subscriber base and higher average monitoring
rates. Higher investment in new subscribers over the first quarter of
2008 was primarily due to increased advertising and marketing costs incurred to
maintain installation volume and increased salary expense associated with an
increase in the commercial sales force.
Subscriber
activity
|
|
Three
Months
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
%
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
Number
of subscribers:
|
|
|
|
|
|
|
|
|
|
Beginning of
period
|
|
|
1,223.9 |
|
|
|
1,124.9 |
|
|
|
|
Installations (a)
|
|
|
44.6 |
|
|
|
45.8 |
|
|
|
(3 |
) |
Disconnects (a)
|
|
|
(18.9 |
) |
|
|
(17.5 |
) |
|
|
8 |
|
End of period (b)
|
|
|
1,249.6 |
|
|
|
1,153.2 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of subscribers
|
|
|
1,236.4 |
|
|
|
1,138.1 |
|
|
|
9 |
|
Annualized
disconnect rate (c)
|
|
|
6.1 |
% |
|
|
6.1 |
% |
|
|
|
|
(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.
|
(b)
|
Commercial
subscribers accounted for approximately 5% of total subscribers at March
31, 2008. The Company continues to see the expansion of BHS’
commercial subscriber base as 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.
|
Installations
were 3% lower in the first quarter of 2008 as compared to the same period in
2007, primarily due to fewer residential installations which the Company
attributes to the slow housing market, partially offset by a 10% increase in
commercial installations over the same period last year. Overall,
installation growth in 2008 is expected to continue to be hampered by sluggish
residential real estate activity in the U.S.
The
annualized disconnect rate of 6.1% for the first quarter of 2008 was consistent
with that of the same period of 2007. Disconnect rates are typically
higher in the second and third calendar quarters of the year because of an
increase in residential moves during summer months. BHS is
continually focused on minimizing customer disconnects; however, the disconnect
rate may not materially improve in the future, as a certain amount of
disconnects cannot be prevented due to external factors, primarily household
moves. In addition, the instability in the housing and credit markets
could affect BHS’ ability to collect receivables from customers; this could
increase the disconnect rate. The Company expects the disconnect rate in
the second quarter of 2008 to be lower than the second quarter of 2007 rate of
8.0%.
Reconciliation
of Non-GAAP Measures – Monthly Recurring Revenues
|
|
Three
Months
|
|
|
|
Ended
March 31,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Monthly
recurring revenues (“MRR”) (a)
|
|
$ |
38.3 |
|
|
|
34.2 |
|
Amounts
excluded from MRR:
|
|
|
|
|
|
|
|
|
Amortization of deferred
revenue
|
|
|
2.9 |
|
|
|
2.7 |
|
Other revenues (b)
|
|
|
1.6 |
|
|
|
1.7 |
|
Revenues
on a GAAP basis:
|
|
|
|
|
|
|
|
|
March
|
|
|
42.8 |
|
|
|
38.6 |
|
January – February
|
|
|
85.0 |
|
|
|
76.1 |
|
January – March
|
|
$ |
127.8 |
|
|
|
114.7 |
|
(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 as one factor of 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 monitored
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
|
|
Three
Months
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
expense
|
|
$ |
16.1 |
|
|
|
11.6 |
|
|
|
39 |
|
Corporate
expense in the first quarter of 2008 included approximately $6 million of
professional, legal and advisory fees incurred related to strategic reviews
conducted by the Company, proxy matters and the initial steps to implement the
proposed spin-off of BHS. The Company expects to incur an additional
$10 million to $15 million of professional, legal and advisory fees during the
remainder of 2008 related to the proposed spin-off of BHS.
Expenses
related to the spin-off will be classified within discontinued operations once
the spin-off has occurred.
Former
Operations – included in Continuing Operations
|
|
Three
Months
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
Company-sponsored
postretirement
|
|
|
|
|
|
|
|
|
|
benefits other than
pensions
|
|
$ |
0.3 |
|
|
|
1.5 |
|
|
|
(80 |
) |
Black
lung
|
|
|
0.9 |
|
|
|
0.9 |
|
|
|
- |
|
Pension
|
|
|
(1.8 |
) |
|
|
(0.1 |
) |
|
|
200 |
+ |
Administrative,
legal and other
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses, net
|
|
|
1.2 |
|
|
|
1.0 |
|
|
|
20 |
|
|
|
$ |
0.6 |
|
|
|
3.3 |
|
|
|
(82 |
) |
Expenses
from former operations decreased by 82% in the first quarter of 2008 compared to
the same period last year primarily because pension credits increased and other
postretirement benefit expenses were lower.
