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, 2005
------------------
[ ] 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)
Registrant's telephone number, including area code: (804) 289-9600
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
--- ---
Indicate by check mark whether the registrant is a shell Company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
--- ---
As of November 3, 2005, 58,741,521 shares of $1 par value common stock were
outstanding.
Part I - Financial Information
- ------------------------------
The Brink's Company
and subsidiaries
Consolidated Balance Sheets
September 30, December 31,
(In millions) 2005 2004
- ------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 185.1 169.0
Accounts receivable, net 784.0 749.5
Prepaid expenses and other 66.2 58.1
Deferred income taxes 93.7 116.0
- ------------------------------------------------------------------------------------------------
Total current assets 1,129.0 1,092.6
Property and equipment, net 976.8 914.0
Goodwill 269.3 259.6
Deferred income taxes 272.1 234.7
Other assets 217.2 177.3
- ------------------------------------------------------------------------------------------------
Total assets $ 2,864.4 2,678.2
================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 48.8 27.5
Current maturities of long-term debt 37.7 35.1
Accounts payable 368.0 357.0
Accrued liabilities 575.8 612.5
- ------------------------------------------------------------------------------------------------
Total current liabilities 1,030.3 1,032.1
Long-term debt 184.0 181.6
Accrued pension costs 149.5 117.0
Postretirement benefits other than pensions 323.0 331.2
Deferred revenue 148.1 139.5
Deferred income taxes 25.6 26.0
Other liabilities 237.9 176.8
- ------------------------------------------------------------------------------------------------
Total liabilities 2,098.4 2,004.2
Commitments and contingent liabilities (notes 5 and 8)
Shareholders' equity:
Common stock 58.7 56.7
Capital in excess of par value 530.3 457.4
Retained earnings 442.0 352.9
Accumulated other comprehensive loss (175.4) (148.1)
Employee benefits trust, at market value (89.6) (44.9)
- ------------------------------------------------------------------------------------------------
Total shareholders' equity 766.0 674.0
- ------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,864.4 2,678.2
================================================================================================
See accompanying notes to consolidated financial statements.
2
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) 2005 2004 2005 2004
- -------------------------------------------------------------------------------------------------------------------
Revenues $ 1,389.3 1,195.0 3,928.8 3,421.0
Expenses:
Operating expenses 1,157.2 995.4 3,342.9 2,883.8
Selling, general and administrative expenses 171.4 141.5 459.5 413.4
- -------------------------------------------------------------------------------------------------------------------
Total expenses 1,328.6 1,136.9 3,802.4 3,297.2
Other operating income, net 5.5 0.6 11.0 6.4
- -------------------------------------------------------------------------------------------------------------------
Operating profit 66.2 58.7 137.4 130.2
Interest expense (4.8) (6.0) (15.5) (17.6)
Interest and other income, net 2.5 2.4 6.1 6.7
Minority interest (4.3) (3.4) (11.1) (8.1)
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 59.6 51.7 116.9 111.2
Income tax expense 21.1 14.0 50.6 43.7
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations 38.5 37.7 66.3 67.5
- -------------------------------------------------------------------------------------------------------------------
Income from discontinued operations, net of tax 27.3 0.4 28.4 15.0
- -------------------------------------------------------------------------------------------------------------------
Net income $ 65.8 38.1 94.7 82.5
===================================================================================================================
Net income per common share:
Basic:
Continuing operations $ 0.68 0.69 1.18 1.24
Discontinued operations 0.49 - 0.51 0.28
- -------------------------------------------------------------------------------------------------------------------
$ 1.17 0.69 1.69 1.52
===================================================================================================================
Diluted:
Continuing operations $ 0.67 0.68 1.17 1.23
Discontinued operations 0.48 - 0.50 0.27
- -------------------------------------------------------------------------------------------------------------------
$ 1.15 0.68 1.67 1.50
===================================================================================================================
Cash dividends paid per common share $ 0.025 0.025 0.075 0.075
===================================================================================================================
See accompanying notes to consolidated financial statements.
3
The Brink's Company
and subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months
Ended September 30,
(In millions) 2005 2004
- ---------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 94.7 82.5
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations, net of tax (28.4) (15.0)
Depreciation and amortization 139.7 128.1
Impairment charges from subscriber disconnects 32.9 29.4
Amortization of deferred revenue (21.7) (19.5)
Impairment of other long-lived assets 0.2 5.1
Aircraft heavy maintenance expense 18.3 20.6
Deferred income taxes 12.8 23.1
Provision for uncollectible accounts receivable 2.9 4.3
Postretirement benefit funding (more) less than expense:
Pension 37.7 14.6
Other than pension (7.8) (58.9)
Other operating, net 18.0 12.2
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (68.2) (86.5)
Accounts payable and accrued liabilities 82.7 67.5
Deferred subscriber acquisition costs (16.9) (14.4)
Deferred revenue from new subscribers 30.2 25.9
Prepaid and other current assets (15.5) (16.3)
Other, net (15.5) (6.6)
Discontinued operations, net - 0.2
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 296.1 196.3
- ---------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (236.8) (153.9)
Aircraft heavy maintenance expenditures (18.3) (17.5)
Acquisitions (51.3) (14.8)
Proceeds from disposal of:
Coal business 5.0 -
Timber business - 33.7
Less purchase of equipment formerly leased - (6.2)
Gold business - 1.1
Property and equipment and other assets 5.5 9.8
Other, net (6.5) 1.4
Discontinued operations, net - (0.8)
- ---------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (302.4) (147.2)
- ---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Long term debt:
Additions 90.1 59.0
Repayments (86.0) (82.0)
Short-term borrowings, net 25.2 (7.0)
Dividends to shareholders of the Company (4.2) (4.0)
Dividends to minority interest holders in subsidiaries (6.3) (4.4)
Proceeds from exercise of stock options 10.2 12.7
Other (1.0) 0.2
- ---------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 28.0 (25.5)
- ---------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (5.6) (2.2)
- ---------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 16.1 21.4
Cash and cash equivalents at beginning of period 169.0 128.7
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 185.1 150.1
===============================================================================================================
See accompanying notes to consolidated financial statements.
4
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 three
operating segments:
o Brink's, Incorporated ("Brink's")
o Brink's Home Security, Inc. ("BHS")
o BAX Global Inc. ("BAX Global")
The Company has significant liabilities associated with its former coal
operations and expects to have significant ongoing expenses and cash outflows
related to these operations.
The Company's unaudited consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles ("GAAP") for
interim financial reporting and applicable quarterly reporting regulations of
the Securities and Exchange Commission. 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. Certain prior-period amounts have been
reclassified to conform to the current period's financial statement
presentation. 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, 2004.
Pro forma earnings per share
The Company accounts for share-based compensation plans using the intrinsic
value method prescribed in Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees" and related interpretations. The
Company grants stock options with an exercise price equal to the market price on
the date of grant and, as a result, the Company has not recognized any
compensation expense related to its stock option plans.
5
Had compensation costs for share-based compensation plans been determined based
on the fair value of awards at the grant dates consistent with the optional
recognition provision of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock Based Compensation," net income and net income
per share would have approximated the pro forma amounts indicated below:
Three Months Nine Months
Ended September 30, Ended September 30,
(In millions, except per share amounts) 2005 2004 2005 2004
- --------------------------------------------------------------------------------------------------------------------
Net income:
As reported $ 65.8 38.1 94.7 82.5
Less: share-based compensation expense determined
under fair-value method, net of related tax effects (1.2) (1.1) (2.9) (2.5)
- --------------------------------------------------------------------------------------------------------------------
Pro forma $ 64.6 37.0 91.8 80.0
====================================================================================================================
Net income per share:
Basic, as reported $ 1.17 0.69 1.69 1.52
Basic, pro forma 1.15 0.67 1.64 1.47
Diluted, as reported $ 1.15 0.68 1.67 1.50
Diluted, pro forma 1.13 0.67 1.62 1.45
- --------------------------------------------------------------------------------------------------------------------
In these tables, the fair value of each stock option grant is estimated at the
time of the grant using the Black-Scholes option-pricing model. The fair value
of options that vest entirely at the end of a fixed period, generally three
years, is estimated using a single option approach and amortized on a straight
line basis over the total vesting period. The fair value of options that vest
ratably over three years is estimated using a multiple-option approach and
amortized on a straight line basis over each separate vesting period.
Forfeitures are recognized when they occur. If a different option-pricing model
had been used, results may have been different.
The assumptions used and the resulting weighted-average grant-date estimates of
fair value for options granted in the periods ended September 30, 2005 and 2004
are below.
Three Months Nine Months
Ended September 30, Ended September 30,
2005 2004 2005 2004
- --------------------------------------------------------------------------------------------------
Options granted:
In millions 0.7 0.8 0.7 0.9
Weighted-average exercise price per share $ 35.80 32.71 35.80 31.82
Weighted-average assumptions:
Expected dividend yield 0.5% 0.5% 0.5% 0.5%
Expected volatility 34% 32% 34% 32%
Risk-free interest rate 3.8% 3.4% 3.8% 3.3%
Expected term in years 4.1 3.8 4.1 3.8
Fair value estimates:
In millions $ 7.7 7.6 7.7 8.2
Weighted-average per share $ 11.16 9.17 11.16 8.82
==================================================================================================
6
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123R, "Share-Based Payment." SFAS No. 123R is a revision of SFAS No. 123 and
supersedes APB 25. SFAS No. 123R eliminates the use of the intrinsic value
method of accounting, and requires companies to recognize the cost of employee
services received in exchange for awards of equity instruments based on the fair
value of those awards. The Company is required to adopt SFAS 123R effective
January 1, 2006. SFAS No. 123R permits companies to adopt its requirements using
either a "modified prospective" method or a "modified retrospective" method.
Under the "modified prospective" method, compensation cost is recognized in the
financial statements beginning with the effective date, based on the
requirements of SFAS No. 123R for all share-based payments granted after that
date, and based on the requirements of SFAS No. 123 for all unvested awards
granted prior to the effective date of SFAS No. 123R. Under the "modified
retrospective" method, the requirements are the same as under the "modified
prospective" method, except that entities also are allowed to restate financial
statements of previous periods based on pro forma disclosures made in accordance
with SFAS No. 123. The Company has not determined which of the adoption methods
it will use.
The Company currently utilizes Black-Scholes, a standard option pricing model,
to measure the fair value of stock options granted to employees. While SFAS No.
123R permits entities to continue to use this model, the standard also permits
the use of a "lattice" model. The Company has not yet determined which model it
will use to measure the fair value of employee stock options upon the adoption
of SFAS No. 123R.
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Contingent Asset Retirement Obligations" ("FIN 47"), an interpretation of FASB
Statement No. 143, "Asset Retirement Obligations" ("SFAS 143"). FIN 47 clarifies
that the term "conditional asset retirement obligation" as used in SFAS 143
refers to a legal obligation associated with the retirement of a tangible
long-lived asset in which the timing and (or) method of settlement is
conditional on a future event that may or may not be within the control of the
entity. An entity is required to recognize a liability for the fair value of a
conditional asset retirement obligation if the fair value of the liability can
be reasonably estimated, even if conditional on a future event. The effect of
applying FIN 47 will be recognized as a cumulative effect of a change in
accounting principle. The Company has conditional asset retirement obligations
primarily associated with leased facilities. The Company is currently evaluating
the impact of FIN 47 and will adopt this interpretation in the fourth quarter of
2005.
