UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
OR
[ ] 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 (IRS Employer
incorporation or organization) Identification No.)
P.O. Box 18100,
1801 Bayberry Court
Richmond, Virginia 23226-8100
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 289-9600
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
------------------- ----------------
The Brink's Company Common Stock, Par Value $1 New York Stock Exchange
Rights to Purchase Series A Participating
Cumulative Preferred Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2 of the 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 March 1, 2006, there were issued and outstanding 58,724,211 shares of
common stock. The aggregate market value of shares of common stock held by
nonaffiliates as of June 30, 2005 was $1,977,966,540.
Documents incorporated by reference: Part I, Part II and Part IV incorporate
information by reference from the Annual Report of the Company for the year
ended December 31, 2005. Part III incorporates information by reference from
portions of the Registrant's definitive 2006 Proxy Statement to be filed
pursuant to Regulation 14A.
2
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PART I
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ITEM 1. BUSINESS
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The Brink's Company
The Brink's Company (the "Company"), a Virginia corporation incorporated in
1930, conducts business in the security industry, principally through its wholly
owned subsidiaries: Brink's, Incorporated ("Brink's") and Brink's Home Security,
Inc. ("BHS").
On January 31, 2006, the Company sold BAX Global Inc., ("BAX Global"), a wholly
owned freight transportation subsidiary for $1.1 billion in cash. In prior
years, the Company disposed of its coal, natural gas, timber, and gold
businesses, however, the Company retained significant liabilities from these
operations.
Financial information related to the Company's subsidiaries and former
operations is included in the following notes to the consolidated financial
statements in the Company's 2005 Annual Report, which notes are herein
incorporated by reference:
o Brink's and BHS - note 2
o BAX Global - note 5
o Former Natural Resource operations - note 5
The Company has approximately 45,800 employees in the security industry
including approximately 42,400 at Brink's and 3,300 at BHS. There were
approximately 12,200 employees at BAX Global at December 31, 2005.
A significant portion of the Company's business is conducted outside the United
States. Because the financial results of the Company are reported in U.S.
dollars, they are affected by changes in the value of various foreign currencies
in relation to the U.S. dollar. The Company, from time to time, uses foreign
currency forward contracts to hedge certain transactional risks associated with
foreign currencies. 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 of such risks on the Company
cannot be predicted.
Available Information and Corporate Governance Documents
The Brink's Company's internet address is www.brinkscompany.com. The Company
makes available, free of charge, through its website, its Annual Report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after the Company electronically
files such information with or furnishes it to the Securities and Exchange
Commission. In addition, the Corporate Governance Policies, Business Code of
Ethics and the charters of the Audit and Ethics, Compensation and Benefits, and
Corporate Governance and Nominating Committees are available on the Company's
website and are available in print, without charge, to any shareholder upon
request by contacting the Corporate Secretary at 1801 Bayberry Court, P. O. Box
18100, Richmond, Virginia 23226-8100.
SECURITY SERVICES
Brink's, Incorporated ("Brink's")
General
Brink's is the oldest and largest secure transportation and cash logistics
service company in the U.S., and is a market leader in many of the countries in
which it operates. Brink's has operations throughout the world with 36% of
Brink's 2005 revenues provided by operations in North America. Brink's in North
America serves customers through 158 branches in the U.S. and 51 branches in
Canada.
Brink's operations outside North America are located in approximately 50
countries, with concentrations in Europe (45% of Brink's 2005 revenues) and
South America (16% of Brink's 2005 revenues.) Over the past two years, Brink's
acquired security operations in seven countries. These acquisitions increased
revenues by approximately $104 million in 2005. In addition, Brink's has growing
operations in the Asia-Pacific region of the world that accounted for 3% of
Brink's 2005 revenues. Brink's largest operations outside North America, in
terms of Brink's 2005 revenues, were located in France, Venezuela, the
Netherlands, Brazil, Germany, the United Kingdom and Colombia. These operations
accounted for 74% of Brink's 2005 revenues outside of North America.
Brink's ownership interest in subsidiaries and affiliated companies ranged from
20% to 100% at December 31, 2005. In some instances local laws limit the extent
of Brink's ownership interest.
3
Customers
Brink's customers include:
o banks;
o retail and other commercial businesses;
o investment banking and brokerage firms; and
o government agencies, such as a country's central bank.
Services
The major services offered by Brink's include:
o armored car transportation;
o automated teller machine ("ATM") servicing;
o currency and deposit processing, including "Cash Logistics" services;
o deploying and servicing safes and safe control devices, including its
patented CompuSafe(R) service;
o coin sorting and wrapping;
o arranging the secure air transportation of valuables ("Global
Services"); and
o transporting, storing and destroying sensitive information ("Secure
Data Solutions").
Brink's armored car transportation services generally include secure
transportation of:
o cash between businesses and banks;
o cash, securities and other negotiable items and valuables between
commercial banks, central banks (such as the U.S. Federal Reserve
Banks and their branches and correspondents) and investment banking
and brokerage firms;
o new currency, coins and precious metals for a number of central banks
throughout the world;
o canceled checks between banks or between a clearing house and its
member banks in certain geographic areas.
Brink's provides coin and currency processing (including "Cash Logistics")
services primarily to banks and retail customers. Cash Logistics is a fully
integrated solution that proactively manages the supply chain of cash from
point-of-sale through deposit at a bank. The process includes transportation,
cashier balancing and reporting, deposit processing and consolidation, and
electronic information exchange. Retail customers use Brink's Cash Logistics
services to count and reconcile coins and currency in a Brink's secure
environment, to prepare bank deposit information and to replenish retail
locations' coins and currency in proper denominations.
Through its proprietary cash processing and information systems, Brink's offers
customers the ability to integrate a full range of vault, ATM servicing,
transportation, storage, processing, inventory management and reporting
services. Brink's believes that the quality and scope of its cash processing and
information systems differentiate its Cash Logistics services from its
competitors.
Brink's CompuSafe(R) services provide retail customers with a proprietary
integrated system for safeguarding and managing cash. Brink's markets its
CompuSafe(R) services to a variety of cash-intensive retail customers, such as
convenience stores, gas stations and restaurants. The service includes
installing a specialized safe in the retail establishment that holds safeguarded
cassettes. The customer's employees deposit currency into the cassettes which
can only be removed by Brink's armored car personnel. The cassettes are then
taken to a secure currency room where the contents are verified and transferred
for deposit. Deposit details can then be electronically reported to the
customer.
For transporting money and other valuables over long distances, Brink's Global
Services offers a combined armored car and secure air transportation service
between many cities around the world. Brink's uses regularly scheduled or
chartered aircraft in connection with its air transportation services. Included
in Global Services is a specialized diamond and jewelry secure transportation
operation, with offices in the major diamond and jewelry centers of the world.
Brink's also provides secure document destruction services using its SCS
TechnologySM, a highly advanced size-controlled shredding system which destroys
in minutes what could otherwise take days to shred. In 2005, Brink's launched
Secure Data Solutions. Brink's provides customers with domestic and
international solutions for transferring, storing and destroying sensitive
information. Brink's uses its armored car transportation, Global Services and
document destruction services to ensure sensitive information is transported and
handled securely.
Brink's provides individualized services under separate contracts designed to
meet the distinct transportation, security and logistics requirements of its
customers. These contracts are usually for an initial term of at least one year
but continue in effect thereafter until canceled by either party.
4
Competition
Brink's competes with a number of large multinational and many smaller companies
throughout the world.
The primary factors that attract and retain customers are security, service
quality and price. Brink's believes its competitive advantages include:
o "Brink's" brand name recognition;
o reputation for a high level of service and security;
o proprietary cash processing and information systems;
o high-quality insurance coverage and general financial strength;
o risk management capabilities; and
o the ability to offer services around the world to multinational
customers.
Brink's believes its cost structure is generally competitive, although it
believes certain competitors may have lower costs as a result of lower wage and
employee benefit levels or as a result of different security and service
standards.
Competitive conditions often cause customers and potential customers to focus on
the cost of all services including armored car services. As a result, Brink's
often faces pricing pressures from competitors in a number of markets. Because
Brink's management believes that the high level of service and security provided
differentiates Brink's from its competitors, Brink's resists competing on price
alone.
