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 September 30,
2008
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
October 29, 2008, 45,769,171 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)
|
|
September
30,
|
|
|
December
31,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
257.7 |
|
|
|
196.4 |
|
Accounts receivable,
net
|
|
|
513.1 |
|
|
|
491.9 |
|
Prepaid expenses and
other
|
|
|
115.7 |
|
|
|
93.5 |
|
Deferred income
taxes
|
|
|
59.0 |
|
|
|
63.9 |
|
Total current
assets
|
|
|
945.5 |
|
|
|
845.7 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
1,181.4 |
|
|
|
1,118.4 |
|
Goodwill
|
|
|
140.4 |
|
|
|
141.3 |
|
Deferred
income taxes
|
|
|
84.6 |
|
|
|
90.1 |
|
Other
|
|
|
208.5 |
|
|
|
198.8 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
2,560.4 |
|
|
|
2,394.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$ |
6.2 |
|
|
|
12.4 |
|
Current maturities of long-term
debt
|
|
|
11.6 |
|
|
|
11.0 |
|
Accounts
payable
|
|
|
153.8 |
|
|
|
171.9 |
|
Income taxes
payable
|
|
|
16.1 |
|
|
|
14.9 |
|
Accrued
liabilities
|
|
|
479.9 |
|
|
|
429.7 |
|
Total current
liabilities
|
|
|
667.6 |
|
|
|
639.9 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
144.5 |
|
|
|
89.2 |
|
Accrued
pension costs
|
|
|
52.3 |
|
|
|
58.0 |
|
Postretirement
benefits other than pensions
|
|
|
101.7 |
|
|
|
111.9 |
|
Deferred
revenue
|
|
|
182.0 |
|
|
|
178.6 |
|
Deferred
income taxes
|
|
|
33.1 |
|
|
|
29.8 |
|
Minority
interest
|
|
|
84.6 |
|
|
|
68.2 |
|
Other
|
|
|
160.2 |
|
|
|
172.4 |
|
Total liabilities
|
|
|
1,426.0 |
|
|
|
1,348.0 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (notes 4, 5, 8 and 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
45.8 |
|
|
|
48.4 |
|
Capital in excess of par
value
|
|
|
486.2 |
|
|
|
452.6 |
|
Retained earnings
|
|
|
749.0 |
|
|
|
675.8 |
|
Accumulated other comprehensive
loss
|
|
|
(146.6 |
) |
|
|
(130.5 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders’
equity
|
|
|
1,134.4 |
|
|
|
1,046.3 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders’ equity
|
|
$ |
2,560.4 |
|
|
|
2,394.3 |
|
See
accompanying notes to consolidated financial statements.
THE
BRINK’S COMPANY
and
subsidiaries
Consolidated
Statements of Operations
(Unaudited)
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
(In
millions, except per share amounts)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
948.8 |
|
|
|
817.0 |
|
|
|
2,801.1 |
|
|
|
2,336.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
718.6 |
|
|
|
624.7 |
|
|
|
2,112.3 |
|
|
|
1,791.8 |
|
Selling,
general and administrative expenses
|
|
|
146.8 |
|
|
|
130.0 |
|
|
|
432.9 |
|
|
|
363.0 |
|
Total expenses
|
|
|
865.4 |
|
|
|
754.7 |
|
|
|
2,545.2 |
|
|
|
2,154.8 |
|
Other
operating income (expense), net
|
|
|
(4.5 |
) |
|
|
(1.8 |
) |
|
|
(5.1 |
) |
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
78.9 |
|
|
|
60.5 |
|
|
|
250.8 |
|
|
|
184.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(3.3 |
) |
|
|
(2.5 |
) |
|
|
(9.1 |
) |
|
|
(8.0 |
) |
Interest
and other income, net
|
|
|
4.6 |
|
|
|
3.0 |
|
|
|
9.7 |
|
|
|
6.7 |
|
Income from continuing operations
before income taxes and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
minority interest
|
|
|
80.2 |
|
|
|
61.0 |
|
|
|
251.4 |
|
|
|
182.7 |
|
Provision
for income taxes
|
|
|
26.4 |
|
|
|
27.3 |
|
|
|
78.7 |
|
|
|
74.0 |
|
Minority
interest
|
|
|
7.5 |
|
|
|
3.7 |
|
|
|
29.9 |
|
|
|
14.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations
|
|
|
46.3 |
|
|
|
30.0 |
|
|
|
142.8 |
|
|
|
94.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations, net of income taxes
|
|
|
1.7 |
|
|
|
(4.1 |
) |
|
|
4.0 |
|
|
|
(11.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
48.0 |
|
|
|
25.9 |
|
|
|
146.8 |
|
|
|
82.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
1.01 |
|
|
|
0.64 |
|
|
|
3.09 |
|
|
|
2.02 |
|
Discontinued
operations
|
|
|
0.03 |
|
|
|
(0.09 |
) |
|
|
0.08 |
|
|
|
(0.24 |
) |
Net income
|
|
|
1.04 |
|
|
|
0.56 |
|
|
|
3.18 |
|
|
|
1.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
1.00 |
|
|
|
0.64 |
|
|
|
3.06 |
|
|
|
2.00 |
|
Discontinued
operations
|
|
|
0.03 |
|
|
|
(0.08 |
) |
|
|
0.08 |
|
|
|
(0.24 |
) |
Net income
|
|
|
1.03 |
|
|
|
0.55 |
|
|
|
3.15 |
|
|
|
1.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
46.1 |
|
|
|
46.6 |
|
|
|
46.2 |
|
|
|
46.5 |
|
Diluted
|
|
|
46.6 |
|
|
|
47.1 |
|
|
|
46.7 |
|
|
|
47.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid per common share
|
|
$ |
0.10 |
|
|
|
0.10 |
|
|
|
0.30 |
|
|
|
0.2625 |
|
See
accompanying notes to consolidated financial statements.
THE
BRINK’S COMPANY
and
subsidiaries
Consolidated
Statement of Shareholders’ Equity
Nine
months ended September 30, 2008
(Unaudited)
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
in
Excess
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
of
Par
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
(In
millions)
|
|
Shares
|
|
|
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
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
146.8 |
|
|
|
- |
|
|
|
146.8 |
|
Other
comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(16.1 |
) |
|
|
(16.1 |
) |
Shares
repurchased and retired:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
Termination of The Brink’s
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Benefits
Trust (a)
|
|
|
(1.7 |
) |
|
|
(1.7 |
) |
|
|
1.7 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
(1.0 |
) |
|
|
(1.0 |
) |
|
|
(11.0 |
) |
|
|
(59.8 |
) |
|
|
- |
|
|
|
(71.8 |
) |
Dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13.6 |
) |
|
|
- |
|
|
|
(13.6 |
) |
Share-based
compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
expense
|
|
|
- |
|
|
|
- |
|
|
|
8.3 |
|
|
|
- |
|
|
|
- |
|
|
|
8.3 |
|
Consideration received
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise of stock
options
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
18.5 |
|
|
|
- |
|
|
|
- |
|
|
|
18.6 |
|
Other share-based benefit
programs
|
|
|
- |
|
|
|
- |
|
|
|
3.7 |
|
|
|
(0.2 |
) |
|
|
- |
|
|
|
3.5 |
|
Excess tax benefit
of stock compensation
|
|
|
- |
|
|
|
- |
|
|
|
12.4 |
|
|
|
- |
|
|
|
- |
|
|
|
12.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of September 30, 2008
|
|
|
45.8 |
|
|
$ |
45.8 |
|
|
|
486.2 |
|
|
|
749.0 |
|
|
|
(146.6 |
) |
|
|
1,134.4 |
|
(a)
|
The
Brink’s Company Employee Benefits Trust was terminated in September 2008
and 1.7 million shares then held by the trust were repurchased and retired
– see note 7.
|
See
accompanying notes to consolidated financial statements.
THE
BRINK’S COMPANY
and
subsidiaries
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
146.8 |
|
|
|
82.9 |
|
Adjustments
to reconcile net income to net cash provided (used) by operating
activities:
|
|
|
|
|
|
|
|
|
(Income) loss from discontinued
operations, net of tax
|
|
|
(4.0 |
) |
|
|
11.3 |
|
Depreciation and
amortization
|
|
|
156.5 |
|
|
|
137.2 |
|
Impairment
charges:
|
|
|
|
|
|
|
|
|
Subscriber
disconnects
|
|
|
41.4 |
|
|
|
37.9 |
|
Other
|
|
|
0.5 |
|
|
|
2.1 |
|
Amortization of deferred
revenue
|
|
|
(30.5 |
) |
|
|
(25.6 |
) |
Minority
interest
|
|
|
29.9 |
|
|
|
14.5 |
|
Deferred income
taxes
|
|
|
10.6 |
|
|
|
26.6 |
|
Provision for uncollectible
accounts receivable
|
|
|
10.6 |
|
|
|
8.1 |
|
Compensation expense for stock
options
|
|
|
8.3 |
|
|
|
9.7 |
|
Other operating,
net
|
|
|
0.3 |
|
|
|
1.6 |
|
Postretirement expense (credits),
net of funding:
|
|
|
|
|
|
|
|
|
Pension
|
|
|
(9.0 |
) |
|
|
(7.6 |
) |
Other than
pension
|
|
|
(3.7 |
) |
|
|
(4.2 |
) |
Changes in operating assets and
liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(47.4 |
) |
|
|
(17.9 |
) |
Accounts payable, income taxes
payable and accrued liabilities
|
|
|
55.1 |
|
|
|
36.6 |
|
Deferral of subscriber
acquisition cost
|
|
|
(17.9 |
) |
|
|
(18.0 |
) |
Deferral of revenue from new
subscribers
|
|
|
34.3 |
|
|
|
35.8 |
|
Prepaid and other current
assets
|
|
|
(25.0 |
) |
|
|
(13.9 |
) |
Other, net
|
|
|
(12.5 |
) |
|
|
7.3 |
|
Discontinued operations,
net
|
|
|
- |
|
|
|
(3.5 |
) |
Net cash provided by operating
activities
|
|
|
344.3 |
|
|
|
320.9 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(254.7 |
) |
|
|
(228.6 |
) |
Acquisitions
|
|
|
(6.1 |
) |
|
|
(11.3 |
) |
Other,
net
|
|
|
3.3 |
|
|
|
8.6 |
|
Discontinued
operations, net
|
|
|
- |
|
|
|
0.3 |
|
Net cash used by investing
activities
|
|
|
(257.5 |
) |
|
|
(231.0 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Revolving
credit facilities borrowings, net
|
|
|
59.8 |
|
|
|
(1.8 |
) |
Long
term debt:
|
|
|
|
|
|
|
|
|
Additions
|
|
|
- |
|
|
|
1.1 |
|
Repayments
|
|
|
(8.6 |
) |
|
|
(9.7 |
) |
Short-term
repayments, net
|
|
|
(6.0 |
) |
|
|
(24.5 |
) |
Repurchase
shares of common stock of The Brink’s Company
|
|
|
(70.3 |
) |
|
|
- |
|
Dividends
to:
|
|
|
|
|
|
|
|
|
Shareholders of The Brink’s
Company
|
|
|
(13.6 |
) |
|
|
(11.9 |
) |
Minority interest holders in
subsidiaries
|
|
|
(9.9 |
) |
|
|
(6.9 |
) |
Proceeds
from exercise of stock options
|
|
|
16.2 |
|
|
|
6.8 |
|
Excess
tax benefits associated with stock compensation
|
|
|
11.7 |
|
|
|
4.2 |
|
Other,
net
|
|
|
- |
|
|
|
(0.2 |
) |
Discontinued
operations, net
|
|
|
- |
|
|
|
(14.8 |
) |
Net cash used by financing
activities
|
|
|
(20.7 |
) |
|
|
(57.7 |
) |
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(4.8 |
) |
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
|
Increase
|
|
|
61.3 |
|
|
|
38.2 |
|
Balance at beginning of
period
|
|
|
196.4 |
|
|
|
137.2 |
|
Balance at end of
period
|
|
$ |
257.7 |
|
|
|
175.4 |
|
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”)
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 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.
