Attached files
file | filename |
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EX-31.1 - EXHIBIT 31.1 - BRINKS CO | exhibit_31-1.htm |
EX-31.2 - EXHIBIT 31.2 - BRINKS CO | exhibit_31-2.htm |
EX-32.2 - EXHIBIT 32.2 - BRINKS CO | exhibit_32-2.htm |
EX-32.1 - EXHIBIT 32.1 - BRINKS CO | exhibit_32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
xQUARTERLY REPORT PURSUANT TO SECTION
13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended September 30,
2009
oTRANSITION REPORT PURSUANT TO SECTION
13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the
transition period from ________ to ________
Commission
file number 1-9148
THE BRINK’S COMPANY
|
||
(Exact
name of registrant as specified in its charter)
|
Virginia
|
54-1317776
|
|||
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|||
incorporation
or organization)
|
Identification
No.)
|
1801 Bayberry Court,
Richmond, Virginia 23226-8100
(Address
of principal executive offices) (Zip Code)
(804)
289-9600
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
(Check
one): Large Accelerated Filer x Accelerated
Filer o Non-Accelerated
Filer o Smaller
Reporting Company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
As of
October 26, 2009, 47,856,930 shares of $1 par value common stock were
outstanding.
1
Part I - Financial
Information
Item 1. Financial
Statements
THE
BRINK’S COMPANY
and
subsidiaries
Consolidated
Balance Sheets
(Unaudited)
September
30,
|
December
31,
|
|||||||
(In
millions)
|
2009
|
2008
|
||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash and cash
equivalents
|
$ | 234.5 | 250.9 | |||||
Accounts receivable,
net
|
479.1 | 450.7 | ||||||
Prepaid expenses and
other
|
142.3 | 99.7 | ||||||
Deferred income
taxes
|
28.2 | 31.1 | ||||||
Total current
assets
|
884.1 | 832.4 | ||||||
Property
and equipment, net
|
591.5 | 534.0 | ||||||
Goodwill
|
226.8 | 139.6 | ||||||
Deferred
income taxes
|
174.1 | 202.6 | ||||||
Other
|
168.1 | 107.2 | ||||||
Total assets
|
$ | 2,044.6 | 1,815.8 | |||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Short-term
borrowings
|
$ | 7.6 | 7.2 | |||||
Current maturities of long-term
debt
|
20.8 | 8.4 | ||||||
Accounts
payable
|
109.7 | 137.8 | ||||||
Income taxes
payable
|
11.0 | 21.2 | ||||||
Accrued
liabilities
|
448.6 | 360.5 | ||||||
Total current
liabilities
|
597.7 | 535.1 | ||||||
Long-term
debt
|
240.7 | 173.0 | ||||||
Accrued
pension costs
|
172.6 | 373.4 | ||||||
Retirement
benefits other than pensions
|
244.8 | 249.9 | ||||||
Deferred
income taxes
|
27.7 | 21.5 | ||||||
Other
|
175.0 | 157.6 | ||||||
Total liabilities
|
1,458.5 | 1,510.5 | ||||||
Commitments
and contingencies (notes 4, 5, 9 and 13)
|
||||||||
Equity:
|
||||||||
The Brink’s Company (“Brink’s”)
shareholders’ equity:
|
||||||||
Common stock
|
47.9 | 45.7 | ||||||
Capital in excess of par
value
|
548.9 | 486.3 | ||||||
Retained
earnings
|
396.4 | 310.0 | ||||||
Accumulated other comprehensive
loss
|
(512.8 | ) | (628.0 | ) | ||||
Total Brink’s shareholders’
equity
|
480.4 | 214.0 | ||||||
Noncontrolling
interests
|
105.7 | 91.3 | ||||||
Total equity
|
586.1 | 305.3 | ||||||
Total liabilities and
shareholders’ equity
|
$ | 2,044.6 | 1,815.8 |
See
accompanying notes to consolidated financial statements.
2
THE
BRINK’S COMPANY
and
subsidiaries
Consolidated
Statements of Income
(Unaudited)
Three
Months
|
Nine
Months
|
|||||||||||||||
Ended
September 30,
|
Ended
September 30,
|
|||||||||||||||
(In
millions, except per share amounts)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Revenues
|
$ | 801.8 | 813.4 | 2,286.2 | 2,404.0 | |||||||||||
Costs
and expenses:
|
||||||||||||||||
Cost
of revenues
|
647.5 | 647.6 | 1,859.1 | 1,909.4 | ||||||||||||
Selling,
general and administrative expenses
|
107.6 | 111.6 | 314.5 | 330.8 | ||||||||||||
Total costs and
expenses
|
755.1 | 759.2 | 2,173.6 | 2,240.2 | ||||||||||||
Other
operating income (expense)
|
14.2 | (4.4 | ) | 16.7 | (4.7 | ) | ||||||||||
Operating profit
|
60.9 | 49.8 | 129.3 | 159.1 | ||||||||||||
Interest
expense
|
(2.8 | ) | (3.0 | ) | (8.3 | ) | (8.8 | ) | ||||||||
Interest
and other income
|
1.2 | 4.5 | 7.2 | 9.6 | ||||||||||||
Income from continuing operations
before tax
|
59.3 | 51.3 | 128.2 | 159.9 | ||||||||||||
Provision
for income taxes
|
20.6 | 14.3 | 37.7 | 36.9 | ||||||||||||
Income from continuing
operations
|
38.7 | 37.0 | 90.5 | 123.0 | ||||||||||||
Income
from discontinued operations
|
1.0 | 18.5 | 6.1 | 53.7 | ||||||||||||
Net income
|
39.7 | 55.5 | 96.6 | 176.7 | ||||||||||||
Less net income attributable to
noncontrolling interests
|
(5.3 | ) | (7.5 | ) | (18.9 | ) | (29.9 | ) | ||||||||
Net income attributable to
Brink’s
|
34.4 | 48.0 | 77.7 | 146.8 | ||||||||||||
Amounts
attributable to Brink’s:
|
||||||||||||||||
Income
from continuing operations
|
33.4 | 29.5 | 71.6 | 93.1 | ||||||||||||
Income
from discontinued operations
|
1.0 | 18.5 | 6.1 | 53.7 | ||||||||||||
Net income attributable to
Brink’s
|
$ | 34.4 | 48.0 | 77.7 | 146.8 | |||||||||||
Earnings
per share attributable to Brink’s common shareholders:
|
||||||||||||||||
Basic:
|
||||||||||||||||
Continuing
operations
|
$ | 0.70 | 0.64 | 1.53 | 2.02 | |||||||||||
Discontinued
operations
|
0.02 | 0.40 | 0.13 | 1.16 | ||||||||||||
Net income
|
0.72 | 1.04 | 1.66 | 3.18 | ||||||||||||
Diluted:
|
||||||||||||||||
Continuing
operations
|
$ | 0.70 | 0.64 | 1.52 | 2.00 | |||||||||||
Discontinued
operations
|
0.02 | 0.39 | 0.13 | 1.15 | ||||||||||||
Net income
|
0.72 | 1.03 | 1.65 | 3.14 | ||||||||||||
Weighted-average
shares
|
||||||||||||||||
Basic
|
47.6 | 46.1 | 46.8 | 46.2 | ||||||||||||
Diluted
|
47.9 | 46.5 | 47.0 | 46.7 | ||||||||||||
Cash
dividends paid per common share
|
$ | 0.10 | 0.10 | 0.30 | 0.30 |
See
accompanying notes to consolidated financial statements.
3
THE
BRINK’S COMPANY
and
subsidiaries
Consolidated
Statement of Shareholders’ Equity
Nine
months ended September 30, 2009
(Unaudited)
Capital
|
Accumulated
|
|||||||||||||||||||||||||||
in
Excess
|
Other
|
|||||||||||||||||||||||||||
Common
|
of
Par
|
Retained
|
Comprehensive
|
Noncontrolling
|
||||||||||||||||||||||||
(In
millions)
|
Shares
|
Stock
|
Value
|
Earnings
|
Loss
|
Interests
|
Total
|
|||||||||||||||||||||
Balance
as of December 31, 2008
|
45.7 | $ | 45.7 | 486.3 | 310.0 | (628.0 | ) | 91.3 | 305.3 | |||||||||||||||||||
Net
income
|
- | - | - | 77.7 | - | 18.9 | 96.6 | |||||||||||||||||||||
Other
comprehensive income
|
- | - | - | - | 115.2 | 1.7 | 116.9 | |||||||||||||||||||||
Shares
repurchased
|
(0.2 | ) | (0.2 | ) | (2.5 | ) | (3.4 | ) | - | - | (6.1 | ) | ||||||||||||||||
Stock
contribution to pension plan
|
2.3 | 2.3 | 55.3 | - | - | - | 57.6 | |||||||||||||||||||||
Dividends:
|
||||||||||||||||||||||||||||
Brink’s common
shareholders
|
||||||||||||||||||||||||||||
($0.30 per
share)
|
- | - | - | (13.7 | ) | - | - | (13.7 | ) | |||||||||||||||||||
Noncontrolling
interests
|
- | - | - | - | - | (10.3 | ) | (10.3 | ) | |||||||||||||||||||
Adjustments
to spin-off of BHS
|
||||||||||||||||||||||||||||
(see note 1)
|
- | - | - | 26.0 | - | - | 26.0 | |||||||||||||||||||||
Share-based
compensation:
|
||||||||||||||||||||||||||||
Stock options and
awards:
|
||||||||||||||||||||||||||||
Compensation
expense
|
- | - | 5.5 | - | - | - | 5.5 | |||||||||||||||||||||
Consideration received
from
|
||||||||||||||||||||||||||||
exercise of stock
options
|
0.1 | 0.1 | 1.2 | - | - | - | 1.3 | |||||||||||||||||||||
Excess tax benefit
of
|
||||||||||||||||||||||||||||
stock
compensation
|
- | - | 0.4 | - | - | - | 0.4 | |||||||||||||||||||||
Other share-based benefit
programs
|
- | - | 2.7 | (0.2 | ) | - | - | 2.5 | ||||||||||||||||||||
Acquisitions
|
- | - | - | - | - | 4.1 | 4.1 | |||||||||||||||||||||
Balance
as of September 30, 2009
|
47.9 | $ | 47.9 | 548.9 | 396.4 | (512.8 | ) | 105.7 | 586.1 |
See
accompanying notes to consolidated financial statements.
4
THE
BRINK’S COMPANY
and
subsidiaries
Consolidated
Statements of Cash Flows
(Unaudited)
Nine
Months
|
||||||||
Ended
September 30,
|
||||||||
(In
millions)
|
2009
|
2008
|
||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 96.6 | 176.7 | |||||
Adjustments
to reconcile net income to net cash provided (used) by operating
activities:
|
||||||||
Income from discontinued
operations, net of tax
|
(6.1 | ) | (53.7 | ) | ||||
Depreciation and
amortization
|
97.2 | 92.6 | ||||||
Stock compensation
expense
|
5.5 | 6.9 | ||||||
Deferred income
taxes
|
29.2 | (5.3 | ) | |||||
Retirement benefit funding (more)
less than expense:
|
||||||||
Pension
|
(93.7 | ) | (8.7 | ) | ||||
Other than
pension
|
9.4 | (0.9 | ) | |||||
Gains on sales of property and
other assets
|
(8.3 | ) | (0.4 | ) | ||||
Gains on acquiring control of
equity method affiliates
|
(14.9 | ) | - | |||||
Impairment losses
|
2.3 | 0.5 | ||||||
Other operating
|
2.1 | 2.9 | ||||||
Changes in operating assets and
liabilities, net of effects of acquisitions:
|
||||||||
Accounts
receivable
|
8.1 | (39.8 | ) | |||||
Accounts payable, income taxes
payable and accrued liabilities
|
9.1 | 46.6 | ||||||
Prepaid and other current
assets
|
(33.5 | ) | (23.2 | ) | ||||
Other
|
3.8 | (10.8 | ) | |||||
Discontinued
operations
|
23.5 | 160.9 | ||||||
Net cash provided by operating
activities
|
130.3 | 344.3 | ||||||
Cash
flows from investing activities:
|
||||||||
Capital
expenditures
|
(112.5 | ) | (119.4 | ) | ||||
Acquisitions
|
(74.6 | ) | (6.1 | ) | ||||
Marketable
securities:
|
||||||||
Purchases
|
(10.6 | ) | (1.6 | ) | ||||
Sales
|
4.4 | 2.1 | ||||||
Other
|
7.8 | 2.8 | ||||||
Discontinued
operations
|
- | (135.3 | ) | |||||
Net cash used by investing
activities
|
(185.5 | ) | (257.5 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Long
term debt
|
(8.7 | ) | (8.6 | ) | ||||
Revolving
credit facilities
|
69.4 | 59.8 | ||||||
Short-term
debt
|
(0.3 | ) | (6.0 | ) | ||||
Repurchase
shares of common stock of Brink’s
|
(6.9 | ) | (53.6 | ) | ||||
Dividends
to:
|
||||||||
Shareholders of
Brink’s
|
(13.7 | ) | (13.6 | ) | ||||
Noncontrolling interests in
subsidiaries
|
(10.3 | ) | (9.9 | ) | ||||
Proceeds
from exercise of stock options
|
1.3 | 16.2 | ||||||
Excess
tax benefits associated with stock compensation
|
0.3 | 11.7 | ||||||
Minimum
tax withholdings associated with stock compensation
|
(0.4 | ) | (16.7 | ) | ||||
Net cash provided (used) by
financing activities
|
30.7 | (20.7 | ) | |||||
Effect
of exchange rate changes on cash
|
8.1 | (4.8 | ) | |||||
Cash
and cash equivalents:
|
||||||||
Increase
(decrease)
|
(16.4 | ) | 61.3 | |||||
Balance at beginning of
period
|
250.9 | 196.4 | ||||||
Balance at end of
period
|
$ | 234.5 | 257.7 |
See
accompanying notes to consolidated financial statements.
5
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, “Brink’s” or “we”) has two
geographic reportable segments:
· International
· North
America
Our
unaudited consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (“GAAP”) for interim
financial reporting and applicable quarterly reporting regulations of the
Securities and Exchange Commission (the “SEC”). Accordingly, the
unaudited consolidated financial statements do not include all of the
information and notes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for interim periods are not
necessarily indicative of the results that may be expected for the full
year. For further information, refer to our Annual Report on Form
10-K for the year ended December 31, 2008.