In July 2005 the FASB issued FSP APB 18-1, "Accounting by an Investor for Its
Proportionate Share of Accumulated Other Comprehensive Income of an Investee
Accounted for under the Equity Method in Accordance with APB Opinion No. 18 upon
a Loss of Significant Influence" (the "FSP"). The FSP requires an investor's
proportionate share of an investee's equity adjustments for other comprehensive
income to be offset against the carrying value of the investment at the time
significant influence is lost. The FSP requires comparative financial statements
be retroactively adjusted to reflect the provisions of the FSP. The Company will
adopt the FSP in the fourth quarter of 2005. The carrying value (before the
effect of the new FSP) of Brink's cost method investment that was previously
accounted for under the equity method was $8.9 million at September 30, 2005 and
December 31, 2004. At the date of adoption, cumulative currency losses ($14.5
million at September 30, 2005 and December 31, 2004) will be reclassified from
accumulated other comprehensive loss and increase the carrying value of the
Company's related investment. This reclassification will have no effect on net
income.
The Company recorded restructuring and severance costs at its Brink's unit of
$1.3 million in the third quarter and $13.5 for the first nine months of 2005,
an increase of approximately $11 million over the level of similar expenses
recorded last year. In addition, Brink's recorded $1.5 million higher lease
expense for the first nine months of 2005 compared to the same period in 2004
primarily to record expense on a straight-line basis for certain of its leases
that have fixed escalation rent clauses. In the first nine months of 2004,
Brink's recorded $3.8 million of expenses related to tax matters, including $1.8
million of expenses related to unpaid value-added taxes and customs duties.
The Company recorded a reduction to expenses of approximately $1.2 million in
the third quarter and approximately $3.3 million in the first nine months of
2005 in its BHS unit to reflect a revision to the estimate for the allowance for
doubtful accounts.
7
During the first nine months of 2005, the Company recorded charges of
approximately $2.9 million in the Americas region of BAX Global covering
ancillary costs which management has concluded cannot be billed back to
customers. During the third quarter of 2005, the Company recorded a provision
for doubtful accounts of $1.6 million related to a bankruptcy filing of a BAX
Global customer in early October 2005. During the third quarter of 2004 BAX
Global recorded an impairment loss of $4.7 million due to a decision to abandon
the development and installation of software.
The Company received dividends of $1.5 million in the third quarter and $3.5
million in the first nine months of 2005 from a real estate investment. The
Company recognized gains of $2.8 million in the third quarter of 2005 due to the
transfer of liabilities to the buyer of a former coal operation.
During the third quarter of 2005 the Company recognized a $27.4 million tax
benefit related to its former natural resource businesses due to finalizing
discussions with the Internal Revenue Service.
Note 2 - Earnings per share
Basic and diluted weighted-average share information used to compute the
Company's earnings per share was as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
(In millions of shares) 2005 2004 2005 2004
- --------------------------------------------------------------------------------------------------
Weighted-average shares outstanding:
Basic 56.4 54.8 56.0 54.4
Effect of dilutive stock options 0.7 0.7 0.7 0.6
- --------------------------------------------------------------------------------------------------
Diluted 57.1 55.5 56.7 55.0
==================================================================================================
Antidilutive stock options excluded from computation - 0.8 0.2 0.5
==================================================================================================
Shares of the Company's common stock held by The Brink's Company Employee
Benefits Trust (the "Trust") that have not been allocated to employees 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. During the second quarter of 2005, the Board of Directors
approved the issuance of an additional 2.1 million shares of common stock to the
Trust, and the shares were issued in June 2005. The Trust held 2.2 million
unallocated shares at September 30, 2005 and 1.8 million unallocated shares at
September 30, 2004.
8
Note 3 - Pension and other postretirement benefits
Pension
The Company has defined benefit pension plans covering substantially all U.S.
non-union employees who meet certain minimum requirements. In October 2005, the
Company announced that benefit levels for its U.S. defined benefit pension plans
would be frozen effective December 31, 2005. As a result, participants in The
Brink's Company Pension Retirement Plan and The Brink's Company Pension
Equalization Plan will cease to earn additional benefits after 2005, although
participants who have not met requirements for vesting will continue to accrue
vesting service in accordance with terms of the plans. In addition, the Company
announced that beginning January 1, 2006, the matching contribution under The
Brink's Company 401(k) Plan will increase from 75% to 125% of the first 5% of
compensation saved through the 401(k) Plan.
The Company also has other defined benefit plans for eligible non-U.S.
employees. The net pension cost for the Company's U.S. and non-U.S. pension
plans was as follows:
U.S. Plans Non-U.S. Plans Total
- ---------------------------------------------------------------------------------------------------------------
(In millions) 2005 2004 2005 2004 2005 2004
- ---------------------------------------------------------------------------------------------------------------
Three months ended September 30,
Service cost $ 7.1 5.6 2.6 2.1 9.7 7.7
Interest cost on projected benefit obligation 11.0 10.2 2.7 2.3 13.7 12.5
Return on assets - expected (12.5) (12.4) (2.6) (2.2) (15.1) (14.6)
Other amortization, net 5.9 3.5 0.8 0.8 6.7 4.3
Curtailment loss 0.1 - - - 0.1 -
- ---------------------------------------------------------------------------------------------------------------
Net pension cost $ 11.6 6.9 3.5 3.0 15.1 9.9
===============================================================================================================
Nine months ended September 30,
Service cost $ 21.2 17.9 7.7 6.4 28.9 24.3
Interest cost on projected benefit obligation 32.8 30.8 8.1 7.0 40.9 37.8
Return on assets - expected (37.5) (37.2) (7.6) (6.5) (45.1) (43.7)
Other amortization, net 17.1 10.8 2.5 2.4 19.6 13.2
Curtailment loss 0.1 - - - 0.1 -
- ---------------------------------------------------------------------------------------------------------------
Net pension cost $ 33.7 22.3 10.7 9.3 44.4 31.6
===============================================================================================================
Based on December 31, 2004 assumptions and funding regulations, the Company was
not required to make a contribution to the primary U.S. plan in 2005. No
decision has been made as to whether or not a voluntary contribution will be
made this year to the primary U.S. pension plan. The Company made contributions
to its non-U.S. pension plans of $2.3 million in the third quarter of 2005 and
$7.0 million in the first nine months of 2005. The Company expects to contribute
approximately $9 million to its non-U.S. pension plans for the full year of
2005.
9
Other postretirement benefits
Company-Sponsored Plans
The Company provides certain postretirement benefits (the "Company-sponsored
plans") for eligible active and retired employees in the U.S. and Canada of the
Company's current and former businesses, including eligible participants of the
former coal operations (the "coal-related" plans). The components of net
periodic postretirement costs related to Company-sponsored plans were as
follows:
Coal-related plans Other plans Total
- ---------------------------------------------------------------------------------------------------------------
(In millions) 2005 2004 2005 2004 2005 2004
- ---------------------------------------------------------------------------------------------------------------
Three months ended September 30,
Service cost $ - - 0.2 0.3 0.2 0.3
Interest cost on accumulated
postretirement benefit
obligations ("APBO") 8.4 8.0 0.3 0.4 8.7 8.4
Return on assets - expected (3.8) (2.3) - - (3.8) (2.3)
Amortization of losses 3.8 3.3 0.1 0.1 3.9 3.4
- ---------------------------------------------------------------------------------------------------------------
Net postretirement benefit costs $ 8.4 9.0 0.6 0.8 9.0 9.8
===============================================================================================================
Nine months ended September 30,
Service cost $ - - 0.7 0.9 0.7 0.9
Interest cost on accumulated
postretirement benefit
obligations ("APBO") 25.4 24.2 1.1 1.3 26.5 25.5
Return on assets - expected (11.3) (6.9) - - (11.3) (6.9)
Amortization of losses 12.0 10.1 0.3 0.2 12.3 10.3
- ---------------------------------------------------------------------------------------------------------------
Net postretirement benefit costs $ 26.1 27.4 2.1 2.4 28.2 29.8
===============================================================================================================
Pneumoconiosis (Black Lung) Benefits
The Company is self-insured with respect to black lung benefits. The components
of net periodic postretirement benefit costs related to black lung benefits were
as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
(In millions) 2005 2004 2005 2004
- --------------------------------------------------------------------------------
Interest cost on APBO $ 0.7 0.8 2.2 2.6
Amortization of losses 0.2 0.2 0.9 1.1
- --------------------------------------------------------------------------------
Net periodic postretirement costs $ 0.9 1.0 3.1 3.7
================================================================================
10
Note 4 - Acquisitions
During the first six months of 2005, Brink's acquired security operations in
Luxembourg, Scotland, Ireland, Hungary, Poland and the Czech Republic. The
aggregate purchase price for these acquisitions was $51.3 million. No
acquisitions were made in the third quarter of 2005. During the first quarter of
2004, Brink's acquired security operations in Greece.
Acquisition completed Purchase price
Location in the quarter ended (in millions)
- -------------------------------------------------------------------------------
Greece March 31, 2004 $ 11.9
Other September 30, 2004 2.9
- -------------------------------------------------------------------------------
14.8
===============================================================================
Luxembourg, Scotland and Ireland March 31, 2005 $ 41.4
Hungary, Poland and the Czech Republic June 30, 2005 9.9
- -------------------------------------------------------------------------------
$ 51.3
===============================================================================
These acquisitions have been accounted for as business combinations. Under the
purchase method of accounting, assets acquired and liabilities assumed from
these operations are recorded at fair value on the date of acquisition. The
consolidated statements of operations include the results of operations for an
acquired entity from the date of acquisition. The results of the acquired
operations were not material to the Company's consolidated statements of
operation for the periods presented.
The above purchase prices for 2005 acquisitions have been preliminarily
allocated based on estimates of fair value of assets acquired and liabilities
assumed. The final valuation of net assets is expected to be completed as soon
as possible, but not later than one year from the acquisition date in accordance
with U.S. GAAP.
Note 5 - Discontinued operations
Three Months Nine Months
Ended September 30, Ended September 30,
(In millions) 2005 2004 2005 2004
- ----------------------------------------------------------------------------------------------------------
Gain (loss) on sales of:
Timber $ - - - 20.7
Gold - - - (0.9)
Loss from operations:
Timber - - - (0.5)
Gold - - - (1.2)
Adjustments to contingent liabilities of former
operations (see note 8):
Withdrawal liability - - 6.1 8.1
Other (0.2) 0.7 (4.6) (2.9)
- ----------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations
before income taxes (0.2) 0.7 1.5 23.3
Income tax benefit (expense) 27.5 (0.3) 26.9 (8.3)
- ----------------------------------------------------------------------------------------------------------
Income from discontinued operations $ 27.3 0.4 28.4 15.0
==========================================================================================================
11
Gain (loss) on sales
Timber
In December 2003, the Company sold a portion of its timber business for $5.4
million in cash and recognized a $4.8 million pretax gain in discontinued
operations in the fourth quarter of 2003. The Company received $33.7 million in
2004 for the remaining portion of its timber business. After deducting the book
value of related assets and the payment of $6.2 million in 2004 to purchase
equipment formerly leased, the Company recognized a $20.7 million pretax gain in
discontinued operations in the first nine months of 2004.
Gold
In February 2004, the Company completed the sale of its gold operations for
approximately $1.1 million in cash plus the assumption of liabilities and
recognized a $0.9 million loss.
Loss from operations
The results of operations of the former natural resource businesses through the
date of the related sale have been classified as discontinued operations for all
periods presented.
Income taxes
During the third quarter of 2005, the Company finalized discussions with the
Internal Revenue Service over certain tax credit carryforwards related to the
former natural resources businesses. The Company recognized a $27.4 million tax
benefit in discontinued operations in the third quarter of 2005 as a result of
the settlement. The benefit does not result in current cash receipts but has
increased the Company's tax credit carryforwards available to reduce future U.S.
income tax payments.