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. At March 31, 2008, no foreign currency forward contracts
were outstanding.
Translation
adjustments of net monetary assets and liabilities denominated in local
currencies relating to operations in countries with highly inflationary
economies are included in net income, along with all transaction gains or losses
for the period. No subsidiaries operated in highly inflationary
economies for the three months ending March 31, 2008 and
2007. Venezuela’s economy has not been considered to be highly
inflationary in the past five years, but it is reasonably 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;
and
|
|
·
|
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 a
less favorable exchange rate 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’s Venezuelan subsidiaries, which are not wholly owned, held net current
assets of $77 million at March 31, 2008.
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.
Other
Operating Income (Expense), Net
Other
operating income (expense), net, is a component of the operating segments’
previously discussed operating profits.
|
|
Three
Months
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
Share
in earnings of equity affiliates
|
|
$ |
1.2 |
|
|
|
0.7 |
|
|
|
71 |
|
Royalty
income
|
|
|
0.6 |
|
|
|
0.4 |
|
|
|
50 |
|
Foreign
currency transaction losses, net
|
|
|
(3.3 |
) |
|
|
(1.2 |
) |
|
|
175 |
|
Gain
on sale of operating
|
|
|
|
|
|
|
|
|
|
|
|
|
assets, net
|
|
|
- |
|
|
|
0.3 |
|
|
NM
|
|
Other
|
|
|
0.5 |
|
|
|
0.7 |
|
|
|
(29 |
) |
|
|
$ |
(1.0 |
) |
|
|
0.9 |
|
|
NM
|
|
Nonoperating
Income and Expense
Interest
expense
|
|
Three
Months
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$ |
2.5 |
|
|
|
2.5 |
|
|
|
- |
|
Interest
and other income, net
|
|
Three
Months
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
2.1 |
|
|
|
1.8 |
|
|
|
17 |
|
Other
|
|
|
- |
|
|
|
(0.2 |
) |
|
NM
|
|
|
|
$ |
2.1 |
|
|
|
1.6 |
|
|
|
31 |
|
|
|
Three
Months
|
|
|
|
Ended
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
|
|
|
|
Provision
for income taxes (in millions)
|
|
$ |
34.0 |
|
|
|
25.3 |
|
Effective
tax rate
|
|
|
35.1 |
% |
|
|
39.9 |
% |
|
|
|
|
|
|
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
Provision
for income taxes (in millions)
|
|
$ |
0.8 |
|
|
|
0.3 |
|
Effective
tax rate
|
|
|
27.6 |
% |
|
NM
|
|
The
effective income tax rate on continuing operations in the first quarter of 2008
was slightly higher than the 35% U.S. statutory tax rate primarily due to a $2.8
million tax charge resulting from the decision to spin-off BHS, and $1.7 million
of state tax expense, partially offset by a $4.4 million decrease in the
non-U.S. tax provision, primarily due to the mix of earnings in the foreign
jurisdictions.
The
effective income tax rate on continuing operations in the first quarter of 2007
was higher than the 35% U.S. statutory tax rate primarily due to a $4.1
million increase in the valuation allowances for non-U.S. jurisdictions
and $1.0 million of state tax expense. This was partially offset
by a $0.7 million benefit related to the Company's foreign tax credit
position.
The
Company’s effective tax rate may fluctuate materially from period to period due
to changes in the expected geographical mix of earnings, changes in valuation
allowances or accruals for contingencies and other factors. Subject
to the above factors, the Company currently expects that the effective tax rate
on continuing operations for the full year 2008 will approximate 35% to
37%.
|
|
Three
Months
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
$ |
14.9 |
|
|
|
7.0 |
|
|
|
113 |
|
The
increase in minority interest in 2008 is primarily due to an increase in the
earnings of Brink’s Venezuelan and Colombian subsidiaries.
|
|
Three
Months
|
|
|
|
Ended
March 31,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Results
of Brink’s United Kingdom domestic cash handling operations
(a)
|
|
$ |
- |
|
|
|
(2.5 |
) |
Adjustments
to contingent liabilities of former operations
|
|
|
2.9 |
|
|
|
0.4 |
|
Income
(loss) from discontinued operations before income taxes
|
|
|
2.9 |
|
|
|
(2.1 |
) |
Provision
for income taxes
|
|
|
0.8 |
|
|
|
0.3 |
|
Income
(loss) from discontinued operations
|
|
$ |
2.1 |
|
|
|
(2.4 |
) |
(a)
|
Brink’s
United Kingdom domestic cash handling operations were sold in August
2007. Revenues of the operations were $11.0 million for the
first quarter of 2007.