The availability of quality and reliable insurance coverage for security
services is an important factor in the ability of Brink's to attract and retain
customers and to manage the risks of its business. Brink's is self-insured for
much of the loss of cash or valuables while in its possession, however, Brink's
purchases insurance coverage for losses in excess of what it considers prudent
deductibles and/or retentions. Brink's insurance policies cover security losses
from most causes, with the exception of war, nuclear risk and certain other
exclusions typical for such policies. Brink's generally does not offer its
customers protection from losses arising from excluded causes.
Insurance for security is provided by different groups of underwriters at
negotiated rates and terms. This insurance is available to Brink's in major
markets although the premiums charged are subject to fluctuations depending on
market conditions. The security loss experience of Brink's and, to a limited
extent, other armored carriers affects premium rates charged to Brink's.
Operationally, Brink's performance may vary from period to period. Since
revenues are generated from charges per service performed as well as on an ad
valorem basis, revenues can be affected by the level of activity in economies
and the volume of business for specific customers. In addition, contracts
generally run for one or more years and there are costs which must be incurred
to prepare to service a new customer or to transition away from one. Brink's
performance is generally higher in the second half of the year, and in
particular in the fourth quarter, because of the generally higher economic
activity.
Service Mark and Patents
BRINKS is a registered service mark in the U.S. and certain foreign countries.
The BRINKS mark, name and related marks are of material significance to Brink's
business. Brink's owns patents expiring in 2008 and 2009 for certain coin
sorting and counting machines. Brink's has patents for safes including its
integrated CompuSafe(R) service, that expire in 2015 through 2018. The patents
for the safes including CompuSafe(R) device and sorting and counting machines
provide important advantages to Brink's. However, Brink's operations are not
dependent on the existence of the aforementioned patents.
The Company has entered into certain agreements to license the Brink's and the
Brink's Home Security name. Examples include licenses to distributors of
security products (padlocks, home safes, door and window hardware, etc.) offered
for sale to consumers through major retail chains.
Government Regulation
The U.S. operations of Brink's are subject to regulation by the U.S. Department
of Transportation with respect to safety of operations and equipment and
financial responsibility. Intrastate operations in the U.S. are subject to state
regulation and intraprovince operations in Canada are subject to federal and
provincial regulations. Brink's International operations are regulated to
varying degrees by the countries in which they operate.
5
Employee Relations
At December 31, 2005, Brink's and its subsidiaries had approximately 42,400
employees, including 10,600 employees in North America, (of whom 1,800 were
classified as part-time employees) and 31,800 employees outside North America.
At December 31, 2005, Brink's was a party to 13 collective bargaining agreements
in North America with various local unions covering approximately 1,700
employees, almost all of whom are employees in Canada and members of unions
affiliated with the International Brotherhood of Teamsters. Six agreements will
expire in 2006 and are expected to be renegotiated. The remaining agreements
have various expiration dates after 2006 and extending through 2009. Outside of
North America, approximately 25% of branch employees are members of labor or
employee organizations in the majority of the countries in which Brink's
operates. Brink's believes its employee relations are satisfactory.
Brink's Home Security ("BHS")
General
BHS believes that it is the second largest provider of monitored security
services for residential and commercial properties in North America. BHS is
primarily engaged in the business of marketing, selling, installing, servicing
and monitoring electronic security systems in owner-occupied, single-family
residences. To a lesser extent, BHS markets, sells, installs, services and
monitors electronic security systems in commercial locations. At December 31,
2005, BHS had approximately 1,019,000 systems under monitoring contracts,
including approximately 167,300 related to subscribers added during 2005. The
vast majority of monitoring service contracts start with an initial term of
three years and renew on an annual basis thereafter. BHS provides services to
subscribers located in most metropolitan areas in 44 states, the District of
Columbia and several markets in two western provinces in Canada.
BHS' typical security system installation consists of sensors and other devices
which are installed at a subscriber's home or commercial location. The equipment
can be configured to signal intrusion, fire, medical and other alerts. When an
alarm is triggered, a signal is sent, typically by digital or analog telephone
line, to BHS' central monitoring station. Signals can be originated at customer
premises over digital or analog telephone lines, certain digital or analog
wireless services, and via VOIP (Voice over Internet Protocol) service
providers.
BHS' central monitoring station in Irving, Texas, holds an Underwriters'
Laboratories, Inc. ("UL") listing. UL specifications for service centers include
building integrity, back-up computer and power systems, staffing and standard
operating procedures. In the event of emergencies such as fire, tornado, major
interruption in telephone or computer service, or any other event affecting the
Irving facility, monitoring operations can be transferred to a back-up facility
in Carrollton, Texas. BHS is in the process of establishing a second monitoring
station in Knoxville, Tennessee with computer back-up capability that will
replace the standby facility in Carrollton.
BHS markets its alarm systems primarily through television, direct mail, yellow
page and internet advertising, alliances with other service companies, inbound
telemarketing and field sales employees. BHS employees install and service most
of the systems; however, dealers and subcontractors are occasionally used in
some areas. BHS does not manufacture the equipment used in its security systems.
Equipment is purchased from a limited number of suppliers and distributors and
no interruptions in supply are expected. Minimal equipment inventories are
maintained at each branch office and a third-party distributor maintains safety
stock on certain key items specifically for BHS in sufficient quantities to
cover minor supply chain disruptions.
BHS uses an authorized dealer program to expand its geographic coverage and
leverage its national advertising. The dealer program accounted for 17% of new
installations during 2005 and 8% of BHS' total subscriber base as of December
31, 2005. Approximately 114 dealers located in 38 states were authorized to
participate in the program as of December 31, 2005. BHS requires its dealers to
install the same type of equipment installed by its own branches and to adhere
to the same quality standards.
In addition to initiating subscriber relationships through branch and dealer
networks, BHS obtains new residential subscribers through its Brink's Home
Technologies ("BHT") division. Working directly with major home builders, BHT
markets and installs residential security systems, as well as a variety of
low-voltage security, home networking, communications and entertainment options.
BHS currently does business with 9 of the top 10 and 16 of the top 20
residential home builders in the U.S., obtaining incremental subscriber
installations over those obtained through BHS' traditional mass media marketing
efforts.
The security system installation and activation process in BHT is more costly
than in BHS' traditional installation process. The BHT activation process
consists of three phases. Once the framing of the house is complete, a BHT
technician will wire the house for security, and in certain circumstances for
specified non-security low-voltage systems. The equipment for which the house is
being prewired generally is contractually agreed upon with the builder and/or
homebuyer prior to any work being done. As the house nears completion, a BHT
technician visits the site a second time to connect the security and
non-security equipment in the previously prewired locations. Upon the sale of
the house, the homeowner is presented with the option of signing up for
monitoring service. If the homeowner signs up for monitoring service, the
security system is activated. New systems activated for monitored security
service by BHT accounted for 9% of new BHS subscribers during 2005.
6
Although its core business has historically been focused on the monitoring of
residential security systems, BHS also installs and monitors commercial security
systems. In addition to intrusion detection, products and services currently
offered to these customers include nonmonitored closed circuit video and
enhanced event reporting. BHS is developing additional capabilities in
commercial security. Commercial customers represented approximately 4% of
subscribers at year end.
BHS also provides monitored security to owners of "multifamily" apartment and
condominium complexes, who then offer monitoring security service to their
tenants. Multifamily customers currently represent slightly more than 2% of
subscribers.
BHS disconnect rates are typically higher in second and third calendar quarters
of the year because of an increase in residential moves during the summer
months.
Government Regulation
BHS' U.S. operations are subject to various U.S. federal, state and local
consumer protection, licensing and other laws and regulations. Most states in
which BHS operates have licensing laws directed specifically toward the alarm
industry. BHS' business currently relies primarily upon the use of wireline
telephone service to communicate signals. Wireline telephone companies are
currently regulated by both the federal and state governments. BHS' Canadian
operations are subject to the laws of Canada, British Columbia and Alberta.
Competition
BHS competes in most major metropolitan markets in the U.S. and several markets
in western Canada through BHS-owned branch operations or authorized dealer
programs. The monitored security alarm market has a large number of competitors,
including thousands of local and regional companies. BHS believes it is the
second largest provider of monitored security services to residential and
commercial properties in North America. BHS believes that two of its key
competitive advantages are brand name recognition and service quality.