Spin-Off
of Brink’s Home Security Holdings, Inc.
On
September 12, 2008, the Company announced a distribution date of October 31,
2008, for the 100% spin-off of Brink’s Home Security Holdings, Inc. (“BHSH”), a
newly formed subsidiary of the Company that will hold the shares of BHS at the
time of the spin-off. The spin-off of BHSH will be in the form of a
tax-free stock distribution to The Brink’s Company shareholders of record as of
the close of business on October 21, 2008. The Company will
distribute one share of BHSH common stock for every share of its common stock
outstanding. BHSH filed a Registration Statement on Form 10 with the
Securities and Exchange Commission (the “SEC”) which was declared effective by
the SEC on October 8, 2008. The Form 10 provides information about
BHSH and the spin-off, including historical and pro forma financial
information. BHSH will be publicly traded on the New York Stock
Exchange (“NYSE”) under the ticker symbol “CFL,” reflecting its corporate
mission of creating “Customers for Life.” The Company will remain a
public company traded on the NYSE and will continue to use the ticker symbol
“BCO.” The Company will continue to operate Brink's, its secure
transportation and cash management unit.
After the
spin-off, the Company will report BHS’ results of operations, including
previously reported results and corporate expenses directly related to the
spin-off within discontinued operations in its annual financial statements for
2008 to be filed with the SEC on Form 10-K.
In
connection with the spin-off, Brink’s Network, Incorporated, a subsidiary of the
Company, will enter into a Brand Licensing Agreement (the “Brand Licensing
Agreement”) with BHSH. Under the Brand Licensing Agreement, BHSH will
license the rights to use certain trademarks, including trademarks that contain
the word “Brink’s”, in the United States, Canada and Puerto Rico. In
exchange for these rights, BHSH has agreed to pay a licensing fee equal to 1.25%
of its net revenues during the period after the spin-off until the expiration
date of the agreement. The license will expire on October 31, 2011,
subject to earlier termination upon the occurrence of certain
events.
The
Company will also enter into a Non-Compete Agreement (the “Non-Compete
Agreement”) with BHSH, which will expire on October 31, 2013, pursuant to which
the Company will agree not to compete with BHSH in the United States, Canada and
Puerto Rico with respect to certain restricted activities specified in the
Non-Compete Agreement in which BHSH currently is, or is currently planning to
be, engaged.
As
described in the Form 10, the Company will contribute $50 million in cash to
BHSH at the time of the spin-off. The Company will also forgive all
the existing intercompany debt owed by BHSH to the Company and its subsidiaries
as of the distribution date.
Accounting
Corrections
During
the second quarter of 2008, the Company determined that the amount of certain
revenue and expenses recognized between December 1, 2001, and March 31, 2008,
related to security systems disconnect at BHS had been understated. The
correction of these understatements increased BHS revenues by $2.0 million, BHS
operating profit by $2.5 million and consolidated income from continuing
operations by $1.6 million in the second quarter of 2008. These
corrections had no effect on the third quarter of 2008, and the effect of these
corrections was not material to any prior quarter or annual period.
Recently
Adopted Accounting Standards
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“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.
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 until January 1, 2009. The Company is currently
evaluating the potential impact, if any, on its non-financial assets and
liabilities. The Company adopted SFAS 157, effective January 1, 2008
for financial assets and financial liabilities. 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 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 did not elect the fair-value option for any
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.
In
December 2007, the FASB issued SFAS 141R, Business Combinations, which
will change the accounting for business combinations. Under SFAS 141R, an
acquiring entity will be required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date fair value with
limited exceptions. SFAS 141R will also change the accounting treatment and
disclosures with respect to certain specific items in a business combination.
SFAS 141R applies to the Company prospectively for business combinations
occurring on or after January 1, 2009. SFAS 141R will have an impact
on accounting for business combinations, but the effect will depend on the terms
of future acquisitions.
In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements – An Amendment of ARB No.
51. SFAS 160 establishes new accounting and reporting standards for the
noncontrolling interest, also known as minority interest, in a subsidiary
and for the deconsolidation of a subsidiary. This Statement clarifies
that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. SFAS 160 is effective for the
Company beginning in 2009. The Company is still assessing the potential effect
of the adoption of SFAS 160 on its 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 – money processing, 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
|
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
813.4 |
|
|
|
692.7 |
|
|
|
2,404.0 |
|
|
|
1,977.8 |
|
BHS
|
|
|
135.4 |
|
|
|
124.3 |
|
|
|
397.1 |
|
|
|
358.4 |
|
Revenues
|
|
$ |
948.8 |
|
|
|
817.0 |
|
|
|
2,801.1 |
|
|
|
2,336.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
68.1 |
|
|
|
53.0 |
|
|
|
202.7 |
|
|
|
146.9 |
|
BHS
|
|
|
32.2 |
|
|
|
25.5 |
|
|
|
99.7 |
|
|
|
84.5 |
|
Business
segments
|
|
|
100.3 |
|
|
|
78.5 |
|
|
|
302.4 |
|
|
|
231.4 |
|
Corporate
|
|
|
(21.9 |
) |
|
|
(14.3 |
) |
|
|
(51.3 |
) |
|
|
(36.8 |
) |
Former operations
|
|
|
0.5 |
|
|
|
(3.7 |
) |
|
|
(0.3 |
) |
|
|
(10.6 |
) |
Operating profit
|
|
$ |
78.9 |
|
|
|
60.5 |
|
|
|
250.8 |
|
|
|
184.0 |
|
Corporate
expenses in the third quarter of 2008 included $4.3 million of foreign currency
transaction losses related to the remeasurement of a euro-denominated
intercompany dividend.
Note
3 – Earnings per share
Shares
used to calculate earnings per share were as follows:
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (a)
|
|
|
46.1 |
|
|
|
46.6 |
|
|
|
46.2 |
|
|
|
46.5 |
|
Effect of dilutive stock
options
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.5 |
|
Diluted
|
|
|
46.6 |
|
|
|
47.1 |
|
|
|
46.7 |
|
|
|
47.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive
stock options excluded from denominator
|
|
|
0.4 |
|
|
|
0.7 |
|
|
|
0.3 |
|
|
|
0.3 |
|
(a) The
Company has deferred compensation plans for its employees and directors
denominated in common stock units. Each unit represents oneshare of
common stock. The number of shares used to calculate basic earnings
per share in the three months ended September 30, 2008,includes 0.5 million
weighted-average shares (0.6 million weighted-average shares for the nine months
ended September 30, 2008) related to units of deferred compensation held by
employees and directors. The number of shares used to calculate basic
earnings per share in the three months ended September 30, 2007, includes 1.0
million weighted-average shares (1.0 million weighted-average shares for the
nine months ended September 30, 2007) related to units of deferred compensation
held by employees and directors.
Shares of
the Company’s common stock held by The Brink’s Company 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
trust held 1.9 million unallocated shares at September 30, 2007. As described in
note 7, the trust was terminated in September 2008.
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:
|
|
U.S.
Plans
|
|
|
Non-U.S.
Plans
|
|
|
Total
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
- |
|
|
|
- |
|
|
|
2.6 |
|
|
|
2.3 |
|
|
|
2.6 |
|
|
|
2.3 |
|
Interest
cost on projected benefit obligation
|
|
|
11.5 |
|
|
|
11.1 |
|
|
|
3.3 |
|
|
|
2.6 |
|
|
|
14.8 |
|
|
|
13.7 |
|
Return
on assets – expected
|
|
|
(14.7 |
) |
|
|
(13.3 |
) |
|
|
(2.9 |
) |
|
|
(2.5 |
) |
|
|
(17.6 |
) |
|
|
(15.8 |
) |
Amortization
of losses
|
|
|
0.5 |
|
|
|
3.5 |
|
|
|
0.9 |
|
|
|
0.7 |
|
|
|
1.4 |
|
|
|
4.2 |
|
Net
periodic pension cost (credit)
|
|
$ |
(2.7 |
) |
|
|
1.3 |
|
|
|
3.9 |
|
|
|
3.1 |
|
|
|
1.2 |
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
- |
|
|
|
- |
|
|
|
7.6 |
|
|
|
6.6 |
|
|
|
7.6 |
|
|
|
6.6 |
|
Interest
cost on projected benefit obligation
|
|
|
34.4 |
|
|
|
33.0 |
|
|
|
9.9 |
|
|
|
7.4 |
|
|
|
44.3 |
|
|
|
40.4 |
|
Return
on assets – expected
|
|
|
(44.2 |
) |
|
|
(40.0 |
) |
|
|
(9.0 |
) |
|
|
(7.2 |
) |
|
|
(53.2 |
) |
|
|
(47.2 |
) |
Amortization
of losses
|
|
|
1.2 |
|
|
|
9.7 |
|
|
|
2.8 |
|
|
|
2.2 |
|
|
|
4.0 |
|
|
|
11.9 |
|
Net
periodic pension cost (credit)
|
|
$ |
(8.6 |
) |
|
|
2.7 |
|
|
|
11.3 |
|
|
|
9.0 |
|
|
|
2.7 |
|
|
|
11.7 |
|
On
September 7, 2007, the Company made a voluntary contribution to its primary U.S.
pension plan of $13 million. The Company does not expect to make any
contributions to the primary U.S. pension plan during 2008.
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:
|
|
Coal-related
plans
|
|
|
Other
plans
|
|
|
Total
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.1 |
|
|
|
- |
|
|
|
0.1 |
|
Interest
cost on accumulated postretirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit
obligations
|
|
|
7.8 |
|
|
|
7.8 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
8.0 |
|
|
|
7.9 |
|
Return
on assets – expected
|
|
|
(9.7 |
) |
|
|
(9.7 |
) |
|
|
- |
|
|
|
- |
|
|
|
(9.7 |
) |
|
|
(9.7 |
) |
Amortization
of losses (gains)
|
|
|
2.0 |
|
|
|
2.8 |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
1.9 |
|
|
|
2.7 |
|
Net
periodic postretirement cost
|
|
$ |
0.1 |
|
|
|
0.9 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
- |
|
|
|
- |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.2 |
|
Interest
cost on accumulated postretirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit
obligations
|
|
|
23.5 |
|
|
|
23.5 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
24.0 |
|
|
|
24.0 |
|
Return
on assets – expected
|
|
|
(29.0 |
) |
|
|
(29.0 |
) |
|
|
- |
|
|
|
- |
|
|
|
(29.0 |
) |
|
|
(29.0 |
) |
Amortization
of losses (gains)
|
|
|
6.0 |
|
|
|
8.6 |
|
|
|
(0.3 |
) |
|
|
(0.2 |
) |
|
|
5.7 |
|
|
|
8.4 |
|
Curtailment
gain
|
|
|
- |
|
|
|
- |
|
|
|
(2.0 |
) |
|
|
- |
|
|
|
(2.0 |
) |
|
|
- |
|
Net
periodic postretirement cost (credit)
|
|
$ |
0.5 |
|
|
|
3.1 |
|
|
|
(1.7 |
) |
|
|
0.5 |
|
|
|
(1.2 |
) |
|
|
3.6 |
|
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 in the first quarter of 2008.