Note 6 - Supplemental cash flow information
Nine Months
Ended September 30,
(In millions) 2005 2004
- -----------------------------------------------------------------------------
Cash paid for:
Interest $ 19.3 14.5
Income taxes, net of refunds 44.8 17.7
=============================================================================
Other noncash financing activities - settlement of
employee benefits with Company common shares $ 17.4 14.1
=============================================================================
As part of its changes to benefit plans, beginning on January 1, 2006, the
Company will make matching contributions related to its 401(k) plans in cash
rather than in the Company's stock.
12
Note 7 - Comprehensive income
Three Months Nine Months
Ended September 30, Ended September 30,
(In millions) 2005 2004 2005 2004
- ---------------------------------------------------------------------------------------------------------
Net income $ 65.8 38.1 94.7 82.5
Other comprehensive income (loss), net of
reclasses and taxes:
Foreign currency translation adjustments 3.3 8.8 (27.6) (2.7)
Cash flow hedges - 0.3 - 0.6
Marketable securities 0.3 - 0.3 (2.7)
Minimum pension liability - - - (0.5)
- ---------------------------------------------------------------------------------------------------------
Comprehensive income $ 69.4 47.2 67.4 77.2
=========================================================================================================
Note 8 - Contingencies
Value-added taxes and customs duties
During 2004, the Company determined that one of its non-U.S. Brink's,
Incorporated business units had not paid foreign customs duties and value-added
taxes with respect to the importation of certain goods and services. The Company
has been advised that there could be civil and criminal penalties asserted for
the non-payment of these customs duties and value-added taxes. To date no
penalties have been asserted. The business unit has commenced discussions with
the appropriate governmental authorities in the affected jurisdiction regarding
this matter, provided an accounting of unpaid value-added taxes and customs
duties, and made payments covering its calculated unpaid value-added taxes.
As a result of its investigation, the Company recorded charges in 2004 of $1.3
million to operating profit and $0.8 million to interest expense in the second
quarter of 2004. In the third quarter of 2004 the Company recorded $0.2 million
reduction in the amount charged to operating expense and $0.1 million reduction
in the amount charged to interest expense as a result of updated information.
The summary impact on earnings is provided below.
Three Months Nine Months
Ended September 30, Ended September 30,
(In millions) 2004 2004
- -------------------------------------------------------------------------------------------
Penalties on unpaid value-added taxes $ - 0.4
Duties (0.2) 0.7
- -------------------------------------------------------------------------------------------
Amount charged to operating expenses (0.2) 1.1
Interest expense on unpaid value-added taxes
and customs duties (0.1) 0.7
- -------------------------------------------------------------------------------------------
$ (0.3) 1.8
===========================================================================================
The Company evaluates many factors to determine whether it should recognize or
disclose a loss contingency, including the probability of an unfavorable outcome
and the ability to make a reasonable estimate of the amount of loss. The Company
believes that the range of probable penalties related to unpaid value-added
taxes is between $0.4 million and $3 million and that no amount within that
range is a better estimate than any other amount within the range. Accordingly,
the Company has accrued $0.4 million for these penalties.
13
The Company has concluded that a loss related to penalties on unpaid customs
duties is not probable. The Company believes that the range of reasonably
possible losses related to customs duties penalties is between $0 and
approximately $35 million. The Company believes that the assertion of these
penalties would be excessive and would vigorously defend against any such
assertion.
The Company intends to diligently pursue the timely resolution of this matter
and, accordingly, the Company's estimate of the potential losses could change
materially in future periods. The assertion of potential penalties may be
material to the Company's financial position and results of operations. These
penalties could be asserted at any time. Although the Company has accrued
interest on the unpaid value-added taxes and customs duties, the Company does
not expect to be assessed interest charges in connection with any penalties that
may be asserted.
Litigation
BAX Global is defending a claim related to the apparent diversion by a third
party of goods being transported for a customer. Although BAX Global is
defending this claim vigorously and believes that its defenses have merit, it is
possible that this claim ultimately may be decided in favor of the claimant. If
so, the Company expects that the ultimate amount of reasonably possible
unaccrued losses could range from $0 to $9 million.
Health Benefit Act
The Company is obligated to pay premiums to the United Mine Workers of America
("UMWA") Combined Benefit Fund, as described in the Company's 2004 Annual Report
on Form 10-K. At September 30, 2005, the Company had $179 million recorded for
the obligation, reflecting the recorded liability at December 31, 2004 less
payments made in 2005. This liability is adjusted annually as new historical
data is received and assumptions used to estimate the obligations change.
Withdrawal liability
The Company withdrew from the UMWA 1950 and 1974 pension plans in June 2005 as
the last employees working under UMWA labor agreements left the Company. In
addition, during the first half of 2005, the UMWA reduced the estimate of the
underfunded status of the plans, and accordingly, the Company reduced its
estimated $36.6 million withdrawal liability by $6.1 million to $30.5 million.
As a result of the withdrawal from these coal-related plans, the Company expects
to be obligated to pay to the plans $30.5 million, which represents the
Company's portion of the underfunded status of the plans as of June 30, 2004, as
determined by the plan agreements and by law.
During the first nine months of 2004, the Company reduced its estimate of the
withdrawal liability by $8.1 million to reflect changes in estimates at that
time.
Income taxes
The Company and its subsidiaries are subject to tax examinations in various U.S.
and foreign jurisdictions and the Company has accrued approximately $17 million
for related contingencies. While it is difficult to predict the final outcome of
the various issues that may arise during an examination, the Company believes
that it has adequately provided for all contingent income tax liabilities and
interest.
14
Other loss contingencies
The Company recorded $4.8 million in the first nine months of 2005, to reflect
an increase in the estimated cost of reclamation at its former coal mines. The
estimate of the cost of reclamation may change in the future. The Company also
has other contingent liabilities, primarily related to former operations,
including those for expected settlement of coal-related workers' compensation
claims.
The Company recorded $2.9 million expense in the first nine months of 2004
primarily related to the settlement of legal matters related to its former coal
operations.
Gain contingencies
Federal Black Lung Excise Tax
In 1999, the U.S. District Court of the Eastern District of Virginia entered a
final judgment in favor of certain of the Company's subsidiaries, ruling that
the Federal Black Lung Excise Tax ("FBLET") is unconstitutional as applied to
export coal sales. The Company has received refunds, including interest, of
$27.2 million in prior years and continues to pursue the refund of other FBLET
payments. Due to uncertainty as to the ultimate receipt of additional amounts,
if any, which could amount to as much as $15 million (before income taxes), as
well as the timing of any additional FBLET refunds, the Company has not
currently recorded receivables for such additional FBLET refunds.
Insurance claims
The Company expects to file insurance claims related to damage and business
interruption sustained from Hurricane Katrina. As of September 30, 2005 the
Company has recorded a receivable of $1.9 million for claims to be filed, which
approximates the amount of hurricane-related expenses recognized during the
third quarter of 2005. The Company expects to recognize gains when the
settlements are finalized by the insurance provider.
15
THE BRINK'S COMPANY
and Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
================================================================================
Operations
================================================================================
The Brink's Company (along with its subsidiaries, the "Company") has three
operating segments:
o Brink's, Incorporated ("Brink's") Brink's offers services globally
including armored car transportation,
automated teller machine ("ATM")
replenishment and servicing, currency
and deposit processing, including its
"Cash Logistics" operations, coin
sorting and wrapping, arranging the
secure air transportation of valuables
("Global Services") and the deploying
and servicing of safes and safe control
devices, including its patented
CompuSafe(R) service.
o 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
properties. BHS typically installs and
owns the on-site home security systems
and charges fees to monitor and service
the systems.
o BAX Global Inc. ("BAX Global") BAX Global provides freight
transportation and supply chain
management services on a global basis,
specializing in the heavy freight market
for business-to-business shipping.
The Company has significant liabilities associated with its former coal
operations and expects to have significant ongoing expenses and cash outflows
related to its former coal operations. The Company has funded a portion of its
coal operations related postretirement benefit obligation using a Voluntary
Employees' Beneficiary Association trust (the "VEBA"). The VEBA is reflected in
the Company's balance sheets as a reduction of the postretirement benefit
obligations.
16
RESULTS OF OPERATIONS
================================================================================
Overview
Three Months Nine Months
Ended September 30, Ended September 30,
(In millions) 2005 2004 2005 2004
- --------------------------------------------------------------------------------
Income from:
Continuing operations $ 38.5 37.7 66.3 67.5
Discontinued operations 27.3 0.4 28.4 15.0
- --------------------------------------------------------------------------------
Net income $ 65.8 38.1 94.7 82.5
================================================================================
The income items in the above table are reported after tax.
Income from continuing operations before income taxes improved in the third
quarter of 2005 versus the prior year primarily due to much higher operating
profit at BAX Global. Despite higher pretax income from continuing operations
this quarter, after tax income was lower than in the prior-year period as a
result of the favorable resolution of contingency matters in 2004 which lowered
last year's effective tax rate for the quarter.
BAX Global's operating profit for 2005 increased from the prior year primarily
as a result of higher volumes and improved margins in Asia-Pacific. In addition,
a $4.7 million impairment loss was recognized in the third quarter of 2004.
Income from continuing operations was lower for the first nine months of 2005
compared to the same periods last year despite higher operating profit. The
Company recorded a one-time $4.4 million pretax gain within interest and other
income, net during the first quarter of 2004 upon conversion of the Company's
VEBA from a general corporate asset to one specifically restricted to pay
certain coal-related postretirement liabilities. In addition, the effective tax
rate was lower in 2004 primarily due to the favorable resolution of contingency
matters during the third quarter.
Operating profits improved during the first nine months of 2005 versus the prior
year as stronger performance in both BAX Global and BHS more than offset softer
results at Brink's. Brink's operating profit was down year over year largely due
to the effects of reduced volumes and related restructuring and severance costs
in Europe.
Income from discontinued operations included approximately $27.4 million in the
third quarter of 2005 related to the favorable resolution of contingent tax
matters associated with the former coal and natural gas businesses. Income from
discontinued operations in the first nine months of 2005 and 2004 also includes
net favorable adjustments to other contingent liabilities. The first nine months
of 2004 also included a $20.7 million pretax gain on the sale of the timber
business.
As mentioned in note 3 to the consolidated financial statements, the Company
announced the freezing of pension benefit levels for its U.S. defined benefit
pension plans effective December 31, 2005 and the enhancing of benefits for its
U.S. defined contribution plan participants. The Company's net costs for
benefits would have been approximately $35 million lower for the full year 2005
if these changes had been effective at the beginning of 2005.
17
Value-Added Taxes and Customs Duties
During 2004, the Company determined that one of its non-U.S. Brink's,
Incorporated business units had not paid foreign customs duties and value-added
taxes with respect to the importation of certain goods and services. The Company
has been advised that there could be civil and criminal penalties asserted for
the non-payment of these customs duties and value-added taxes. To date no
penalties have been asserted. The business unit has commenced discussions with
the appropriate governmental authorities in the affected jurisdiction regarding
this matter, provided an accounting of unpaid value-added taxes and customs
duties, and made payments covering its calculated unpaid value-added taxes.
As a result of its investigation, the Company recorded charges in 2004 of $1.3
million to operating profit and $0.8 million to interest expense in the second
quarter of 2004. In the third quarter of 2004 the Company recorded $0.2 million
reduction in the amount charged to operating expense and $0.1 million reduction
in the amount charged to interest expense as a result of updated information.
The summary impact on earnings is provided below.