|
LIQUIDITY
AND CAPITAL RESOURCES
Cash
flows before financing activities decreased by $40.6 million in the first
quarter of 2008 as compared to the first quarter of 2007. The
decrease was primarily due to higher working capital usage. In
addition, capital expenditures were higher in the first quarter of 2008 than in
the same quarter last year.
Summary
of Cash Flow Information
|
|
Three
Months
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
$
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
59.7 |
|
|
|
94.5 |
|
|
|
(34.8 |
) |
Discontinued
operations
|
|
|
- |
|
|
|
(1.4 |
) |
|
|
1.4 |
|
Operating
activities
|
|
|
59.7 |
|
|
|
93.1 |
|
|
|
(33.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(77.3 |
) |
|
|
(69.7 |
) |
|
|
(7.6 |
) |
Acquisitions
|
|
|
- |
|
|
|
(2.5 |
) |
|
|
2.5 |
|
Other
|
|
|
1.1 |
|
|
|
3.3 |
|
|
|
(2.2 |
) |
Discontinued
operations
|
|
|
- |
|
|
|
(0.1 |
) |
|
|
0.1 |
|
Investing
activities
|
|
|
(76.2 |
) |
|
|
(69.0 |
) |
|
|
(7.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows before financing activities
|
|
$ |
(16.5 |
) |
|
|
24.1 |
|
|
|
(40.6 |
) |
Operating
cash flows from continuing operations decreased by $34.8 million in the first
quarter of 2008 compared to the same period in 2007. The decrease was
primarily due to higher working capital usage, partially offset by improved
operating performance.
Cash
flows from investing activities decreased by $7.2 million in the first quarter
of 2008 versus the first quarter of 2007 primarily due to increased capital
expenditures.
Capital
expenditures were as follows:
|
|
Three
Months
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
$
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
31.5 |
|
|
|
26.2 |
|
|
|
5.3 |
|
BHS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Security systems
|
|
|
43.2 |
|
|
|
41.1 |
|
|
|
2.1 |
|
Other
|
|
|
2.6 |
|
|
|
2.3 |
|
|
|
0.3 |
|
Corporate
|
|
|
- |
|
|
|
0.1 |
|
|
|
(0.1 |
) |
Capital
expenditures
|
|
$ |
77.3 |
|
|
|
69.7 |
|
|
|
7.6 |
|
Capital
expenditures for the first quarter of 2008 were $7.6 million higher than for the
same period in 2007. Brink’s capital expenditures in 2008 were
primarily for new facilities, cash processing and security equipment, armored
vehicles, and information technology. BHS capital expenditures were
slightly higher in the first quarter of 2008.
Capital
expenditures for the full-year 2007 totaled $320 million. Capital
expenditures for the full-year 2008 are currently expected to range from $340
million to $360 million, with from $155 million to $165 million for Brink’s and
$185 million to $195 million for BHS.
Business
Segment Cash Flows
The
Company’s cash flows before financing activities for each of the operating
segments are presented below.
|
|
Three
Months
|
|
|
|
|
|
|
Ended
March 31,
|
|
|
$
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows before financing activities
|
|
|
|
|
|
|
|
|
|
|
Business segments:
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
5.5 |
|
|
|
25.5 |
|
|
|
(20.0 |
) |
BHS
|
|
|
15.9 |
|
|
|
17.3 |
|
|
|
(1.4 |
) |
Subtotal of business
segments
|
|
|
21.4 |
|
|
|
42.8 |
|
|
|
(21.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and former
operations
|
|
|
(37.9 |
) |
|
|
(17.2 |
) |
|
|
(20.7 |
) |
Subtotal of continuing
operations
|
|
|
(16.5 |
) |
|
|
25.6 |
|
|
|
(42.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations
|
|
|
- |
|
|
|
(1.5 |
) |
|
|
1.5 |
|
Cash
flows before financing activities
|
|
$ |
(16.5 |
) |
|
|
24.1 |
|
|
|
(40.6 |
) |
Brink’s
Cash
flows before financing activities in the first quarter of 2008 at Brink’s
decreased by $20.0 million primarily due to more cash used for working capital
needs and increased capital expenditures.