We have
made a number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities to
prepare these consolidated financial statements. Actual results could differ
materially from these estimates. The most significant estimates are
related to goodwill and other long-lived assets, pension and other retirement
benefit obligations, legal contingencies, foreign currency translation and
deferred tax assets.
We have
evaluated subsequent events for potential recognition and disclosure through
October 29, 2009, the date the consolidated financial statements included in
this Quarterly Report on Form 10-Q were issued.
Highly
Inflationary Economy Determination
In
determining whether Venezuela is a highly inflationary economy, we previously
used the consumer price index ("CPI") which is based on the inflation rates for
the metropolitan area of Caracas, Venezuela. Beginning January 1, 2008, a
national consumer price index ("NCPI") was developed for the entire country of
Venezuela. However, because inflation data is not available to compute a
cumulative three-year inflation rate for Venezuela using only NCPI, we use a
blended NCPI and CPI rate to determine whether the three-year cumulative
inflation rate has exceeded 100%. At September 30, 2009, the blended
three-year cumulative inflation rate was approximately 97%.
Adjustment
to Spin-Off of Brink’s Home Security Holdings, Inc. (“BHS”)
On October 31, 2008, we distributed all
of our interest in BHS to our shareholders of record as of the close of business
on October 21, 2008, in a tax-free distribution. In connection with the
spin-off, we entered into a Tax Matters Agreement with BHS which provides a
basis for the preparation and filing of tax returns for pre-spin and post-spin
operations of BHS in 2008. As authorized by the Tax Matters Agreement, we
made certain elections related to BHS’ operations for our U.S. federal 2008
consolidated tax return in the third quarter of 2009. These elections have the
effect of decreasing the net deferred tax assets allocated to BHS at the time of
the spin-off. As a result, we have increased the amount of our current income
tax receivable by $26.0 million, with an offsetting increase in retained
earnings to adjust the amount of the spin-off distribution.
6
Recently
Adopted Accounting Standards
We
adopted Statement of Financial Accounting Standard (“SFAS”) 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles – a
replacement of FASB Statement No. 162, effective for our quarter
ended September
30, 2009. SFAS 168 established the FASB Accounting Standards
Codification (“Codification”) as the sole source of authoritative
non-governmental accounting principles to be applied in the preparation of
financial statements in conformity with US GAAP. Although SFAS 168 does not
change US GAAP, the adoption of SFAS 168 impacted our financial statements since
all future references to authoritative accounting literature are now in
accordance with SFAS 168, except for the following standards, which will remain
authoritative until they are integrated into the Codification: SFAS 164, Not-for-Profit
Entities: Mergers and Acquisitions, SFAS 166,Accounting for Transfers of
Financial Assets, SFAS 167, Amendments to FASB Interpretation
No. 46R and SFAS 168.
We
adopted the accounting principles established by SFAS 141(R), Business Combinations, which
is now part of FASB Accounting Standards Codification (“ASC”) Topic 805, Business Combinations,
effective January 1, 2009. FASB ASC Topic 805 establishes
requirements for an acquirer to record the assets acquired, liabilities assumed,
and any related noncontrolling interests related to the acquisition of a
controlled subsidiary, measured at fair value, as of the acquisition
date. In 2008, we expensed all acquisition costs for transactions
that were expected to close in 2009. The adoption of this new
guidance did not otherwise have an effect on our historical financial
statements, but does affect the way we account for acquisitions after the
effective date.
We
adopted the accounting principles established by SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements an Amendment of ARB No. 51, which is
now part of FASB ASC Topic 810, Consolidation, effective
January 1, 2009. FASB ASC Topic 810 establishes new accounting and
reporting standards for the noncontrolling interest, previously known as
minority interest, in a subsidiary and for the deconsolidation of a
subsidiary. This statement clarifies that a noncontrolling interest
in a subsidiary is an ownership interest in the consolidated entity that should
be reported as a separate component within equity in the consolidated financial
statements. Additionally, consolidated net income is to be reported
with separate disclosure of the amounts attributable to the parent and to the
noncontrolling interests. We retroactively restated our consolidated
balance sheets, consolidated statements of income, consolidated statement of
shareholders’ equity, consolidated statements of cash flows and consolidated
statements of comprehensive income as required by FASB ASC Topic
810. The adoption of this new guidance resulted in a $91.3 million
reclassification of noncontrolling interests from other long-term liabilities to
shareholders’ equity on the December 31, 2008, consolidated balance sheet.
Prior to the adoption of this new guidance, noncontrolling interests were
deductions from income in arriving at net income. Under FASB ASC
Topic 810, noncontrolling interests are a deduction from net income used to
arrive at net income attributable to Brink’s.
We
adopted the accounting principles established by SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities an Amendment of SFAS 133, which is now
part of FASB ASC Topic 815, Derivatives and Hedging, effective January 1,
2009. FASB ASC Topic 815 requires
enhanced disclosures about an entity's derivative and hedging
activities. The adoption of this new guidance had
no impact on our financial statements.
We
adopted the accounting principles established by SFAS 165, Subsequent Events, which is
now part of FASB ASC Topic 855, Subsequent Events, effective
for our quarter ended June 30, 2009. FASB ASC Topic 855 establishes
general standards of accounting and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. This standard requires the disclosure of the date through which an
entity has evaluated subsequent events and the basis for selecting that
date. The adoption of this new guidance did
not have a material effect on our financial statements.
We
adopted the accounting principles established by FASB Staff
Position ("FSP") EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,
which is now part of FASB ASC Topic 260, Earnings per Share, effective January 1,
2009. FASB ASC Topic 260 affects entities that accrue cash dividends
(whether paid or unpaid) on share-based payment awards during the award’s
service period for dividends that are nonforfeitable. The FASB concluded that
unvested awards containing rights to nonforfeitable dividends are participating
securities. We have a small number of unvested awards that receive
nonforfeitable cash dividends during the service period. Because of
this, we are required to compute basic and diluted earnings per share under the
two-class method. The adoption of this new guidance did not have a
material effect on our financial statements.
We
adopted the accounting principles established by FSP 157-2, Partial Deferral of the Effective
Date of SFAS 157, which is now
part of FASB ASC Topic 820, Fair Value Measurements and
Disclosures, effective January 1, 2009. This guidance delayed
the effective date of FASB ASC Topic 820 for all nonrecurring fair value
measurements of nonfinancial assets and nonfinancial liabilities. The adoption
of this guidance did not have a material effect on our results of operations or
financial position.
7
We
adopted the accounting principles established by FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, which is now
part of FASB ASC Topic 820, Fair Value Measurements and
Disclosures, effective for our quarter ended June 30,
2009. FASB
ASC Topic
820 provides guidance for estimating fair value when the volume and level of
activity for the asset or liability have significantly decreased. FASB ASC Topic
820 also provides guidance for identifying circumstances that indicate a
transaction is not orderly and affirms that the objective of fair value
measurement in a market for an asset that is not active is the price that would
be received in an orderly (i.e., not distressed) transaction on the measurement
date under current market conditions. If the market is determined to be not
active, the entity must consider all available evidence in determining whether
an observable transaction is orderly. The adoption of this new
guidance did not have a material effect on our results of operations or
financial position.
We
adopted the accounting principles established by FSP
FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, which is now part of FASB ASC Topic
320, Investments – Debt and
Equity Securities, effective for our
quarter ended June 30, 2009. FASB ASC Topic 320 provides guidance on
the recognition of other-than-temporary impairments of investments in debt
securities and provides new presentation and disclosure requirements for
other-than-temporary impairments of investments in debt and equity
securities. The adoption of this new guidance did not have a material
effect on our financial statements.
We
adopted the accounting principles established by FSP
FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments, which is
now part of FASB ASC Topic 825, Financial Instruments,
effective for our quarter ended June 30, 2009. FASB ASC Topic 825
requires disclosures about the fair value of financial instruments in interim
reporting periods whereas, previously, the disclosures were required only in
annual financial statements. The adoption of this new guidance
resulted in the disclosure of the fair value of our significant fixed rate
long-term debt and our marketable securities as of June 30,
2009. This new guidance did not otherwise have an effect on our
financial statements.
We
adopted the accounting principles established by FSP
FAS 141(R)-1, Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination that Arise
from Contingencies, which is now part of FASB ASC Topic 805, Business Combinations,
effective for our quarter ended June 30, 2009. This guidance is
effective for each of our business combinations which were completed on or after
January 1, 2009. FASB ASC Topic 805 provides that contingent assets
acquired or liabilities assumed in a business combination be recorded at fair
value if the acquisition-date fair value can be determined during the
measurement period. If the acquisition-date fair value cannot be
determined, such items would be recognized at the acquisition date if they meet
the recognition requirements of FASB ASC
Topic 450, Contingencies. In
periods after the acquisition date, items not recognized as part of the
acquisition but recognized subsequently would be reflected in that subsequent
period’s income. The adoption of this new guidance did not have a
material effect on our financial statements.
Standards
Not Yet Adopted
In
December 2008, the FASB issued FSP FAS 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets, which is now part of FASB ASC Topic
715, Compensation – Retirement
Benefits, which will be effective for us on December 31, 2009. This
guidance requires enhanced disclosures about plan assets in an employer’s
defined benefit pension or other postretirement plans in order to provide users
of financial statements with an understanding of how investment allocation
decisions are made, the major categories of plan assets, the inputs and
valuation techniques used to measure the fair value of plan assets, and
significant concentrations of risk within plan assets.
In
June 2009, the FASB issued SFAS 166, Accounting for Transfers of
Financial Assets, which will be effective for us on January 1,
2010. SFAS 166 removes the concept of a qualifying special-purpose
entity (QSPE) from SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities, and removes the
exception from applying FASB Interpretation 46R, Consolidation of Variable Interest
Entities. This statement also clarifies the requirements for isolation
and limitations on portions of financial assets that are eligible for sale
accounting. We are currently evaluating the impact of adopting this standard on
the consolidated financial statements.
In
June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation
No. 46R, which will be effective for us on January 1, 2010. SFAS 167
requires an analysis to determine whether a variable interest gives the entity a
controlling financial interest in a variable interest entity. This statement
requires an ongoing reassessment and eliminates the quantitative approach
previously required for determining whether an entity is the primary
beneficiary. We do not expect a material effect from the adoption of this
standard on our consolidated financial statements.
In August
2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, Measuring Liabilities at Fair
Value, which will be effective for us on October 1, 2009. This ASU
clarifies the application of certain valuation techniques in circumstances in
which a quoted price in an active market for the identical liability is not
available. We do not expect a material effect from the adoption of this guidance
on our consolidated financial statements.
8
In
September 2009, the FASB issued ASU 2009-12, Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent), which will be
effective for our year ending December
31, 2009. ASU 2009-12 allows investors to use net asset value as a
practical expedient to estimate the fair value of certain investments that do
not have readily determinable fair values and sets forth disclosure requirements
for these investments. We do not expect a material effect from the
adoption of this guidance on our consolidated financial statements.
In
October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue
Arrangements, which will be effective for us on January 1, 2011. ASU
2009-13 establishes a selling price hierarchy for determining the selling price
of a deliverable in a multiple-deliverable arrangement. In addition, the revised
guidance requires additional disclosures about the methods and assumptions used
to evaluate multiple-deliverable arrangements and to identify the significant
deliverables within those arrangements. We are currently evaluating the
potential impact of the amended guidance on our consolidated financial
statements.
In
October 2009, the FASB issued ASU 2009-14, Certain Revenue Arrangements that
Include Software Elements, which will be effective for us on January 1,
2011. ASU 2009-14 amends ASC Topic 985 to exclude from its scope
tangible products that contain both software and non-software components that
function together to deliver a product’s essential functionality. We
are currently evaluating the potential impact of the amended guidance on our
consolidated financial statements.
9
Note
2 – Segment information
FASB ASC
Topic 280, Segment
Reporting, establishes standards for reporting information about
operating segments. Segments are identified by us based on how
resources are allocated and operating decisions are made. Management
evaluates performance and allocates resources based on operating profit or loss,
excluding corporate allocations. Although we have four operating
segments, under the aggregation criteria set forth in FASB ASC Topic 280, we
conduct business in two geographic reportable segments: International and North
America. Prior to the spin-off of BHS in October of 2008, our two
reportable segments were Brink’s, Incorporated and BHS.
Our
primary services include:
Core
services
|
·
|
Cash-in-transit
(“CIT”) armored car transportation
|
|
·
|
Automated
teller machine (“ATM”) replenishment and
servicing
|
Value-added
services
|
·
|
Global
Services – arranging secure long-distance transportation of
valuables
|
|
·
|
Cash
Logistics – money processing, supply chain management of cash from
point-of-sale through transport, vaulting and bank
deposit
|
Other
security services
|
·
|
Guarding
services, including airport
security
|
Brink’s
operates in approximately 50 countries.
Three
Months
|
Nine
Months
|
|||||||||||||||
Ended
September 30,
|
Ended
September 30,
|
|||||||||||||||
(In
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Revenues:
|
||||||||||||||||
International
|
$ | 579.2 | 575.8 | 1,620.8 | 1,701.4 | |||||||||||
North America
|
222.6 | 237.6 | 665.4 | 702.6 | ||||||||||||
Revenues
|
$ | 801.8 | 813.4 | 2,286.2 | 2,404.0 | |||||||||||
Operating
profit:
|
||||||||||||||||
International
|
$ | 65.2 | (a) | 56.3 | 120.0 | 166.6 | ||||||||||
North America
|
10.4 | 11.8 | 37.9 | 36.1 | ||||||||||||
Segment operating
profit
|
75.6 | 68.1 | 157.9 | 202.7 | ||||||||||||
Corporate expense
|
(10.1 | ) | (18.8 | ) | (16.9 | ) | (43.3 | ) | ||||||||
Former operations income
(expense)
|
(4.6 | ) | 0.5 | (11.7 | ) | (0.3 | ) | |||||||||
Operating profit
|
$ | 60.9 | 49.8 | 129.3 | 159.1 |
|
(a)
Includes a $13.9 million gain related to the acquisition (completed in
September 2009) of a controlling interest of a CIT and Global Services
operation in India. See note 8 for more
information.
|
10
Note
3 – Shares used to calculate earnings per share
Shares
used to calculate earnings per share were as follows:
Three
Months
|
Nine
Months
|
|||||||||||||||
Ended
September 30,
|
Ended
September 30,
|
|||||||||||||||
(In
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Weighted-average
shares:
|
||||||||||||||||
Basic (a)
|
47.6 | 46.1 | 46.8 | 46.2 | ||||||||||||
Effect of dilutive stock options
and awards
|
0.3 | 0.4 | 0.2 | 0.5 | ||||||||||||
Diluted
|
47.9 | 46.5 | 47.0 | 46.7 | ||||||||||||
Antidilutive
stock options and awards excluded from denominator
|
2.4 | 0.4 | 2.4 | 0.3 |
(a) We
have deferred compensation plans for our employees and directors denominated in
common stock units. Each unit represents one share of common
stock. The number of shares used to calculate basic earnings per
share includes the weighted-average units credited to employees and directors
under the deferred compensation plans. Accordingly, included in basic
shares are weighted-average units of 0.9 million in the three months and 0.8
million in the nine months ended September 30, 2009, as well as 0.5 million in
the three months and 0.6 million in the nine months ended September 30,
2008.