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
|
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
cost on accumulated postretirement
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit
obligations
|
|
$ |
0.6 |
|
|
|
0.7 |
|
|
|
1.9 |
|
|
|
2.0 |
|
Amortization
of losses
|
|
|
0.1 |
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
1.2 |
|
Net
periodic postretirement cost
|
|
$ |
0.7 |
|
|
|
1.2 |
|
|
|
2.3 |
|
|
|
3.2 |
|
Note
5 – Income taxes
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes (in millions)
|
|
$ |
26.4 |
|
|
|
27.3 |
|
|
|
78.7 |
|
|
|
74.0 |
|
Effective
tax rate
|
|
|
32.9 |
% |
|
|
44.7 |
% |
|
|
31.3 |
% |
|
|
40.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes (in millions)
|
|
$ |
0.3 |
|
|
|
- |
|
|
|
1.2 |
|
|
|
(1.6 |
) |
Effective
tax rate
|
|
|
15.0 |
% |
|
|
- |
|
|
|
23.1 |
% |
|
NM
|
|
The
effective income tax rate on continuing operations in the first nine months of
2008 was lower than the 35% U.S. statutory tax rate primarily due to the
geographical mix of earnings and an $8.8 million valuation allowance release for
non-U.S. jurisdictions, partially offset by a $7.5 million tax charge resulting
from the decision to spin off BHS and $3.9 million of state tax
expense.
The
effective income tax rate on continuing operations in the first nine months of
2007 was higher than the 35% U.S. statutory tax rate primarily due to a $6.1
million increase in the valuation allowances for non-U.S. jurisdictions and $2.4
million of state tax expense.
The
Company establishes or reverses valuation allowances for non-U.S. 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 could result in significant
adjustments to the valuation allowances.
Note
6 – Share-based compensation plans
The fair
value of options granted during the 2008 and 2007 periods was calculated using
the Black Scholes option-pricing model and the following estimated
weighted-average assumptions:
|
|
Three
and Nine Months
|
|
|
|
Ended
September 30,
|
|
Options
Granted
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Number
of shares underlying options, in thousands
|
|
|
541 |
|
|
|
636 |
|
Weighted-average
exercise price per share
|
|
$ |
64.24 |
|
|
|
63.60 |
|
|
|
|
|
|
|
|
|
|
Assumptions
used to estimate fair value:
|
|
|
|
|
|
|
|
|
Expected dividend
yield:
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
|
0.6 |
% |
|
|
0.6 |
% |
Range
|
|
|
0.6 |
% |
|
|
0.6 |
% |
Expected
volatility:
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
|
26 |
% |
|
|
27 |
% |
Range
|
|
|
26% - 27 |
% |
|
|
26% - 31 |
% |
Risk-free interest
rate:
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
|
2.8 |
% |
|
|
4.9 |
% |
Range
|
|
|
2.0% - 3.1 |
% |
|
|
4.9% - 5.0 |
% |
Expected term in
years:
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
|
3.6 |
|
|
|
3.8 |
|
Range
|
|
|
2.1 - 5.4 |
|
|
|
2.1 - 6.1 |
|
|
|
|
|
|
|
|
|
|
Weighted-average
fair value estimates at grant date:
|
|
|
|
|
|
|
|
|
In millions
|
|
$ |
7.8 |
|
|
|
10.7 |
|
Fair value per
share
|
|
$ |
14.39 |
|
|
|
16.84 |
|
Nonvested
Shares
|
|
Number
of
|
|
|
Weighted-Average
Grant-Date
|
|
|
|
Shares
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2008
|
|
|
- |
|
|
$ |
- |
|
Granted (a)
|
|
|
43,316 |
|
|
|
66.27 |
|
Balance
as of September 30, 2008
|
|
|
43,316 |
|
|
$ |
66.27 |
|
(a)
|
Includes
30,259 restricted stock units under the 2005 Equity Incentive Plan and
13,057 deferred stock units under the Non-Employee Directors’ Equity
Plan.
|
Note
7 – 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. Under
the program, the Company used $56.3 million to purchase 883,800 shares of common
stock between December 5, 2007, and May 2, 2008, at an average price of $63.67
per share. As of September 30, 2008, the Company had $43.7 million
under the program available to purchase shares. The repurchase
authorization does not have an expiration date. No shares were
repurchased during the quarter ended September 30, 2008.
In
September 2008, the Company terminated The Brink’s Company Employee Benefits
Trust. In conjunction with the termination, the shares held by the
trust were distributed to the Company, whereupon 1.7 million shares were
retired.
Note
8 – Discontinued operations
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
United Kingdom domestic cash handling operations (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale
|
|
$ |
- |
|
|
|
0.7 |
|
|
|
- |
|
|
|
0.7 |
|
Results of
operations
|
|
|
- |
|
|
|
(3.1 |
) |
|
|
- |
|
|
|
(13.9 |
) |
Adjustments
to contingent liabilities of former operations
|
|
|
2.0 |
|
|
|
(1.7 |
) |
|
|
5.2 |
|
|
|
0.3 |
|
Income
(loss) from discontinued operations before income taxes
|
|
|
2.0 |
|
|
|
(4.1 |
) |
|
|
5.2 |
|
|
|
(12.9 |
) |
Provision
(benefit) for income taxes
|
|
|
0.3 |
|
|
|
- |
|
|
|
1.2 |
|
|
|
(1.6 |
) |
Income
(loss) from discontinued operations
|
|
$ |
1.7 |
|
|
|
(4.1 |
) |
|
|
4.0 |
|
|
|
(11.3 |
) |
(a)
|
Brink’s
United Kingdom domestic cash handling operations were sold in August
2007. Revenues of the operations were $5.8 million for the
third quarter of 2007 and $28.9 million for the first nine months of
2007. Results of Brink’s United Kingdom domestic cash handling
operations included a $7.5 million asset impairment charge in the nine
month period ended September 30,
2007.
|
Note
9 – Supplemental cash flow information
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
Interest
|
|
$ |
7.7 |
|
|
|
7.2 |
|
Income taxes, net
|
|
|
56.4 |
|
|
|
48.4 |
|
Note
10 – Comprehensive income
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
48.0 |
|
|
|
25.9 |
|
|
|
146.8 |
|
|
|
82.9 |
|
Other
comprehensive income (loss), net of reclasses and taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit plan experience
loss
|
|
|
1.9 |
|
|
|
7.1 |
|
|
|
5.8 |
|
|
|
15.9 |
|
Benefit plan prior service
cost
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
1.1 |
|
|
|
1.0 |
|
Foreign currency translation
adjustments
|
|
|
(47.3 |
) |
|
|
16.2 |
|
|
|
(20.5 |
) |
|
|
27.9 |
|
Marketable
securities
|
|
|
(1.6 |
) |
|
|
(0.1 |
) |
|
|
(2.5 |
) |
|
|
0.9 |
|
Other comprehensive income
(loss)
|
|
|
(46.6 |
) |
|
|
23.5 |
|
|
|
(16.1 |
) |
|
|
45.7 |
|
Comprehensive
income
|
|
$ |
1.4 |
|
|
|
49.4 |
|
|
|
130.7 |
|
|
|
128.6 |
|
Note
11 – Commitments and contingent matters
Operating
leases
The
Company has made residual value guarantees of approximately $71.9 million at
September 30, 2008, related to operating leases, principally for trucks and
other vehicles. The Company estimates that approximately $8.9 million
of these residual value guarantees will remain solely with BHSH after the
spin-off occurs on October 31, 2008.
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 $14
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.
BHS
Patent Lawsuits
On
September 26, 2008, and September 29, 2008, two patent infringement lawsuits
were filed against BHS and numerous other defendants. These lawsuits
have not yet been served. Based on a preliminary analysis of all of the
information currently available, the Company is not yet able to conclude that a
loss is probable or remote with respect to these cases; therefore, the Company
has concluded that the risk of loss is reasonably possible, as required by
applicable accounting rules. The Company is not able to estimate the
range of potential loss for these matters. BHS intends to utilize all
available defenses to defend vigorously against these
claims.
Other
The
Company is involved in various lawsuits and claims in the ordinary course of
business. The Company is not able to estimate the range of losses for
some of these matters. The Company has recorded accruals for losses
that are considered probable and reasonably estimable. The Company
does not believe that the ultimate disposition of any of these matters will have
a material adverse effect on its liquidity, financial position or results of
operations.
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
September 12, 2008, the Company announced a distribution date of October 31,
2008, for the 100% spin-off of Brink’s Home Security Holdings, Inc. (“BHSH”), a
newly formed subsidiary of the Company that will hold the shares of BHS at the
time of the spin-off. The spin-off of BHSH will be in the form of a
tax-free stock distribution to The Brink’s Company shareholders of record as of
the close of business on October 21, 2008. The Company will
distribute one share of BHSH common stock for every share of its common stock
outstanding. BHSH filed a Registration Statement on Form 10 with the
Securities and Exchange Commission (the “SEC”) which was declared effective by
the SEC on October 8, 2008. The Form 10 provides information about
BHSH and the spin-off, including historical and pro forma financial
information. BHSH will be publicly traded on the New York Stock
Exchange (“NYSE”) under the ticker symbol “CFL,” reflecting its corporate
mission of creating “Customers for Life.” The Company will remain a
public company traded on the NYSE and will continue to use the ticker symbol
“BCO.” The Company will continue to operate Brink's, its secure
transportation and cash management unit.
After the
spin-off, the Company will report BHS’ results of operations, including
previously reported results and corporate expenses directly related to the
spin-off within discontinued operations in its annual financial statements for
2008 to be filed with the SEC on Form 10-K.
In
connection with the spin-off, Brink’s Network, Incorporated, a subsidiary of the
Company, will enter into a Brand Licensing Agreement (the “Brand Licensing
Agreement”) with BHSH. Under the Brand Licensing Agreement, BHSH will
license the rights to use certain trademarks, including trademarks that contain
the word “Brink’s”, in the United States, Canada and Puerto Rico. In
exchange for these rights, BHSH has agreed to pay a licensing fee equal to 1.25%
of its net revenues during the period after the spin-off until the expiration
date of the agreement. The license will expire on October 31, 2011,
subject to earlier termination upon the occurrence of certain
events.
The
Company will also enter into a Non-Compete Agreement (the “Non-Compete
Agreement”) with BHSH, which will expire on October 31, 2013, pursuant to which
the Company will agree not to compete with BHSH in the United States, Canada and
Puerto Rico with respect to certain restricted activities specified in the
Non-Compete Agreement in which BHSH currently is, or is currently planning to
be, engaged.
As
described in the Form 10, the Company will contribute $50 million in cash to
BHSH at the time of the spin-off. The Company will also forgive all
the existing intercompany debt owed by BHSH to the Company and its subsidiaries
as of the distribution date.