Competition is based on a variety of factors, including company reputation,
service quality, product quality and price. There is substantial competitive
pressure on installation fees. Several significant competitors offer
installation prices which match or are less than BHS' prices; however, some of
the small local competitors in BHS' markets continue to charge significantly
more for installation. Competitive pressure on monitoring rates, while less
intense than on installation fees, is still significant. BHS believes that the
monitoring rates it offers are generally comparable to the rates offered by
other major security companies.
BHS believes its customer retention rate is the highest among the major home and
commercial security service companies. BHS believes its favorable retention rate
is due to its focus on new customers with strong credit backgrounds and
consistent high-quality customer service. All alarm equipment used by BHS meets
the requirements for safety to be listed by Underwriter's Laboratories. The
system control panel and keypads installed by BHS are designed to be
user-friendly and to minimize false alarms.
Employees
BHS has approximately 3,300 employees, none of whom is currently covered by a
collective bargaining agreement. BHS is in the process of negotiating a
collective bargaining agreement with a group of nine employees. BHS believes its
employee relations are satisfactory.
DISCONTINUED OPERATIONS
BAX Global Inc. ("BAX Global")
On January 31, 2006, the Company sold BAX Global for $1.1 billion in cash to
Deutsche Bahn AG. The Company retained ownership of BAX Global's Air Transport
International, LLC ("ATI") subsidiary pending receipt of required regulatory
approvals, which are expected shortly. In the interim ATI will continue to
provide service to its customers, including BAX Global. ATI's operations are
expected to have minimal impact on the Company's financial position.
General
BAX Global provides heavy freight transportation and supply chain management
services on a global basis. BAX Global specializes in the heavy freight market
for business to business shipping.
In North America, BAX Global's air transportation services use a dedicated fleet
of 21 planes with a national sorting hub in Toledo, Ohio. BAX Global's North
American operation also has a ground network that provides transportation on a
regional and national basis.
Outside North America, BAX Global provides transportation services using
available space on commercial carriers and, on occasion, using chartered
aircraft. BAX Global's primary markets outside North America are shipping
Intra-Asia, from Asia to North America and Europe, Intra-Europe and between
North America and Europe.
7
BAX Global continues to expand its ocean shipping business primarily by
marketing its ocean products to its air freight and supply chain management
customer base.
ATI provides transportation services in North America to BAX Global and also
provides worldwide charter transportation services to other customers.
BAX Global provides certain transportation customers with supply chain
management services and operates approximately 127 logistics warehouse and
distribution facilities in key world markets. BAX Global specializes in
developing supply chain management programs for companies entering new global
markets or consolidating regional activity.
Heavy Freight Transportation Services
BAX Global offers its North American (U.S., Canada and Mexico) transportation
customers a variety of products and pricing options, such as guaranteed and
standard overnight and second-day delivery, as well as, deferred delivery
(delivery generally within one to five business days). A variety of value-added
ancillary services, such as shipment tracking, inventory control and management
reporting are also offered.
BAX Global also offers a time-definite delivery service to freight forwarders,
freight brokers and international airlines. BAX Global primarily markets this
product to small to mid-sized forwarders and provides a higher service level
compared to common carriage.
Outside North America, BAX Global offers a variety of services including
standard and expedited freight services, ocean forwarding and door-to-door
delivery.
BAX Global also frequently acts as a customs broker for customers, facilitating
the clearance of goods through customs at international points of entry. BAX
Global has the ability to link its international network with its North American
transportation infrastructure and customs brokerage capabilities to provide
seamless door-to-door delivery and distribution between global markets and
virtually any city in North America.
BAX Global sells its services primarily through its direct sales force. BAX
Global uses various marketing methods, including print media advertising and
direct marketing campaigns.
BAX Global picks up or receives freight shipments from its customers,
consolidates the freight of various customers into shipments for common
destinations and arranges for the transportation of the consolidated freight.
BAX Global uses either commercial carriers or, in the case of most of its North
American shipments, its own transportation fleet, including its truck network,
and regional and national hub sorting facilities. While shipments move long
distances on either common carrier or BAX Global's fleet, the local pickup and
delivery of freight are accomplished principally by independent contractors
using trucks dedicated to the BAX Global network. BAX Global's independent
contractors are required to display BAX Global's logo and colors.
BAX Global has the ability to provide freight service to all North American
business communities, as well as, to virtually all countries throughout its
network of approximately 570 company-operated and agent operated stations,
logistic warehouses and distribution centers in 134 countries. BAX Global's
network is composed primarily of controlled subsidiaries and, to a lesser
extent, agents and sales representatives in certain non-U.S. locations,
typically under short-term contracts. Between available space on common carriers
throughout the world and its North American network, BAX Global believes that it
has sufficient capacity to meet the needs of its customers.
BAX Global's freight business is tied to the cycles of international trade, with
higher volumes of shipments from August through December than during the other
months of the year. The lowest volume of shipments generally occurs in January
and February.
Including U.S. export and import revenue, BAX Global's international heavy
freight shipments and logistics services accounted for approximately 79% of BAX
Global revenues in 2005. Intra-U.S. shipments accounted for approximately 21% of
BAX Global revenues in 2005.
BAX Global's network has a worldwide communications and information system which
provides global tracking and tracing of shipments and logistics data for
management information reports, enabling customers to improve efficiency and
control costs. BAX Global offers customers information management via website at
www.baxglobal.com.
North American Aircraft Operations
ATI is a U.S.-based freight and passenger airline that operates a certificated
fleet of DC-8 aircraft. In addition to the services provided to BAX Global's
North American transportation network, ATI also provides domestic and
international service for the U.S. Government Air Mobility Command and other
charter customers. BAX Global also operates Boeing 727s under contracts with
third parties that provide the aircraft, crew, maintenance and insurance
("ACMI").
8
The following is a summary of BAX Global's fleet as of December 31, 2005.
BAX Global's
Transportation Charter
Aircraft Network Customers Grounded Total
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Cargo:
Leased DC-8 10 2 - 12
ACMI 727 11 - - 11
Owned DC-8 - 1 - 1
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Cargo 21 3 - 24
Combi-Configured (a):
Leased DC-8 - 1 - 1
Owned DC-8 - 4 1 5
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Combi-configured - 5 1 6
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Total 21 8 1 30
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(a) Aircraft configured to accommodate both passengers and cargo for use in
charter business.
Of the 21 planes in BAX Global's transportation network, 18 are assigned to
regularly scheduled routes. Generally, 3 planes are held for use as backups or
are in maintenance. Grounded planes are held for sale or to provide spare parts
for use in other Company planes.
For aircraft held under long-term lease, BAX Global is responsible for the
normal costs of operating and maintaining the aircraft. In addition, ATI is
responsible for all or a portion of any special maintenance or modifications
which may be required by Federal Aviation Administration ("FAA") regulations or
orders (see "Government Regulation" below). The ultimate liability for mandated
special maintenance or modifications is generally subject to dollar limits,
specific exclusions and sharing arrangements with the lessors. Over the last
three years, ATI spent a total of approximately $73 million on routine heavy
maintenance of its owned and leased aircraft fleet.
BAX Global is responsible for fuel costs and most other incidental costs such as
landing fees for aircraft operated for it by third parties.
See note 5 to the consolidated financial statements in the Company's 2005 Annual
Report for information regarding future minimum lease payments related to the
Company's aircraft. ATI's 13 aircraft leases have various expiration dates
extending through 2006, and BAX Global's 11 ACMI contracts are on a monthly
basis. Based on the current state of the aircraft leasing market, BAX Global
believes it should be able to renew these agreements or enter into new
agreements on terms reasonably comparable to those currently in effect.
The average airframe age of the fleet operated by ATI is in excess of 35 years;
however, the condition of a particular aircraft and its fair market value are
dependent on its maintenance history. Factors other than age, such as cycles
(essentially the number of flights), can have a significant impact on the
ability to service an aircraft. Generally, cargo aircraft tend to have fewer
cycles than passenger aircraft over comparable time periods because they are
used for fewer flights per day and longer flight segments.
Fuel costs are a significant element of the total costs of operating aircraft.
Fuel prices are subject to worldwide and local market conditions. In order to
protect against price increases in jet fuel, from time to time BAX Global enters
into hedging agreements, including swap contracts, options and collars. BAX
Global charges customers a fuel surcharge in the U.S. when fuel costs are higher
than the normal historical range.
Supply Chain Management Services
BAX Global's supply chain management business specializes in developing
solutions that include the design, implementation of systems to manage and
distribute inventory and provide information to improve a customer's efficiency
and productivity.