Note
4 – Retirement benefits
Pension
plans
We have
various defined benefit plans for eligible employees.
The
components of net periodic pension cost (credit) for our pension plans were as
follows:
U.S.
Plans
|
Non-U.S.
Plans
|
Total
|
||||||||||||||||||||||
(In
millions)
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
||||||||||||||||||
Three
months ended September 30,
|
||||||||||||||||||||||||
Service
cost
|
$ | - | - | 1.5 | 2.6 | 1.5 | 2.6 | |||||||||||||||||
Interest
cost on projected benefit obligation
|
12.2 | 11.5 | 3.2 | 3.3 | 15.4 | 14.8 | ||||||||||||||||||
Return
on assets – expected
|
(16.3 | ) | (14.7 | ) | (2.3 | ) | (2.9 | ) | (18.6 | ) | (17.6 | ) | ||||||||||||
Amortization
of losses
|
2.0 | 0.5 | 0.9 | 0.9 | 2.9 | 1.4 | ||||||||||||||||||
Net
periodic pension cost (credit)
|
$ | (2.1 | ) | (2.7 | ) | 3.3 | 3.9 | 1.2 | 1.2 | |||||||||||||||
Nine
months ended September 30,
|
||||||||||||||||||||||||
Service
cost
|
$ | - | - | 4.4 | 7.6 | 4.4 | 7.6 | |||||||||||||||||
Interest
cost on projected benefit obligation
|
35.5 | 34.4 | 9.0 | 9.9 | 44.5 | 44.3 | ||||||||||||||||||
Return
on assets – expected
|
(44.8 | ) | (44.2 | ) | (6.6 | ) | (9.0 | ) | (51.4 | ) | (53.2 | ) | ||||||||||||
Amortization
of losses
|
7.0 | 1.2 | 2.6 | 2.8 | 9.6 | 4.0 | ||||||||||||||||||
Settlement
loss
|
0.3 | - | - | - | 0.3 | - | ||||||||||||||||||
Net
periodic pension cost (credit)
|
$ | (2.0 | ) | (8.6 | ) | 9.4 | 11.3 | 7.4 | 2.7 |
Based on
December 31, 2008, data, assumptions and funding regulations, we are not
required to make a contribution to our primary U.S. plan for the fiscal year
2009. On August 20, 2009, we made a voluntary $150 million
contribution to our primary U.S. retirement plan to improve the funded status of
the plan. The contribution was comprised of $92.4 million of cash
and 2,260,738 newly issued shares of our common stock valued for purposes
of the contribution at $25.48 per share, or $57.6 million in the
aggregate. We do not expect to make additional contributions to the
primary U.S. pension plan during 2009.
Because
we considered the contribution to be a significant event for the plan, we
remeasured our projected benefit obligation and plan assets related to our
primary U.S. pension plan as of July 1, 2009. After the contribution
and giving effect to the remeasurement, our primary U.S. pension plan’s
underfunding improved from a $308 million deficit at December 31, 2008, to a
$104 million deficit at September 30, 2009.
11
As a
result of making a voluntary contribution in 2009, our total estimated
contributions over the next five to six years, including the $150 million
contribution, were reduced from approximately $352 million to approximately $333
million. The primary assumptions used to estimate these amounts are
as follows:
1.
|
a
measurement date of July 1, 2009
|
2.
|
a
discount rate of 6.8%
|
3.
|
a
voluntary contribution of $150 million made in August
2009
|
4.
|
an
expected return on assets of 8.75%,
and
|
5.
|
a
change in method of valuing assets for funding purposes from the
fair-market-value basis to the
asset-smoothing basis.
|
We
elected the asset-smoothing basis of computing asset values for funding purposes
to reduce the volatility of future required contributions to the
plan. All other assumptions remain the same as they were at December
31, 2008, which can be found in our 2008 Annual Report on Form
10-K. The assumptions used are based on a variety of estimates,
including actuarial assumptions as of July 1, 2009. These estimated
amounts will change in the future to reflect payments made, investment returns,
contribution amounts, actuarial revaluations, and other changes in
estimates. Actual amounts could differ materially from the estimated
amounts.
After the
$150 million contribution, total pension credit in 2009 will be $5.7 million
compared to a full-year estimate of $2.0 million that was disclosed in our 2008
Annual Report. The $3.7 million increase in the total pension credit
for 2009 is recorded ratably over the second half of the year.
We made
various amendments to documents governing the plan and the trust created under
the plan as well as our investment policy in order to permit the contribution of
the newly issued shares of our common stock, and we engaged a third-party
investment advisor to act as an independent fiduciary to the trust and make
investment decisions regarding our common stock held by the plan.
Retirement
benefits other than pensions
We
provide retirement health care benefits for eligible current and former
employees in the U.S. and Canada, including former employees of the former coal
operations. Retirement benefits related to the former coal operation
include medical benefits provided by the Pittston Coal Group Companies Employee
Benefit Plan for employees represented by the United Mine Workers of America
(the “UMWA”) as well as costs related to black lung obligations.
The
components of net periodic postretirement cost related to retirement benefits
other than pensions were as follows:
UMWA
plans
|
Black
lung and other plans
|
Total
|
||||||||||||||||||||||
(In
millions)
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
||||||||||||||||||
Three
months ended September 30,
|
||||||||||||||||||||||||
Interest
cost on accumulated postretirement
|
||||||||||||||||||||||||
benefit
obligations
|
$ | 6.2 | 7.8 | 0.7 | 0.8 | 6.9 | 8.6 | |||||||||||||||||
Return
on assets – expected
|
(5.6 | ) | (9.7 | ) | - | - | (5.6 | ) | (9.7 | ) | ||||||||||||||
Amortization
of losses (gains)
|
3.9 | 2.0 | (0.1 | ) | - | 3.8 | 2.0 | |||||||||||||||||
Net
periodic postretirement cost
|
$ | 4.5 | 0.1 | 0.6 | 0.8 | 5.1 | 0.9 | |||||||||||||||||
Nine
months ended September 30,
|
||||||||||||||||||||||||
Service
cost
|
$ | - | - | - | 0.1 | - | 0.1 | |||||||||||||||||
Interest
cost on accumulated postretirement
|
||||||||||||||||||||||||
benefit
obligations
|
19.6 | 23.5 | 2.1 | 2.4 | 21.7 | 25.9 | ||||||||||||||||||
Return
on assets – expected
|
(16.9 | ) | (29.0 | ) | - | - | (16.9 | ) | (29.0 | ) | ||||||||||||||
Amortization
of losses (gains)
|
12.8 | 6.0 | (0.1 | ) | 0.1 | 12.7 | 6.1 | |||||||||||||||||
Curtailment
gain and other (a)
|
- | - | (1.4 | ) | (2.0 | ) | (1.4 | ) | (2.0 | ) | ||||||||||||||
Net
periodic postretirement cost
|
$ | 15.5 | 0.5 | 0.6 | 0.6 | 16.1 | 1.1 |
(a) In
January 2008, Brink’s announced the freezing of the Canadian retirement benefit
plan.
12
Note
5 – Income taxes
Three
Months
|
Nine
Months
|
|||||||||||||||
Ended
September 30,
|
Ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Continuing
operations
|
||||||||||||||||
Provision
for income taxes (in millions)
|
$ | 20.6 | 14.3 | 37.7 | 36.9 | |||||||||||
Effective
tax rate
|
34.7 | % | 27.9 | % | 29.4 | % | 23.1 | % | ||||||||
Discontinued
operations
|
||||||||||||||||
Provision
for (benefit from) income taxes (in millions)
|
$ | (1.6 | ) | 12.4 | 0.3 | 43.0 | ||||||||||
Effective
tax rate
|
(200 | +)% | 40.1 | % | 4.7 | % | 44.5 | % |
2009
Compared to U.S. Statutory Rate
The
effective income tax rate on continuing operations in the first nine months of
2009 was lower than the 35% U.S. statutory tax rate due to $5.7 million in lower
tax expense primarily resulting from the net effect of permanent book-tax
differences offset by increases in valuation allowances in our non-U.S.
jurisdictions. Included in the $5.7 million net benefit is an $8.9
million tax benefit from inflation adjustments in Venezuela that would not be
recorded under highly inflationary accounting rules. In addition, the rate
was impacted by $3.6 million in lower taxes due to the nontaxable
acquisition-related gains, and $1.5 million in higher U.S. taxes due to changes
in elections for the recently filed U.S. tax returns and changes in tax
laws.
2008
Compared to U.S. Statutory Rate
The
effective income tax rate on continuing operations in the first nine months of
2008 was lower than the 35% U.S. statutory tax rate largely due to an $8.8
million valuation allowance release for non-U.S. tax jurisdictions and $10.5
million in lower taxes related to lower effective tax rates in our non-U.S.
jurisdictions and inflation adjustments in certain countries that are treated as
permanent differences.
13
Note
6 – Share-based compensation plans
The fair
value of options granted during the 2009 and 2008 periods was calculated using
the Black Scholes option-pricing model and the following estimated
weighted-average assumptions:
Three
and Nine Months
|
|||||
Ended
September 30,
|
|||||
Options
Granted
|
2009
|
2008
|
|||
Number
of shares underlying options, in thousands
|
289
|
541
|
|||
Weighted-average
exercise price per share
|
$
|
27.59
|
64.24
|
||
Assumptions
used to estimate fair value:
|
|||||
Expected dividend
yield:
|
|||||
Weighted-average
|
1.4%
|
0.6%
|
|||
Range
|
1.4%
|
0.6%
|
|||
Expected
volatility:
|
|||||
Weighted-average
|
36%
|
26%
|
|||
Range
|
35%
- 39%
|
26%
- 27%
|
|||
Risk-free interest
rate:
|
|||||
Weighted-average
|
1.8%
|
2.8%
|
|||
Range
|
0.9% - 2.4%
|
2.0% - 3.1%
|
|||
Expected term in
years:
|
|||||
Weighted-average
|
3.8
|
3.6
|
|||
Range
|
1.9 – 5.3
|
2.1 - 5.4
|
|||
Weighted-average
fair value estimates at grant date:
|
|||||
In millions
|
$
|
2.1
|
7.8
|
||
Per share
|
$
|
7.24
|
14.39
|
Upon
completion of the BHS spin-off on October 31, 2008, 118,500 options that had
been granted in the third quarter of 2008 to employees of BHS were
canceled.
For
employees remaining with Brink’s on October 31, 2008, the number of options and
the exercise prices were adjusted to reflect the effect of the spin-off of
BHS. For options granted in 2008, 420,104 options were adjusted to 771,867
options. Additionally, the exercise prices for these options were adjusted
from $64.15 and $69.11 per share to $34.92 and $37.62 per share,
respectively.
Nonvested
Shares
Number
of
|
Weighted-Average
Grant-Date
|
|||
Shares
|
Fair
Value (b)
|
|||
Balance
as of December 31, 2008
|
70,865
|
$
|
36.27
|
|
Granted (a)
|
201,077
|
26.90
|
||
Cancelled
awards
|
(1,250)
|
26.80
|
||
Vested
|
(33,801)
|
35.71
|
||
Balance
as of September 30, 2009
|
236,891
|
$
|
28.45
|
(a)
|
Amounts
granted in 2009 include 178,406 restricted stock units under the 2005
Equity Incentive Plan and 22,671 deferred stock units under the
Non-Employee Directors’ Equity
Plan.
|
(b)
|
Fair
value is measured at the date of grant based on the average of the high
and low per share quoted sales price of Brink’s common stock, adjusted for
a discount on units that do not receive or accrue
dividends.
|
14
Note
7 – Common stock
On August
20, 2009, we issued 2,260,738 new shares of Brink’s common stock as part of the
$150 million contribution to our primary U.S. pension plan. The fair
value of the contribution to the plan was $25.48 per share, which reflected a
discount to the closing share price of our common stock on August 19, 2009. The
fair value was discounted from the market price due to the lack of marketability
of the newly issued shares at the date of contribution.
On
September 14, 2007, our board of directors authorized the purchase of up to $100
million of our outstanding common shares and at December 31, 2008, $39.8 million
remained available. Under the program, we used $6.1 million to purchase 234,456
shares of common stock between January 1, 2009, and March 31, 2009, at an
average price of $26.20 per share. No shares were purchased in the
second and third quarters of 2009. As of September 30, 2009, we had
$33.7 million under the program available to purchase shares. The
repurchase authorization does not have an expiration date.
Note
8 – Acquisitions
Sebival
Brazilian
CIT and payment processing business
On
January 8, 2009, we acquired 100% of the capital stock and voting interests in
Sebival-Seguranca Bancaria
Industrial e de Valores Ltda. and Setal Servicos Especializados,
Tecnicos e Auxiliares Ltda. (“Sebival”) for approximately $47.6 million
in cash. Both of the businesses which comprise Sebival were controlled by the
same owner and the acquisition expands our operations into the midwestern region
of Brazil. Acquisition-related costs were $0.8 million and were
included in selling, general and administrative expenses in our consolidated
statement of income for the year ended December 31, 2008.
The
Sebival acquisition has been accounted for as a business combination under the
acquisition method of accounting. Under the acquisition method of accounting,
the assets acquired and the liabilities assumed are recorded at their respective
fair values as of the acquisition date in our consolidated financial statements.