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
|
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
46.3 |
|
|
|
30.0 |
|
|
|
142.8 |
|
|
|
94.2 |
|
Discontinued
operations
|
|
|
1.7 |
|
|
|
(4.1 |
) |
|
|
4.0 |
|
|
|
(11.3 |
) |
Net income
|
|
$ |
48.0 |
|
|
|
25.9 |
|
|
|
146.8 |
|
|
|
82.9 |
|
The
income (loss) items in the above table are reported after tax.
Income
from continuing operations increased by 54% in the third quarter of 2008 versus
the third quarter of the prior year primarily due to improved performance at
Brink’s and BHS and a lower effective tax rate. Higher corporate
expenses were partially offset by lower expenses related to former
operations. Brink’s operating profit increased in the third quarter
of 2008 from the prior-year period primarily due to higher operating profit in
Latin America and Europe, Middle East, and Africa (“EMEA”), partially offset by
lower operating profit in North America. BHS continued a trend of
reporting higher operating profit.
Income
from continuing operations increased by 52% in the first nine months of 2008
versus the same period of the prior year primarily due to improved performance
at Brink’s and BHS and a lower effective tax rate. Higher corporate
expenses were partially offset by lower expenses related to former
operations. Brink’s operating profit increased in the first nine
months of 2008 from the prior-year period primarily due to higher operating
profit in Latin America and EMEA, partially offset by lower operating profit in
North America. BHS continued a trend of reporting higher operating
profit.
As
mentioned above, BHSH is scheduled to be spun-off on October 31, 2008. After the
spin-off, the Company will reclassify the results of BHS from continuing
operations to discontinued operations in its 2008 Form 10-K. All
prior-year and current-year periods (through the date of spin-off) will be
reclassified.
|
|
Three
Months
|
|
|
|
|
|
Nine
Months
|
|
|
|
|
|
|
Ended
September 30,
|
|
|
%
|
|
|
Ended
September 30,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
813.4 |
|
|
|
692.7 |
|
|
|
17 |
|
|
|
2,404.0 |
|
|
|
1,977.8 |
|
|
|
22 |
|
BHS
|
|
|
135.4 |
|
|
|
124.3 |
|
|
|
9 |
|
|
|
397.1 |
|
|
|
358.4 |
|
|
|
11 |
|
Revenues
|
|
$ |
948.8 |
|
|
|
817.0 |
|
|
|
16 |
|
|
|
2,801.1 |
|
|
|
2,336.2 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
68.1 |
|
|
|
53.0 |
|
|
|
28 |
|
|
|
202.7 |
|
|
|
146.9 |
|
|
|
38 |
|
BHS
|
|
|
32.2 |
|
|
|
25.5 |
|
|
|
26 |
|
|
|
99.7 |
|
|
|
84.5 |
|
|
|
18 |
|
Business segments
|
|
|
100.3 |
|
|
|
78.5 |
|
|
|
28 |
|
|
|
302.4 |
|
|
|
231.4 |
|
|
|
31 |
|
Corporate
|
|
|
(21.9 |
) |
|
|
(14.3 |
) |
|
|
53 |
|
|
|
(51.3 |
) |
|
|
(36.8 |
) |
|
|
39 |
|
Former operations
|
|
|
0.5 |
|
|
|
(3.7 |
) |
|
NM
|
|
|
|
(0.3 |
) |
|
|
(10.6 |
) |
|
|
(97 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
78.9 |
|
|
|
60.5 |
|
|
|
30 |
|
|
|
250.8 |
|
|
|
184.0 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(3.3 |
) |
|
|
(2.5 |
) |
|
|
32 |
|
|
|
(9.1 |
) |
|
|
(8.0 |
) |
|
|
14 |
|
Interest
and other income, net
|
|
|
4.6 |
|
|
|
3.0 |
|
|
|
53 |
|
|
|
9.7 |
|
|
|
6.7 |
|
|
|
45 |
|
Income from continuing operations
before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income taxes and minority
interest
|
|
|
80.2 |
|
|
|
61.0 |
|
|
|
31 |
|
|
|
251.4 |
|
|
|
182.7 |
|
|
|
38 |
|
Provision
for income taxes
|
|
|
26.4 |
|
|
|
27.3 |
|
|
|
(3 |
) |
|
|
78.7 |
|
|
|
74.0 |
|
|
|
6 |
|
Minority
interest
|
|
|
7.5 |
|
|
|
3.7 |
|
|
|
103 |
|
|
|
29.9 |
|
|
|
14.5 |
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations
|
|
|
46.3 |
|
|
|
30.0 |
|
|
|
54 |
|
|
|
142.8 |
|
|
|
94.2 |
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income
taxes
|
|
|
1.7 |
|
|
|
(4.1 |
) |
|
NM
|
|
|
|
4.0 |
|
|
|
(11.3 |
) |
|
NM
|
|
Net income
|
|
$ |
48.0 |
|
|
|
25.9 |
|
|
|
85 |
|
|
|
146.8 |
|
|
|
82.9 |
|
|
|
77 |
|
COMPARISON
OF RESULTS FOR THE THIRD QUARTER
Revenues
- Consolidated
The
Company’s consolidated revenue during the third quarter of 2008 increased from
the prior-year period as a result of growth at both operating
segments. Brink’s revenues in the third quarter of 2008 increased
over the prior-year period due to organic revenue growth (defined below) and
favorable changes in foreign currency exchange rates. Organic revenue
growth includes revenues associated with the conversion project, as discussed on
page 21. BHS’ revenues increased year over year primarily as a result
of growth in the subscriber base and higher average monitoring
rates.
Operating
Profit - Consolidated
The
Company’s consolidated operating profit in the third quarter of 2008 increased
from the prior-year period as a result of growth from both operating
segments. Brink’s operating profit improved in Latin America and
EMEA, partially offset by lower operating profit in North
America. Operating profit in Latin America increased significantly
over the prior-year quarter as a result of improvements in operating performance
in Venezuela, Brazil, Argentina and Colombia. Operating profit in
EMEA was higher than the prior-year quarter as a result of improvements in
operating performance in a number of countries. North American
operating profit was lower than the prior-year quarter due primarily to higher
labor expenses. BHS’ operating profit for the current quarter
improved over the prior-year period due to higher profit from recurring services
and lower legal settlement expenses, partially offset by increased investment in
new subscribers.
Corporate
expenses in the third quarter of 2008 included $4.3 million of foreign currency
transaction losses related to the remeasurement of a euro-denominated
intercompany dividend. Also, corporate expense in the third quarter
of 2008 included $2 million of professional and legal costs related to the
planned spin-off of BHS. For the full year, the Company expects to
incur $18 million to $19 million of professional, legal and advisory fees
related to the strategic reviews conducted by the Company, proxy matters and the
spin-off of BHS.
Expenses
related to former operations were lower in the third quarter of 2008 compared to
the same period last year primarily due to lower pension and other
postretirement expenses.
Recent
market conditions have reduced the market value of the investments held by the
Company’s retiree benefit plans. If these conditions exist as of the
year-end measurement date, the Company’s 2009 net periodic pension and
postretirement cost may increase from 2008 levels. Based on the
market conditions as of October 2008, the Company’s 2009 expenses would increase
by approximately $25 million to $30 million. The actual expense to be
recognized in 2009 will be based on conditions as of December 31, 2008, and the
Company will disclose the amount of projected 2009 expense in its 2008 Form
10-K.
COMPARISON
OF RESULTS FOR THE NINE-MONTH PERIOD
Revenues
- Consolidated
The
Company’s consolidated revenue during the first nine months of 2008 increased
from the prior-year period as a result of growth at both operating
segments. Brink’s revenues in the first nine months of 2008 increased
over the prior-year period due to organic revenue growth (defined below) and
favorable changes in foreign currency exchange rates. Organic revenue growth
includes revenues associated with the conversion project in
Venezuela. BHS’ revenues increased year over year primarily as a
result of growth in the subscriber base and higher average monitoring
rates.
Operating
Profit - Consolidated
The
Company’s consolidated operating profit in the first nine months of 2008
increased from the prior-year period as a result of growth from both operating
segments. Brink’s operating profit included significant growth in
Latin America including significant operating profit from the conversion project
in the first half of 2008. Operating profit in EMEA was higher than
the prior-year period as a result of favorable changes in currency exchange
rates and broad improvement in operating performance in a number of
countries. North American operating profit was lower than the
prior-year period due primarily to higher labor and legal settlement
expenses. BHS’ operating profit for the current period improved due
to higher profit from recurring services, partially offset by increased
investment in new subscribers.
Corporate
expense in the first nine months of 2008 included $11 million of professional,
legal and advisory fees incurred related to the strategic reviews conducted by
the Company, proxy matters and the spin-off of BHS. Corporate
expenses included $4.3 million of foreign currency transaction losses related to
the remeasurement of a euro-denominated intercompany dividend in the third
quarter of 2008.
Expenses
related to former operations were lower in the first nine months of 2008
compared to the same period last year primarily due to lower pension and other
postretirement expenses.
|
|
Three
Months
|
|
|
|
|
|
Nine
Months
|
|
|
|
|
|
|
Ended
September 30,
|
|
|
%
|
|
|
Ended
September 30,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
$ |
575.8 |
|
|
|
468.5 |
|
|
|
23 |
|
|
|
1,701.4 |
|
|
|
1,323.3 |
|
|
|
29 |
|
North America (a)
|
|
|
237.6 |
|
|
|
224.2 |
|
|
|
6 |
|
|
|
702.6 |
|
|
|
654.5 |
|
|
|
7 |
|
|
|
$ |
813.4 |
|
|
|
692.7 |
|
|
|
17 |
|
|
|
2,404.0 |
|
|
|
1,977.8 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
$ |
56.3 |
|
|
|
35.2 |
|
|
|
60 |
|
|
|
166.6 |
|
|
|
96.1 |
|
|
|
73 |
|
North America (a)
|
|
|
11.8 |
|
|
|
17.8 |
|
|
|
(34 |
) |
|
|
36.1 |
|
|
|
50.8 |
|
|
|
(29 |
) |
|
|
$ |
68.1 |
|
|
|
53.0 |
|
|
|
28 |
|
|
|
202.7 |
|
|
|
146.9 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
(b)
|
|
$ |
31.5 |
|
|
|
28.7 |
|
|
|
10 |
|
|
|
92.4 |
|
|
|
79.4 |
|
|
|
16 |
|
Capital expenditures
(c)
|
|
|
48.9 |
|
|
|
35.9 |
|
|
|
36 |
|
|
|
119.2 |
|
|
|
93.2 |
|
|
|
28 |
|
(a) U.S.
and Canada.
(b) Depreciation
and amortization for full-year 2008 is expected to be between $125 million and
$130 million.
(c) Capital
expenditures for full-year 2008 are currently expected to range from $165
million to $175 million.