BHS
The
decrease in BHS’ cash flows before financing activities is primarily due to the
increase in capital expenditures and less cash provided by changes in working
capital items, partially offset by higher cash flows from operations as a result
of higher operating profit.
Corporate
and Former Operations
Other
cash flows related to corporate and former operations decreased in 2008 compared
to 2007 due to the increase in corporate expenses related to professional, legal
and advisory fees and higher U.S. federal income tax payments.
Summary
of financing activities
|
|
Three
Months
|
|
|
|
Ended
March 31,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
borrowings (repayments) of debt:
|
|
|
|
|
|
|
Short-term debt
|
|
$ |
3.5 |
|
|
|
(5.7 |
) |
Revolving
facilities
|
|
|
65.9 |
|
|
|
(6.3 |
) |
Long-term debt
|
|
|
(5.0 |
) |
|
|
(3.1 |
) |
Net borrowings (repayments)
of debt
|
|
|
64.4 |
|
|
|
(15.1 |
) |
Repurchase
of common stock of the Company
|
|
|
(44.5 |
) |
|
|
(0.3 |
) |
Dividends
to:
|
|
|
|
|
|
|
|
|
Shareholders of the
Company
|
|
|
(4.5 |
) |
|
|
(2.8 |
) |
Minority interests in
subsidiaries
|
|
|
(1.1 |
) |
|
|
(1.0 |
) |
Proceeds
and tax benefits related to stock compensation and other
|
|
|
9.3 |
|
|
|
7.8 |
|
Discontinued
operations, net
|
|
|
- |
|
|
|
(11.1 |
) |
Cash flows from financing
activities
|
|
$ |
23.6 |
|
|
|
(22.5 |
) |
During
the first quarter of 2008, the Company purchased 594,300 shares of its common
stock at an average cost of $62.16 per share, some of which were settled after
the end of the quarter. The Company also withheld and retired a
portion of the shares that were due to employees under deferred compensation
distributions. The shares were withheld to meet the withholding
requirements of approximately $11 million.
The
Company’s operating liquidity needs are typically financed by short-term debt
and the Revolving Facility, described below.
On
May 4, 2007, the board of directors authorized an increase in the Company’s
regular dividend to an annual rate of $0.40 per share, up from an annual rate of
$0.25 per share. Future dividends are dependent on the earnings,
financial condition, cash flow and business requirements of the Company, as
determined by the board of directors.
The
Company uses a combination of debt, leases and equity to capitalize its
operations.
Reconciliation
of Net Debt (Cash) to GAAP measures
|
|
March
31,
|
|
|
December
31,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$ |
17.4 |
|
|
|
12.4 |
|
Long-term
debt
|
|
|
162.2 |
|
|
|
100.2 |
|
Debt
|
|
|
179.6 |
|
|
|
112.6 |
|
Less
cash and cash equivalents
|
|
|
(207.2 |
) |
|
|
(196.4 |
) |
Net Debt (Cash)
(a)
|
|
$ |
(27.6 |
) |
|
|
(83.8 |
) |
(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 March 31, 2008, as compared to December
31, 2007, decreased primarily due to share repurchase activities and higher
working capital usage.
Debt
The
Company has an unsecured $400 million revolving bank credit facility with a
syndicate of banks (the “Revolving Facility”). The facility allows
the Company to borrow (or otherwise satisfy credit needs) on a revolving basis
over a five-year term ending in 2011. As of March 31, 2008, $317.2
million was available under the revolving credit facility.
The
Company also 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
March 31, 2008, $18.6 million was available under this Letter of 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 may have to terminate the
Letter of Credit Facility as a result of the spin-off of BHS. The
Company is evaluating alternatives to replace the Letter of Credit
Facility.
The
Company has two unsecured multi-currency revolving bank credit facilities with a
total of $60.0 million in available credit, of which approximately $22.8 million
was available at March 31, 2008. When rates are favorable, the
Company also borrows from other U.S. 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 guarantee 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 from 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 March 31, 2008.
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
March 31, 2008, the Company had 100 million shares of common stock authorized
and 47.7 million shares issued and outstanding. 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 (1.6 million
at March 31, 2008) are excluded from earnings per share calculations since they
are treated as treasury shares for the calculation of earnings per
share.