We have provisionally recognized assets acquired and liabilities assumed in the
transaction. The amounts reported are provisional as we are
completing the valuation work required to accurately allocate the purchase
price. The excess of the purchase price over the fair value of the
net assets acquired has been recorded as goodwill in the amount of $30.7
million. The acquired goodwill consists of intangible assets that do
not qualify for separate recognition, combined with synergies expected from
integrating Sebival’s operations into our existing Brazilian
operations. All of the goodwill has been assigned to the Latin
America operating segment and is expected to be deductible for tax
purposes. Sebival’s results of operations are included in our
consolidated financial statements from the date of acquisition.
We have
determined the following provisional estimated fair values for the assets
purchased and liabilities assumed as of the date of the acquisition. The
determination of estimated fair value required management to make significant
estimates and assumptions and actual results may be materially
different.
Estimated
Fair
|
||||
Value
at
|
||||
(In
millions)
|
January
8, 2009
|
|||
Accounts
receivable
|
$ | 6.3 | ||
Other
current assets
|
4.6 | |||
Property
and equipment, net
|
5.3 | |||
Identifiable
intangible assets
|
19.2 | |||
Goodwill
|
30.7 | |||
Other
noncurrent assets
|
1.1 | |||
Current
liabilities
|
(11.1 | ) | ||
Noncurrent
liabilities
|
(8.5 | ) | ||
Total
net assets acquired
|
$ | 47.6 |
15
Brink’s
Arya
Indian
CIT and Global Services business
On
September 1, 2009, we acquired additional shares of Brink’s Arya (“Arya”)
increasing our ownership in Arya from 40% to 78%. The consideration paid for the
additional 38% interest was approximately $22.2 million. We recognized a gain of
$13.9 million on the conversion from the equity method of accounting to
consolidation. The gain represents the difference between the fair value and the
book value of our previously held 40% investment as of the acquisition date and
was included in other operating income of our International
segment.
In
connection with the acquisition of 38% of Arya’s shares, we also agreed to
purchase the remaining 22% of the shares we do not currently hold for
approximately $12.8 million. This purchase is subject to the satisfaction of
certain conditions which are expected to be met by September 1,
2011. We accounted for Arya as 100% owned and included the fixed
purchase price in non-current liabilities.
Arya is a
cash handling and secure logistics company based in Mumbai, India, and this
acquisition expands our presence in one of the largest cash services markets in
Asia. The acquisition has been accounted for as a business combination using the
acquisition method of accounting with the assets acquired and the liabilities
assumed recorded at their estimated fair values as of the acquisition date. The
amounts reported are provisional as we are completing the valuation work
required to accurately allocate the purchase price. The excess of the
purchase price over the fair value of the net assets acquired has been recorded
as goodwill in the amount of $29.0 million which consists of intangible assets
that do not qualify for separate recognition along with expected benefits from
combining Arya into Brink’s operations. All of the goodwill has been
assigned to the Asia-Pacific operating segment and is not expected to be
deductible for tax purposes. Arya’s results of operations are
included in our consolidated financial statements from the date of
acquisition.
We have
determined the following provisional estimated fair values for the assets
purchased and liabilities assumed as of the date of the acquisition. The
determination of estimated fair value required management to make significant
estimates and assumptions and actual results may be materially
different.
Estimated
Fair
|
||||
Value
at
|
||||
(In
millions)
|
September
1, 2009
|
|||
Total
purchase consideration:
|
||||
Cash
paid for 38% of shares
|
$ | 22.2 | ||
Fair
value of previously held 40% noncontrolling interest
|
20.0 | |||
Liability
to purchase remaining 22% of shares
|
12.8 | |||
Fair
value of purchase consideration
|
$ | 55.0 | ||
Accounts
receivable
|
$ | 3.3 | ||
Other
current assets
|
10.0 | |||
Property
and equipment, net
|
2.4 | |||
Identifiable
intangible assets
|
18.7 | |||
Goodwill
|
29.0 | |||
Current
liabilities
|
(2.0 | ) | ||
Noncurrent
liabilities
|
(6.4 | ) | ||
Total
net assets acquired
|
$ | 55.0 |
16
Actual
results of Sebival and Arya included in our consolidated financial statements
from the dates of acquisition as well as pro forma revenue and earnings are as
follows:
(In
millions)
|
Revenue
|
Net
income attributable to Brink’s
|
||||||
Actual
results for the nine months ended September 30, 2009 (a)
|
||||||||
Sebival
|
$ | 51.8 | 5.2 | |||||
Arya
|
1.7 | - | ||||||
Pro
forma results of The Brink’s Company (b)
|
||||||||
Nine months ended September 30,
2009
|
$ | 2,298.5 | 63.8 | |||||
Nine months ended September 30,
2008
|
2,477.7 | 149.8 |
(a)
|
Actual
results of Sebival and Arya included in our consolidated results of
operations from the dates of
acquisition.
|
(b)
|
Pro
forma results of The Brink’s Company, assuming the Sebival and Arya
acquisitions occurred on January 1, 2008. Amounts do not
include a gain on acquiring a controlling interest in
Arya.
|
Other
In the
first quarter of 2009, we acquired a controlling interest in a Panama armored
transportation operation, which was previously 49% owned. We
recognized a gain of $0.5 million related to the step-up in basis of our
previous ownership in this company and a gain of $0.5 million related to the
bargain purchase of the remaining 51% interest. The total
pretax gain resulting from this transaction of $1.0 million was recognized in
our consolidated statements of income in other operating income (expense) of our
International segment.
On September 4, 2009, we acquired a
majority stake in ICD Limited (“ICD”), a premium provider of commercial security
services in the Asia-Pacific region. ICD designs, installs, maintains
and manages high-quality commercial security systems. With principal
operations in China, ICD also has offices in Hong Kong, India, Singapore and
Australia. ICD employs approximately 200 people and had 2008 revenue
of $12 million.
17
Note
9 – Income from discontinued operations
Three
Months
|
Nine
Months
|
|||||||||||||||
Ended
September 30,
|
Ended
September 30,
|
|||||||||||||||
(In
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
BHS:
|
||||||||||||||||
Income from operations before tax
(a)
|
$ | - | 31.1 | - | 98.0 | |||||||||||
Expense associated with the
spin-off
|
- | (2.2 | ) | - | (6.5 | ) | ||||||||||
Adjustments
to contingencies of former operations:
|
||||||||||||||||
Gain from FBLET refunds (see note
13)
|
- | - | 19.7 | - | ||||||||||||
BAX Global indemnification (see
note 13)
|
(0.7 | ) | - | (13.2 | ) | - | ||||||||||
Other
|
0.1 | 2.0 | (0.1 | ) | 5.2 | |||||||||||
Income
from discontinued operations before income taxes
|
(0.6 | ) | 30.9 | 6.4 | 96.7 | |||||||||||
Provision
for (benefit from) income taxes
|
(1.6 | ) | 12.4 | 0.3 | 43.0 | |||||||||||
Income
from discontinued operations
|
$ | 1.0 | 18.5 | 6.1 | 53.7 |
(a)
|
BHS
operations were spun off on October 31, 2008. Revenues of the
operations were $135.4 million for the third quarter of 2008 and $397.1
million for the first nine months of
2008.
|
Note
10 – Supplemental cash flow information
Nine
Months
|
||||||||
Ended
September 30,
|
||||||||
(In
millions)
|
2009
|
2008
|
||||||
Cash
paid for:
|
||||||||
Interest
|
$ | 6.9 | 7.7 | |||||
Income taxes
|
15.7 | (a) | 56.4 |
(a)
Payments are net of $43 million of U.S. federal income tax refunds.
Note
11 – Comprehensive income
Three
Months
|
Nine
Months
|
|||||||||||||||
Ended
September 30,
|
Ended
September 30,
|
|||||||||||||||
(In
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Net
income
|
$ | 39.7 | 55.5 | 96.6 | 176.7 | |||||||||||
Other
comprehensive income (loss), net of reclasses and taxes:
|
||||||||||||||||
Benefit plan experience
gain
|
54.4 | 1.9 | 63.2 | 5.8 | ||||||||||||
Benefit plan prior service
cost
|
0.3 | 0.4 | 2.2 | 1.1 | ||||||||||||
Foreign currency translation
adjustments
|
30.0 | (50.1 | ) | 50.4 | (21.8 | ) | ||||||||||
Marketable
securities
|
0.2 | (1.6 | ) | 1.1 | (2.5 | ) | ||||||||||
Other comprehensive income
(loss)
|
84.9 | (49.4 | ) | 116.9 | (17.4 | ) | ||||||||||
Comprehensive
income
|
$ | 124.6 | 6.1 | 213.5 | 159.3 |
Comprehensive
income
|
$ | 124.6 | 6.1 | 213.5 | 159.3 | |||||||||||
Less
amounts attributable to noncontrolling interests:
|
||||||||||||||||
Net income
|
(5.3 | ) | (7.5 | ) | (18.9 | ) | (29.9 | ) | ||||||||
Foreign currency translation
adjustments
|
(1.4 | ) | 2.8 | (1.9 | ) | 1.3 | ||||||||||
Marketable
securities
|
0.2 | - | 0.2 | - | ||||||||||||
Comprehensive income attributable
to noncontrolling interests
|
(6.5 | ) | (4.7 | ) | (20.6 | ) | (28.6 | ) | ||||||||
Comprehensive
income attributable to Brink’s
|
$ | 118.1 | 1.4 | 192.9 | 130.7 |
18
Note
12 – Fair Value
Financial
assets carried at fair value at September 30, 2009, and December 31, 2008, are
classified in one of three categories as noted below.
Level
1: Quoted prices (unadjusted) in active markets that are accessible
at the measurement date for identical assets and liabilities. The
fair value hierarchy gives the highest priority to Level 1 inputs.
Level
2: Observable prices that are based on inputs not quoted on active
market markets, but are corroborated by market data.
Level
3: Unobservable inputs are used when little or no market data is
available. The fair value hierarchy gives the lowest priority to
Level 3 inputs.
Fair
Value of Available-for-Sale Securities
|
||||||||||||||||
(In
millions)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||
September
30, 2009
|
||||||||||||||||
Available-for-sale:
|
||||||||||||||||
Mutual funds
|
$ | 17.2 | - | - | 17.2 | |||||||||||
Non-U.S. debt
securities
|
9.8 | - | - | 9.8 | ||||||||||||
Equity securities
|
1.9 | - | - | 1.9 | ||||||||||||
Total
available-for-sale securities at fair value
|
$ | 28.9 | - | - | 28.9 | |||||||||||
December
31, 2008
|
||||||||||||||||
Available-for-sale:
|
||||||||||||||||
Mutual funds
|
$ | 19.2 | - | - | 19.2 | |||||||||||
Equity securities
|
0.9 | - | - | 0.9 | ||||||||||||
Total
available-for-sale securities at fair value
|
$ | 20.1 | - | - | 20.1 |
Other
financial assets and liabilities not measured at fair value on a recurring basis
include cash and cash equivalents, accounts receivable, floating rate debt,
accounts payable and accrued liabilities. The financial statement
carrying amounts of these items approximate the fair value due to their
short-term nature. Fair value of our fixed-rate Dominion Terminal
Associates (“DTA”) bonds at September 30, 2009, is based on quoted
prices. At December 31, 2008 the fair value of these bonds was
estimated by discounting the future cash flows using rates for similar debt at
the valuation date.
The fair
value and carrying value of our DTA bonds are as follows:
September
30,
|
December
31,
|
|||||||||||||||
2009
|
2008
|
|||||||||||||||
(In
millions)
|
Fair
Value
|
Carrying
Value
|
Fair
Value
|
Carrying
Value
|
||||||||||||
DTA
bonds
|
$ | 41.8 | 43.2 | 44.5 | 43.2 |
19
Note
13 – Commitments and contingent matters
Operating
leases
We have
made residual value guarantees of approximately $58.0 million at September 30,
2009, related to operating leases, principally for trucks and other
vehicles.
Federal
Black Lung Excise Tax (“FBLET”) refunds
In late
2008, Congress passed the Energy Improvement and Extension Act of 2008 which
enabled taxpayers to file claims for FBLET refunds for periods prior to those
open under the statute of limitations previously applicable to us. In the second
quarter of 2009, we received FBLET refunds and recognized the majority of these
refunds as a pretax gain of $19.7 million. The gain related to these
refunds was recorded in discontinued operations.
Former
operations
As
previously disclosed, BAX Global, a former business unit of ours, is defending a
claim related to the apparent diversion by a third party of goods being
transported for a customer. During the second quarter of 2009, BAX
Global advised us that it is probable that it will be deemed liable for this
claim. We have contractually indemnified the purchaser of BAX Global
for this contingency. Although it is possible that this claim ultimately
may be decided in favor of BAX Global, we have accrued a loss reserve of $13.2
million related to this matter. We recognized the loss in
discontinued operations. We believe we have insurance coverage
applicable to this matter and that it will be resolved without a material
adverse effect on our liquidity, financial position or results of
operations.
Value-added
taxes (“VAT”) and customs duties
During
2004, we determined that one of our non-U.S. Brink’s business units had not paid
customs duties and VAT with respect to the importation of certain goods and
services. We were advised that civil and criminal penalties could be
asserted for the non-payment of these customs duties and VAT. The
business unit provided the appropriate government authorities with an accounting
of unpaid customs duties and VAT, made payments covering its calculated unpaid
VAT and accrued the calculated unpaid custom duties and interest on the unpaid
custom duties and VAT. We believe that the range of reasonably
possible losses is between $0.4 million and $3 million for potential penalties
on unpaid VAT and have accrued $0.4 million. Although no penalties on
unpaid VAT have been asserted to date, they could be asserted at any
time. We do not expect to be assessed interest charges in connection
with any penalties on unpaid VAT that may be asserted. We have been
advised that due to the expiration of the applicable statute of limitations, we
are no longer subject to penalties for unpaid customs duties. We
continue to diligently pursue the timely resolution of this matter and,
accordingly, our estimate of the potential losses could change materially in
future periods. We do not believe that the assertion of potential
penalties on unpaid VAT will have a material adverse effect on our liquidity,
financial position or results of operations.
Other
We are
involved in various lawsuits and claims in the ordinary course of
business. We are not able to estimate the range of losses for some of
these matters. We have recorded accruals for losses that are
considered probable and reasonably estimable. We do not believe that
the ultimate disposition of any of these matters will have a material adverse
effect on our liquidity, financial position or results of
operations.