Supplemental
Revenue Analysis
|
|
Three
Months
|
|
|
%
change
|
|
|
Nine
Months
|
|
|
%
change
|
|
(In
millions)
|
|
Ended
September 30,
|
|
|
from
prior period
|
|
|
Ended
September 30,
|
|
|
from
prior period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
Revenues
|
|
$ |
597.9 |
|
|
|
11 |
|
|
|
1,722.2 |
|
|
|
10 |
|
Effects
on revenue of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic revenue
growth
|
|
|
54.0 |
|
|
|
9 |
|
|
|
150.2 |
|
|
|
9 |
|
Acquisitions and dispositions,
net
|
|
|
5.4 |
|
|
|
1 |
|
|
|
18.2 |
|
|
|
1 |
|
Changes in currency exchange rates
(a)
|
|
|
35.4 |
|
|
|
6 |
|
|
|
87.2 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
Revenues
|
|
|
692.7 |
|
|
|
16 |
|
|
|
1,977.8 |
|
|
|
15 |
|
Effects
on revenue of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic revenue
growth
|
|
|
80.3 |
|
|
|
12 |
|
|
|
242.6 |
|
|
|
12 |
|
Acquisitions and dispositions,
net
|
|
|
1.7 |
|
|
|
- |
|
|
|
15.8 |
|
|
|
1 |
|
Changes in currency exchange rates
(a)
|
|
|
38.7 |
|
|
|
5 |
|
|
|
167.8 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
Revenues
|
|
$ |
813.4 |
|
|
|
17 |
|
|
|
2,404.0 |
|
|
|
22 |
|
(a)
|
Changes
in currency exchange rates increased the reported U.S. dollar amount of
segment operating profit by $2.7 million for the third quarter of 2008 and
by $9.6 million for the first nine months of 2008 compared to the same
periods of 2007. The effect of changes in currency
exchange rates for the same periods of 2007 compared to 2006
was not significant. These amounts exclude transaction gains
and losses recognized in earnings as a result of changes in currency
exchange rates.
|
The table
above 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.
COMPARISON
OF RESULTS FOR THE THIRD QUARTER
Overview
– Brink’s
Revenues
Revenues
at Brink’s were higher in the third quarter of 2008 compared to the prior-year
periods as a result of a combination of the effects of organic revenue growth
and favorable changes in currency exchange rates.
Revenues
from Cash Logistics increased 24% to $138.5 million in the third quarter of 2008
from $111.3 million in the third quarter of 2007. These revenues are
included in the tables above. The increase in these revenues was due
primarily to organic revenue growth, mainly in Latin America and North America,
and changes in currency exchange rates. The revenue increase in Latin
America was significant, driven by higher inflationary prices and the continued
impact of the conversion project in Venezuela.
Operating
Profit
Operating
profit in the third quarter of 2008 was higher than in the prior-year period
primarily as a result of strong performance in Latin America and EMEA, partially
offset by lower operating profit in North America. Operating profit
in Latin America increased significantly over the prior-year quarter as a result
of improvements in operating performance in Venezuela, Brazil, Argentina and
Colombia. Operating profit in EMEA was higher than the prior-year
quarter as a result of improvements in operating performance in a number of
countries and a $2.0 million impairment charge recorded in the 2007
quarter. North American operating profit was lower than in the third
quarter of 2007 due largely to higher labor expense.
International
Revenues
increased in the third 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 and favorable changes in currency exchange
rates. International operating profit in the third quarter of 2008
was higher than the 2007 period primarily due to the effects of strong volumes
in Latin America and improved results in EMEA.
EMEA. Revenues
increased 17% (7% on a constant-currency basis) to $356.9 million in the third
quarter of 2008 from $306.1 million from the same period last
year. Revenues increased largely as a result of organic revenue
growth and favorable changes in currency exchange rates. Operating
profit was higher than the prior-year quarter due to improved operating results
in a number of countries, which were partially generated by increased commodity
and cash movements in Global Services. Also, in the third quarter of
2007, the Company recorded a $2.0 million impairment charge related to the
Company’s operations in a European country.
Latin
America. Revenues increased 37% (30% on a constant-currency
basis) to $200.8 million in the third quarter of 2008 from $147.1 million in the
third quarter of 2007. Revenues increased primarily due to higher
volumes across the region, normal inflationary price increases and favorable
changes in currency exchange rates. Operating profit increased
significantly as a result of the solid improvement in Venezuela, driven by
higher inflationary pricing, and higher volumes in Brazil, Argentina and
Colombia.
Asia-Pacific. Revenues
increased 18% (16% on a constant-currency basis) to $18.1 million in the third
quarter of 2008 from $15.3 million in the third quarter of
2007. Operating profit in the third quarter of 2008 was higher than
in 2007, mainly due to increased Global Services volumes.
North
America
North
American revenues increased 6% to $237.6 million in the third quarter of 2008
compared to $224.2 million in the same period for 2007. Revenues increased
primarily in CIT and Cash Logistics services. Despite higher
revenues, U.S. operating profit in the third quarter of 2008 decreased compared
to the same period in 2007 due largely to higher labor expenses, a portion of
which is related to increased investment in information technology and marketing
personnel as the Company builds its Cash Logistics
operations. The decrease in operating profit in the third
quarter of 2008 was also partially due to lower U.S. Global Services
volumes. Operations in Canada continued to show improved operating
performance year over year.
Some of
the Company’s competitors in the U.S. armored car industry have shown signs of
weakening performance. As a result, Brink’s has gained some new
customers and expects to extend services to others.
Brink’s
expects to generate operating profit margins between 8.5% and 9.0% in
2008.
COMPARISON
OF RESULTS FOR THE NINE-MONTH PERIOD
Overview
– Brink’s
Revenues
Revenues
at Brink’s were higher in the first nine months of 2008 compared to the
prior-year periods as a result of a combination of the effects of organic
revenue growth and favorable changes in currency exchange
rates. Organic revenue growth includes revenues from the conversion
project.
Revenues
from Cash Logistics increased 33% to $418.0 million in the first nine months of
2008 from $314.5 million in the first nine months of 2007. These
revenues are included in the table above. The increase in these
revenues was due primarily to organic revenue growth, including the impact of
the conversion project and changes in currency exchange rates.
Operating
Profit
Operating
profit in the first nine months of 2008 was higher than in the prior-year period
primarily as a result of strong performance in Latin America, including
conversion project activities. Operating profit in EMEA was higher
than the prior-year period as a result of favorable changes in currency exchange
rates and improved operating results in a number of countries. North
American operating profit was lower than in the prior-year period due largely to
higher spending on labor, fuel, and legal settlement expenses, partially offset
by the benefit of reductions in postretirement benefit obligations in Canada and
increased volumes and prices.
International
Revenues
increased in the first nine months 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 (including the conversion project) and
favorable changes in currency exchange rates. International operating
profit in the first nine months of 2008 was higher than the 2007 period
primarily due to the effects of strong volumes in Latin America, including the
conversion project, improved results in EMEA and favorable changes in currency
exchange rates.
EMEA. Revenues
increased 21% (7% on a constant-currency basis) to $1,040.8 million in the first
nine months of 2008 from $863.0 million from the same period last
year. Revenues increased as a result of both favorable changes in
currency exchange rates and organic revenue growth. Operating profit
increased compared to the prior-year period due to improved operating
performance in a number of countries and favorable changes in
currency exchange rates. Also, in the prior-year period, the Company
recorded a $2.0 million impairment charge related to the Company’s operations in
a European country.
Latin
America. Revenues increased 46% (37% on a constant-currency
basis) to $605.9 million in the first nine months of 2008 from $414.9 million in
the first nine months of 2007. Revenues increased primarily due to
higher volumes across the region (including significant volumes from the
conversion project in the first half of 2008), normal inflationary price
increases and favorable changes in currency exchange rates. Operating
profit in the first nine months of 2008 was significantly higher than in the
first nine months of 2007 as a result of the effects of the conversion project
in Venezuela and solid improvement in Brazil, Argentina, Colombia and
Chile.
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. Brink’s estimated that it recorded incremental
revenues of approximately $4 million in the third quarter of 2008 and $50
million in the first nine months of 2008 related to these
services. The conversion project is winding down and nearing
completion. The conversion project activities utilized existing
assets, personnel and other resources which also serviced normal
operations.
Asia-Pacific. Revenues
increased 20% (15% on a constant-currency basis) to $54.7 million in the first
nine months of 2008 from $45.4 million in the first nine months of
2007. Operating profit in the first nine months of 2008 was higher
than in 2007 due to improved performance throughout most of the
region.
North
America
North
American revenues increased 7% to $702.6 million in the first nine months of
2008 compared to $654.5 million in the same period for 2007. Revenues
increased primarily in CIT and Cash Logistics services. Operating
profit in the first nine months of 2008 decreased $14.7 million compared to the
same period in 2007. Operating profit decreased due to higher
spending on labor, fuel and selling, general and administrative
expenses. Operating profit in 2008 also included accruals for legal
settlement expenses and a first-quarter $2.0 million gain from reductions in
postretirement benefit obligations in Canada.
|
|
Three
Months
|
|
|
|
|
|
Nine
Months
|
|
|
|
|
|
|
Ended
September 30,
|
|
|
%
|
|
|
Ended
September 30,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
135.4 |
|
|
|
124.3 |
|
|
|
9 |
|
|
$ |
397.1 |
|
|
|
358.4 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
from recurring services (a)
|
|
$ |
55.7 |
|
|
|
49.1 |
|
|
|
13 |
|
|
$ |
172.7 |
|
|
|
152.4 |
|
|
|
13 |
|
Investment
in new subscribers (b)
|
|
|
(23.5 |
) |
|
|
(23.6 |
) |
|
|
- |
|
|
|
(73.0 |
) |
|
|
(67.9 |
) |
|
|
8 |
|
Operating
profit
|
|
$ |
32.2 |
|
|
|
25.5 |
|
|
|
26 |
|
|
$ |
99.7 |
|
|
|
84.5 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
recurring revenues (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
39.8 |
|
|
|
36.3 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization (d)
|
|
$ |
21.5 |
|
|
|
19.8 |
|
|
|
9 |
|
|
$ |
63.9 |
|
|
|
57.4 |
|
|
|
11 |
|
Impairment
charges from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subscriber
disconnects
|
|
|
16.7 |
|
|
|
13.6 |
|
|
|
23 |
|
|
|
41.4 |
|
|
|
37.9 |
|
|
|
9 |
|
Amortization
of deferred revenue (e)
|
|
|
(10.5 |
) |
|
|
(8.9 |
) |
|
|
18 |
|
|
|
(30.5 |
) |
|
|
(25.6 |
) |
|
|
19 |
|
Deferral
of subscriber acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs (current year payments)
(f)
|
|
|
(5.8 |
) |
|
|
(5.9 |
) |
|
|
(2 |
) |
|
|
(17.9 |
) |
|
|
(18.0 |
) |
|
|
(1 |
) |
Deferral
of revenue from new
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subscribers (current year
receipts) (g)
|
|
|
10.7 |
|
|
|
11.6 |
|
|
|
(8 |
) |
|
|
34.3 |
|
|
|
35.8 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures (h):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security systems
|
|
$ |
(42.3 |
) |
|
|
(42.2 |
) |
|
|
- |
|
|
$ |
(127.9 |
) |
|
|
(124.9 |
) |
|
|
2 |
|
Other
|
|
|
(2.9 |
) |
|
|
(5.1 |
) |
|
|
(43 |
) |
|
|
(7.4 |
) |
|
|
(10.3 |
) |
|
|
(28 |
) |
Total
capital expenditures
|
|
$ |
(45.2 |
) |
|
|
(47.3 |
) |
|
|
(4 |
) |
|
$ |
(135.3 |
) |
|
|
(135.2 |
) |
|
|
- |
|
(a)
|
Reflects
operating profit generated from the existing subscriber base including the
amortization of deferred revenues. This non-GAAP measure
is discussed below under the caption “Non-GAAP Measures - Profit from
Recurring Services and Investment in New
Subscribers.”