BAX Global operates value-added logistics warehouse and distribution facilities
in key world markets. Companies in the healthcare, retail, automotive, aerospace
and high technology industries have been targeted as businesses with significant
supply chain management needs.
Worldwide revenues from the supply chain management business represented 9% of
BAX Global revenues in 2005.
9
Former Natural Resource Business
The Company sold or shut down its coal operations in 2002 and sold its natural
gas, timber and gold operations in 2003 and 2004. The Company has retained
certain coal-related liabilities and related expenses. Retained liabilities are
significant and include obligations related to Company-sponsored postretirement
medical plans, black lung benefits, reclamation and other costs related to
closed mines, Health Benefit Act obligations, workers' compensation claims and
costs of withdrawal from multi-employer pension plans. The Company expects to
have significant ongoing expenses and cash outflow for retained liabilities
relating to its former coal operations. See notes 4, 5, and 22 to the
consolidated financial statements, which notes are herein incorporated by
reference. The Company has established a Voluntary Employees' Beneficiary
Association ("VEBA") to finance its postretirement medical plan obligations.
At December 31, 2005, the Company had approximately 22 employees related to its
former natural resource operations. These employees perform various duties
including reclaiming, maintaining and selling residual assets and managing
retained liabilities related to the former coal operations.
ITEM 1A. RISK FACTORS
- --------------------------------------------------------------------------------
The Company is exposed to risk as it operates its businesses. Some of these
risks are common to all companies doing business in the industries in which the
Company operates and some are unique to the Company. In addition, there are
risks associated with investing in the common stock of the Company. These risk
factors should be considered carefully when evaluating the Company and its
businesses.
The Company has significant pension and retiree medical obligations. The Company
has substantial pension and retiree medical obligations, many of which arose
during its long history of operating in the coal industry. The Company has
contributed cash to segregated trusts that pay benefits to satisfy these
obligations. The Company expects it may have to make additional contributions to
fund the obligations. The amount of these obligations is significantly impacted
by factors that are not in the Company's control, including interest rates used
to determine the present value of future payment streams, expected investment
returns, medical inflation rates, participation rates and changes in laws and
regulations. In addition, the Company could be required to make benefit payments
for unassigned beneficiaries under the Coal Industry Retiree Health Benefit Act
of 1992. Changes in any of these factors could have a significant effect on the
amount of the Company's obligations and could materially and adversely affect
the Company's financial condition, results of operations and cash flows.
The Company has significant operations outside the United States. The Company's
continuing operations currently operate in approximately 50 countries. Revenue
outside the U.S. was approximately 58% of total revenue in 2005. The Company
expects revenue outside the U.S. to continue to represent a significant portion
of total revenue. Business operations outside the U.S. are subject to political,
economic and other risks inherent in operating in foreign countries, such as:
o the difficulty of enforcing agreements, collecting receivables and
protecting assets through foreign legal systems;
o trade protection measures and import or export licensing
requirements;
o difficulty in staffing and managing widespread operations and the
application of foreign labor regulations;
o required compliance with a variety of foreign laws and regulations;
o changes in the general political and economic conditions in the
countries where we operate, particularly in emerging markets;
o threat of nationalization and expropriation;
o increased costs and risks of doing business in a number of foreign
jurisdictions;
o limitations on repatriation of earnings; and
o fluctuations in equity and revenues due to changes in foreign
currency exchange rates.
The Company tries to effectively manage these risks by monitoring current and
anticipating future political and economic developments and adjusting operations
as appropriate. Changes in the political or economic environments in the
countries in which the Company operates could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company operates in highly competitive industries. The Company competes in
industries that are subject to significant competition and pricing pressures.
Brink's faces significant pricing pressures from competitors in most markets.
BHS experiences competitive pricing pressures on installation and monitoring
rates. Because the Company believes it has competitive advantages such as brand
name recognition and a reputation for a high level of service and security, it
resists competing on price alone. However, continued pricing pressure could
impact the Company's customer base or pricing structure and have an adverse
effect on the Company's results of operations.
10
Brink's earnings and cash flow could be materially affected by increased safety
and security losses. Brink's purchases insurance coverage for safety and
security losses in excess of what it considers prudent deductibles and/or
retentions. Brink's is self-insured for losses under these limits and recognizes
expense up to these limits for actual losses. Brink's insurance policies cover
safety and security losses from most causes, with the exception of war, nuclear
risk and various other exclusions typical for such policies. The availability of
high-quality and reliable insurance coverage is an important factor in the
ability of Brink's to obtain and retain customers and to manage the risks of its
business. If the Company's safety and security losses increase, or if the
Company is unable to obtain adequate insurance coverage at reasonable rates, the
Company's financial condition and results of operations could be materially and
adversely affected.
Brink's may not be able to realize projected cost savings related to
restructurings. During 2005, Brink's restructured several operations in Europe.
As a result the Company expects significant cost savings in 2006 and future
years. There is no assurance these projected cost savings will be realized.
BHS may not be able to sustain the expansion of its subscriber base at recently
achieved growth rates. BHS has a history of significantly increasing its
subscriber base each year as a result of strong growth in new installations and
a relatively low number of subscriber disconnects. The majority of BHS
subscribers are residents of single family households and BHS intends to
continue to grow its subscriber base through a number of sales channels,
including relationships with new home builders. As a result, BHS' business has
benefited from strong growth in the housing market over the past several years.
A downturn in the housing market (new construction and/or resale of existing
houses) could have an impact on BHS' ability to continue strong growth in the
subscriber base. In addition, BHS's disconnect rate has been favorably affected
in the past several years by the cumulative effect of improved subscriber
selection and retention processes and high-quality customer service. A
substantial number of disconnects cannot be prevented, including, for example,
disconnects that occur because of customer moves. If the Company fails to
continue to provide high-quality service and take the other actions that have
improved the disconnect rates in the past, the disconnect rate could increase,
and the subscriber base growth rate could suffer. Slower growth in the
subscriber base from materially lower installations and/or materially higher
disconnects could adversely affect BHS' results of operations.
BHS intends to grow new lines of business and operating margins may suffer. BHS
intends to expand its presence in commercial alarm installation and monitoring.
As a result, the cost of investment in new subscribers may continue to grow
faster than installations and related revenue as BHS develops the resources
needed to achieve its objectives. If BHS is unable to increase the subscriber
base while incurring the additional investment costs, BHS' results of operations
would be adversely affected.
BHS earnings and cash flow could be materially affected by a sudden shift in its
customers' selection of telecommunications services. BHS' operating model relies
on its customers' selection and continued payment for high quality, reliable
telecommunications services. In recent years, new options for retail
telecommunications services (such as Voice over Internet Protocol, or VoIP) have
arisen, some of which are lower in cost but also less reliable and of lower
quality than traditional telecommunications. If there were a sudden shift to
such services by a significant portion of BHS' subscriber base, BHS' results of
operations and cash flows would be adversely affected.
BHS earnings and cash flow could be materially affected by penalties assessed
for false alarms. BHS believes its false alarm rate compares favorably to many
other companies' rates. Some local governments impose assessments, fines and
penalties on either subscribers or the alarm companies for false alarms. A few
municipalities have adopted ordinances under which both permit and alarm
dispatch fees are charged directly to the alarm companies. BHS' alarm service
contracts generally allow BHS to pass these charges on to customers. If more
local governments impose assessments, fines or penalties, and BHS is not able to
pass the increase in costs to its customers, the growth of BHS' subscriber base
would be adversely affected.
BHS' earnings and cash flow could be materially affected by the refusal of
police departments to respond to calls from monitored security service
companies. Police departments in a limited number of U.S. cities are not
required to automatically respond to calls from monitored security service
companies unless an emergency has been visually verified. BHS has offered
affected customers the option of receiving response from private guard
companies, which in most cases have contracted with BHS. This increases the
overall cost to customers. If more police departments refuse to automatically
respond to calls from monitored security service companies without visual
verification, BHS' ability to retain subscribers could be negatively impacted
and results of operations and cash flow could be materially and adversely
affected.
11
BHS could face liability for failure to respond adequately to alarm activations.
The nature of the services BHS provides potentially exposes BHS to risks of
liability for employee acts or omissions or system failures. In an attempt to
reduce this risk, BHS' alarm monitoring agreements contain provisions limiting
its liability. However, in the event of litigation with respect to such matters,
there can be no assurance that these limitations will be enforced and losses
from such litigation could be material to the financial condition of the
Company.