20
THE
BRINK’S COMPANY
and
subsidiaries
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
The
Brink’s Company offers transportation and logistics management services for cash
and valuables throughout the world. These services include armored
car transportation, automated teller machine (“ATM”) replenishment and
servicing, currency deposit processing and cash management
services. Cash management services include cash logistics services
(“Cash Logistics”), deploying and servicing safes and safe control devices
(e.g., our patented CompuSafe® service), coin sorting and wrapping, integrated
check and cash processing services (“Virtual Vault Services”), arranging secure
transportation of valuables over long distances and around the world (“Global
Services”), and guarding services, including airport security.
Management
allocates resources to and makes operating decisions for our operations on a
geographic basis. As a result, our reportable segments are International and
North America. Prior to the spin-off of Brink’s Home Security
Holdings, Inc. (“BHS”) in October 2008, our reportable segments were Brink’s,
Incorporated and BHS. Our International segment includes three
distinct regions: Europe, Middle East, and Africa (“EMEA”), Latin America and
Asia Pacific. Our North America segment includes operations in the U.S. and
Canada.
21
RESULTS
OF OPERATIONS
Overview
Three
Months
|
Nine
Months
|
|||||||||||||||
Ended
September 30,
|
Ended
September 30,
|
|||||||||||||||
(In
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Income
attributable to Brink’s:
|
||||||||||||||||
Continuing
operations
|
$ | 33.4 | 29.5 | 71.6 | 93.1 | |||||||||||
Discontinued
operations
|
1.0 | 18.5 | 6.1 | 53.7 | ||||||||||||
Net income attributable to
Brink’s
|
$ | 34.4 | 48.0 | 77.7 | 146.8 |
The
income items in the table above are reported after taxes and income attributable
to noncontrolling interests.
Income
from continuing operations attributable to Brink’s increased 13% in the third
quarter of 2009 versus the year-ago quarter due primarily to a gain related to
our recent acquisition in India (see note 8 to the consolidated financial
statements) and lower corporate expenses. The increase was partially
offset by lower International operating profit, excluding the India-acquisition
gain, a profit decline in North America and a higher effective income tax rate.
Lower profits in cash-in-transit (“CIT”) operations and lower contribution
margin from Global Services operations affected results in both our
segments. Former operations expense increased due primarily to higher
retirement plan expenses.
Income
from continuing operations attributable to Brink’s declined 23% in the first
nine months of 2009 versus the year-ago period due primarily to lower results
from International operations, higher retirement plan expenses related to former
operations and a higher effective income tax rate, partially offset by lower
corporate expenses, the India-acquisition gain and higher operating profit in
North America.
Income
from discontinued operations in the first nine months of 2009 consisted
primarily of gains related to Federal Black Lung Excise Tax (“FBLET”) refunds,
partially offset by a charge related to a litigation matter at a former
subsidiary. Income from discontinued operations in 2008 primarily
included the results of BHS.
Our
full-year 2009 organic revenue growth rate is expected to remain in the low
single-digit percentage range with a segment operating margin, excluding the
acquisition gain, to be at the low end of the range between 7.0% and
7.5%. See Reconciliation of Results Excluding
Acquisition-related Gain to GAAP Measures on page 29.
Given the
uncertain economic climate, our initial target for 2010 is to grow organic
revenue in the low-to-mid single-digit percentage range and improve the segment
operating margin by 50 basis points.
22
Three
Months
|
Nine
Months
|
|||||||||||||||||||||||
Ended
September 30,
|
%
|
Ended
September 30,
|
%
|
|||||||||||||||||||||
(In
millions)
|
2009
|
2008
|
change
|
2009
|
2008
|
change
|
||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||
International
|
$ | 579.2 | 575.8 | 1 | 1,620.8 | 1,701.4 | (5 | ) | ||||||||||||||||
North America
|
222.6 | 237.6 | (6 | ) | 665.4 | 702.6 | (5 | ) | ||||||||||||||||
Revenues
|
$ | 801.8 | 813.4 | (1 | ) | 2,286.2 | 2,404.0 | (5 | ) | |||||||||||||||
Operating
profit:
|
||||||||||||||||||||||||
International
|
$ | 65.2 | 56.3 | 16 | 120.0 | 166.6 | (28 | ) | ||||||||||||||||
North America
|
10.4 | 11.8 | (12 | ) | 37.9 | 36.1 | 5 | |||||||||||||||||
Segment operating
profit
|
75.6 | 68.1 | 11 | 157.9 | 202.7 | (22 | ) | |||||||||||||||||
Corporate expense
|
(10.1 | ) | (18.8 | ) | (46 | ) | (16.9 | ) | (43.3 | ) | (61 | ) | ||||||||||||
Former operations income
(expense)
|
(4.6 | ) | 0.5 |
NM
|
(11.7 | ) | (0.3 | ) | 200 | + | ||||||||||||||
Operating profit
|
60.9 | 49.8 | 22 | 129.3 | 159.1 | (19 | ) | |||||||||||||||||
Interest
expense
|
(2.8 | ) | (3.0 | ) | (7 | ) | (8.3 | ) | (8.8 | ) | (6 | ) | ||||||||||||
Interest
and other income
|
1.2 | 4.5 | (73 | ) | 7.2 | 9.6 | (25 | ) | ||||||||||||||||
Income from continuing operations
before tax
|
59.3 | 51.3 | 16 | 128.2 | 159.9 | (20 | ) | |||||||||||||||||
Provision
for income taxes
|
20.6 | 14.3 | 44 | 37.7 | 36.9 | 2 | ||||||||||||||||||
Income from continuing
operations
|
38.7 | 37.0 | 5 | 90.5 | 123.0 | (26 | ) | |||||||||||||||||
Income
from discontinued operations
|
1.0 | 18.5 | (95 | ) | 6.1 | 53.7 | (89 | ) | ||||||||||||||||
Net income
|
39.7 | 55.5 | (28 | ) | 96.6 | 176.7 | (45 | ) | ||||||||||||||||
Less net income attributable to
noncontrolling interests
|
(5.3 | ) | (7.5 | ) | (29 | ) | (18.9 | ) | (29.9 | ) | (37 | ) | ||||||||||||
Net income attributable to
Brink’s
|
34.4 | 48.0 | (28 | ) | 77.7 | 146.8 | (47 | ) | ||||||||||||||||
Amounts
attributable to Brink’s:
|
||||||||||||||||||||||||
Income
from continuing operations
|
33.4 | 29.5 | 13 | 71.6 | 93.1 | (23 | ) | |||||||||||||||||
Income
from discontinued operations
|
1.0 | 18.5 | (95 | ) | 6.1 | 53.7 | (89 | ) | ||||||||||||||||
Net income attributable to
Brink’s
|
$ | 34.4 | 48.0 | (28 | ) | 77.7 | 146.8 | (47 | ) |
Revenues
- 2009 Versus 2008
Third
Quarter. Revenues declined 1%, reflecting a decrease in North
American revenues that was partially offset by higher revenues from
International operations. Revenues grew 2% on a constant-currency basis due
primarily to the inclusion of incremental revenues from Latin American
operations acquired in January 2009, and an increase of average selling prices
in most regions (including the effects of inflation in several Latin American
countries), partially offset by lower volumes due to the continuing global
recession. Third-quarter 2008 revenues included $4 million related to
the currency conversion project in Venezuela, which was completed in the fourth
quarter of 2008.
Nine-Month
Period. Revenues decreased 5% due primarily to unfavorable
changes in foreign currency exchange rates caused by the stronger U.S.
dollar. Revenues grew 3% on a constant-currency basis due to the
inclusion of incremental revenues from Latin American operations acquired in
January 2009 and increased selling prices (including the effects of inflation in
several Latin American countries), partially offset by lower volumes in CIT and
Global Services operations. Revenues for the first nine months
of 2008 included $50 million related to the currency conversion
project.
23
Operating
Profit – 2009 Versus 2008
Third
Quarter. Segment operating profit increased 11% due primarily
to a $13.9 million gain related to the acquisition of a controlling interest of
a CIT and Global Services operation in India (see note 8 to the consolidated
financial statements) and cost reductions throughout the company, partially
offset by continued weakness in CIT operations and lower contribution margin
from Global Services operations. Excluding the impact of the
acquisition-related gain, profits declined. The decline reflects
continued pressure on CIT service frequency as customers respond to the effects
of ongoing economic weakness and lower volume of Cash Logistics
operations. The decline in contribution margin from Global Services
operations is due mainly to a severe contraction in the volume of high-margin
diamond and jewelry shipments.
Corporate
expense declined due primarily to lower foreign currency transaction losses, a
reduction in general and administrative expense and a $1.7 million increase in
royalty income from the licensing agreement with BHS.
Expenses
from former operations increased due to higher costs related to our primary U.S.
retirement plans.
Nine-Month
Period. Segment operating profit declined 22% due primarily to
lower margins in International operations. The decline was partially
offset by the gain related to the acquisition in India, improved results in
North America and company-wide cost reductions. The negative margin
comparison in International operations reflects the inclusion in 2008 results of
profits from the monetary conversion project that was completed in 2008,
continued pressure on service frequency and higher foreign currency transaction
losses.
Corporate
expense declined due primarily to lower foreign currency transaction losses, an
increase of $5.0 million in royalty income from the licensing agreement with
BHS, the inclusion in last year’s results of $4.8 million of costs related to
strategic reviews and proxy matters, a $2.7 million gain on the sale of real
estate, reversals of long-term incentive accruals and a reduction in general and
administrative expense.
Higher
expenses related to former operations were driven by increased retirement
expenses, partially offset by a $4.2 million gain related to the sale of coal
assets.
Segment
Operating Results
COMPARISON
OF RESULTS FOR THE THIRD QUARTER
Three
Months Ended
|
Percentage
|
|||||||||||||||||||||||
September
30,
|
Change
|
|||||||||||||||||||||||
(In
millions)
|
2008
|
Constant-Currency
Change
|
Currency
Change
|
2009
|
As
Reported
|
Constant-Currency
|
||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||
EMEA
|
$ | 356.9 | (20.3 | ) | (12.2 | ) | 324.4 | (9 | ) | (6 | ) | |||||||||||||
Latin America
|
200.8 | 45.4 | (11.3 | ) | 234.9 | 17 | 23 | |||||||||||||||||
Asia Pacific
|
18.1 | 1.9 | (0.1 | ) | 19.9 | 10 | 10 | |||||||||||||||||
International
|
575.8 | 27.0 | (23.6 | ) | 579.2 | 1 | 5 | |||||||||||||||||
North America
|
237.6 | (12.8 | ) | (2.2 | ) | 222.6 | (6 | ) | (5 | ) | ||||||||||||||
Revenues
|
$ | 813.4 | 14.2 | (25.8 | ) | 801.8 | (1 | ) | 2 | |||||||||||||||
Operating
profit:
|
||||||||||||||||||||||||
International
|
$ | 56.3 | 11.0 | (2.1 | ) | 65.2 | 16 | 20 | ||||||||||||||||
North America
|
11.8 | (1.3 | ) | (0.1 | ) | 10.4 | (12 | ) | (11 | ) | ||||||||||||||
Segment operating
profit
|
$ | 68.1 | 9.7 | (2.2 | ) | 75.6 | 11 | 14 |
International
Revenues
increased 1% (5% on a constant-currency basis) from the prior-year
period. The 5% constant-currency increase reflected higher revenues
in Latin America and Asia-Pacific primarily due to incremental revenues from
recently acquired operations in both regions as well as price increases in Latin
America, including the effects of inflation. These increases were partially
offset by lower volumes in CIT and Global Services operations in
EMEA.
24
Operating
profit increased 16% due primarily to a gain related to the acquisition of a
controlling interest in a CIT and Global Services operation in India. The profit
increase was partially offset by lower service frequency in CIT operations and
reduced contribution margin from Global Services operations resulting from weak
diamond and jewelry markets.
EMEA. Revenues
decreased 9% (6% on a constant-currency basis) to $324.4 million. The
6% constant-currency decline was due primarily to the loss of certain guarding
contracts and lower diamond and jewelry volumes. The reduction in
revenues was also attributable to generally lower economic activity and price
declines. The continued weakness in the high-margin diamond and
jewelry markets, and the decrease in service frequency, along with the continued
pressure on pricing, led to the decline in operating profit.
Latin
America. Revenues increased 17% (23% on a constant-currency
basis) to $234.9 million. The 23% constant-currency increase was due
primarily to incremental revenues from Brazilian operations acquired in January
2009 (“Sebival”), higher volumes across the region and normal inflationary price
increases. The recently acquired operations of Sebival generated
revenues of $20 million. Operating profit declined due to the
inflationary price increases not fully recovering cost increases, the inclusion
in last year’s results of income from the currency conversion project in
Venezuela and unfavorable changes in foreign currency exchange rates, partially
offset by incremental profits from Sebival’s operations.
Asia-Pacific. Revenues
increased 10% (10% on a constant-currency basis) to $19.9
million. The 10% increase was due mainly to incremental revenues from
third-quarter acquisitions in India and China. Operating
profit increased substantially due to the gain related to the acquisition in
India. The acquisition gain was partially offset by lower diamond and
jewelry volume and pricing pressures.
North
America
Revenues
decreased 6% (5% on a constant-currency basis) to $222.6
million. Revenues decreased 5% on a constant-currency basis as higher
average selling prices were offset by lower CIT and Global Services volumes in
the U.S. There is a growing use of check-imaging equipment in ATMs,
which has resulted in fewer service stops for these
ATMs. Operating profit decreased 12% or $1.4 million due primarily to
lower volumes in the U.S., reflecting lower service frequency, and continued
weakness in the high-margin diamond and jewelry markets, partially offset by
higher average selling prices.
During
the quarter, we installed approximately 300 units for our CompuSafe® high-margin
service, bringing 2009 installs up to approximately 2,300 units. This is a 30%
increase in the installed base since the end of 2008. Our installed
base now stands at approximately 9,800 units. The slowdown in
third-quarter installs was expected, as certain customers accelerated third
quarter orders into the second quarter. We expect the pace of
installations to increase in the fourth quarter and believe we are on track to
meet our goal of 3,200 installs for the year. In 2008, revenues from
our CompuSafe® service represented approximately 5% of North America’s
revenues.