Three Months Nine Months
Ended September 30, Ended September 30,
(In millions) 2004 2004
- -----------------------------------------------------------------------------------------
Penalties on unpaid value-added taxes $ - 0.4
Duties (0.2) 0.7
- -----------------------------------------------------------------------------------------
Amount charged to operating expenses (0.2) 1.1
Interest expense on unpaid value-added taxes
and customs duties (0.1) 0.7
- -----------------------------------------------------------------------------------------
$ (0.3) 1.8
=========================================================================================
The Company evaluates many factors to determine whether it should recognize or
disclose a loss contingency, including the probability of an unfavorable outcome
and the ability to make a reasonable estimate of the amount of loss. The Company
believes that the range of probable penalties related to unpaid value-added
taxes is between $0.4 million and $3 million and that no amount within that
range is a better estimate than any other amount within the range. Accordingly,
the Company has accrued $0.4 million for these penalties.
The Company has concluded that a loss related to penalties on unpaid customs
duties is not probable. The Company believes that the range of reasonably
possible losses related to customs duties penalties is between $0 and
approximately $35 million. The Company believes that the assertion of these
penalties would be excessive and would vigorously defend against any such
assertion.
The Company intends to diligently pursue the timely resolution of this matter
and, accordingly, the Company's estimate of the potential losses could change
materially in future periods. The assertion of potential penalties may be
material to the Company's financial position and results of operations. These
penalties could be asserted at any time. Although the Company has accrued
interest on the unpaid value-added taxes and customs duties, the Company does
not expect to be assessed interest charges in connection with any penalties that
may be asserted.
18
Consolidated Review
Three Months Nine Months
Ended September 30, % Ended September 30, %
(In millions) 2005 2004 change 2005 2004 change
- ---------------------------------------------------------------------------------------------------
Revenues:
Brink's $ 550.9 492.7 12 $ 1,596.8 1,416.0 13
BHS 100.4 87.6 15 289.1 255.5 13
BAX Global 738.0 614.7 20 2,042.9 1,749.5 17
- ---------------------------------------------------------------------------------------------------
Revenues $ 1,389.3 1,195.0 16 $ 3,928.8 3,421.0 15
===================================================================================================
Operating profit:
Brink's $ 41.3 44.7 (8) $ 86.7 102.8 (16)
BHS 21.3 20.2 5 67.1 59.4 13
BAX Global 22.2 14.6 52 47.2 30.1 57
- ---------------------------------------------------------------------------------------------------
Business segments 84.8 79.5 7 201.0 192.3 5
Former coal operations (8.8) (10.9) (19) (32.9) (33.5) (2)
Corporate (9.8) (9.9) (1) (30.7) (28.6) 7
- ---------------------------------------------------------------------------------------------------
Operating profit $ 66.2 58.7 13 $ 137.4 130.2 6
===================================================================================================
The Company's operating profits increased 13% in the third quarter of 2005
compared to the same period last year as a result of further improvement at BAX
Global and continued growth from BHS. BAX Global's 52% increase in operating
profit for the current quarter as compared to last year's levels resulted
primarily from higher volumes and margins in Asia-Pacific. BHS reported 5%
higher operating profit for the current quarter over the same quarter last year.
This operating profit increase was partially offset by 8% lower operating profit
at Brink's due primarily to lower operating profits from Europe in comparison to
the strong quarter a year ago.
The Company's operating profit for the first nine months of 2005 was 6% higher
in comparison to the prior-year period as much improved operating profit at BAX
Global and continued growth by BHS was partially offset by lower operating
profit at Brink's.
Expenses related to former coal operations were lower in the 2005 periods
compared to the prior year primarily due to the recording of higher gains in the
2005 periods related to sales of residual coal properties.
Revenue growth rates for subsidiaries 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 exchange rates
in order to provide information about growth rates without the impact of
changing foreign currency exchange rates. Relative to most European currencies
relevant to the Company, the U.S. dollar was stronger in the third quarter but
was weaker in the first nine months of 2005 over the same prior-year periods.
Currencies in Asia-Pacific and South America other than Venezuela have
strengthened versus the U.S. dollar in the quarter and year-to-date period.
Growth at constant-currency exchange rates is higher than growth computed using
actual currency exchange rates when the U.S. dollar is strengthening. Changes in
currency exchange rates did not materially affect period-to-period comparisons
of segment operating profit for the periods presented herein.
19
The following table provides supplemental information related to 2005 Organic
Revenue Growth which is not required by GAAP. The Company defines Organic
Revenue Growth as the change in revenue from the prior year due to factors such
as changes in prices for products and services (including the effect of fuel
surcharges), changes in business volumes and changes in product mix. Estimates
of changes due to fluctuations in foreign currency translation rates and the
effects of new acquisitions are excluded from Organic Revenue Growth.
Three Months % change Nine Months % change
(In millions) Ended September 30, from 2004 Ended September 30, from 2004
- -------------------------------------------------------------------------------------------------------------------
2004 revenues as reported:
Brink's $ 492.7 N/A 1,416.0 N/A
BHS 87.6 N/A 255.5 N/A
BAX Global 614.7 N/A 1,749.5 N/A
- -------------------------------------------------------------------------------------------------------------------
$ 1,195.0 N/A 3,421.0 N/A
===================================================================================================================
Effects on 2005 revenue of acquisitions
and dispositions, net:
Brink's $ 28.8 6 72.5 5
BHS - - - -
BAX Global - - - -
- -------------------------------------------------------------------------------------------------------------------
$ 28.8 2 72.5 2
===================================================================================================================
Effects on 2005 revenue of changes in
currency translation rates:
Brink's $ 6.1 1 35.5 3
BHS 0.1 - 0.3 -
BAX Global 8.5 1 33.5 2
- -------------------------------------------------------------------------------------------------------------------
$ 14.7 1 69.3 2
===================================================================================================================
2005 Organic Revenue Growth:
Brink's $ 23.3 5 72.8 5
BHS 12.7 14 33.3 13
BAX Global 114.8 19 259.9 15
- -------------------------------------------------------------------------------------------------------------------
$ 150.8 13 366.0 11
===================================================================================================================
2005 revenues as reported:
Brink's $ 550.9 12 1,596.8 13
BHS 100.4 15 289.1 13
BAX Global 738.0 20 2,042.9 17
- -------------------------------------------------------------------------------------------------------------------
$ 1,389.3 16 3,928.8 15
===================================================================================================================
The supplemental 2005 Organic Revenue Growth information presented above is
non-GAAP financial information that management believes is an important measure
to evaluate results of existing operations without the effects of acquisitions,
dispositions and currency exchange rates. This supplemental non-GAAP information
does not affect net income or any other reported amounts. This supplemental
non-GAAP information should be viewed in addition to, not in lieu of, the
Company's consolidated statement of operations.
20
Brink's, Incorporated
Three Months Nine Months
Ended September 30, % Ended September 30, %
(In millions) 2005 2004 change 2005 2004 change
- -----------------------------------------------------------------------------------------------------------
Revenues:
North America (a) $ 197.9 184.3 7 $ 576.1 545.3 6
International (b) 353.0 308.4 14 1,020.7 870.7 17
- -----------------------------------------------------------------------------------------------------------
$ 550.9 492.7 12 $ 1,596.8 1,416.0 13
===========================================================================================================
Operating profit:
North America (a) $ 16.8 14.1 19 $ 38.9 40.0 (3)
International (b) 24.5 30.6 (20) 47.8 62.8 (24)
- -----------------------------------------------------------------------------------------------------------
$ 41.3 44.7 (8) $ 86.7 102.8 (16)
===========================================================================================================
Cash flow information:
Depreciation and amortization $ 23.0 19.4 19 $ 67.1 57.9 16
Capital expenditures 23.9 17.5 37 73.3 49.8 47
===========================================================================================================
(a) U.S. and Canada.
(b) Europe, South America and Asia-Pacific.
Overview
Revenues at Brink's were higher in the third quarter and first nine months of
2005 compared to the prior-year periods as a result of a combination of the
effects of core business growth, newly acquired businesses and changes in
currency exchange rates. Operating profit in the third quarter and first nine
months of 2005 was lower than the same periods in 2004 largely as a result of
lower operating profits from Europe due primarily to lower volumes in Belgium
and the Netherlands and related restructuring and severance expense.
North America
North American revenues increased in 2005 compared to the prior-year periods
primarily as the result of improvements in U.S. Cash Logistics, U.S. Global
Services and all Canadian lines of business. Operating profit in the third
quarter of 2005 was higher compared to the same period in 2004 due primarily to
improved volumes in Global Services, Canadian currency and armored car services.
Operating profit in the first nine months of 2005 was lower than the same period
last year primarily due to higher costs for safety and security, pension
benefits and facilities.
Pension expense is expected to be lower in 2006 as a result of the Company's
decision to freeze U.S. defined benefit pension plan benefits at December 31,
2005. This decrease will be partially offset by an increase in the expense
associated with the U.S. defined contribution plans as these benefits will be
enhanced. Net expenses at Brink's would have been approximately $16 million
lower for the full year 2005 if these changes had been instituted as of January
1, 2005.
21
International
Revenues increased in 2005 over prior-year periods in all regions. Revenue
increases in Europe were primarily the result of acquisitions. South America and
Asia-Pacific revenue increases were primarily due to higher volumes.
International operating profit in the third quarter of 2005 was lower than 2004
in all regions except Asia-Pacific, which was about the same as 2004.
International operating profit in the first nine months of 2005 was lower in all
regions except South America compared to the same period in 2004. International
operating profit in the first nine months of 2004 included charges of
approximately $3.1 million due to adjustments to non-income tax accruals,
including $1.1 million related to unpaid value-added taxes and customs duties.
Europe. Revenues increased 14% in the third quarter and 19% for the first nine
months of 2005 when compared to the prior-year periods (on a constant currency
basis, 2005 revenues were 15% higher in the third quarter and first nine months
compared to the prior-year periods), largely as a result of acquisitions.
Operating profit in the third quarter and the first nine months was lower due to
volume reductions in Belgium, Greece and the Netherlands and higher
restructuring and severance expenses primarily in Belgium. Operating profit in
the first nine months of 2005 included $7.8 million higher severance costs
compared to the same period last year. The Company expects approximately $6
million to $7 million in cost savings in 2006 related to the restructuring. In
2004, Greece benefited from the increased security operations from the Olympic
games held in Athens.
Brink's acquired operations in:
o Greece in the first quarter of 2004;
o Luxembourg, Scotland and Ireland in the first quarter of 2005; and
o Poland, Hungary, and the Czech Republic in the second quarter of 2005.
These acquisitions increased revenues by approximately $29 million in the third
quarter of 2005 and $73 million in the first nine months of 2005. These
acquisitions are expected to increase revenue by approximately $100 million on
an annualized basis.
South America. Revenues increased 17% in the third quarter and 16% in the first
nine months of 2005 over the prior-year periods (11% and 13%, respectively, on a
constant currency basis compared to the prior-year periods) primarily due to
higher volumes particularly in Venezuela, Colombia, Argentina and Chile.
Operating profit in the third quarter of 2005 was lower than the strong
performance reported in 2004 primarily due to operating losses in Brazil as a
result of the continuing competitive environment. Operating profit in the first
nine months of 2005 was higher than the same period last year due to volume
increases in Venezuela, Argentina and Colombia.
Asia-Pacific. Operating profit in the third quarter of 2005 was about the same
as 2004, reflecting improved performance by most countries, offset by lower
performance in Australia and Global Services. Operating profit for the first
nine months of 2005 was slightly lower than the same period last year primarily
due to lower Global Service volumes.
Other. As discussed in "Value-added taxes and customs duties" above and in note
8 to the consolidated financial statements, the Company could be assessed
penalties materially in excess of accrued amounts. Costs for safety and security
were higher in the third quarter and first nine months of 2005 than in the
corresponding periods of 2004. Management expects that costs for safety and
security will continue to be higher in 2005 than in 2004. As a result of the
above mentioned higher costs, and higher restructuring costs in 2005, Brink's
expects 2005 margins to be between 6.4% and 6.9%.