|
(b)
|
Primarily
marketing and selling expenses, net of the deferral of subscriber
acquisition costs (primarily a portion of sales commissions and related
costs) incurred in the acquisition of new subscribers. This
non-GAAP measure is discussed below under the caption “Non-GAAP Measures -
Profit from Recurring Services and Investment in New
Subscribers.”
|
|
(c)This
non-GAAP measure is reconciled and discussed below under the caption
“Non-GAAP Measures - Monthly Recurring
Revenues.”
|
|
(d)Includes
amortization of deferred subscriber acquisition
costs. Depreciation and amortization for the full-year of
2008 is expected to be between $85 million and $95
million.
|
(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)
|
Includes
cash payments for incremental sales compensation, fringe benefits and
related costs that are directly attributable to successful customer
acquisition efforts and that are deferred and recognized over the expected
life of the customer relationship.
|
(g)
|
Includes
cash receipts from new subscribers, including connection fees and
equipment installation fees that are deferred and recognized over the
expected life of the customer
relationship.
|
(h)
|
Capital
expenditures for the full-year of 2008 are expected to range from $175
million to $185 million.
|
Revenues
- BHS
The 9%
increase in BHS’ revenues in the third quarter of 2008 and an 11% increase in
the first nine months of 2008 over the comparable 2007 periods, was primarily
due to an 8% larger average subscriber base, as well as higher average
monitoring rates. Revenues during the first nine months of 2008 were
also increased by a $2.0 million accounting correction in the second quarter of
2008. The larger subscriber base and higher average monitoring and
service rates also contributed to a 10% increase in monthly recurring revenues
for September 2008 as compared to September 2007.
Operating
Profit - BHS
Operating
profit increased $6.7 million for the third quarter of 2008 and $15.2 million in
the first nine months of 2008 compared to the same periods in 2007 due to higher
profit from recurring services, slightly offset by increased investment in new
subscribers. Higher investment in new subscribers in the third
quarter of 2008 was primarily the result of increased automobile reimbursement
costs. For the first nine months of 2008, higher investment in new
subscribers was primarily due to increased automobile reimbursement costs,
increased advertising and marketing costs, and increased costs associated with
expanding the commercial sales force. Higher profit from recurring services in
the third quarter of 2008 and the first nine months of 2008 as compared to the
same 2007 periods was primarily due to incremental revenues generated from the
larger subscriber base, higher average monitoring rates, and the $2.5 million
legal settlement charge incurred in the third quarter of 2007.
Additionally,
BHS recorded $0.3 million for estimated losses incurred through the third
quarter of 2008 associated with Hurricane Ike.
Subscriber
activity
|
|
Three
Months
|
|
|
|
|
|
Nine
Months
|
|
|
|
|
|
|
Ended
September 30,
|
|
|
%
|
|
|
Ended
September 30,
|
|
|
%
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of subscribers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
period
|
|
|
1,271.5 |
|
|
|
1,175.1 |
|
|
|
8 |
|
|
|
1,223.9 |
|
|
|
1,124.9 |
|
|
|
9 |
|
Installations (a)
|
|
|
42.7 |
|
|
|
45.7 |
|
|
|
(7 |
) |
|
|
131.5 |
|
|
|
136.7 |
|
|
|
(4 |
) |
Disconnects (a)
|
|
|
(28.9 |
) |
|
|
(20.6 |
) |
|
|
40 |
|
|
|
(70.1 |
) |
|
|
(61.4 |
) |
|
|
14 |
|
End of period (b)
|
|
|
1,285.3 |
|
|
|
1,200.2 |
|
|
|
7 |
|
|
|
1,285.3 |
|
|
|
1,200.2 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of subscribers
|
|
|
1,279.1 |
|
|
|
1,187.7 |
|
|
|
8 |
|
|
|
1,259.0 |
|
|
|
1,163.8 |
|
|
|
8 |
|
Annualized
disconnect rate (c)
|
|
|
9.0 |
% |
|
|
6.9 |
% |
|
|
|
|
|
|
7.4 |
% |
|
|
7.0 |
% |
|
|
|
|
(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 September 30, 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 7% lower in the third quarter and 4% lower in the first nine months of 2008
as compared to the same periods of 2007 primarily due to fewer residential
installations which the Company attributes to the continued slow housing market,
partially offset by an increase in commercial installations of 11% for the third
quarter of 2008 and 8% in the first nine months of 2008 over the same periods in
the prior year. The year-over-year declines in installation growth
may continue next quarter and potentially beyond due to sluggish residential
real estate activity in the U.S.
The
annualized disconnect rate for the third quarter of 2008 was 9.0% and 7.4% for
the first nine months of 2008 compared to 6.9% and 7.0% for the same periods of
2007. There are three primary drivers of the third quarter increase
in disconnect rate as compared to the 2007 period, the most significant being an
increase in customer requested cancellations and customer moves to rented
housing which appears to be related to the slowing economy. Additionally,
cancellations of multi-family housing monitoring contracts, and technical
subscriber reconciliation adjustments both increased in the third quarter of
2008 as compared to the same 2007 period; these adjustments affect the
disconnect rate, but do not affect net profit. The multi-family contract
cancellations and technical adjustments are flat for the nine month period of
2008 as compared to the same 2007 period. Excluding multi-family contract
cancellations and technical subscriber adjustments, the disconnect rate for the
third quarter of 2008 would have been 8.1% and 7.0% for the first nine months of
2008 compared to 7.1% and 6.6% for the same periods of 2007. It was noted there
was a slight increase in disconnect activity resulting from account write-offs;
however, this was not a primary driver of the increase in the disconnect rate
for the third quarter or nine month period of 2008 as compared to the same 2007
periods.
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
currently expects that the disconnect rate for the fourth quarter of 2008 will
be lower than the third quarter rate but higher than the rate recorded for the
fourth quarter of 2007. 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. Moreover, BHS now expects to
experience higher levels of disconnects due to customer requested cancellations
and financial write-offs during the next several quarters than it has
experienced in recent years. In addition, the continuing instability in the
housing and credit markets could affect BHS’ ability to collect receivables from
customers which could increase the disconnect rate.
Non-GAAP
Measures
Monthly
Recurring Revenues
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Monthly
recurring revenues (“MRR”) (a)
|
|
$ |
39.8 |
|
|
|
36.3 |
|
Amounts
excluded from MRR:
|
|
|
|
|
|
|
|
|
Amortization of deferred revenue
(b)
|
|
|
3.4 |
|
|
|
2.8 |
|
Other revenues (c)
|
|
|
2.0 |
|
|
|
2.6 |
|
Revenues
on a GAAP basis:
|
|
|
|
|
|
|
|
|
September
|
|
|
45.2 |
|
|
|
41.7 |
|
January – August
|
|
|
351.9 |
|
|
|
316.7 |
|
January –
September
|
|
$ |
397.1 |
|
|
|
358.4 |
|
(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)
|
Includes
amortization of deferred revenue related to active subscriber accounts as
well as recognition of deferred revenue related to subscriber accounts
that disconnect.
|
(c)
|
Revenues
that are not pursuant to monthly contractual billings, including revenues
from such sources as ad-hoc field service calls, product sales and
installation fees not subject to deferral, terminated contract penalty
billings for breached contracts, pass-through revenue (alarm permit fees,
false alarm fines, etc.) and partial month revenues recognized from
customers who disconnected during the last month of the period and are
therefore not included in MRR. This amount is reduced for
adjustments recorded against revenue (primarily customer goodwill credits
and other billing adjustments), and for the amount included in MRR for new
customers added during the last month of the period for those portions of
the month for which revenues were not recognized for such
customers.
|
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.
Profit
from Recurring Services and Investment in New Subscribers
Profit
from recurring services reflects the monthly monitoring and service earnings
generated from the existing subscriber base, including the amortization of
deferred revenues and net of all general and administrative
expenses. 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. The Company considers
profit from recurring services to be an important non-GAAP component of its
operating profit. The Company believes this component of operating
profit allows investors and others to understand the operating income from
security systems that have been installed.
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, which can vary widely depending on
the customer acquisition channel. 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. The Company considers investment in new
subscribers to be an important non-GAAP component of its operating
profit. The Company believes this component of operating profit
allows investors and others to understand the amount of net expenses associated
with the installation of new subscribers.
Profit
from recurring services and investment in new subscribers are reconciled to
operating profit, their closest GAAP counterpart, in the table on page
22.
Corporate
Expense – The Brink’s Company
|
|
Three
Months
|
|
|
|
|
|
Nine
Months
|
|
|
|
|
|
|
Ended
September 30,
|
|
|
%
|
|
|
Ended
September 30,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
expense
|
|
$ |
21.9 |
|
|
|
14.3 |
|
|
|
53 |
|
|
|
51.3 |
|
|
|
36.8 |
|
|
|
39 |
|
Corporate
expense included approximately $2 million in the third quarter of 2008 and
approximately $11 million in the first nine months of 2008 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. For the full year, the Company expects to incur $18 million
to $19 million of professional, legal and advisory fees related to the strategic
reviews conducted by the Company, proxy matters and the proposed spin-off of
BHS.
Approximately
$13 million of expenses directly related to the spin-off are expected to be
classified within discontinued operations in the Company’s 2008 Form
10-K.
Corporate
expenses in the third quarter of 2008 also included $4.3 million of foreign
currency transaction losses related to the remeasurement of a euro-denominated
intercompany dividend.
Former
Operations – included in Continuing Operations
|
|
Three
Months
|
|
|
|
|
|
Nine
Months
|
|
|
|
|
|
|
Ended
September 30,
|
|
|
%
|
|
|
Ended
September 30,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-sponsored
postretirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefits other than
pensions
|
|
$ |
0.2 |
|
|
|
0.9 |
|
|
|
(78 |
) |
|
$ |
0.6 |
|
|
|
3.3 |
|
|
|
(82 |
) |
Black
lung
|
|
|
0.7 |
|
|
|
1.2 |
|
|
|
(42 |
) |
|
|
2.3 |
|
|
|
3.2 |
|
|
|
(28 |
) |
Pension
|
|
|
(1.7 |
) |
|
|
0.6 |
|
|
NM
|
|
|
|
(5.1 |
) |
|
|
1.1 |
|
|
NM
|
|
Administrative,
legal and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses, net
|
|
|
0.3 |
|
|
|
1.0 |
|
|
|
(70 |
) |
|
|
2.5 |
|
|
|
3.0 |
|
|
|
(17 |
) |
|
|
$ |
(0.5 |
) |
|
|
3.7 |
|
|
NM
|
|
|
$ |
0.3 |
|
|
|
10.6 |
|
|
|
(97 |
) |
Expenses
from former operations decreased from last year primarily due to lower pension
and other postretirement expenses.
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 Company, from time to time,
uses foreign currency forward contracts to hedge transactional risks associated
with foreign currencies. At September 30, 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 nine months ending September 30, 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 are translated using the official exchange rate of 2.15 bolivar fuerte to
the U.S. dollar. Reported results 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 $90.3 million at
September 30, 2008. In addition, Brink’s Venezuela’s U.S. parent has
bolivar fuerte-denominated receivables, which are expected to be collected using
the official exchange rate. A devaluation of the bolivar fuerte would
require a revaluation of the receivables with a non-tax-deductible loss
recognized in earnings.