25
COMPARISON
OF RESULTS FOR THE NINE-MONTH PERIOD
Nine
Months Ended
|
Percentage
|
|||||||||||||||||||||||
September
30,
|
Change
|
|||||||||||||||||||||||
(In
millions)
|
2008
|
Constant-Currency
Change
|
Currency
Change
|
2009
|
As
Reported
|
Constant-Currency
|
||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||
EMEA
|
$ | 1,040.8 | (1.0 | ) | (116.4 | ) | 923.4 | (11 | ) | - | ||||||||||||||
Latin America
|
605.9 | 99.0 | (60.9 | ) | 644.0 | 6 | 16 | |||||||||||||||||
Asia Pacific
|
54.7 | 1.5 | (2.8 | ) | 53.4 | (2 | ) | 3 | ||||||||||||||||
International
|
1,701.4 | 99.5 | (180.1 | ) | 1,620.8 | (5 | ) | 6 | ||||||||||||||||
North America
|
702.6 | (20.2 | ) | (17.0 | ) | 665.4 | (5 | ) | (3 | ) | ||||||||||||||
Revenues
|
$ | 2,404.0 | 79.3 | (197.1 | ) | 2,286.2 | (5 | ) | 3 | |||||||||||||||
Operating
profit:
|
||||||||||||||||||||||||
International
|
$ | 166.6 | (39.5 | ) | (7.1 | ) | 120.0 | (28 | ) | (24 | ) | |||||||||||||
North America
|
36.1 | 2.7 | (0.9 | ) | 37.9 | 5 | 8 | |||||||||||||||||
Segment operating
profit
|
$ | 202.7 | (36.8 | ) | (8.0 | ) | 157.9 | (22 | ) | (18 | ) |
International
Revenues
declined 5% (increased 6% on a constant-currency basis). The 6%
constant-currency increase was due primarily to incremental revenues from
operations acquired in January 2009 and price increases (driven by inflation) in
Latin America. Revenues improved in Latin America despite the
inclusion in 2008 results of $50 million of revenues related to the currency
conversion project.
Operating
profit declined 28% due primarily to the absence of last year’s profitable
currency conversion project, the negative impact of the continuing global
economic slowdown on pricing and service frequency, and higher foreign currency
transaction losses. The decline was partially offset by the gain
related to the acquisition in India.
EMEA. Revenues
decreased 11% (remained flat on a constant-currency basis) to $923.4
million. Revenues remained flat on a constant-currency basis as
growth from Global Services’ commodities business was offset by the loss of
certain guarding contracts and lower diamond and jewelry
volumes. Operating profit declined significantly versus the year-ago
period due to the continued weakness in the high-margin diamond and jewelry
markets, $4 million of accounting corrections recorded in Belgium in the second
quarter, and the continued pressure on pricing and volume
declines. The declines reflect lower economic activity and pricing
pressure in most European countries. Management changes and
restructuring activities resulted in $9.1 million of severance and other costs
in 2009.
Latin
America. Revenues increased 6% (16% on a constant-currency
basis) to $644.0 million. Revenues increased 16% on a
constant-currency basis due mainly to incremental revenues from a Brazilian
operation acquired in January 2009 and normal inflationary price increases in
several countries. The recently acquired operations of Sebival
provided revenues of approximately $52 million. Operating profit
declined due primarily to the absence of profits from the currency conversion
project, the inflationary price increases not fully recovering cost increases
and an increase in foreign currency transaction losses, partially offset by
incremental profits from Sebival’s operations.
Asia-Pacific. Revenues
decreased 2% (increased 3% on a constant-currency basis) to $53.4
million. The 3% constant-currency increase was due mainly to
incremental revenues from third-quarter acquisitions in India and China. Operating
profit increased due to the gain related to the recent acquisition in India and
higher volumes in lower margin commodity shipments. The profit increases were
partially offset by lower diamond and jewelry volume, pricing pressures and
unfavorable foreign exchange rates.
North
America
Revenues
decreased 5% (3% on a constant-currency basis) to $665.4
million. Revenues decreased 3% on a constant-currency basis as higher
average selling prices were offset by lower volumes. Operating profit
increased 5% or $2 million due primarily to higher average selling prices, lower
net fuel expenses, and lower legal settlement expenses. The profit
increase was partially offset by lower service frequency and higher pension and
other employee benefit expenses. In addition, there was a $2.0
million curtailment gain in the first quarter of 2008 related to the freezing of
the Canadian postretirement benefit plan.
26
Supplemental
Revenue Analysis – Revenues by Service Line
Three
Months Ended
|
Percentage
|
|||||||||||||||||||||||||||||||||||
September
30,
|
Change
|
|||||||||||||||||||||||||||||||||||
(In
millions)
|
2008
without Currency Conversion
|
Revenues
from Currency Conversion (a)
|
2008
as Reported
|
Constant-
Currency Change
|
Currency
Change
|
2009
|
As
Reported
|
Constant-
Currency
|
Constant-
Currency without Currency Conversion
|
|||||||||||||||||||||||||||
Revenues
from:
|
||||||||||||||||||||||||||||||||||||
Core
services
|
$ | 426.9 | 1.2 | 428.1 | 3.9 | (17.4 | ) | 414.6 | (3 | ) | 1 | 1 | ||||||||||||||||||||||||
Value-added
services
|
272.6 | 2.8 | 275.4 | 26.6 | (3.6 | ) | 298.4 | 8 | 10 | 11 | ||||||||||||||||||||||||||
Other
security services
|
109.9 | - | 109.9 | (16.3 | ) | (4.8 | ) | 88.8 | (19 | ) | (15 | ) | (15 | ) | ||||||||||||||||||||||
Total
revenues
|
$ | 809.4 | 4.0 | 813.4 | 14.2 | (25.8 | ) | 801.8 | (1 | ) | 2 | 2 |
Nine
Months Ended
|
Percentage
|
|||||||||||||||||||||||||||||||||||
September
30,
|
Change
|
|||||||||||||||||||||||||||||||||||
(In
millions)
|
2008
without Currency Conversion
|
Revenues
from Currency Conversion (a)
|
2008
as Reported
|
Constant-
Currency Change
|
Currency
Change
|
2009
|
As
Reported
|
Constant-
Currency
|
Constant-
Currency without Currency Conversion
|
|||||||||||||||||||||||||||
Revenues
from:
|
||||||||||||||||||||||||||||||||||||
Core
services
|
$ | 1,249.8 | 15.2 | 1,265.0 | 62.5 | (94.7 | ) | 1,232.8 | (3 | ) | 5 | 6 | ||||||||||||||||||||||||
Value-added
services
|
787.9 | 35.1 | 823.0 | 34.5 | (70.7 | ) | 786.8 | (4 | ) | 4 | 9 | |||||||||||||||||||||||||
Other
security services
|
316.0 | - | 316.0 | (17.7 | ) | (31.7 | ) | 266.6 | (16 | ) | (6 | ) | (6 | ) | ||||||||||||||||||||||
Total
revenues
|
$ | 2,353.7 | 50.3 | 2,404.0 | 79.3 | (197.1 | ) | 2,286.2 | (5 | ) | 3 | 6 |
(a) Venezuela
changed its national currency from the bolivar to the bolivar fuerte on January
1, 2008, and Brink’s performed additional cash handlingservices to assist in the
conversion. The project was completed in 2008.
Our
primary services include:
Core
services
|
·
|
Cash-in-transit
(“CIT”) armored car transportation
|
|
·
|
Automated
teller machine (“ATM”) replenishment and
servicing
|
Value-added
services
|
·
|
Global
Services – arranging secure long-distance transportation of
valuables
|
|
·
|
Cash
Logistics – money processing, supply chain management of cash; from
point-of-sale through transport, vaulting and bank
deposit
|
Other
security services
|
·
|
Guarding
services, including airport
security
|
We
typically provide customized services under separate contracts designed to meet
the distinct needs of customers. Contracts usually cover an initial
term of at least one year and in many cases one to three years, and generally
remain in effect thereafter until canceled by either party.
27
Supplemental
Revenue Analysis – Organic Revenue Growth
Three
Months
|
%
change
|
Nine
Months
|
%
change
|
|||||||||||||
(In
millions)
|
Ended
September 30,
|
from
prior period
|
Ended
September 30,
|
from
prior period
|
||||||||||||
2007
Revenues
|
$ | 692.7 | 1,977.8 | |||||||||||||
Effects
on revenue of:
|
||||||||||||||||
Organic Revenue Growth
(a)
|
80.3 | 12 | 242.6 | 12 | ||||||||||||
Acquisitions and
dispositions
|
1.7 | - | 15.8 | 1 | ||||||||||||
Changes in currency exchange
rates
|
38.7 | 5 | 167.8 | 9 | ||||||||||||
2008
Revenues
|
813.4 | 17 | 2,404.0 | 22 | ||||||||||||
Effects
on revenue of:
|
||||||||||||||||
Organic Revenue Growth
(a)
|
(13.0 | ) | (2 | ) | 13.3 | 1 | ||||||||||
Acquisitions and
dispositions
|
27.2 | 3 | 66.0 | 3 | ||||||||||||
Changes in currency exchange
rates
|
(25.8 | ) | (3 | ) | (197.1 | ) | (8 | ) | ||||||||
2009
Revenues
|
$ | 801.8 | (1 | ) | 2,286.2 | (5 | ) |
(a)
|
Organic
revenue growth excluding the currency conversion project was 11% for the
three months and 10% for the nine months of 2008. Organic revenue growth
excluding the currency conversion project was down 1% for the three months
and up 3% for the nine months of
2009.
|
28
Reconciliation
of Results Excluding Acquisition-related Gain to GAAP Measures
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||||
September
30, 2009
|
September
30, 2009
|
|||||||||||||||||||||||
(In
millions, except per share amounts)
|
As
reported GAAP
|
India
Acquisition-Related Gain(a)
|
As
Adjusted
|
As
reported GAAP
|
India
Acquisition-Related Gain(a)
|
As
Adjusted
|
||||||||||||||||||
International
Segment
|
||||||||||||||||||||||||
Revenues
|
$ | 579.2 | - | 579.2 | 1,620.8 | - | 1,620.8 | |||||||||||||||||
Operating profit
|
65.2 | (13.9 | ) | 51.3 | 120.0 | (13.9 | ) | 106.1 | ||||||||||||||||
Operating margin
|
11.3 | % | 8.9 | % | 7.4 | % | 6.5 | % | ||||||||||||||||
All
Segments
|
||||||||||||||||||||||||
Revenues
|
801.8 | - | 801.8 | 2,286.2 | - | 2,286.2 | ||||||||||||||||||
Segment operating
profit
|
75.6 | (13.9 | ) | 61.7 | 157.9 | (13.9 | ) | 144.0 | ||||||||||||||||
Segment operating
margin
|
9.4 | % | 7.7 | % | 6.9 | % | 6.3 | % | ||||||||||||||||
Operating profit
|
60.9 | (13.9 | ) | 47.0 | 129.3 | (13.9 | ) | 115.4 | ||||||||||||||||
Operating margin
|
7.6 | % | 5.9 | % | 5.7 | % | 5.0 | % | ||||||||||||||||
Income
from continuing operations before tax
|
59.3 | (13.9 | ) | 45.4 | 128.2 | (13.9 | ) | 114.3 | ||||||||||||||||
Attributable
to Brink’s
|
||||||||||||||||||||||||
Income from continuing
operations
|
33.4 | (13.9 | ) | 19.5 | 71.6 | (13.9 | ) | 57.7 | ||||||||||||||||
Diluted EPS
|
$ | 0.70 | (0.29 | ) | 0.41 | 1.52 | (0.29 | ) | 1.23 |
(a)
|
During
the third quarter of 2009, Brink’s purchased a controlling interest in a
company where it previously held a 40% interest. As a result, a
gain was recognized on the previously held interest in accordance with
business combination accounting
rules.
|
Income
and earnings per share amounts excluding an acquisition-related gain are
financial measures that are not required by, or presented in accordance with
U.S. generally accepted accounting principles (“GAAP”). They are
presented here to exclude the effect of an Indian acquisition-related gain from
our results. We believe these measures are more reflective of our
operations, provide transparency to investors and enable period-to-period
comparability of financial performance. Income or earnings per share
amounts excluding the Indian acquisition-related gain should not be considered
as an alternative to income or earnings per share amounts determined in
accordance with GAAP. We have included in this reconciliation
information for income or earnings per share amounts excluding the Indian
acquisition-related gain, the non-GAAP financial measures, to income or earnings
per share amounts, as applicable, which are the most directly comparable
financial measures calculated and reported in accordance with GAAP.
29
U.S.
Retirement Plans
Our most
significant retirement plans include our primary U.S. pension plan and the
retiree medical plans of our former coal business that were collectively
bargained with the United Mine Workers of America (the “UMWA”). The
market value of the investments used to pay benefits for these retirement plans
significantly declined in 2008.
Voluntary
contribution made in third quarter
On August
20, 2009, we made a voluntary $150 million contribution to our primary U.S.
retirement plan to improve the funded status of the plan. The
contribution was comprised of $92.4 million of cash and 2,260,738 newly
issued shares of our common stock valued for purposes of the contribution at
$25.48 per share, or $57.6 million in the aggregate. The
contribution addresses our primary U.S. retirement plan funding obligation in a
proactive and tax-efficient manner while enhancing our financial
flexibility.
Change
in funded status, future contributions and pension cost (credit)
Because
we considered the contribution to be a significant event for the plan, we
remeasured our projected benefit obligation and plan assets related to our
primary U.S. pension plan as of July 1, 2009. After the contribution
and giving effect to the remeasurement, our primary U.S. pension plan’s
underfunding improved from a $308 million deficit at December 31, 2008, to a
$104 million deficit at September 30, 2009.
As a
result of making a voluntary contribution in 2009, our total estimated
contributions over the next five to six years, including the $150 million
contribution, were reduced from approximately $352 million to approximately $333
million. The primary assumptions used to estimate these amounts are
as follows:
1.
|
a
measurement date of July 1, 2009
|
2.
|
a
discount rate of 6.8%
|
3.
|
a
voluntary contribution of $150 million made in August
2009
|
4.
|
an
expected return on assets of 8.75%,
and
|
5.
|
a
change in method of valuing assets for funding purposes from the
fair-market-value basis to the
asset-smoothing basis.
|
We
elected the asset-smoothing basis of computing asset values for funding purposes
to reduce the volatility of future required contributions to the
plan. All other assumptions remain the same as they were at December
31, 2008, which can be found in our 2008 Annual Report on Form
10-K. The assumptions used are based on a variety of estimates,
including actuarial assumptions as of July 1, 2009. These estimated
amounts will change in the future to reflect payments made, investment returns,
contribution amounts, actuarial revaluations, and other changes in
estimates. Actual amounts could differ materially from the estimated
amounts.