22
Brink's Home Security
Three Months Nine Months
Ended September 30, % Ended September 30, %
(In millions) 2005 2004 change 2005 2004 change
- -----------------------------------------------------------------------------------------------------------------
Revenues $ 100.4 87.6 15 $ 289.1 255.5 13
Operating profit:
Recurring services (a) $ 42.3 37.2 14 $ 127.5 108.0 18
Investment in new subscribers (b) (21.0) (17.0) 24 (60.4) (48.6) 24
- -----------------------------------------------------------------------------------------------------------------
$ 21.3 20.2 5 $ 67.1 59.4 13
=================================================================================================================
Monthly recurring revenues (c) $ 28.4 25.2 13
=================================================================================================================
Cash flow information:
Depreciation and amortization (d) $ 14.7 12.9 14 $ 42.9 38.0 13
Impairment charges from
subscriber disconnects 13.3 10.5 27 32.9 29.4 12
Amortization of deferred revenue (e) (8.0) (6.8) 18 (21.7) (19.5) 11
Deferral of subscriber acquisition
costs (current year payments) (5.9) (5.0) 18 (16.9) (14.4) 17
Deferral of revenue from new
subscribers (current year receipts) 10.4 9.1 14 30.2 25.9 17
Capital expenditures (f) (38.7) (30.7) 26 (119.7) (86.8) 38
=================================================================================================================
(a) Reflects operating profit generated from the existing subscriber base
including the amortization of deferred revenues and expenses.
(b) Primarily marketing and selling expenses, net of the deferral of direct
selling expenses (primarily a portion of sales commissions), incurred in
the acquisition of new subscribers.
(c) See "Reconciliation of Non-GAAP Measures - Monthly Recurring Revenues."
(d) Includes amortization of deferred subscriber acquisition costs.
(e) Includes amortization of deferred revenue from active subscriber accounts,
as well as the immediate recognition of deferred revenue from subscriber
disconnects.
(f) Capital expenditures in the first quarter of 2005 included $10.2 million
for the purchase of BHS's headquarters in Irving, Texas. The facility was
formerly leased.
Revenues
The increase in BHS' revenues in 2005 over the comparable 2004 periods was
primarily due to a larger subscriber base and slightly higher average monitoring
rates. These factors also contributed to a 13% increase in monthly recurring
revenues for September 2005 as compared to September 2004. The Company intends
to selectively raise monitoring prices in the future.
During the third quarter of 2005, Hurricane Katrina potentially adversely
affected up to 7,000 subscribers (0.7% of subscriber base) in the Gulf Coast
region of the U.S. Of the potentially affected subscribers, the Company
estimates that approximately 4,200 to 7,000 subscribers will eventually
disconnect service. As of September 30, 2005, 1,700 subscribers have
disconnected service and the Company has accrued an additional 2,500 subscriber
disconnects. Accordingly, 4,200 subscriber disconnects have been included in the
table below and are a component of the disconnect rate in the third quarter of
2005. BHS anticipates losses before insurance recoveries from Hurricane Katrina
of $1.9 million to $5.9 million. BHS also expects service costs related to
Hurricane Katrina to be higher in the fourth quarter. The Company expects
property losses to be fully covered by insurance and has recognized insurance
recoveries to the extent of recorded property losses. Because the Company's
insurance coverage includes business interruption, it may record proceeds in
excess of losses when its claim is ultimately settled.
23
Operating profit
Operating profit increased $1.1 million for the third quarter and $7.7 million
for the first nine months of 2005 compared to the same periods in 2004 as higher
profit from recurring services was partially offset by increased investment in
new subscribers. Higher profit from recurring services in each period of 2005
was primarily due to incremental revenues and cost efficiencies generated from
the larger subscriber base. Additionally, reductions in the estimate for
allowance for doubtful accounts resulted in an increase in operating profit of
$1.2 million in the third quarter and $3.3 million in the first nine months of
2005. Higher investment in new subscribers was primarily due to increased volume
and higher costs of installation activity performed for major home builders, and
to a lesser extent, volume increases in BHS' traditional branch operations.
BHS continues to increase its presence in commercial alarm installation and
monitoring and increase the volume of its installation business in new homes
through its expanding relationships with major home builders. As a result, the
cost of investment in new subscribers continues to grow faster than monitored
activations as BHS develops the resources needed to achieve its business
objectives. The construction of a second monitoring center in Knoxville,
Tennessee is ongoing and expected to be in operation in the first quarter of
2006. The Knoxville center will provide additional service capacity for the
existing subscriber base, increase capacity to sustain BHS' continued growth and
provide enhanced security and disaster recovery capabilities. Operating the new
facility is expected to result in additional administrative expense. These
initiatives are expected to have a positive impact on future growth and
productivity.
Pension expense is expected to be lower in 2006 as a result of the Company's
decision to freeze U.S. defined benefit pension plan benefits at December 31,
2005. This decrease will be partially offset by an increase in the expense
associated with the U.S. defined contribution plans as these benefits will be
enhanced. Net expenses at BHS would have been approximately $4 million lower for
the full year 2005 if these changes had been instituted as of January 1, 2005.
BHS expects operating profit margins to be somewhat lower in the second half of
2005 and the first half of 2006 (from the 23% achieved in the first half of
2004) because of higher anticipated investments in new subscribers due to
increased installation activity at major home builders and a projected increase
in selling, general and administrative expenses due to the start-up of the new
Knoxville monitoring center. In 2006, BHS expects double digit growth rates in
subscribers, revenues and operating profit.
Other
Police departments in several U.S. cities are not required to respond to calls
from alarm companies unless an emergency has been visually verified. If more
police departments refuse to automatically respond to calls from alarm companies
without visual verification, this could have an adverse effect on future
operating results. In cities that have stopped providing police response to
calls from alarm companies, BHS has offered customers the option of receiving
response from private guard companies, which in most cases have contracted with
BHS.
24
Subscriber activity
Three Months Nine Months
Ended September 30, % Ended September 30, %
(Subscriber data in thousands) 2005 2004 change 2005 2004 change
- -----------------------------------------------------------------------------------------------------------------
Number of subscribers:
Beginning of period 973.0 874.1 921.4 833.5
Installations (a) 43.8 38.1 15 125.4 107.8 16
Disconnects (a) (19.0) (15.7) 21 (49.0) (44.8) 9
- -----------------------------------------------------------------------------------------------------------------
End of period 997.8 896.5 11 997.8 896.5 11
=================================================================================================================
Average number of subscribers 986.0 885.4 11 960.0 864.5 11
Annualized disconnect rate (b) 7.7% 7.1% 6.8% 6.9%
=================================================================================================================
(a) Customers who move from one location and then initiate a new service
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. Disconnects for the third quarter and first nine months of
2005 include 4,200 of disconnects as a result of Hurricane Katrina.
(b) 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 subscribers during the period. The gross number of
customer cancellations is reduced for customers who move from one location
and then initiate a new service 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 15% higher in the third quarter of 2005 and 16% higher in the
first nine months of 2005 as compared to the same periods of 2004, primarily due
to growth in traditional installation volume and to a lesser extent from
installations obtained through the growing dealer network and home builder
activity. In October 2005, BHS celebrated the addition of its one millionth
customer.
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. In
addition, the disconnect rate for the third quarter and first nine months of
2005 include the effects of Hurricane Katrina. The annualized disconnect rate
for the quarter increased to 7.7% compared to 7.1% for the same period of 2004.
Excluding the effects of Hurricane Katrina the annualized disconnect rate would
have been 6.0% for the quarter and 6.3% for the first nine months of 2005. BHS
has reduced the disconnect rate in recent years by improving subscriber
selection and retention processes. The disconnect rate may not materially
improve in the future, since a certain amount of disconnects cannot be prevented
because of factors such as customer moves.
25
Reconciliation of Non-GAAP Measures - Monthly Recurring Revenues
Nine Months
Ended September 30,
(In millions) 2005 2004
- -------------------------------------------------------------------------------
September:
Monthly recurring revenues ("MRR") (a) $ 28.4 25.2
Amounts excluded from MRR:
Amortization of deferred revenue 2.9 2.2
Other revenues (b) 2.5 1.9
- -------------------------------------------------------------------------------
Revenues on a GAAP basis $ 33.8 29.3
===============================================================================
Revenues on a GAAP basis:
September $ 33.8 29.3
January - August 255.3 226.2
- -------------------------------------------------------------------------------
January - September $ 289.1 255.5
===============================================================================
(a) MRR is calculated based on the number of subscribers at period end
multiplied by the average fee per subscriber received in the last month of
the period for contracted monitoring and maintenance services.
(b) Revenues that are not pursuant to monthly contractual billings.
The Company believes the presentation of MRR is useful to investors because the
measure is widely used in the industry to assess the amount of recurring
revenues from subscriber fees that a home security business produces. This
supplemental non-GAAP information should be viewed in addition to, not in lieu
of, the Company's consolidated statement of operations.
26
BAX Global
Three Months Nine Months
Ended September 30, % Ended September 30, %
(In millions) 2005 2004 change 2005 2004 change
- ---------------------------------------------------------------------------------------------------------
Revenues:
Americas (a) $ 331.7 297.6 11 $ 937.3 841.6 11
International (b) 431.2 339.1 27 1,182.2 969.5 22
Eliminations (24.9) (22.0) 13 (76.6) (61.6) 24
- ---------------------------------------------------------------------------------------------------------
$ 738.0 614.7 20 $ 2,042.9 1,749.5 17
=========================================================================================================
Operating profit (loss):
Americas (a) $ 10.3 8.1 27 $ 10.6 12.3 (14)
International (b) 17.6 10.7 64 50.5 30.6 65
Corporate and other (5.7) (4.2) 36 (13.9) (12.8) 9
- ---------------------------------------------------------------------------------------------------------
$ 22.2 14.6 52 $ 47.2 30.1 57
=========================================================================================================
Cash flow information:
Depreciation and amortization $ 9.6 10.4 (8) $ 29.3 31.7 (8)
Capital expenditures (c) 10.5 5.8 81 43.3 16.5 162
=========================================================================================================
Intra-America revenue (d) $ 156.5 145.8 7 $ 432.1 404.6 7
Worldwide expedited freight
services (e):
Revenues $ 570.8 467.3 22 $ 1,553.8 1,320.1 18
Weight in pounds 501.1 466.9 7 1,401.5 1,328.8 5
=========================================================================================================
(a) U.S., Mexico, Latin America and Canada.
(b) Europe-Middle East-Africa ("EMEA") and Asia-Pacific.
(c) Includes the purchase of three airplanes in the first half of 2005.
(d) U.S. and Canada excluding Intra-Canada.
(e) Includes U.S. deferred freight services.
Overview
BAX Global's operating profit in the third quarter of 2005 was 52% higher than
the same quarter last year on a 20% increase in revenues (19% increase in
revenues on a constant currency basis). Operating profit in the first nine
months was 57% higher than last year on a 17% increase in revenues (15% on a
constant currency basis). Operating profit was higher in 2005 than 2004
primarily due to higher volumes and improved margins in Asia-Pacific. Revenues
reported for Asia-Pacific accounted for approximately 39% of BAX Global's
revenues for the first nine months of 2005.
Americas
Revenues increased 11% in the third quarter and first nine months of 2005.
Operating profit in the third quarter of 2005 was 27% higher than the same 2004
period. Operating profit in the third quarter of 2005 included a $1.6 million
charge to increase the allowance for doubtful accounts due to the October 2005
Chapter 11 bankruptcy filing of a customer. Operating profit in the third
quarter of 2004 included a $4.7 million impairment loss on capitalized
transportation logistics software. Operating profit in the first nine months of
2005 was 14% lower than the same period last year as a result of lower overnight
and second-day airfreight volumes, partially offset by higher ground freight and
freight forwarding volumes. The lower operating profit in the first nine months
was also partially caused by a $2.9 million charge covering ancillary costs
which management concluded cannot be billed back to customers and the
third-quarter 2005 $1.6 million increase in the allowance for doubtful accounts,
offset by the third-quarter 2004 $4.7 million impairment, both mentioned above.