BHS relies on third party providers for the components of its security systems.
The components for the security systems that BHS installs are manufactured by
third parties. BHS is therefore susceptible to interruptions in supply and to
the receipt of components that do not meet BHS' high standards. BHS mitigates
these risks through the selection of vendors with strong reputations for
producing quality products. However, any interruption in supply could cause
delays in installations and repairs and the loss of current and potential
customers. Also, if a previously installed component were found to be defective,
BHS might not be able to recover any or all of the costs associated with its
repair or replacement and the diversion of BHS' technical force to address such
an issue could affect subscriber and revenue growth. Interruptions in supply or
the failure of alarm system components could have a material impact on the
Company's financial condition.
The Company's business operates in regulated industries. The U.S. operations of
Brink's are subject to regulation by the U.S. Department of Transportation with
respect to safety of operations and equipment and financial responsibility.
Intrastate operations in the U.S. are subject to regulation by state regulatory
authorities and intraprovince operations in Canada are subject to regulation by
Canadian and provincial regulatory authorities. Brink's International operations
are regulated to varying degrees by the countries in which they operate.
BHS and its employees are subject to various U.S. federal, state and local
consumer protection, licensing and other laws and regulations. Most states in
which BHS operates have licensing laws directed specifically toward the
monitored security services industry. BHS' business relies heavily upon wireline
telephone service to communicate signals. Wireline telephone companies are
currently regulated by both the federal and state governments. BHS' wholly owned
Canadian subsidiary is subject to the laws of Canada, British Columbia and
Alberta.
Changes in laws or regulations could require the Company to change the way it
operates, which could increase costs or otherwise disrupt operations. In
addition, failure to comply with any applicable laws or regulations could result
in substantial fines or revocation of the Company's operating permits and
licenses. If laws and regulations were to change or the Company failed to
comply, the Company's business, financial condition and results of operations
could be materially and adversely affected.
The Company could be materially affected by an unfavorable outcome related to
non-payment of value-added taxes and custom duties. During 2004, the Company
determined that one of its non-U.S. Brink's business units had not paid foreign
customs duties and value-added taxes with respect to the importation of various
goods and services. The Company has been advised that there could be civil and
criminal penalties asserted for the non-payment of these customs duties and
value-added taxes. To date no penalties have been asserted. The Company believes
that the range of reasonably possible losses related to customs duties penalties
is between $0 and approximately $35 million. These penalties could be asserted
at any time. The business unit has commenced discussions regarding this matter
with the appropriate government authorities, provided an accounting of unpaid
customs duties and taxes and made payments covering its calculated unpaid value
added taxes. An adverse outcome in this matter could materially affect the
Company's financial condition, results of operations and cash flows.
The Company has retained obligations from the sale of BAX Global. In January
2006 the Company sold BAX Global. The Company retained obligations related to
these operations, primarily for taxes owed prior to the date of sale and for any
amounts paid related to one pending litigation matter for which losses could be
between $0 and $9 million at the date of sale. In addition, the Company provided
indemnification customary for these sorts of transactions. Future unfavorable
developments related to these matters could require the Company to record
additional expenses or make cash payments in excess of recorded liabilities. The
occurrence of these events could have a material adverse affect on the Company's
financial condition, results of operations and cash flows.
The Company is subject to covenants for credit facilities. The Company has
credit facilities with financial covenants, including a limit on the ratio of
debt to earnings before interest, taxes, depreciation, and amortization, minimum
levels of net worth, and limits on the ability to pledge assets and limits the
use of proceeds of asset sales. Although the Company believes none of these
covenants are presently restrictive to operations, the ability to meet the
financial covenants can be affected by changes in the Company's results of
operations or financial condition. The Company cannot provide assurance that it
will meet these covenants. A breach of any of these covenants could result in a
default under existing credit facilities. Upon the occurrence of an event of
default under any of our credit facilities, the lenders could cause amounts
outstanding to be immediately payable and terminate all commitments to extend
further credit. The occurrence of these events would have a significant impact
on the Company's liquidity and cash flows.
12
The Company's effective income tax rates could change. The Company operates in
approximately 50 countries, all of which have different income tax laws and
associated income tax rates. The Company's effective income tax rate can be
significantly affected by changes in the mix of pretax earnings in each country
in which it operates and the related income tax rates in those countries. In
addition, the Company's effective income tax rate is significantly affected by
its estimate of its ability to realize deferred tax assets, including those
associated with net operating losses. Changes in income tax laws, income
apportionment, or estimates of the ability to realize deferred tax assets, could
significantly affect the Company's effective income tax rate, financial position
and results of operations.
The Company depends heavily on the availability of fuel and the ability to pass
higher fuel cost to customers. Fuel prices have fluctuated significantly in
recent years. In some periods, the Company's operating profit has been adversely
affected because it is not able to fully offset the impact of higher fuel prices
through increased prices or fuel surcharges. Besides passing fuel costs on to
customers, the Company does not have any long-term fuel purchase contracts, and
has not entered into any other hedging arrangements that protect against fuel
price increases. Volatile fuel prices and potential increases in fuel taxes will
continue to affect the Company. A significant increase in fuel costs and the
inability to pass increases on to customers or a shortage of fuel could
adversely affect the Company's results of operations.
ITEM 1B. UNRESOLVED STAFFING COMMENTS
- --------------------------------------------------------------------------------
Not applicable
13
ITEM 2. PROPERTIES
- --------------------------------------------------------------------------------
Brink's
Brink's has property and equipment in locations throughout the world. Branch
facilities generally have office space to support operations, a vault to
securely store valuables and a garage to house armored vehicles and serve as a
vehicle terminal. Many times, branches have additional space to repair and
maintain vehicles.
Brink's owns or leases armored vehicles, panel trucks and other vehicles that
are primarily service vehicles. Brink's armored vehicles are of bullet-resistant
construction and are specially designed and equipped to provide security for the
crew and cargo.
The following table discloses leased and owned facilities and vehicles for
Brink's most significant operations as of December 31, 2005.
Facilities Vehicles
- --------------------------------------------------------------------------------
Country Leased Owned Total Leased Owned Total
- --------------------------------------------------------------------------------
U.S 159 21 180 1,799 473 2,272
Canada 43 10 53 349 111 460
EMEA (a) 257 21 278 1,612 1,478 3,090
South America 193 51 244 103 2,396 2,499
Asia Pacific 31 - 31 1 136 137
- --------------------------------------------------------------------------------
Total 683 103 786 3,864 4,594 8,458
================================================================================
(a) Europe, Middle East, and Africa
The Company has approximately 5,128 Brink's-owned CompuSafe(R) devices located
on customers' premises, of which 5,072 are in North America.
BHS
BHS has approximately 64 leased offices and warehouse facilities located
throughout the U.S. and one leased office in Canada. In 2005, BHS purchased its
central monitoring station in Irving, Texas. The facility was formerly leased.
This facility also serves as BHS' headquarters and houses most administrative,
technical and marketing services personnel. Additional administrative personnel
are located in a portion of an adjacent building in office space that is leased
for a term ending in 2009. A second monitoring center in Knoxville, Tennessee,
is under construction and should be operational in the first quarter of 2006.
The Irving and Knoxville facilities will be operated and staffed to provide
back-up capability for each other for critical alarm monitoring and related
functions. The lease for the current back-up monitoring center in Carrollton,
Texas, ends in late 2006. BHS intends to shut down the Carrollton facility once
the Knoxville monitoring facility is operational.
BHS leases approximately 1,800 vehicles which are used in the process of
installing and servicing its security systems.
BHS retains ownership of most of the approximately 1,019,000 systems currently
being monitored. When a customer cancels monitoring services, BHS typically
disables the system. In a limited number of cases, BHS removes the equipment.
When a customer cancels monitoring services because of an impending household
move or business relocation, the retention of the BHS system at the site
facilitates the marketing of monitoring services to the subsequent homeowner or
business.
14
Discontinued Operations
BAX Global has approximately 266 company-operated stations (88 domestic and 178
international) and has agency agreements with approximately 132 international
stations. BAX Global's stations are usually located at or near airports or other
transportation corridors. BAX Global operates domestic stations, which generally
include office space and warehousing facilities, located in 44 states, the
District of Columbia and Puerto Rico. Nearly all company-operated stations are
leased.