After the
$150 million contribution, total pension credit in 2009 will be $5.7 million
compared to a full-year estimate of $2.0 million that was disclosed in our 2008
Annual Report. The $3.7 million increase in the total pension credit
for 2009 is recorded ratably over the second half of the year.
30
Pension
cost (credit) related to Primary U.S. Retirement Plans
Three
Months
|
Nine
Months
|
|||||||||||||||||||||||
Ended
September 30,
|
%
|
Ended
September 30,
|
%
|
|||||||||||||||||||||
(In
millions)
|
2009
|
2008
|
change
|
2009
|
2008
|
change
|
||||||||||||||||||
Primary
U.S. pension plan
|
$ | (2.5 | ) | (3.2 | ) | (22 | ) | (3.3 | ) | (9.8 | ) | (66 | ) | |||||||||||
UMWA
plans
|
4.5 | 0.1 | 200 | + | 15.5 | 0.5 | 200 | + | ||||||||||||||||
Total
|
$ | 2.0 | (3.1 | ) |
NM
|
12.2 | (9.3 | ) |
NM
|
|||||||||||||||
Included
in:
|
||||||||||||||||||||||||
Segment operating profit
-
|
||||||||||||||||||||||||
North America
|
$ | (0.9 | ) | (1.2 | ) | (25 | ) | (1.2 | ) | (3.7 | ) | (68 | ) | |||||||||||
Corporate expense
|
(0.1 | ) | (0.1 | ) | - | (0.1 | ) | (0.3 | ) | (67 | ) | |||||||||||||
Former operations
(income)
|
||||||||||||||||||||||||
expense
|
3.0 | (1.6 | ) |
NM
|
13.5 | (4.8 | ) |
NM
|
||||||||||||||||
Discontinued
operations
|
- | (0.2 | ) | (100 | ) | - | (0.5 | ) | (100 | ) | ||||||||||||||
Total
|
$ | 2.0 | (3.1 | ) |
NM
|
12.2 | (9.3 | ) |
NM
|
31
Corporate
Expense
Three
Months
|
Nine
Months
|
|||||||||||||||||||||||
Ended
September 30,
|
%
|
Ended
September 30,
|
%
|
|||||||||||||||||||||
(In
millions)
|
2009
|
2008
|
change
|
2009
|
2008
|
change
|
||||||||||||||||||
General
and administrative
|
$ | 11.6 | 14.4 | (19 | ) | 26.2 | 34.3 | (24 | ) | |||||||||||||||
Royalty
income:
|
||||||||||||||||||||||||
Brand
licensing fees from BHS
|
(1.7 | ) | - |
NM
|
(5.0 | ) | - |
NM
|
||||||||||||||||
Other
|
(0.4 | ) | (0.8 | ) | (50 | ) | (1.4 | ) | (1.4 | ) | - | |||||||||||||
Gain
on sale of real estate
|
- | - | - | (2.7 | ) | - |
NM
|
|||||||||||||||||
Currency
exchange transaction (gains) losses
|
0.6 | 5.2 | (88 | ) | (0.2 | ) | 5.6 |
NM
|
||||||||||||||||
Strategic
reviews and proxy matters
|
- | - | - | - | 4.8 | (100 | ) | |||||||||||||||||
Corporate
expense
|
$ | 10.1 | 18.8 | (46 | ) | 16.9 | 43.3 | (61 | ) |
Corporate
expense decreased $8.7 million in the third quarter due primarily to $4.6
million in lower foreign currency transaction losses, lower general and
administrative expense and a $1.7 million increase in royalty income from the
licensing agreement with BHS.
Corporate
expense in the first nine months of 2009 decreased $26.4 million. The
decline is primarily due to $5.8 million in lower foreign currency transaction
losses, $5.0 million in royalty income from the licensing agreement with BHS,
$4.8 million of costs incurred in the 2008 period related to strategic reviews
and proxy matters, a $2.7 million gain on the first-quarter 2009 sale of real
estate, cost reduction actions and the reduction of accruals for long-term
incentive compensation.
Full-year
corporate expense is expected to be approximately $27 million, down from $55
million in 2008.
Former
Operations (Income) Expense
Three
Months
|
Nine
Months
|
|||||||||||||||||||||||
Ended
September 30,
|
%
|
Ended
September 30,
|
%
|
|||||||||||||||||||||
(In
millions)
|
2009
|
2008
|
change
|
2009
|
2008
|
change
|
||||||||||||||||||
Retirement
plans:
|
||||||||||||||||||||||||
Primary U.S. retirement
plans
|
$ | 3.0 | (1.6 | ) |
NM
|
13.5 | (4.8 | ) |
NM
|
|||||||||||||||
Black lung and other
plans
|
0.9 | 0.7 | 29 | 1.1 | 2.6 | (58 | ) | |||||||||||||||||
Administrative,
legal and other
|
0.8 | 1.2 | (33 | ) | 2.8 | 3.4 | (18 | ) | ||||||||||||||||
Gain
on sale of coal assets
|
(0.1 | ) | (0.8 | ) | (88 | ) | (5.7 | ) | (0.9 | ) | 200 | + | ||||||||||||
Former
operations (income) expense (a)
|
$ | 4.6 | (0.5 | ) |
NM
|
11.7 | 0.3 | 200 | + |
(a)
Included in continuing operations.
Former
operations expense increased in the quarter and year-to-date periods due
primarily to higher costs related to retirement plans as a result of the decline
in the market value of plan assets in 2008. The higher expenses in
the year-to-date period were partially offset by a $4.2 million gain on the sale
of coal assets.
32
Foreign
Operations
We
operate in approximately 50 countries outside the U.S.
We are
subject to risks customarily associated with doing business in foreign
countries, including labor and economic conditions, political instability,
controls on repatriation of earnings and capital, nationalization, expropriation
and other forms of restrictive action by local governments. Changes
in the political or economic environments in the countries in which we operate
could have a material adverse effect on our business, financial condition and
results of operations. The future effects, if any, of these risks or
the risks described below cannot be predicted.
Our
international operations conduct a majority of their business in local
currencies. Because our financial results are reported in U.S. dollars, they are
affected by changes in the value of various local currencies in relation to the
U.S. dollar. Currency-related risks of our Venezuelan operations are
particularly acute because the exchange rate for the local currency is fixed to
the U.S. dollar, despite years of high inflation. As a result, there is a
risk that we may have to begin accounting for our subsidiary as operating in a
highly inflationary environment. In addition, the government may devalue
the exchange rate. If either or both occur, our results would be
negatively affected. We have described these risks and their potential to
affect our financial results and financial position in more detail at Part II –
Other Information, Item 1A. Risk Factors. Changes in exchange rates may
also affect transactions which are denominated in currencies other than the
local currency. From time to time, we use foreign currency forward
and swap contracts to hedge transactional risks associated with foreign
currencies. At September 30, 2009, no material foreign currency
contracts were outstanding.
Other
Operating Income (Expense)
Other
operating income (expense) is a component of segment operating profit, corporate
expense and former operations.
Three
Months
|
Nine
Months
|
|||||||||||||||||||||||
Ended
September 30,
|
%
|
Ended
September 30,
|
%
|
|||||||||||||||||||||
(In
millions)
|
2009
|
2008
|
change
|
2009
|
2008
|
change
|
||||||||||||||||||
Gain
on acquiring control of an equity method affiliate
|
$ | 13.9 | - |
NM
|
14.9 | - |
NM
|
|||||||||||||||||
Foreign
currency transaction losses
|
(3.6 | ) | (8.3 | ) | (57 | ) | (15.9 | ) | (13.8 | ) | 15 | |||||||||||||
Gains
on sales of property and other assets
|
0.1 | 0.4 | (75 | ) | 8.3 | 0.4 | 200 | + | ||||||||||||||||
Royalty
income
|
2.1 | 0.8 | 163 | 6.4 | 1.4 | 200 | + | |||||||||||||||||
Share
in earnings of equity affiliates
|
1.1 | 1.3 | (15 | ) | 3.3 | 3.6 | (8 | ) | ||||||||||||||||
Impairment
losses
|
(0.2 | ) | (0.2 | ) | - | (2.3 | ) | (0.5 | ) | 200 | + | |||||||||||||
Other
|
0.8 | 1.6 | (50 | ) | 2.0 | 4.2 | (52 | ) | ||||||||||||||||
Other
operating income (expense)
|
$ | 14.2 | (4.4 | ) |
NM
|
16.7 | (4.7 | ) |
NM
|
In the
third quarter of 2009, we recognized a $13.9 million gain related to the
acquisition of a controlling interest in Arya. Other operating income
also increased in the third quarter of 2009 as a result of $1.7 million of
royalty income from the licensing agreement with BHS and a reduction in foreign
currency transaction losses.
We also
recognized a $2.7 million gain on the sale of certain real estate in the first
quarter of 2009. We recognized a $1.7 million impairment loss in the
second quarter of 2009 related to an EMEA software project which was terminated
prior to completion as part of restructuring actions in that region, as well as
a $4.2 million gain related to the 2008 sale of coal assets, which we recognized
upon formal transfer of liabilities to buyer. Royalty income from the
licensing agreement with BHS was $5.0 million in the first nine months of
2009.
33
Nonoperating
Income and Expense
Interest
expense
Three
Months
|
Nine
Months
|
|||||||||||||||||||||||
Ended
September 30,
|
%
|
Ended
September 30,
|
%
|
|||||||||||||||||||||
(In
millions)
|
2009
|
2008
|
change
|
2009
|
2008
|
change
|
||||||||||||||||||
Interest
expense
|
$ | 2.8 | 3.0 | (7 | ) | 8.3 | 8.8 | (6 | ) |
Interest
and other income
Three
Months
|
Nine
Months
|
|||||||||||||||||||||||
Ended
September 30,
|
%
|
Ended
September 30,
|
%
|
|||||||||||||||||||||
(In
millions)
|
2009
|
2008
|
change
|
2009
|
2008
|
change
|
||||||||||||||||||
Interest
and other income
|
$ | 1.2 | 4.5 | (73 | ) | 7.2 | 9.6 | (25 | ) |
Interest
and other income declined in the quarter and year-to-date periods of 2009 due to
lower interest rates and lower average levels of cash and cash equivalents in
certain countries.
34
Income
Taxes
Three
Months
|
Nine
Months
|
|||||||||||||||
Ended
September 30,
|
Ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Continuing
operations
|
||||||||||||||||
Provision
for income taxes (in millions)
|
$ | 20.6 | 14.3 | 37.7 | 36.9 | |||||||||||
Effective
tax rate
|
34.7 | % | 27.9 | % | 29.4 | % | 23.1 | % | ||||||||
Discontinued
operations
|
||||||||||||||||
Provision
for (benefit from) income taxes (in millions)
|
$ | (1.6 | ) | 12.4 | 0.3 | 43.0 | ||||||||||
Effective
tax rate
|
(200 | +)% | 40.1 | % | 4.7 | % | 44.5 | % |
2009
Compared to U.S. Statutory Rate
The
effective income tax rate on continuing operations in the first nine months of
2009 was lower than the 35% U.S. statutory tax rate due to $5.7 million in lower
tax expense primarily resulting from the net effect of permanent book-tax
differences offset by increases in valuation allowances in our non-U.S.
jurisdictions. Included in the $5.7 million net benefit is an $8.9
million tax benefit from inflation adjustments in Venezuela that would not be
recorded under highly inflationary accounting rules. In addition, the rate
was impacted by $3.6 million in lower taxes due to the nontaxable
acquisition-related gains, and $1.5 million in higher U.S. taxes due to changes
in elections for the recently filed U.S. tax returns and changes in tax
laws.
2008
Compared to U.S. Statutory Rate
The
effective income tax rate on continuing operations in the first nine months of
2008 was lower than the 35% U.S. statutory tax rate largely due to an $8.8
million valuation allowance release for non-U.S. tax jurisdictions and $10.5
million in lower taxes related to lower effective tax rates in our non-U.S.
jurisdictions and inflation adjustments in certain countries that are treated as
permanent differences.
Expected
Rate for Full-Year 2009 and 2010
Our
effective tax rate for the full-year 2009 is expected to be in the range of 26%
to 29%. Our effective tax rate for the full-year 2010 is projected to be
approximately 36%, assuming we account for earnings in Venezuela under highly
inflationary accounting rules. If Venezuela is not accounted for as highly
inflationary, we are projecting the rate in 2010 to be
approximately 29%. Our effective tax rate may fluctuate
materially from these estimates due to changes in forecasted permanent book-tax
differences in Venezuela, the expected geographical mix of earnings, changes in
valuation allowances or accruals for contingencies and other
factors.
35
Noncontrolling
Interests
Three
Months
|
Nine
Months
|
|||||||||||||||||||||||
Ended
September 30,
|
%
|
Ended
September 30,
|
%
|
|||||||||||||||||||||
(In
millions)
|
2009
|
2008
|
change
|
2009
|
2008
|
change
|
||||||||||||||||||
Net
income attributable to noncontrolling interests
|
$ | 5.3 | 7.5 | (29 | ) | 18.9 | 29.9 | (37 | ) |
The
decrease in net income attributable to noncontrolling interests in 2009 was
primarily due to a decrease in the earnings of our Venezuelan operations driven
mainly by the absence of the 2008 profitable currency conversion
project.