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. Changes in the political or economic environments in the
countries in which the Company operates could have a material adverse effect on
its business, financial condition and results of operations.
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’ and
corporate’s previously discussed operating profits.
|
|
Three
Months
|
|
|
|
|
|
Nine
Months
|
|
|
|
|
|
|
Ended
September 30,
|
|
|
%
|
|
|
Ended
September 30,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency transaction losses, net
|
|
$ |
(8.5 |
) |
|
|
(3.2 |
) |
|
|
166 |
|
|
|
(14.2 |
) |
|
|
(4.8 |
) |
|
|
196 |
|
Share
in earnings of equity affiliates
|
|
|
1.3 |
|
|
|
0.7 |
|
|
|
86 |
|
|
|
3.6 |
|
|
|
2.1 |
|
|
|
71 |
|
Hurricane
Katrina insurance settlement gains
|
|
|
- |
|
|
|
1.0 |
|
|
NM
|
|
|
|
- |
|
|
|
3.3 |
|
|
NM
|
|
Asset
impairment charge
|
|
|
(0.2 |
) |
|
|
(2.0 |
) |
|
|
(90 |
) |
|
|
(0.5 |
) |
|
|
(2.1 |
) |
|
|
(76 |
) |
Royalty
income
|
|
|
1.1 |
|
|
|
0.7 |
|
|
|
57 |
|
|
|
2.2 |
|
|
|
1.4 |
|
|
|
57 |
|
Gain
on sale of operating assets, net
|
|
|
0.5 |
|
|
|
0.3 |
|
|
|
67 |
|
|
|
0.4 |
|
|
|
0.9 |
|
|
|
(56 |
) |
Other
|
|
|
1.3 |
|
|
|
0.7 |
|
|
|
86 |
|
|
|
3.4 |
|
|
|
1.8 |
|
|
|
89 |
|
|
|
$ |
(4.5 |
) |
|
|
(1.8 |
) |
|
|
150 |
|
|
|
(5.1 |
) |
|
|
2.6 |
|
|
NM
|
|
Corporate
expense included $4.3 million of foreign currency transaction losses recorded in
the third quarter of 2008, related to the remeasurement of a euro-denominated
intercompany dividend.
Impairment
losses of $2.0 million were recorded by Brink’s in the third quarter of 2007
related to operations in a European country.
Insurance
settlement gains of $1.0 million were recorded during the third quarter of 2007
($3.3 million for the first nine months of 2007) for final settlement of
property damage and business interruption insurance claims related to Hurricane
Katrina.
Nonoperating
Income and Expense
Interest
expense
|
|
Three
Months
|
|
|
|
|
|
Nine
Months
|
|
|
|
|
|
|
Ended
September 30,
|
|
|
%
|
|
|
Ended
September 30,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$ |
3.3 |
|
|
|
2.5 |
|
|
|
32 |
|
|
|
9.1 |
|
|
|
8.0 |
|
|
|
14 |
|
Interest
and other income, net
|
|
Three
Months
|
|
|
|
|
|
Nine
Months
|
|
|
|
|
|
|
Ended
September 30,
|
|
|
%
|
|
|
Ended
September 30,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
4.2 |
|
|
|
2.2 |
|
|
|
91 |
|
|
|
9.5 |
|
|
|
5.5 |
|
|
|
73 |
|
Other
|
|
|
0.4 |
|
|
|
0.8 |
|
|
|
(50 |
) |
|
|
0.2 |
|
|
|
1.2 |
|
|
|
(83 |
) |
|
|
$ |
4.6 |
|
|
|
3.0 |
|
|
|
53 |
|
|
|
9.7 |
|
|
|
6.7 |
|
|
|
45 |
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes (in millions)
|
|
$ |
26.4 |
|
|
|
27.3 |
|
|
|
78.7 |
|
|
|
74.0 |
|
Effective
tax rate
|
|
|
32.9 |
% |
|
|
44.7 |
% |
|
|
31.3 |
% |
|
|
40.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes (in millions)
|
|
$ |
0.3 |
|
|
|
- |
|
|
|
1.2 |
|
|
|
(1.6 |
) |
Effective
tax rate
|
|
|
15.0 |
% |
|
|
- |
|
|
|
23.1 |
% |
|
NM
|
|
The
effective income tax rate on continuing operations in the first nine months of
2008 was lower than the 35% U.S. statutory tax rate primarily due to the
geographical mix of earnings and an $8.8 million valuation allowance release for
non-U.S. jurisdictions, partially offset by a $7.5 million tax charge resulting
from the decision to spin off BHS and $3.9 million of state tax
expense.
The
effective income tax rate on continuing operations in the first nine months of
2007 was higher than the 35% U.S. statutory tax rate primarily due to a
$6.1 million increase in the valuation allowances for non-U.S. jurisdictions
and $2.4 million of state tax expense.
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’s effective tax rate for the full-year, which
will reflect the reclassification of BHS results into discontinued operations,
is expected to be between 24% and 26%. The Company’s effective tax
rate for 2009 is expected to be between 31% and 34%.
|
|
Three
Months
|
|
|
|
|
|
Nine
Months
|
|
|
|
|
|
|
Ended
September 30,
|
|
|
%
|
|
|
Ended
September 30,
|
|
|
%
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
$ |
7.5 |
|
|
|
3.7 |
|
|
|
103 |
|
|
|
29.9 |
|
|
|
14.5 |
|
|
|
106 |
|
The
increase in minority interest in 2008 is primarily due to an increase in the
earnings of Brink’s Venezuelan subsidiaries.
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s
United Kingdom domestic cash handling operations (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale
|
|
$ |
- |
|
|
|
0.7 |
|
|
|
- |
|
|
|
0.7 |
|
Results of
operations
|
|
|
- |
|
|
|
(3.1 |
) |
|
|
- |
|
|
|
(13.9 |
) |
Adjustments
to contingent liabilities of former operations
|
|
|
2.0 |
|
|
|
(1.7 |
) |
|
|
5.2 |
|
|
|
0.3 |
|
Income
(loss) from discontinued operations before income taxes
|
|
|
2.0 |
|
|
|
(4.1 |
) |
|
|
5.2 |
|
|
|
(12.9 |
) |
Provision
(benefit) for income taxes
|
|
|
0.3 |
|
|
|
- |
|
|
|
1.2 |
|
|
|
(1.6 |
) |
Income
(loss) from discontinued operations
|
|
$ |
1.7 |
|
|
|
(4.1 |
) |
|
|
4.0 |
|
|
|
(11.3 |
) |
(a)
|
Brink’s
United Kingdom domestic cash handling operations were sold in August
2007. Revenues of the operations were $5.8 million for the
third quarter of 2007 and $28.9 million for the first nine months of
2007. Results of Brink’s United Kingdom domestic cash handling
operations included a $7.5 million asset impairment charge in the nine
month period ended September 30,
2007.
|
LIQUIDITY
AND CAPITAL RESOURCES
Cash
flows before financing activities decreased by $3.1 million in the first nine
months of 2008 as compared to the first nine months of 2007. The
decrease was primarily due to higher capital expenditures, partially offset by
improved operating performance.
Summary
of Cash Flow Information
|
|
Nine
Months
|
|
|
|
|
|
|
Ended
September 30,
|
|
|
|
$ |
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
$ |
344.3 |
|
|
|
320.9 |
|
|
|
23.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(254.7 |
) |
|
|
(228.6 |
) |
|
|
(26.1 |
) |
Acquisitions
|
|
|
(6.1 |
) |
|
|
(11.3 |
) |
|
|
5.2 |
|
Other
|
|
|
3.3 |
|
|
|
8.9 |
|
|
|
(5.6 |
) |
Investing
activities
|
|
|
(257.5 |
) |
|
|
(231.0 |
) |
|
|
(26.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows before financing activities
|
|
$ |
86.8 |
|
|
|
89.9 |
|
|
|
(3.1 |
) |
Operating
cash flows increased by $23.4 million in the first nine months of 2008 compared
to the same period in 2007. The increase was primarily due to
improved segment operating profit partially offset by higher professional, legal
and advisory fees for shareholder initiatives and the BHS spin-off, higher U.S.
federal income tax payments and higher cash usage for working capital
needs.
The
Company voluntarily contributed $13 million to its primary U.S. pension plan in
2007, but otherwise has not contributed cash to the plan since
2004. Recent market conditions have reduced the amount of assets in
the trust used to pay plan benefits. If recent asset market
valuations and interest rates were in effect at the year-end measurement date,
the Company would have no requirement to make a contribution in 2009 but would
be required to make approximately $75 million of contributions in 2010 to
comply with the minimum funding requirements of the Pension Protection Act of
2006. In addition, the Company may also elect to make voluntary
contributions to achieve certain threshold funding levels. The
Company believes it has sufficient sources of liquidity to fund future
contributions to the plan based on recent market conditions. Actual
required contributions to the plan will be determined based on market conditions
at December 31, 2008.
Cash
flows from investing activities decreased by $26.5 million in the first nine
months of 2008 versus the first nine months of 2007 primarily due to increased
capital expenditures.
Capital
expenditures were as follows:
|
|
Nine
Months
|
|
|
|
|
|
|
Ended
September 30,
|
|
|
|
$
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
119.2 |
|
|
|
93.2 |
|
|
|
26.0 |
|
BHS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Security systems
|
|
|
127.9 |
|
|
|
124.9 |
|
|
|
3.0 |
|
Other
|
|
|
7.4 |
|
|
|
10.3 |
|
|
|
(2.9 |
) |
Corporate
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
- |
|
Capital
expenditures
|
|
$ |
254.7 |
|
|
|
228.6 |
|
|
|
26.1 |
|
Capital
expenditures for the first nine months of 2008 were $26.1 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. Most of the increase in
Brink’s capital expenditures from the prior-year period was due to higher
spending on cash processing and security equipment, and armored vehicles, as
well as the impact of changes in currency exchange rates.
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 $165 million to $175 million for Brink’s and $175
million to $185 million for BHS.
Business
Segment Cash Flows
The
Company’s cash flows before financing activities for each of the operating
segments are presented below.
|
|
Nine
Months
|
|
|
|
|
|
|
Ended
September 30,
|
|
|
|
$
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows before financing activities
|
|
|
|
|
|
|
|
|
|
|
Business segments:
|
|
|
|
|
|
|
|
|
|
|
Brink’s
|
|
$ |
92.4 |
|
|
|
103.0 |
|
|
|
(10.6 |
) |
BHS
|
|
|
29.5 |
|
|
|
49.0 |
|
|
|
(19.5 |
) |
Subtotal of business
segments
|
|
|
121.9 |
|
|
|
152.0 |
|
|
|
(30.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and former
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions to primary U.S.
pension plan
|
|
|
- |
|
|
|
(13.0 |
) |
|
|
13.0 |
|
Other
|
|
|
(35.1 |
) |
|
|
(45.9 |
) |
|
|
10.8 |
|
Subtotal of continuing
operations
|
|
|
86.8 |
|
|
|
93.1 |
|
|
|
(6.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Brink’s United Kingdom domestic
cash handling operations
|
|
|
- |
|
|
|
(3.2 |
) |
|
|
3.2 |
|
Cash
flows before financing activities
|
|
$ |
86.8 |
|
|
|
89.9 |
|
|
|
(3.1 |
) |
Brink’s
Cash
flows before financing activities in the first nine months of 2008 at Brink’s
decreased by $10.6 million primarily due to the settlement of intercompany
federal tax obligations with the corporate parent in the third quarter of
2008. The similar settlement in 2007 occurred in the fourth quarter
(the “timing of intercompany tax settlements”). Brink’s cash flows
before financing activities otherwise improved primarily due to higher operating
profit and lower cash used for business acquisitions, partially offset by
increased capital expenditures.