27
Intra-America. Revenues in 2005 improved over the prior-year periods primarily
due to an increase in BAX Global's wholesale freight-forwarding product and
deferred freight volumes. Lower overnight and second day freight volumes, which
on average have higher revenue per pound, partially offset this increase. There
has been a gradual shift in volumes from overnight and second-day air products
to ground products partially because expedited ground products are significantly
less expensive than air products as a result of higher relative fuel surcharges
on air products. Intra-America continued to see strong growth in its wholesale
freight-forwarding business.
Aside from an effect on product mix, higher fuel costs did not significantly
impact operating profit primarily due to BAX Global's ability to pass on the
effects of higher costs to customers through fuel surcharge billing adjustments.
The effectiveness of the fuel surcharge adjustments, however, can be somewhat
dependent on expedited volumes, because as volumes decrease some of the effects
of higher fuel costs are absorbed by the Company. The fuel surcharge represents
approximately 11% of Americas region revenues for the first nine months of 2005
compared with 6% in the first nine months of 2004.
Other. U.S. air export volumes were higher in the third quarter and first nine
months of 2005 compared to the same 2004 periods. Charter activity was also
higher in the 2005 periods compared to the prior year due to increased flying
under contract for government and commercial customers. Compared to 2004
periods, volumes for ocean freight from the U.S. were higher in the third
quarter and first nine months of 2005. Operating profit in the first nine months
of 2005 includes approximately $2.9 million of charges due to ancillary costs
which management concluded could not be billed back to customers and a $1.6
million charge to increase the allowance for doubtful accounts due to the
bankruptcy filing of a customer.
Pension expense is expected to be lower in 2006 as a result of the Company's
decision to freeze U.S. defined benefit pension plan benefits at December 31,
2005. This decrease will be partially offset by an increase in the expense at
BAX Global associated with the U.S. defined contribution plans as these benefits
will be enhanced. Net expenses would have been approximately $9 million lower
for the full year 2005 if these changes had been instituted as of January 1,
2005.
International
Asia-Pacific. Revenue increased 37% in the third quarter and 29% in the first
nine months of 2005 compared to the same periods last year. Operating profit
increased 77% in the third quarter and 66% in the first nine months of 2005
compared to the same periods in 2004. Revenues and operating profit for the 2005
periods benefited from an increase in Asia-Pacific air export volumes and
logistics activities and better transportation cost management, particularly
from China, Hong Kong and Singapore due to their strong economies and solid
growth by local operating units.
EMEA. Revenues increased by 7% in the third quarter and 8% in the first nine
months of 2005 compared to the same periods last year. On a constant currency
basis 2005 revenues were 7% higher in the third quarter and 5% higher in the
first nine months of 2005 compared to the same periods last year. Operating
profit in the third quarter was lower than the same period last year as a result
of continued weak export volumes caused by sluggish economies in the regions.
Operating profit was higher in the first nine months of 2005 compared with the
prior year period due to slightly improved performance in the Benelux region
despite weak business conditions and continuing competitive market pressures.
Other
BAX Global's revenues and operating profits are affected by the seasonal nature
of customers' businesses. BAX Global generally recognizes more revenue and
operating profit in the last half of the year compared to the first half;
however, the relative strength of the worldwide economies generally has a larger
effect on BAX Global's results as compared to seasonal factors. BAX believes the
improved volume trends will continue and as a result expects approximately 3%
margin for the full year of 2005.
28
Corporate Expense - The Brink's Company
Three Months Nine Months
Ended September 30, % Ended September 30, %
(In millions) 2005 2004 change 2005 2004 change
- -------------------------------------------------------------------------------
Corporate expense $ 9.8 9.9 (1) $ 30.7 28.6 7
===============================================================================
Corporate expense was higher in the first nine months of 2005 compared to the
same 2004 period primarily due to higher incentive accruals and employee pension
and medical benefit costs.
Former Coal Operations - included in Continuing Operations
Three Months Nine Months
Ended September 30, % Ended September 30, %
(In millions) 2005 2004 change 2005 2004 change
- --------------------------------------------------------------------------------------------------------
Company-sponsored postretirement
benefits other than pensions $ 8.6 9.3 (8) $ 26.6 27.9 (5)
Black lung 0.9 1.0 (10) 3.1 3.7 (16)
Pension 1.2 0.3 200+ 3.4 1.4 143
Administrative, legal and other coal
expenses, net 1.5 2.1 (29) 5.2 6.8 (24)
Gains on sales of property and
equipment and other income (3.4) (1.8) 89 (5.4) (6.3) (14)
- --------------------------------------------------------------------------------------------------------
$ 8.8 10.9 (19) $ 32.9 33.5 (2)
========================================================================================================
Administrative, legal and other expenses, net
Administrative, legal and other expenses, net, are expected to decline as
administrative functions are reduced and remaining residual assets are sold.
Expenses related to residual assets include property taxes, insurance and lease
payments.
Gains on sale of property and equipment
The Company sold substantially all of its remaining coal-related assets in West
Virginia in the fourth quarter of 2003 for $28.8 million of proceeds, including
$14.8 million of reclamation liabilities contractually assumed by the buyer. The
Company's accounting policy is to recognize the gain on the sale when the
liabilities related to reclamation are formally transferred to the buyer. As the
transfer of the liabilities to the buyer is not within the Company's control,
the timing and realizability of additional gains remains uncertain. The Company
recorded a $0.3 million gain related to liability transfers in the first quarter
of 2004 and a $2.8 million gain in the third quarter of 2005. As of September
30, 2005, contingent gains of $3.0 million remain to be recognized when the
related liabilities are transferred.
29
Foreign Operations
The Company operates in more than 100 countries, each with a local currency
other than the U.S. dollar. Because the financial results of the Company are
reported in U.S. dollars, results are affected by changes in the value of the
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 of the affected subsidiary. The diversity of
foreign operations helps to mitigate a portion of the impact that foreign
currency fluctuations in any one country may have on the Company's consolidated
results. The Company, from time to time, uses foreign currency forward contracts
to hedge transactional risks associated with foreign currencies. Translation
adjustments of net monetary assets and liabilities denominated in the local
currency relating to operations in countries with highly inflationary economies
are included in net income, along with all transaction gains or losses for the
period.
Brink's Venezuelan subsidiaries were considered to be operating in a highly
inflationary economy during 2002. However, effective January 1, 2003, the
economy in Venezuela was no longer considered to be highly inflationary. It is
possible that Venezuela 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
o the rate of price increases for services will not keep pace with the
effects of inflation on costs;
o adverse economic conditions in the highly inflationary country may
discourage business growth, which could affect the demand for the
Company's services; and
o the devaluation of the currency may exceed the rate of inflation and
reported U.S. dollar revenues and profits may decline.
The Company is also subject to other risks customarily associated with doing
business in foreign countries, including labor and economic conditions,
political instability, controls on repatriation of earnings and capital,
nationalization, expropriation and other forms of restrictive action by local
governments. The future effects, if any, of such risks on the Company cannot be
predicted.
Other Operating Income, Net
The line items below are recorded within operating profit of the three business
segments, or within corporate or former coal operation expenses.
Three Months Nine Months
Ended September 30, % Ended September 30, %
(In millions) 2005 2004 change 2005 2004 change
- ------------------------------------------------------------------------------------------------------------
Gains on sales of operating
assets, net $ 3.3 1.6 106 $ 4.9 6.0 (18)
Other impairment losses - (4.7) NM (0.2) (5.1) (96)
Foreign currency transaction gains
(losses), net (0.8) 0.3 NM (2.3) 0.3 NM
Share in earnings of equity affiliates 0.3 0.6 (50) 1.1 0.4 175
Royalty income 0.6 0.6 - 1.9 1.6 19
Penalties on unpaid value-added taxes - - - - (0.4) NM
Other 2.1 2.2 (5) 5.6 3.6 56
- ------------------------------------------------------------------------------------------------------------
$ 5.5 0.6 200+ $ 11.0 6.4 72
============================================================================================================
30
Gains on sales of operating assets, net, in 2005 are from the sale of an
aircraft by a subsidiary of BAX Global, a gain on a previous coal asset sale due
to the transfer of liabilities to the buyer, and, to a lesser extent, continuing
sales of residual coal assets. Gains in 2004 are primarily the result of
disposing of assets related to the Company's former coal operations. The
impairment loss in 2004 primarily relates to BAX Global's decision to abandon
the development and installation of software.
Nonoperating Income and Expense
Interest expense
Three Months Nine Months
Ended September 30, % Ended September 30, %
(In millions) 2005 2004 change 2005 2004 change
- --------------------------------------------------------------------------------
Interest expense $ 4.8 6.0 (20) $ 15.5 17.6 (12)
================================================================================
Interest expense was lower in the third quarter and first nine months of 2005
due to lower interest related to contingent tax matters. Additionally, for the
first nine months of 2005, interest expense decreased due to $0.7 million
recorded in 2004 related to value-added tax matters discussed in note 8.
Interest and other income (expense), net
Three Months Nine Months
Ended September 30, % Ended September 30, %
(In millions) 2005 2004 change 2005 2004 change
- ---------------------------------------------------------------------------------------------------------
Interest income $ 1.8 1.1 64 $ 4.2 3.2 31
Dividend income from real estate
investment 1.5 - NM 3.5 - NM
Recognition of gain on investments
held by VEBA - - - - 4.4 NM
Discounts and other fees of
accounts receivable
securitization program (0.8) (0.1) 200+ (2.0) (1.1) 82
Other, net - 1.4 NM 0.4 0.2 100
- ---------------------------------------------------------------------------------------------------------
$ 2.5 2.4 4 $ 6.1 6.7 (9)
=========================================================================================================
As of January 1, 2004, the Company restricted the use of the Voluntary
Employees' Beneficiary Association ("VEBA") trust to pay only benefits
associated with the coal-related postretirement medical benefits plan. Prior to
that time, unrealized gains and losses on securities held by the VEBA were
recorded in other comprehensive income. With the restriction in the use of the
VEBA, the unrealized net appreciation in asset values at the transition date was
recorded as a one-time pretax gain of $4.4 million in the first quarter of 2004.
Minority interest
Three Months Nine Months
Ended September 30, % Ended September 30, %
(In millions) 2005 2004 change 2005 2004 change
- --------------------------------------------------------------------------------
Minority interest $ 4.3 3.4 26 $ 11.1 8.1 37
================================================================================
Minority interest expense was higher in the first nine months due to improved
results.
31
Income Taxes
Three Months Ended September 30, Nine Months Ended September 30,
- -------------------------------------------------------------------------------------------------------------
2005 2004 2005 2004
- -------------------------------------------------------------------------------------------------------------
Income tax expense (benefit) (in millions)
Continuing operations $ 21.1 14.0 50.6 43.7
Discontinued operations (27.5) 0.3 (26.9) 8.3
=============================================================================================================
Effective tax rate (in percentages)
Continuing operations 35.4% 27.1% 43.3% 39.3%
Discontinued operations NM 42.9% NM 35.6%
=============================================================================================================
Continuing Operations
The effective income tax rate on continuing operations in the first nine months
of 2005 was slightly higher than the 35% U.S. statutory tax rate primarily due
to $9.3 million of valuation allowances established in 2005 for deferred tax
assets related to certain Brink's European and South American operations.