BAX Global operates its main North American freight-sorting operation at its hub
in Toledo, Ohio. This hub is operated under a lease with the Toledo-Lucas County
Port Authority which expires in 2013. The lease provides BAX Global with rights
of renewal for three five-year periods. Other facilities in the U.S. are held
under leases having terms of one to ten years.
BAX Global provides certain transportation customers with supply chain
management services and operates approximately 127 leased logistics warehouse
and distribution facilities in key world markets.
BAX Global has a 116,000 square foot corporate office facility located in
Irvine, California under lease through 2012.
See "Aircraft Operations" above for information about contracted, leased and
owned aircraft.
Forward-Looking Information Certain of the matters discussed herein, including
statements regarding foreign exchange rates and other risks associated with
foreign operations, BHS' continued expansion into the commercial market, the
uninterrupted supply of equipment to BHS, the ability of BHS' Irving and second
stations to back each other up, the negotiation of union contracts and
significant ongoing expenses and cash outflows for retained liabilities related
to former coal operations in the future (including costs related to the
administration of retained liabilities), involve forward-looking information
which is subject to known and unknown risks, uncertainties, and contingencies
which could cause actual results, performance or achievements, to differ
materially from those which are anticipated.
Such risks, uncertainties and contingencies, many of which are beyond the
control of the Company, include, but are not limited to, fluctuations in
interest and exchange rates, economic, business and social conditions in the
U.S. and abroad, effectiveness of hedging activities and the ability of
counterparties to perform, the performance of BHS' equipment suppliers, BHS'
ability to cost-effectively develop or incorporate new systems in a timely
manner, decisions regarding continued support of the developing commercial
business, concessions requested by Brink's, BHS or the applicable union, actual
retirement experience of the former coal operation's employees, black lung
claims incidence, the number of dependents covered under benefit obligations,
coal industry turnover rates, actual medical and legal costs relating to the
benefits, changes in inflation rates (including the continued volatility of
medical inflation), the demand for the Company's products and services, the
ability of the Company and its operations to obtain appropriate insurance
coverage at reasonable prices, pricing and other competitive industry factors,
fuel prices, new government regulations and legislative initiatives, issuance of
permits, judicial decisions, and variations in costs or expenses.
15
ITEM 3. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
Not applicable.
16
Executive Officers of the Registrant
The following is a list as of March 1, 2006, of the names and ages of the
executive and other officers of The Brink's Company and the names and ages of
certain officers of its subsidiaries, indicating the principal positions and
offices held by each. There is no family relationship between any of the
officers named.
Name Age Positions and Offices Held Held Since
- --------------------------------------------------------------------------------------------------------
Executive Officers:
Michael T. Dan 55 President, Chief Executive Officer and Chairman of the Board 1998
James B. Hartough 58 Vice President-Corporate Finance and Treasurer 1988
Frank T. Lennon 64 Vice President and Chief Administrative Officer 2005
Austin F. Reed 54 Vice President, General Counsel and Secretary 1994
Robert T. Ritter 54 Vice President and Chief Financial Officer 1998
Other Officers:
Matthew A. P. Schumacher 47 Controller 2001
Arthur E. Wheatley 63 Vice President -Risk Management and Insurance 1988
Subsidiary Officers:
Robert B. Allen 52 President of Brink's Home Security, Inc. 2001
Executive and other officers of The Brink's Company are elected annually and
serve at the pleasure of its Board of Directors.
Mr. Dan was elected President, Chief Executive Officer and Director of The
Brink's Company in February 1998 and was elected Chairman of the Board effective
January 1, 1999. He also serves as Chief Executive Officer of Brink's,
Incorporated, a position he has held since July 1993, and as President and Chief
Executive Officer of Brink's Holding Company, a position he has held since
December 31, 1995. From August 1992 to July 1993 he served as President of North
American operations of Brink's, Incorporated and as Executive Vice President of
Brink's, Incorporated from 1985 to 1992.
Mr. Lennon was appointed Vice President and Chief Administrative Officer in
2005. Prior to this position, he was the Vice President, Human Resources and
Administration from 1990 through 2005.
Messrs. Hartough, Ritter, Reed and Wheatley have served in their present
positions for more than the past five years.
Mr. Schumacher joined the Company as Controller in July 2001. Prior to joining
the Company, he was employed by NL Industries, Inc. as the Assistant Controller
from 1997 through July 2001.
Mr. Allen joined Brink's Home Security, Inc. in August 1999 as Executive Vice
President and Chief Operating Officer. He was promoted to President of Brink's
Home Security, Inc. in March 2001. From January 1997 to August 1999, he held
various positions at Aegis Communications Group (formerly ATC Communications)
including Executive Vice President of Sales and Marketing and Chief Operating
Officer. From 1980 through 1996, he held various domestic and international
positions at Frito-Lay including Vice President of Field Marketing and Country
Manager in Greece and Turkey.
17
================================================================================
PART II
================================================================================
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
- --------------------------------------------------------------------------------
The Company's common stock trades on the New York Stock Exchange under the
symbol "BCO."
The following table provides information about common stock repurchases by the
Company during the quarter ended December 31, 2005.
(d) Maximum Number
(c) Total Number (or Approximate
of Shares Purchased Dollar Value) of
(a) Total Number as Part of Publicly Shares that May Yet
of Shares (b) Average Price Announced Plans be Purchased Under
Period Purchased (1) Paid per Share or Programs the Plans or Programs (2)
- -------------------------------------------------------------------------------------------------------------
November 1 through
November 30, 2005 9,457 $ 45.68 - 1,000,000
=============================================================================================================
(1) Stock-for-stock exchanges for payments of exercise cost upon exercises of
stock options.
(2) On May 4, 2001 the Company's Board of Directors approved a share repurchase
program to purchase up to 1 million shares of common stock and any or all
of the outstanding shares of Series C preferred stock, with an aggregate
purchase price limitation of $30 million, of which $19.1 million remains
available for repurchases.
Reference is made to page 130 of the Company's 2005 Annual Report which is
herein incorporated by reference, for other information required by this item.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
Reference is made to page 131 of the Company's 2005 Annual Report which is
herein incorporated by reference, for information required by this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
Reference is made to pages 18 through 73 of the Company's 2005 Annual Report
which is herein incorporated by reference, for information required by this
item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
The information regarding quantitative and qualitative disclosures about market
risk is included in this report under Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
Reference is made to pages 74 through 130 of the Company's 2005 Annual Report
which is herein incorporated by reference, for information required by this
item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
Not applicable.
18
ITEM 9A. CONTROLS AND PROCEDURES
- --------------------------------------------------------------------------------
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, the
Company carried out an evaluation, with the participation of the Company's
management, including the Company's Chief Executive Officer and Vice President
and Chief Financial Officer, of the effectiveness of the Company's disclosure
controls and procedures (as defined under Rule 13a-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based
upon that evaluation, the Company's Chief Executive Officer and Vice President
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in ensuring that information required to be disclosed
by the Company in the reports that it files or submits under the Securities
Exchange Act of 1934, is recorded, processed, summarized and reported, within
the time periods specified in the SEC's rules and forms, and that such
information is accumulated and communicated to management, including the
Company's Chief Executive Officer and Vice President and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
There has been no change in the Company's internal control over financial
reporting during the quarter ended December 31, 2005, that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
Reference is made to pages 74 through 75 of the Company's 2005 Annual Report,
which are herein incorporated by reference, for Management's Annual Report on
Internal Control over Financial Reporting and the Attestation Report of the
Registered Public Accounting Firm.
ITEM 9B. OTHER INFORMATION
- --------------------------------------------------------------------------------
The Company makes the following disclosure in lieu of furnishing it in a Current
Report on Form 8-K under Item 2.02. "Results of Operations and Financial
Condition."
On March 8, 2006, the Company issued a press release updating its previously
disclosed fourth quarter and year end financial results to reflect a
reallocation of taxes between continuing and discontinued operations. A copy of
this release is being furnished as Exhibit 99(b) to this Annual Report on Form
10-K.
19
================================================================================
PART III
================================================================================
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------------------------------------------------
The information required by this Item regarding directors is herein incorporated
by reference to the Company's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after December 31, 2005. The information
regarding executive officers is included in this report following Item 4, under
the caption "Executive Officers of the Registrant."