BHS
The $19.5
million decrease in BHS’ cash flows before financing activities is primarily due
to the timing of intercompany tax settlements. BHS’ cash flows before
financing activities otherwise improved primarily due to higher operating
profit, partially offset by higher amounts used for working
capital.
Corporate
and Former Operations
Other
cash outflows related to corporate and former operations decreased $10.8 million
in 2008 compared to 2007 due to the timing of intercompany tax settlements,
partially offset by an increase in professional, legal and advisory fees related
to shareholder initiatives and the BHS spin-off as well as higher U.S. federal
income tax payments. Also, the Company made a $13 million
contribution to the Company’s primary U.S. pension plan in September
2007.
Summary
of financing activities
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
borrowings (repayments) of debt:
|
|
|
|
|
|
|
Short-term debt
|
|
$ |
(6.0 |
) |
|
|
(24.5 |
) |
Revolving
facilities
|
|
|
59.8 |
|
|
|
(1.8 |
) |
Long-term debt
|
|
|
(8.6 |
) |
|
|
(8.6 |
) |
Net borrowings (repayments) of
debt
|
|
|
45.2 |
|
|
|
(34.9 |
) |
Repurchase
of common stock of the Company
|
|
|
(70.3 |
) |
|
|
- |
|
Dividends
to:
|
|
|
|
|
|
|
|
|
Shareholders of the
Company
|
|
|
(13.6 |
) |
|
|
(11.9 |
) |
Minority interests in
subsidiaries
|
|
|
(9.9 |
) |
|
|
(6.9 |
) |
Proceeds
and tax benefits related to stock compensation and other
|
|
|
27.9 |
|
|
|
10.8 |
|
Discontinued
operations, net
|
|
|
- |
|
|
|
(14.8 |
) |
Cash flows from financing
activities
|
|
$ |
(20.7 |
) |
|
|
(57.7 |
) |
During
the first six months of 2008, the Company purchased 823,300 shares of its common
stock at an average cost of $63.92 per share. No shares were
repurchased during the quarter ended September 30, 2008. The Company
also withheld a portion of the shares that were due to employees under deferred
compensation distributions and stock option exercises. The shares
were withheld to meet the withholding requirements of approximately $16.7
million.
The
Company’s operating liquidity needs are typically financed by cash from
operations, 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. The Company paid dividends of $0.10 per share in the
first, second, and third quarters of 2008. On October 28, 2008, the
board declared a regular quarterly dividend of $0.10 per share payable on
December 1, 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.
The
Company uses a combination of debt, leases and equity to capitalize its
operations.
Reconciliation
of Net Debt (Cash) to GAAP measures
|
|
September
30,
|
|
|
December
31,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$ |
6.2 |
|
|
|
12.4 |
|
Long-term
debt
|
|
|
156.1 |
|
|
|
100.2 |
|
Debt
|
|
|
162.3 |
|
|
|
112.6 |
|
Less
cash and cash equivalents
|
|
|
(257.7 |
) |
|
|
(196.4 |
) |
Net Debt (Cash)
(a)
|
|
$ |
(95.4 |
) |
|
|
(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 September 30, 2008, as compared to
December 31, 2007, increased primarily due to higher operating
profits.
The
Company expects to contribute $50 million to BHS prior to the
spin-off. As a result, the Company expects its Net Debt (Cash) to be
lower after the spin-off.
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 September 30, 2008,
$323.9 million was available under the revolving credit facility.
The
Company has a new unsecured $135 million letter of credit facility with a bank
(the “2008 Facility”) that became effective in the third quarter of
2008. 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 two unsecured multi-currency revolving bank credit facilities with a
total of $50.0 million in available credit, of which approximately $31.7 million
was available at September 30, 2008. When rates are favorable, the
Company also borrows from other banks under short-term uncommitted
agreements. Various foreign subsidiaries maintain other lines of
credit and overdraft facilities with a number of banks.
At
September 30, 2008, the Company’s Brink’s and BHS subsidiaries guaranteed the
Revolving Facility and the 2008 Facility. After the spin-off, BHS will no longer
guarantee these facilities. The Revolving Facility, the 2008 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 September 30, 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 future
requirements.
Equity
At
September 30, 2008, the Company had 100 million shares of common stock
authorized and 45.8 million shares issued and outstanding.
In
September 2008, the Company terminated The Brink’s Company Employee Benefits
Trust. Prior to termination, the shares held by the trust were
distributed to the Company, whereupon the shares were retired.
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. Under
the program, the Company used $56.3 million to purchase 883,800 shares of common
stock between December 5, 2007, and May 2, 2008, at an average price of $63.67
per share. As of September 30, 2008, the Company had $43.7 million
under the program available to purchase shares. The repurchase
authorization does not have an expiration date. No shares were
repurchased during the quarter ended September 30, 2008.
Commitments
and Contingent Matters
Operating
leases
The
Company has made residual value guarantees of approximately $71.9 million at
September 30, 2008, related to operating leases, principally for trucks and
other vehicles. The Company estimates that approximately $8.9 million
of these residual value guarantees will remain solely with BHSH after the
spin-off occurs on October 31, 2008.
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 $14
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.
BHS
Patent Lawsuits
On
September 26, 2008, and September 29, 2008, two patent infringement lawsuits
were filed against BHS and numerous other defendants. These lawsuits
have not yet been served. Based on a preliminary analysis of all of the
information currently available, the Company is not yet able to conclude that a
loss is probable or remote with respect to these cases; therefore, the Company
has concluded that the risk of loss is reasonably possible, as required by
applicable accounting rules. The Company is not able to estimate the
range of potential loss for these matters. BHS intends to utilize all
available defenses to defend vigorously against these
claims.
Other
The
Company is involved in various lawsuits and claims in the ordinary course of
business. The Company is not able to estimate the range of losses for
some of these matters. The Company has recorded accruals for losses
that are considered probable and reasonably estimable. The Company
does not believe that the ultimate disposition of any of these matters will have
a material adverse effect on its liquidity, financial position or results of
operations.
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 risk management program 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 nine months ended September 30,
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 September 30, 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 spin-off of BHS, the tax free
nature, timing and other expected characteristics of the spin-off, the
anticipated impact of new accounting standards, future pension plan
contributions, residual value guarantees that will become the responsibility of
BHSH after the spin-off, 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, the outcome of pending litigation and the anticipated financial
impact of the disposition of these matters, significant liabilities and ongoing
expenses and cash outflows related to former coal operations, expected 2008
expenses related to the Company’s strategic review, proxy matters and spin-off
of BHS, the impact of recent performance of Brink’s competitors in the United
States, expected operating profit margin at Brink’s, Brink’s efforts to turn
around underperforming countries, the impact of Brink’s Cash Logistics business
on future revenue and margin growth, declines in installation growth at BHS and
the effects of ongoing weakness in the housing market, the disconnect rate at
BHS, potential future net periodic pension and postretirement costs, 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 or that the bolivar fuerte may be devalued, the
anticipated effective tax rates for 2008 and 2009 and the Company’s tax position
and underlying assumptions, expected capital expenditures, anticipated
depreciation and amortization for 2008, the anticipated capital contribution to
BHS and its effect on the Company’s Net Debt, 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
impact of a potential global economic slowdown on the Company’s business
opportunities, access to the credit markets and funding requirements for its
pension plans and other employee benefits, the impact of instability in the
housing and credit markets on BHS’s customers and its disconnect rate, the
recent market volatility and its impact on the Company’s customers, 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 implementation of investments in technology and value-added
services and cost reduction efforts and their impact on revenue and profit
growth, the ability to identify and execute further cost and operational
improvements and efficiencies in the core businesses, the ability of the
businesses to cost effectively match customer demand with appropriate resources,
the willingness of Brink’s and BHS’ customers to absorb fuel surcharges and
other future price increases, 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, regulatory and labor issues and higher security threats, 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, 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 September 30, 2008.
|
|
|
|
|
|
Maximum
Number
|
|
|
|
|
Total
Number
|
|
(or
Approximate
|
|
|
|
|
of
Shares Purchased
|
|
Dollar
Value) of
|
|
Total
Number
|
|
|
as
Part of Publicly
|
|
Shares
that May Yet
|
|
of
Shares
|
|
Average
Price
|
Announced
Plans
|
|
be
Purchased Under
|
Period
|
Purchased
|
|
Paid
per Share
|
or
Programs
|
|
the
Plans or Programs
|
July
1 through
|
|
|
|
|
|
|
July 31, 2008
|
-
|
|
-
|
-
|
|
-
|
August
1 through
|
|
|
|
|
|
|
August 31, 2008
|
-
|
|
-
|
-
|
|
-
|
September
1 through
|
|
|
|
|
|
|
September 30, 2008
|
1,650,518 (1)
|
|
$68.79 (2)
|
-
|
|
$43,730,344 (3)
|
(1)
|
Each
of the shares was purchased other than through a publicly announced
repurchase plan. On September 5, 2008, the Company purchased
the shares from The Brink’s Company Employee Benefits Trust (the “Employee
Benefits Trust”) in connection with the termination of the Employee
Benefits Trust. In exchange for the shares, which constituted
all of the shares of common stock held by the Employee Benefits Trust, the
Company forgave all indebtedness owed by the Employee Benefits Trust to
the Company, including the indebtedness evidenced by certain promissory
notes (the “Notes”) originally issued by the Employee Benefits Trust to
the Company in payment for the original acquisition of the shares by the
Employee Benefits Trust. Prior to the forgiveness, the Notes
were eliminated in the consolidation of the Employee Benefits Trust and,
therefore, were not a component of the Company’s consolidated balance
sheet.
|
(2)
|
The
original principal amount of the Notes, plus the aggregate amount of
accrued and unpaid interest on the Notes, exceeded $113,539,133, which was
the fair market value of the shares at the time of purchase based on
$68.79 per share, which was the opening sales price for shares of the
Company’s common stock as reported on the New York Stock Exchange
Composite Tape on September 5,
2008.
|
(3)
|
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.
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Item
6. Exhibits
Exhibit
Number
10.1*
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Directors’
Stock Accumulation Plan, as amended and restated as of September 12,
2008.
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|
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10.2*
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Pension
Equalization Plan, as amended and restated as of October 22,
2008.
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|
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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.
|
|
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31.2
|
Certification
of Michael J. Cazer, 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 Michael J. Cazer, 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.
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* Management
contract or compensatory plan or arrangement.
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.
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THE
BRINK’S COMPANY
|
|
|
|
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October
30, 2008
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By: /s/ Michael J.
Cazer
|
|
Michael
J. Cazer
|
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(Vice
President -
|
|
Chief
Financial Officer)
|
|
(principal
financial officer)
|