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
repurchase authorization does not have an expiration date and potential share
repurchases will depend on a variety of factors. Under the 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. The Company used an additional $36.9 million to purchase
594,300 shares of common stock between January 1, 2008, and March 31, 2008, at
an average price of $62.16 per share. As of March 31, 2008, the
Company had $59.4 million under the program available to purchase
shares. From April 1, 2008, through April 25, 2008, another 204,000
shares were purchased for $13.9 million at an average cost of $68.00 per
share.
Commitments
and Contingent Matters
Operating
leases
The
Company has made residual value guarantees of approximately $72.1 million at
March 31, 2008, related to operating leases, principally for trucks and other
vehicles.
BAX
Global litigation
BAX
Global 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 $13
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
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.
Other
The
Company is involved in various other lawsuits and claims in the ordinary course
of business. The Company has recorded accruals for losses that are
considered probable and reasonably estimable. Management believes
that the ultimate disposition of these matters will not have a material adverse
effect on the liquidity or financial position of the Company, however, losses
from these matters or changes in estimates of losses for these matters may
result in income or expense in any one accounting period that is material in
comparison to the earnings of that period.
Item
3. 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. In addition, the Company consumes
various commodities in the normal course of business, exposing it to the effects
of changes in the prices of such commodities. These financial and commodity
exposures are monitored and managed by the Company as an integral part of its
overall risk management program. The diversity of foreign operations helps to
mitigate a portion of the impact that foreign currency rate fluctuations in any
one country may have on the Company’s consolidated results. The Company’s risk
management program considers this favorable diversification effect as it
measures the Company’s exposure to financial markets and, as appropriate, seeks
to reduce the potentially adverse effects that the volatility of certain markets
may have on its operating results. The Company has not had any material change
in its market risk exposures in the three months ended March 31,
2008.
Item
4. 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 March 31, 2008, that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
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, timing and other expected characteristics of the
spin-off, expected additional expenses in 2008 related to the spin-off, the
impact of recent accounting rule changes, the outcome of pending litigation and
the amount of associated losses, 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, significant liabilities and ongoing expenses and cash
outflows related to former coal operations, expected operating profit margin at
Brink’s, currency conversion services in Venezuela, with associated revenues and
possible operational issues and costs, the effect of concluded negotiations with
bargaining units in Latin America, expected installation growth at BHS and the
effects of ongoing weakness in the housing market, the disconnect rate at BHS,
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, the anticipated effective tax rate for 2008 and
the Company’s tax position and underlying assumptions, expected capital
expenditures for 2008, and the adequacy of the Company’s sources of
liquidity. The forward-looking information in this document 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 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
actions responding to current market conditions in the United States, France and
other European countries, 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, 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, issuances 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.
Part II - Other
Information
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
The
following table provides information about common stock repurchases by the
Company during the quarter ended March 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
January
2 through
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2008
|
|
|
200,000 |
|
|
$ |
54.17 |
|
|
|
200,000 |
|
|
$ |
85,517,825 |
|
February
6 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2008
|
|
|
26,800 |
|
|
|
65.43 |
|
|
|
26,800 |
|
|
|
83,764,339 |
|
March
3 through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
367,500 |
|
|
|
66.26 |
|
|
|
367,500 |
|
|
|
59,412,636 |
|
(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.
|
Item
6. Exhibits
Exhibit
Number
31.1
|
Certification
of Michael T. Dan, Chief Executive Officer (Principal Executive Officer)
of The Brink’s Company, pursuant to Rules 13a-14(a) and 15d-14(a)
promulgated under the Securities Exchange Act of 1934, as amended, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
31.2
|
Certification
of Robert T. Ritter, Vice President and Chief Financial Officer (Principal
Financial Officer) of The Brink’s Company, pursuant to Rules 13a-14(a) and
15d-14(a) promulgated under the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.1
|
Certification
of Michael T. Dan, Chief Executive Officer (Principal Executive Officer)
of The Brink’s Company, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.2
|
Certification
of Robert T. Ritter, Vice President and Chief Financial Officer (Principal
Financial Officer) of The Brink’s Company, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURE
Pursuant
to the requirements 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.
|
THE
BRINK’S COMPANY
|
|
|
|
|
April
30, 2008
|
By: /s/ Robert
T. Ritter
|
|
Robert
T. Ritter
|
|
(Vice
President -
|
|
Chief
Financial Officer)
|
|
(principal
financial and
|
|
accounting
officer)
|