The effective income tax rate for continuing operations in the first nine months
of 2004 was higher than the 35% U.S. statutory tax rate primarily due to $7.0
million net tax adjustments related to the establishment of valuation allowances
on deferred tax assets of certain European operations. The tax provision in the
third quarter of 2004 included a tax benefit of $3.3 million recognized as a
result of the resolution of issues with several tax authorities and $1.5 million
of net tax benefits recorded as a result of a review of deferred tax accounts.
The Company's effective tax rate may fluctuate materially from period to period
due to changes in the expected geographical mix of earnings, changes in
valuation allowances or accruals for contingencies and other factors. Subject to
the above factors, the Company currently expects that the effective tax rate for
the full year 2005 will approximate 41% or 42%.
The Company establishes or reverses valuation allowances for deferred tax assets
depending on all available information including historical and expected future
operating performance of its subsidiaries. Changes in judgment about the future
realization of deferred tax assets could result in significant adjustments to
the valuation allowances.
The Company expects to complete its evaluation of the repatriation provision of
the American Jobs Creation Act of 2004 during the fourth quarter of 2005. The
range of possible amounts that the Company is considering for repatriation under
this provision is between $0 and $150 million. The Company estimates that the
related potential range of additional income tax payments is between $0 and $10
million.
Discontinued Operations
During the third quarter of 2005, the Company finalized discussions with the
Internal Revenue Service over certain tax credit carryforwards related to the
former natural resources businesses. The Company recognized a $27.4 million tax
benefit in the third quarter of 2005 in discontinued operations as a result of
the settlement. The benefit does not result in current cash receipts but has
increased the Company's tax credit carryforwards available to reduce future U.S.
income tax payments.
Discontinued Operations
Sale of Timber Business
In July 2003 the Company agreed to sell its timber business for approximately
$39 million in cash. The Company received $5.4 million in the fourth quarter of
2003, $31.8 million in the first quarter of 2004, and $1.9 million in the second
quarter of 2004. The Company recognized pretax gains of $4.8 million in the
fourth quarter of 2003, $18.8 million in the first quarter of 2004, and $1.9
million in the second quarter of 2004 as it received the proceeds.
32
LIQUIDITY AND CAPITAL RESOURCES
================================================================================
Overview
Cash flows before financing activities decreased by approximately $55 million in
the first nine months of 2005 as compared to the first nine months of 2004. The
decrease was primarily due to acquisitions by Brink's and higher capital
expenditures. In addition, the first nine months of 2004 included $61 million of
contributions to U.S. benefit plans which was partially offset by $27.5 million
of proceeds from the sale of the timber business.
Summary of Cash Flow Information
Nine Months
Ended September 30, $
(In millions) 2005 2004 change
- ------------------------------------------------------------------------------
Cash flows from operating activities $ 296.1 196.3 99.8
Cash flows from investing activities:
Capital expenditures and aircraft heavy
maintenance expenditures (255.1) (171.4) (83.7)
Acquisitions (51.3) (14.8) (36.5)
Net proceeds from sale of timber business - 27.5 (27.5)
Net proceeds from sale of coal business 5.0 - 5.0
Other (1.0) 11.5 (12.5)
- ------------------------------------------------------------------------------
Investing activities (302.4) (147.2) (155.2)
- ------------------------------------------------------------------------------
Cash flows before financing activities $ (6.3) 49.1 (55.4)
==============================================================================
Operating Activities
Cash flows from operating activities were $99.8 million higher in the first nine
months of 2005 compared to the same period in 2004 due to cash provided by an
increase in the amount of receivables sold as part of the Company's
securitization program and the deferral of contributions to U.S. benefit plans
in 2005. In 2004, the Company made contributions of $11 million to the Company's
primary U.S. pension plan and $50 million to the VEBA.
Investing Activities
Cash flows from investing activities decreased by $155.2 million in the 2005
period versus 2004, primarily due to higher cash outflows of $36.5 million for
acquisitions and $82.9 million for capital expenditures. Cash from investing
activities in the first nine months of 2004 also included $27.5 million of net
cash proceeds from the sale of the timber business.
Capital expenditures and aircraft heavy maintenance expenditures were as
follows:
Nine Months
Ended September 30, $
(In millions) 2005 2004 change
- ----------------------------------------------------------------------------
Capital expenditures:
Brink's $ 73.3 49.8 23.5
Brink's Home Security 119.7 86.8 32.9
BAX Global 43.3 16.5 26.8
Corporate 0.5 0.8 (0.3)
- ----------------------------------------------------------------------------
Capital expenditures $ 236.8 153.9 82.9
============================================================================
Aircraft heavy maintenance expenditures $ 18.3 17.5 0.8
============================================================================
33
Capital expenditures for the first nine months of 2005 were $82.9 million higher
than for the same period in 2004. The increase came from all three businesses.
For BHS, the increase is due to growth in subscriber installations and the
purchase of BHS's headquarters and monitoring facility as the lease expired.
Also contributing to the increase were higher capital expenditures at Brink's
for vehicles and at BAX Global for information technology and the purchase of
three aircraft.
Capital expenditures for the full-year 2005 are currently expected to range from
$295 million to $305 million versus $220 million in 2004. The expected increase
reflects anticipated growth in customer installations at BHS and higher
information technology spending at Brink's and BAX Global. BHS's capital
expenditures in 2005 are expected to include approximately $10 million for the
development of a second monitoring center along with approximately $10 million
expended early in the year to purchase its primary facility. In addition to
capital expenditures, the Company expects to spend between $25 million and $30
million on aircraft heavy maintenance in 2005.
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) 2005 2004 change
- --------------------------------------------------------------------------------
Cash flows before financing activities
Business segments:
Brink's $ (0.5) 97.3 (97.8)
BHS 14.6 38.9 (24.3)
BAX Global 58.0 19.1 38.9
- --------------------------------------------------------------------------------
Subtotal of business segments 72.1 155.3 (83.2)
Corporate and former operations:
Net proceeds from sale of timber business - 27.5 (27.5)
Net proceeds from sale of Coal 5.0 - 5.0
Contribution to VEBA - (50.0) 50.0
Contribution to U.S. pension plan - (11.0) 11.0
Other (83.4) (72.7) (10.7)
- --------------------------------------------------------------------------------
Cash flows before financing activities $ (6.3) 49.1 (55.4)
================================================================================
Brink's
Cash flows before financing activities at Brink's decreased by $97.8 million
primarily due to a year-over-year $36.5 million increase in cash used for
acquisitions ($51.3 million for the acquisition of operations in Europe in 2005
compared with $14.8 million for acquisitions in 2004) and a $23.5 million
increase in capital expenditures. Lower operating profit in 2005 also provided
less cash from operations. Cash used for working capital needs was higher in the
first nine months of 2005 primarily as a result of increased receivables on a
13% increase in revenue.
34
BHS
The decrease in BHS' cash flows before financing activities is primarily due to
the purchase of BHS' headquarter facilities for $10.2 million in the first nine
months of 2005 and an increase in capital expenditures reflecting the growth in
installations. This decrease was partially offset by higher cash flows from
operations as a result of higher earnings.
BAX Global
Cash flows before financing activities at BAX Global improved reflecting higher
operating profit in the first nine months of 2005 versus 2004 and a $46 million
increase in cash flow over 2004 because of receivables sold as part of the
Company's securitization program, partially offset by higher capital
expenditures.
Financing Activities
Summary of cash flows from financing activities
Nine Months
Ended September 30,
(In millions) 2005 2004
- ------------------------------------------------------------------------------
Changes in:
Short-term debt $ 25.2 (7.0)
Revolving Facility 35.7 (9.6)
Senior Notes (18.3) -
Other (13.3) (13.4)
- ------------------------------------------------------------------------------
Net borrowings (repayments) of debt 29.3 (30.0)
Dividends to shareholders of the Company (4.2) (4.0)
Dividends to minority interests in subsidiaries (6.3) (4.4)
Proceeds from the exercise of stock options 10.2 12.7
Other, net (1.0) 0.2
- ------------------------------------------------------------------------------
Financing activities $ 28.0 (25.5)
==============================================================================
The Company's operating liquidity needs are typically financed by short-term
debt, the accounts receivable securitization facility and the Revolving
Facility, described below.
In the first nine months of 2005 and 2004, the Company paid three $0.025 per
share regular quarterly dividends on its common stock (annual rate of $0.10 per
share). On October 18, 2005, the Board of Directors declared a regular quarterly
dividend of $0.025 per share payable on December 1, 2005. Future dividends are
dependent on the earnings, financial condition, cash flow and business
requirements of the Company, as determined by the Board of Directors.
35
Capitalization
The Company uses a combination of debt, leases, an asset securitization facility
and equity to capitalize its operations.
Net Debt and Net Financings reconciled to GAAP measures
September 30, December 31,
(In millions) 2005 2004
- -----------------------------------------------------------------------------------------------
Short-term debt and current maturities of long-term debt $ 86.5 62.6
Long-term debt 184.0 181.6
- -----------------------------------------------------------------------------------------------
Debt 270.5 244.2
Less cash and cash equivalents (185.1) (169.0)
- -----------------------------------------------------------------------------------------------
Net Debt 85.4 75.2
Amounts sold under accounts receivable securitization facility 64.0 25.0
- -----------------------------------------------------------------------------------------------
Net Financings $ 149.4 100.2
===============================================================================================
The Company believes that Net Debt and Net Financings are useful measures of the
Company's financial leverage. Net financings grew by $49.2 million during the
first nine months of 2005 due primarily to spending for acquisitions and capital
expenditures partially offset by an increase in cash from operations. The
Company spent approximately $51.3 million in 2005 to acquire operations for
Brink's in Luxembourg, Scotland, Ireland, Hungary, Poland, and the Czech
Republic. In addition, capital expenditures were $82.9 million higher in the
first nine months of 2005 than 2004. This supplemental non-GAAP information
should be viewed in addition to, not in lieu of, the Company's consolidated
statement of operations.
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 October 2009. As of September 30, 2005, $347 million
was available under the revolving credit facility.
The Company also has an unsecured $150 million credit facility with a bank to
provide letters of credit and other borrowing capacity over a five-year term
ending in December 2009 (the "Letter of Credit Facility"). The Company has used
the Letter of Credit Facility to replace surety bonds and other letters of
credit needed to support its activities. As of September 30, 2005, $6 million
was available under this Letter of Credit Facility. The Revolving Facility and
the multi-currency revolving credit facilities described below are also used for
the issuance of letters of credit and bank guarantees.
The Company has three unsecured multi-currency revolving bank credit facilities
with a total of $122 million in available credit, of which approximately $36
million was available at September 30, 2005. When rates are favorable, the
Company also borrows from other U.S. banks under short-term uncommitted
agreements. Various foreign subsidiaries maintain other secured and unsecured
lines of credit and overdraft facilities with a number of banks. Amounts
outstanding under these agreements are included in short-term borrowings.
The Company has $76.7 million of Senior Notes outstanding that are scheduled to
be repaid through 2008, including $25 million scheduled to be repaid in 2006.
The Company paid $18.3 million as scheduled in January 2005. The Company has the
option to prepay all or a portion of the Senior Notes prior to maturity with a
prepayment penalty. The Senior Notes are unsecured.
36
The Company's Brink's, BHS, and BAX Global subsidiaries have guaranteed the
Revolving Facility and the Senior Notes. The Revolving Facility, the agreements
under which the Senior Notes were issued and the multi-currency revolving bank
credit facilities each contain various financial and other covenants. The
financial covenants, among other things, limit the Company's total indebtedness,
provide for minimum coverage of interest costs, and require the Company to
maintain a minimum level of net worth. If the Company were not to comply with
the terms of its various loan agreements, the repayment terms could be
accelerated. 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,
2005.
The Company believes it has adequate sources of liquidity to meet its near-term
requirements.