The Company has adopted a Business Code of Ethics that applies to all of the
directors, officers and employees (including the Chief Executive Officer, Chief
Financial Officer and Controller) and has posted the Code on the Company's
website. The Company intends to satisfy the disclosure requirement under Item
5.05 of Form 8-K relating to amendments to or waivers from any provision of the
Business Code of Ethics applicable to the Chief Executive Officer, Chief
Financial Officer or Controller by posting this information on the website. The
internet address is www.brinkscompany.com.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
The information required by Item 11 is incorporated by reference to the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after December 31, 2005.
ITEM 12. SECURITY O WNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
- --------------------------------------------------------------------------------
The information required by Item 12 is incorporated by reference to the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after December 31, 2005.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
The information required by Item 13 is incorporated by reference to the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after December 31, 2005.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
- --------------------------------------------------------------------------------
The information required by Item 14 is incorporated by reference to the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after December 31, 2005.
20
================================================================================
PART IV
================================================================================
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
- --------------------------------------------------------------------------------
(a) 1. All financial statements - see index to financial statements and
schedules.
2. Financial statement schedules - see index to financial statements and
schedules.
3. Exhibits - see exhibit index.
Undertaking
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
Registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into Registrant's Registration Statements on Form S-8 Nos.
333-120254, 2-64258, 33-2039, 33-21393, 33-69040, 33-53565, 333-02219,
333-78631, 333-78633, 333-70758, 333-70772, 333-70766 and 333-70762. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
21
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 7, 2006.
The Brink's Company
-----------------------------
(Registrant)
By /s/ M.T. Dan
-----------------------------
(M.T. Dan,
Chairman, President and
Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated, on March 7, 2006.
Signatures Title
----------------- -----------
R. G. Ackerman* Director
B. C. Alewine* Director
J. R. Barker* Director
M. C. Breslawsky* Director
J. S. Brinzo* Director
J. L. Broadhead* Director
/s/ M. T. Dan Chairman, President and
- --------------------------------------- Chief Executive Officer
(M. T. Dan) (principal executive officer)
R. M. Gross* Director
M. D. Martin* Director
L. J. Mosner* Director
/s/ R. T. Ritter Vice President
- --------------------------------------- and Chief Financial Officer
(R. T. Ritter) (principal financial officer
and principal accounting officer)
C. S. Sloane* Director
R. L. Turner* Director
*By /s/ M. T. Dan
------------------------------
(M. T. Dan, Attorney-in-Fact)
22
Index to Financial Statements and Schedules
Financial Statements:
The consolidated financial statements of The Brink's Company, listed in the
index below which are included in the Company's 2005 Annual Report for the year
ended December 31, 2005, are herein incorporated by reference. With the
exception of the pages listed in the index below and the information
incorporated by reference included in Parts I, II and IV, the 2005 Annual Report
of the Shareholders is not deemed filed as part of this report.
THE BRINK'S COMPANY ANNUAL REPORT
Page Numbers
in 2005
Annual
Report
------
Management's Discussion and Analysis of
Results of Operations and Financial Condition........... 18 - 73
Management's Report on Internal Control over Financial
Reporting................................................ 74
Reports of Independent Registered Public Accounting Firm.... 75 - 76
Consolidated Balance Sheets................................. 77
Consolidated Statements of Operations....................... 78
Consolidated Statements of Comprehensive Income............. 79
Consolidated Statements of Shareholders' Equity............. 80
Consolidated Statements of Cash Flows....................... 81
Notes to Consolidated Financial Statements.................. 82 - 130
Selected Financial Data..................................... 131
Financial Statement Schedules:
Page numbers
In Form 10-K
------------
Report of Independent Registered Public Accounting Firm..... 24
Schedule II - Valuation and qualifying accounts............. 25
23
Report of Independent Registered Public Accounting Firm
The Board of Directors
The Brink's Company:
Under date of March 7, 2006, we reported on the consolidated balance sheets of
The Brink's Company and subsidiaries (the Company) as of December 31, 2005 and
2004, and the related consolidated statements of operations, comprehensive
income, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 2005, as contained in the 2005 annual
report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedule as included herein. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Richmond, Virginia
March 7, 2006
24
The Brink's Company
Schedule II - Valuation and Qualifying Accounts
For the Years Ending December 31, 2005, 2004 and 2003
(in millions)
Balance at Charged to Charge to Currency Balance at
Beginning of Costs and Other Translation End of
Period Expenses (a) Deductions (b) Account (c) Adjustment Period
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts
- -------------------------------
Year Ended December 31, 2003 $ 35.5 (1.1) (7.5) - 0.7 27.6
Year Ended December 31, 2004 27.6 4.0 (5.8) - 0.9 26.7
Year Ended December 31, 2005 26.7 6.8 (12.0) (9.1) (1.1) 11.3
Valuation Allowance for Deferred Tax Assets
- -------------------------------------------
Year Ended December 31, 2003 $ 9.0 34.3 (0.6) - 0.8 43.5
Year Ended December 31, 2004 43.5 10.2 (0.6) 0.7 2.0 55.8
Year Ended December 31, 2005 55.8 19.6 (0.5) (29.6) (3.2) 42.1
(a) Includes amounts charged to income (loss) from discontinued operations.
(b) Amounts written off, less recoveries.
(c) Includes amounts charged to other comprehensive income (loss), amounts
reclassified to assets held for sale and purchase accounting adjustments to
goodwill.
25
Exhibit Index
Each exhibit listed as a previously filed document is hereby incorporated by
reference to such document.
Exhibit
Number Description
2(i) Shareholders' Agreement, dated as of January 10, 1997, between
Brink's Security International, Inc., and Valores Tamanaco,
C.A. Exhibit 10(w) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998 (the "1998 Form
10-K").
3(i) Amended and Restated Articles of Incorporation of the
Registrant. Exhibit 3(i) to the Registrant's Current Report
on Form 8-K filed March 2, 2005.
3(ii) Amended and Restated Bylaws of the Registrant. Exhibit 3(ii)
to the Registrant's Current Report on Form 8-K filed
November 22, 2005.
4(a) Amended and Restated Rights Agreement dated as of September 1,
2003 between the Registrant and Equiserve Trust Company, N.A.,
as Rights Agent, together with Form of Right Certificate.
Exhibit 1 to the Registrant's Amendment No. 4 to Form 8-A/A
filed October 9, 2003.
10(a)* Key Employees Incentive Plan, as amended. Exhibit 10(a) to the
1998 Form 10-K.
10(b)* Key Employees' Deferred Compensation Program, as amended
and restated effective January 1, 2005. Exhibit 99.1 to the
Registrant's Current Report on Form 8-K filed November 22,
2004.
10(c)* (i) Pension Equalization Plan as amended and restated,
effective as of January 1, 2005. Exhibit 10 to the
Registrant's Current Report on Form 8-K filed November
22, 2005.
(ii) Amended and Restated Trust Agreement, dated December 1,
1997, between the Registrant and Chase Manhattan Bank,
as Trustee (the "Trust Agreement"). Exhibit 10(e)(ii)
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997 (the "1997 Form 10-K").
(iii) Amendment No. 1 to Trust Agreement, dated as of August
18, 1999. Exhibit 10(c)(iii) to the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1999 (the "1999 Form 10-K").
(iv) Amendment No. 2 to Trust Agreement, dated as of July
26, 2001. Exhibit 10(c)(iv) to the Registrant's Annual
Report on Form 10-K for the year ended December 31,
2002 (the "2002 Form 10-K").
(v) Amendment No. 3 to Trust Agreement, dated as of
September 18, 2002. Exhibit 10(c)(v) to the 2002 Form
10-K.
(vi) Amendment No. 4 to Trust Agreement, dated as of
September 22, 2003. Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003 (the "Third Quarter 2003 Form
10-Q").
(vii) Amendment No. 5 to Trust Agreement, dated as of
September 20, 2004. Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004.
(viii) Amendment No. 6 to Trust Agreement, dated as of
November 22, 2004. Exhibit 99.4 to the Registrant's
Current Report on Form 8-K filed November 22, 2004.
10(d)* Executive Salary Continuation Plan. Exhibit 10(e) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 (the "1991 Form 10-K").
10(e)* Non-Employee Directors' Stock Option Plan, as amended
and restated as of July 8, 2005. Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2005 (the "Second Quarter 2005 Form 10-Q").
26
10(f)* 1988 Stock Option Plan, as amended and restated as of January
14, 2000. Exhibit 10(f) to the 1999 Form 10-K.
10(g)* Management Performance Improvement Plan, as amended and
restated. Exhibit 99 to the Registrant's Current Report on
Form 8-K filed March 2, 2005.
10(h)* Form of change in control agreement replacing all prior
change in control agreements and amendments and
modifications thereto, between the Registrant (or a
subsidiary) and various officers of the Registrant. Exhibit
10(l)(ii) to the 1997 Form 10-K.
10(i)* Form of Indemnification Agreement entered into by the
Registrant with its directors and officers. Exhibit 10(l) to
the 1991 Form 10-K.
10(j)* (i) Retirement Plan for Non-Employee Directors, as amended.
Exhibit 10(g) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994 (the
"Third Quarter 1994 Form 10-Q").
(ii) Form of letter agreement dated as of September 16, 1994
between the Registrant and its Non-Employee Directors
pursuant to Retirement Plan for Non-Employee Directors.
Exhibit 10(h) to the Third Quarter 1994 Form 10-Q.
10(k)* Form of severance agreement between the Registrant (or a
subsidiary) and various of the Registrant's officers.
Exhibit 10(o)(ii) to the 1997 Form 10-K.
10(l)* Directors' Stock Accumulation Plan, as amended and restated
effective July 8, 2005. Exhibit 10.1 to the Second Quarter
2005 Form 10-Q.
10(m)* Plan for Deferral of Directors' Fees, as amended and restated
effective January 1, 2005. Exhibit 99.5 to the Registrant's
Current Report on Form 8-K filed November 22, 2004.
10(n) (i) Credit Agreement, dated as of December 20, 2002, among
Brink's, Incorporated and the Registrant, as Borrowers
and Guarantors, and ABN AMRO Bank, N.V. Exhibit 10(q)
(i) to the 2002 Form 10-K.
(ii) Guaranty between Brink's, Incorporated, as Guarantor,
and ABN AMRO Bank, N.V. Exhibit 10(q)(iii) to the 2002
Form 10-K.
(iii) Guaranty between the Registrant, as Guarantor, and ABN
AMRO Bank, N.V. Exhibit 10(q)(iv) to the 2002 Form
10-K.
10(o)* (i) Employment Agreement dated as of May 4, 1998, between
the Registrant and Michael T. Dan. Exhibit 10(a) to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 (the "Third Quarter
1998 Form 10-Q").
(ii) Amendment No. 1 to Employment Agreement between the
Registrant and Michael T. Dan. Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002.
10(p)* Executive Agreement dated as of May 4, 1998, between the
Registrant and Michael T. Dan. Exhibit 10(b) to the Third
Quarter 1998 Form 10-Q.
10(q)* Executive Agreement dated as of August 7, 1998, between the
Registrant and Robert T. Ritter. Exhibit 10(c) to the Third
Quarter 1998 Form 10-Q.
10(r)* Severance Agreement dated as of August 7, 1998, between the
Registrant and Robert T. Ritter. Exhibit 10(d) to the Third
Quarter 1998 Form 10-Q.
10(s) Trust Agreement for The Brink's Company Employee Welfare
Benefit Trust. Exhibit 10(t) to the 1999 Form 10-K.
27
10(t) (i) Note Purchase Agreement dated as of January 18, 2001,
between the Registrant and the Purchasers listed on
Schedule A thereto. Exhibit 10(u)(i) to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 2000 (the "2000 Form 10-K").
(ii) Form of Series A Promissory Note. Exhibit 10(u)(ii) to
the 2000 Form 10-K.
(iii) Form of Series B Promissory Note. Exhibit 10(u)(iii) to
the 2000 Form 10-K.
10(u) (i) Note Purchase Agreement dated as of April 11, 2002
between the Registrant and the Purchasers set forth on
the signature page. Exhibit 10(a)(i) to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002 (the "First Quarter 2002
Form 10-Q").
(ii) Form of Promissory Note. Exhibit 10(a)(ii) to the First
Quarter 2002 Form 10-Q.
10(v) (i) $43,160,000 Bond Purchase Agreement, dated September
17, 2003, among the Peninsula Ports Authority of
Virginia, Dominion Terminal Associates, Pittston
Coal Terminal Corporation and the Registrant. Exhibit
10.2(i) to the Third Quarter 2003 Form 10-Q.
(ii) Loan Agreement between the Peninsula Ports Authority of
Virginia and Dominion Terminal Associates, dated
September 1, 2003. Exhibit 10.2(ii) to the Third
Quarter 2003 Form 10-Q.
(iii) Indenture and Trust between the Peninsula Ports
Authority of Virginia and Wachovia Bank, National
Association ("Wachovia"), as trustee, dated September
1, 2003. Exhibit 10.2(iii) to the Third Quarter 2003
Form 10-Q.
(iv) Parent Company Guaranty Agreement, dated September 1,
2003, made by the Registrant for the benefit of
Wachovia. Exhibit 10.2(iv) to the Third Quarter 2003
Form 10-Q.
(v) Continuing Disclosure Undertaking between the
Registrant and Wachovia, dated September 24, 2003.
Exhibit 10.2(v) to the Third Quarter 2003 Form 10-Q.
(vi) Coal Terminal Revenue Refunding Bond (Dominion Terminal
Associates Project - Brink's Issue) Series 2003.
Exhibit 10.2(vi) to the Third Quarter 2003 Form 10-Q.
10(w) $150,000,000 Credit Agreement, dated as of November 18, 2004,
between the Registrant and ABN AMRO Bank N.V. Exhibit 99.1 to
the Registrant's Current Report on Form 8-K filed November 18,
2004.
10(x) $400,000,000 Credit Agreement among The Brink's Company, as
Parent Borrower, the Subsidiary Borrowers referred to therein,
certain of Parent Borrower's Subsidiaries, as Guarantors,
Various Lenders, Barclays Bank plc, as Co-Arranger and
Documentation Agent, Bank of America, N.A., as Syndication
Agent, Banc of America Securities LLC, as Co-Arranger,
Scotiabanc Inc. and Wachovia Bank, National Association, as
Co-Arrangers and Syndication Agents, JPMorgan Chase Bank, as
Administrative Agent, and J.P. Morgan Securities Inc., as Sole
Lead Arranger and Bookrunner, dated as of October 15, 2004.
Exhibit 99.1 to the Registrant's Current Report on Form 8-K
filed October 18, 2004.
10(y) Share Transfer Agreement, dated February 2, 2005, between
Group 4 Securitas Holdings Limited, as Seller, and Brink's
Limited, as Buyer. Exhibit 10(aa) to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
2004 (the "2004 Form 10-K").
10(z) Share Transfer Agreement, dated February 2, 2005, between
Group 4 Securicor Holdings Limited, Securicor International
BV and Brink's Luxembourg S.A. and Brink's, Incorporated.
Exhibit 10(bb) to the 2004 Form 10-K.
28
10(aa)* The Brink's Company 2005 Equity Incentive Plan. Exhibit A to
the Proxy Statement for the Registrant's 2005 Annual Meeting
of Shareholders.
10(bb)* Form of Option Agreement for options granted under 2005
Equity Incentive Plan. Exhibit 99 to the Registrant's
Current Report on Form 8-K filed July 13, 2005.
10(cc) Credit Agreement, dated July 13, 2005, among The Brink's
Company, certain of its subsidiaries and ABN AMRO Bank N.V.
Exhibit 99 to the Registrant's Current Report on Form 8-K
filed July 15, 2005.
10(dd) Stock Purchase Agreement, dated as of November 15, 2005, by
and among BAX Holding Company, BAX Global Inc., The Brink's
Company and Deutsche Bahn AG. Exhibit 2.1 to the Registrant's
Current Report on Form 8-K filed November 16, 2005.
13 Parts of the 2005 Annual Report of the Registrant.
21 Subsidiaries of the Registrant.
23 Consent of independent auditors.
24 Powers of Attorney.
31 Rule 13a-14(a)/15d-14(a) Certifications.
32 Section 1350 Certifications.
99(a)* Amendment to Pension-Retirement Plan relating to preservation
of assets of the Pension-Retirement Plan upon a change in
control. Exhibit 99 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992.
99(b) Press Release, dated as of March 8, 2006, issued by the
Registrant.
- --------------------------
*Management contract or compensatory plan or arrangement.
29