Amounts sold under accounts receivable securitization facility
In December 2000, the Company entered into a five-year agreement to sell a
revolving interest in BAX Global's U.S. domestic accounts receivable through a
commercial paper conduit program. The Company can sell up to $90 million,
provided it has sufficient eligible receivables available, and at September 30,
2005, $64 million, the maximum then available for sale, had been sold. The
primary purpose of the agreement was to obtain access to a lower cost source of
funds. The Company expects to renew or replace this agreement prior to its
expiration in December 2005.
Operating lease
The Company has approximately $64 million of residual value guarantees at
September 30, 2005 related to operating leases, principally for trucks and other
vehicles.
Equity
At September 30, 2005, the Company had 100 million shares of common stock
authorized and 58.7 million shares issued and outstanding. Of the outstanding
shares, 2.2 million shares were held by The Brink's Company Employee Benefits
Trust (the "Trust") at September 30, 2005, and have been accounted for similarly
to treasury stock for earnings per share purposes. During the second quarter of
2005, the Board approved an additional 2.1 million shares of common stock to be
issued to the Trust, and the shares were issued in June 2005. The Company has
the authority to issue up to 2.0 million shares of preferred stock, par value
$10 per share. The Company has the authority to purchase up to 1.0 million
shares of common stock with an aggregate purchase price of $19.1 million. No
purchases were made under this authority in the first nine months of 2005 or
2004.
Other Contingencies
Litigation
BAX Global is defending a claim related to the apparent diversion by a third
party of goods being transported for a customer. Although BAX Global is
defending this claim vigorously and believes that its defenses have merit, it is
possible that this claim ultimately may be decided in favor of the claimant. If
so, the Company expects that the ultimate amount of reasonably possible
unaccrued losses could range from $0 to $9 million.
Health Benefit Act
The Company is obligated to pay premiums to the United Mine Workers of America
("UMWA") Combined Benefit Fund, as described in the Company's 2004 Annual Report
on Form 10-K. At September 30, 2005, the Company had $179 million recorded for
the obligation, reflecting the recorded liability at December 31, 2004 less
payments made in 2005. This liability is adjusted annually as new historical
data is received and assumptions used to estimate the obligations change.
37
Withdrawal liability
The Company withdrew from the UMWA 1950 and 1974 pension plans in June 2005 as
the last employees working under UMWA labor agreements left the Company. In
addition, during the first six months of 2005 the UMWA reduced the estimate of
the underfunded status of the plans, and accordingly, the Company reduced its
estimated $36.6 million withdrawal liability by $6.1 million to $30.5 million.
As a result of the withdrawal from these coal-related plans, the Company expects
to be obligated to pay the plans $30.5 million, which represents the Company's
portion of the underfunded status of the plans as of June 30, 2004, as
determined by the plan agreements and by law.
During the first nine months of 2004, the Company reduced its estimate of the
withdrawal liability by $8.1 million to reflect changes in estimates at that
time.
Income taxes
The Company and its subsidiaries are subject to tax examinations in various U.S.
and foreign jurisdictions and the Company has accrued approximately $17 million
for related contingencies. While it is difficult to predict the final outcome of
the various issues that may arise during an examination, the Company believes
that it has adequately provided for all contingent income tax liabilities and
interest.
Other loss contingencies
The Company recorded $4.8 million in the first nine months of 2005, to reflect
an increase in the estimated cost of reclamation at its former coal mines. The
estimate of the cost of reclamation may change in the future. The Company also
has other contingent liabilities, primarily related to former operations,
including those for expected settlement of coal-related workers' compensation
claims and other reclamation obligations.
The Company recorded $2.9 million of expense in the first nine months of 2004
primarily related to the settlement of legal matters related to its former coal
operations.
Gain contingencies
Federal Black Lung Excise Tax
In 1999, the U.S. District Court of the Eastern District of Virginia entered a
final judgment in favor of certain of the Company's subsidiaries, ruling that
the Federal Black Lung Excise Tax ("FBLET") is unconstitutional as applied to
export coal sales. The Company has received refunds, including interest, of
$27.2 million in prior years and continues to pursue the refund of other FBLET
payments. Due to uncertainty as to the ultimate receipt of additional amounts,
if any, which could amount to as much as $15 million (before income taxes), as
well as the timing of any additional FBLET refunds, the Company has not
currently recorded receivables for such additional FBLET refunds.
Insurance claims
The Company expects to file insurance claims related to damage and business
interruption sustained from Hurricane Katrina. As of September 30, 2005 the
Company has recorded a receivable of $1.9 million for claims to be filed, which
approximates the amount of hurricane-related expenses recognized during the
third quarter of 2005. The Company expects to recognize gains when the
settlements are finalized by the insurance provider.
38
Market Risks and Hedging and Derivative Activities
The Company has activities in more than 100 countries and a number of different
industries. These operations expose the Company to a variety of market risks,
including the effects of changes in foreign currency exchange rates and interest
rates. In addition, the Company consumes certain commodities in its businesses,
exposing it to the effects of changes in the prices of such commodities. These
financial and commodity exposures are monitored and managed by the Company as an
integral part of its overall risk management program. The diversity of foreign
operations helps to mitigate a portion of the impact that foreign currency rate
fluctuations in any one country may have on the Company's consolidated results.
The Company's risk management program considers this favorable diversification
effect as it measures the Company's exposure to financial markets and as
appropriate, seeks to reduce the potentially adverse effects that the volatility
of certain markets may have on its operating results. The Company has not had
any material change in its market risk exposures in the nine months ended
September 30, 2005.
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, 2005, 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 expectation of significant ongoing expenses
and cash outflows related to former coal operations, the outcome of discussions
with governmental authorities regarding the non-payment of customs duties and
value-added tax by a non-U.S. subsidiary of Brink's, Incorporated, the expected
decrease in pension expense and increase in savings plan benefits expense,
anticipated costs savings in 2006 resulting from the restructuring of the
Brink's Belgium operations, anticipated revenues from Brink's acquisitions,
anticipated costs at Brink's associated with safety and security, expected 2005
margins at Brink's, increases in monitoring process at BHS, the impact of
Hurricane Katrina on BHS, including expected customer disconnects, increased
service costs, anticipated insurance recovery, the completion of BHS' second
monitoring center and its impact on the business, BHS' expansion into the
commercial sector, changes in the disconnect rate at BHS, expected lower margins
in the second half of 2005 and the first half of 2006 at BHS, anticipated
increases in investments in new subscribers, expected double digit growth rates
in subscribers, revenues and operating profit at BHS in 2006, the impact that
the refusal of police departments to respond to calls from alarm companies
without visual verification could have on BHS' results of operations, the
effects of seasonality and worldwide economies on BAX Global's results, expected
volume trends, anticipated 2005 margins at BAX Global, changes in expenses
related to former coal operations, anticipated reclamation costs at the
Company's former coal mines, potential gains arising from the transfer of
liabilities, the possibility that the Venezuelan economy may be considered
highly inflationary, obligations associated with the withdrawal from
multiemployer plans, changes in the expectation that the Company will realize
the benefit of deferred tax assets and the impact on the Company's valuation
allowances, the recognition of tax benefits upon the favorable resolution of a
tax contingency, expectations regarding the effective tax rate for 2005 and
2006, the outcomes of federal, state and foreign tax examinations, the impact of
the repatriation provision of the American Jobs Creation Act of 2004, including
the amount that the Company might repatriate and the related tax obligations,
39
expected capital expenditures and aircraft heavy maintenance expenditures in
2005, the adequacy of sources of liquidity to meet the Company's near term
requirements, the impact of exchange rates, the replacement of the BAX Global
receivables program, the amount and timing of additional FBLET refunds, if any,
expected insurance recoveries for the businesses arising from losses related to
Hurricane Katrina, changes in estimates regarding Combined Benefit Fund
obligations and the outcome of pending litigation, involve forward-looking
information. This forward-looking information is subject to known and unknown
risks, uncertainties, and contingencies that 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 Company, include, but are not limited to, the timing of the
pass-through of costs by third parties and governmental authorities relating to
the disposal of the coal assets, retirement decisions by mine workers,
performance of the investments made by the multi-employer plans, estimates made
by the multi-employer plans, the number of participants in the multi-employer
plans and the cost to administer the plans, comparisons of hours worked by
covered coal employees over the last five years versus industry averages, black
lung claims incidence, the number of dependents of mine workers for whom
benefits are provided, actual medical and legal expenses related to benefits,
increases in the Company's share of the unassigned obligations under the Health
Benefit Act, the funding and benefit levels of multi-employer plans and pension
plans, changes in inflation rates (including medical inflation) and interest
rates, changes in participation levels in the Company's 401(k) plan, actual
retirement experience, changes in mortality and morbidity assumptions,
acquisitions and dispositions made by the Company, the completion and processing
of permit replacement documentation and the ability of the purchasers of coal
assets to post the required bonds, the return to profitability of operations in
jurisdictions where the Company has recorded valuation adjustments, the
evaluation of remedial alternatives and the input of governmental authorities
regarding the non-payment of customs duties and value-added tax, the alignment
of Brink's resources to address changes in the market and security concerns,
Brink's loss experience, changes in insurance costs, changes in lease costs,
negotiations with organized labor in Belgium, the timing of and costs associated
with the integration of the operations acquired by Brink's and the performance
of the acquired operations in 2005, BHS' ability to increase monitoring costs
without losing customers, the number of BHS customer disconnects resulting from
Hurricane Katrina and positions taken by insurers with respect to the Company's
claims, the number of services calls required to repair alarm systems damaged by
Hurricane Katrina, the number of customer moves and the number of customers who
install a BHS system in their new homes, 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, the volume of
installation activity arising from relationships with new home builders, the
performance of the home building market, costs associated with the development
of BHS' second monitoring center, BHS' ability to cost-effectively grow the
residential and commercial businesses, the continued improvement of volumes at
BAX Global, BAX Global's ability to cost effectively meet increased demand and
adjust for changes in shipping methods, the demand for capital by the Company
and the availability of such capital, significant changes in the utilization of
leased or owned aircraft, the cash, debt and tax position and growth needs of
the Company, positions taken by governmental authorities (including federal,
state and foreign tax authorities) to claims for FBLET refunds, interpretation
of existing regulations and the promulgation of new regulations relating to the
repatriation provisions of the American Jobs Creation Act of 2004, discovery of
new facts relating to civil suits, the addition of claims or changes in relief
sought by adverse parties, the demand for the Company's services, the financial
performance of the Company, information technology costs and costs associated
with ongoing contractual obligations, overall economic, political, social and
business conditions, seasonality, foreign currency exchange rates, capital
markets performance, mandatory or voluntary pension plan contributions, the
impact of continuing initiatives to control costs and increase profitability,
pricing and other competitive industry factors, labor relations, fuel prices,
new government regulations and interpretations of existing regulations,
legislative initiatives, judicial decisions, variations in costs or expenses and
the ability of counterparties to perform.
40
Part II - Other Information
---------------------------
Item 6. Exhibits
- ------- --------
Exhibit
Number
- ------
31.1 Certification of Michael T. Dan, Chief Executive Officer (Principal
Executive Officer) of The Brink's Company, pursuant to Rules 13a-14(a)
and 15d-14(a) promulgated under the Securities Exchange Act of 1934,
as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification of Robert T. Ritter, Vice President and Chief Financial
Officer (Principal Financial Officer) of The Brink's Company, pursuant
to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Michael T. Dan, Chief Executive Officer (Principal
Executive Officer) of The Brink's Company, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification of Robert T. Ritter, Vice President and Chief Financial
Officer (Principal Financial Officer) of The Brink's Company, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
41
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE BRINK'S COMPANY
November 7, 2005 By: /s/ Robert T. Ritter
-----------------------
Robert T. Ritter
(Vice President -
Chief Financial Officer)
(principal financial and
accounting officer)
42