Income
from Discontinued Operations
Three
Months
|
Nine
Months
|
|||||||||||||||
Ended
September 30,
|
Ended
September 30,
|
|||||||||||||||
(In
millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
BHS:
|
||||||||||||||||
Income from operations before tax
(a)
|
$ | - | 31.1 | - | 98.0 | |||||||||||
Expense associated with the
spin-off
|
- | (2.2 | ) | - | (6.5 | ) | ||||||||||
Adjustments
to contingencies of former operations:
|
||||||||||||||||
Gain from FBLET refunds (see note
13)
|
- | - | 19.7 | - | ||||||||||||
BAX Global indemnification (see
note 13)
|
(0.7 | ) | - | (13.2 | ) | - | ||||||||||
Other
|
0.1 | 2.0 | (0.1 | ) | 5.2 | |||||||||||
Income
from discontinued operations before income taxes
|
(0.6 | ) | 30.9 | 6.4 | 96.7 | |||||||||||
Provision
for (benefit from) income taxes
|
(1.6 | ) | 12.4 | 0.3 | 43.0 | |||||||||||
Income
from discontinued operations
|
$ | 1.0 | 18.5 | 6.1 | 53.7 |
(a)
|
BHS
operations were spun off on October 31, 2008. Revenues of the
operations were $135.4 million for the third quarter of 2008 and $397.1
million for the first nine months of
2008.
|
36
LIQUIDITY
AND CAPITAL RESOURCES
Overview
Cash
flows before financing activities decreased by $142.0 million in the first nine
months of 2009 as compared to the first nine months of 2008. The
decrease was primarily due to lower cash flows from our continuing operations,
including $92.4 million of pension contributions, along with $74.6 million in
cash used for business acquisitions. Cash flows from discontinued
operations in 2008 were primarily related to BHS whereas cash flows from
discontinued operations in 2009 were comprised mainly of FBLET refunds
(described on page 41).
Summary
of Cash Flow Information
Nine
Months
|
||||||||||||
Ended
September 30,
|
$ | |||||||||||
(In
millions)
|
2009
|
2008
|
change
|
|||||||||
Cash
flows from operating activities:
|
||||||||||||
Continuing
operations
|
$ | 106.8 | 183.4 | (76.6 | ) | |||||||
Discontinued
operations
|
23.5 | 160.9 | (137.4 | ) | ||||||||
Operating
activities
|
130.3 | 344.3 | (214.0 | ) | ||||||||
Cash
flows from investing activities:
|
||||||||||||
Capital
expenditures
|
(112.5 | ) | (119.4 | ) | 6.9 | |||||||
Acquisitions
|
(74.6 | ) | (6.1 | ) | (68.5 | ) | ||||||
Other
|
1.6 | 3.3 | (1.7 | ) | ||||||||
Discontinued
operations
|
- | (135.3 | ) | 135.3 | ||||||||
Investing
activities
|
(185.5 | ) | (257.5 | ) | 72.0 | |||||||
Cash
flows before financing activities
|
$ | (55.2 | ) | 86.8 | (142.0 | ) |
Operating
Activities
Operating
cash flows decreased by $214.0 million in the first nine months of 2009 as cash
flows from both our continuing and discontinued operations were lower compared
to the same period in 2008. The decrease in operating cash flows from
continuing operations was mainly due to the third-quarter contribution to our
primary U.S. pension plan, of which $92.4 million was made in cash. The pension
contribution was partially offset by $43 million in income tax refunds, which
were primarily the result of tax deductions associated with the cash and stock
contribution to the pension plan.
To a
lesser extent, the decrease in cash flows also resulted from lower operating
profit, partially offset by lower cash used for working capital
needs. The decrease in operating cash flows related to discontinued
operations was primarily due to BHS’ cash flows in the first nine months of 2008
exceeding the FBLET cash refunds received in 2009.
37
Investing
Activities
Cash
flows from investing activities increased by $72.0 million in the first nine
months of 2009 versus the first nine months of 2008 primarily due to a $135.3
million reduction in cash used by discontinued operations as a result of the
2008 spin-off of BHS, partially offset by $68.5 million of higher cash used by
continuing operations for business acquisitions.
As
discussed in note 8 to the consolidated financial statements, we acquired
operations in Brazil ($47.6 million) and India ($22.2 million) during the first
nine months of 2009.
Capital
expenditures and depreciation and amortization were as follows:
Nine
Months
|
||||||||||||
Ended
September 30,
|
$ | |||||||||||
(In
millions)
|
2009
|
2008
|
change
|
|||||||||
Capital
expenditures:
|
||||||||||||
International
|
$ | 65.6 | 81.7 | (16.1 | ) | |||||||
North America
|
46.9 | 37.7 | 9.2 | |||||||||
Capital
expenditures
|
$ | 112.5 | 119.4 | (6.9 | ) | |||||||
Depreciation
and amortization:
|
||||||||||||
International
|
$ | 69.7 | 69.2 | 0.5 | ||||||||
North America
|
27.5 | 23.4 | 4.1 | |||||||||
Depreciation
and amortization
|
$ | 97.2 | 92.6 | 4.6 |
Capital
expenditures in the first nine months of 2009 were primarily for new cash
processing and security equipment, armored vehicles, and information
technology. Capital expenditures in the first nine months of 2009
were slightly lower than the same period of 2008. The decrease in our
International segment was partially offset by an increase in our North America
segment. The decrease in Brink’s International capital expenditures
from the prior-year period was due to lower spending overall, as well as the
impact of changes in currency exchange rates. The increase in our
North America segment was mainly due to higher expenditures for armored
vehicles, as we elected to buy rather than lease these vehicles, as well as
increased spending on CompuSafe® units.
Capital
expenditures for the full-year 2008 totaled $165 million. Capital
expenditures for the full-year 2009 are expected to be approximately $185
million.
Depreciation
and amortization for the full-year 2008 totaled $122.3
million. Depreciation and amortization for the full-year 2009 is
expected to be approximately $135 million.
Financing
Activities
Summary
of financing activities
Nine
Months
|
||||||||
Ended
September 30,
|
||||||||
(In
millions)
|
2009
|
2008
|
||||||
Net
borrowings (repayments) of debt:
|
||||||||
Short-term debt
|
$ | (0.3 | ) | (6.0 | ) | |||
Revolving
facilities
|
69.4 | 59.8 | ||||||
Long-term debt
|
(8.7 | ) | (8.6 | ) | ||||
Net borrowings (repayments) of
debt
|
60.4 | 45.2 | ||||||
Repurchase
of shares of common stock of Brink’s
|
(6.9 | ) | (53.6 | ) | ||||
Dividends
attributable to:
|
||||||||
Shareholders of
Brink’s
|
(13.7 | ) | (13.6 | ) | ||||
Noncontrolling interests in
subsidiaries
|
(10.3 | ) | (9.9 | ) | ||||
Proceeds
and tax benefits related to stock compensation and other
|
1.2 | 11.2 | ||||||
Cash flows from financing
activities
|
$ | 30.7 | (20.7 | ) |
38
During
the first three months of 2009, we purchased 234,456 shares of our common stock
at an average cost of $26.20 per share. We also used $0.8 million in the first
three months of 2009 to settle share purchases initiated in December
2008. We have made no subsequent purchases in 2009.
During
the first nine months of 2008, we purchased 823,300 shares of our common stock
at an average cost of $63.92 per share. We also withheld and retired
a portion of the shares that were due to employees under deferred compensation
distributions and stock option exercises. The shares were withheld to
meet the withholding requirements of approximately $13 million.
Our
operating liquidity needs are typically financed by cash from operations,
short-term debt and the Revolving Facility, described below.
We paid
dividends of $0.10 per share in both the first, second and third quarters of
2009 and 2008. Future dividends are dependent on our earnings,
financial condition, shareholders’ equity levels, our cash flow and business
requirements, as determined by the board of directors.
As
described on page 30, we made a voluntary contribution of $150 million to our
primary U.S. pension plan in the third quarter of 2009, which was comprised
of $92.4 million of cash. We borrowed the cash portion of the
contribution under our existing credit facilities in excess of tax refunds
received. The remainder of the contribution was comprised of
2,260,738 shares of Brink’s
common stock, which was valued at $57.6 million at the date of the
contribution.
Capitalization
We use a
combination of debt, leases and equity to capitalize our
operations.
Reconciliation
of Net Debt (Cash) to GAAP measures
September
30,
|
December
31,
|
|||||||
(In
millions)
|
2009
|
2008
|
||||||
Short-term
debt
|
$ | 7.6 | 7.2 | |||||
Long-term
debt
|
261.5 | 181.4 | ||||||
Debt
|
269.1 | 188.6 | ||||||
Less
cash and cash equivalents
|
(234.5 | ) | (250.9 | ) | ||||
Net Debt (Cash)
(a)
|
$ | 34.6 | (62.3 | ) |
(a)
|
Net
Debt (Cash) is a non-GAAP measure. Net Debt (Cash) is equal to
short-term debt plus the current and noncurrent portion of long-term debt
(“Debt” in the tables), less cash and cash
equivalents.
|
Net Debt
(Cash) is a supplemental financial measure that is not required by, or presented
in accordance with GAAP. We use Net Debt (Cash) as a measure of our
financial leverage. We believe that investors also may find Net Debt
(Cash) to be helpful in evaluating our financial leverage. Net Debt (Cash)
should not be considered as an alternative to Debt determined in accordance with
GAAP. Set forth above is a reconciliation of Net Debt (Cash), a
non-GAAP financial measure, to Debt, which is the most directly comparable
financial measure calculated and reported in accordance with GAAP, as of
September 30, 2009, and December 31, 2008. Net Debt (Cash) at
September 30, 2009, increased primarily as a result of a $92 million cash
contribution to our primary U.S. pension plan in August 2009.
39
Debt
We have
an unsecured $400 million revolving bank credit facility (the “Revolving
Facility”) with a syndicate of banks. The Revolving Facility’s
interest rate is based on LIBOR plus a margin, prime rate, or competitive
bid. The Revolving Facility allows us to borrow (or otherwise satisfy
credit needs) on a revolving basis over a five-year term ending in August
2011. As of September 30, 2009, $222.3 million was available under
the Revolving Facility. Amounts outstanding under the Revolving
Facility as of September 30, 2009, were denominated primarily in U.S. dollars
and to a lesser extent in Canadian dollars.
The
margin on LIBOR borrowings under the Revolving Facility, which can range from
0.140% to 0.575%, depending on our credit rating, was 0.350% at September 30,
2009. When borrowings and letters of credit under the Revolving
Facility are in excess of $200 million, the applicable interest rate is
increased by 0.100% or 0.125%. We also pay an annual facility fee on
the Revolving Facility based on our credit rating. The facility fee,
which can range from 0.060% to 0.175%, was 0.100% at September 30,
2009.
We have
an unsecured $135 million letter of credit facility with a bank (the “Letter of
Credit Facility”). The Letter of Credit Facility expires in July
2011. As of September 30, 2009, $8.9 million was available under the
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.
We have
two unsecured multi-currency revolving bank credit facilities with a total of
$50.0 million in available credit, of which approximately $28.9 million was
available at September 30, 2009. Interest on these facilities is
based on LIBOR plus a margin. The margin ranges from 0.140% to
0.675%. A $10 million facility expires in December 2009 and a $40
million facility expires in December 2011. We also have the ability
to borrow from other banks under short-term uncommitted
agreements. Various foreign subsidiaries maintain other lines of
credit and overdraft facilities with a number of banks.
The
Revolving Facility, the Letter of Credit Facility and the two unsecured
multi-currency revolving bank credit facilities contain subsidiary guarantees
and various financial and other covenants. The financial covenants,
among other things, limit our total indebtedness, limit asset sales, limit the
use of proceeds from asset sales and provide for minimum coverage of interest
costs. The credit agreements do not provide for the acceleration of
payments should our credit rating be reduced. If we were not to
comply with the terms of our various loan agreements, the repayment terms could
be accelerated and the commitments could be withdrawn. An
acceleration of the repayment terms under one agreement could trigger the
acceleration of the repayment terms under the other loan
agreements. We were in compliance with all financial covenants at
September 30, 2009.
We have
$43.2 million of bonds issued by the Peninsula Ports Authority of Virginia
recorded as debt on our balance sheet. Although we are not the
primary obligor of the debt, we have guaranteed the debt and we believe that we
will ultimately pay this obligation. The guarantee originated as part
of a former interest in Dominion Terminal Associates, a deep water coal
terminal. We continue to pay interest on the debt. The
bonds bear a fixed interest rate of 6.0% and mature in 2033. The
bonds may mature prior to 2033 upon the occurrence of specified events such as
the determination that the bonds are taxable or if we fail to abide by the terms
of its guarantee.
Based on
our current cash on hand, amounts available under our credit facilities and
current projections of cash flows from operations, we believe that we will be
able to meet our liquidity needs for more than the next 12 months.
Equity
At
September 30, 2009, we had 100 million shares of common stock authorized and
47.9 million shares issued and outstanding.
On
September 14, 2007, our board of directors authorized the purchase of up to $100
million of our outstanding common shares. Under the program, we used $6.1
million to purchase 234,456 shares of common stock between January 1, 2009, and
March 31, 2009, at an average price of $26.20 per share. No shares
were purchased in the second quarter or third quarter of 2009. As of
September 30, 2009, we had $33.7 million under the program available to purchase
shares. The repurchase authorization does not have an expiration
date.
40
Commitments
and Contingent Matters
Operating
leases
We have
made residual value guarantees of approximately $58.0 million at September 30,
2009, related to operating leases, principally for trucks and other
vehicles.
Federal
Black Lung Excise Tax (“FBLET”) refunds
In late
2008, Congress passed the Energy Improvement and Extension Act of 2008 which
enabled taxpayers to file claims for FBLET refunds for periods prior to those
open under the statute of limitations previously applicable to us. In the second
quarter of 2009, we received FBLET refunds and recognized the majority of these
refunds as a pretax gain of $19.7 million. The gain related to these
refunds was recorded in discontinued operations.
Former
operations
As
previously disclosed, BAX Global, a former business unit of ours, is defending a
claim related to the apparent diversion by a third party of goods being
transported for a customer. During the second quarter of 2009, BAX
Global advised us that it is probable that it will be deemed liable for this
claim. We have contractually indemnified the purchaser of BAX Global
for this contingency. Although it is possible that this claim ultimately
may be decided in favor of BAX Global, we have accrued a loss reserve of $13.2
million related to this matter. We recognized the loss in
discontinued operations. We believe we have insurance coverage
applicable to this matter and that it will be resolved without a material
adverse effect on our liquidity, financial position or results of
operations.
Value-added
taxes (“VAT”) and customs duties
During
2004, we determined that one of our non-U.S. Brink’s business units had not paid
customs duties and VAT with respect to the importation of certain goods and
services. We were advised that civil and criminal penalties could be
asserted for the non-payment of these customs duties and VAT. The
business unit provided the appropriate government authorities with an accounting
of unpaid customs duties and VAT, made payments covering its calculated unpaid
VAT and accrued the calculated unpaid custom duties and interest on the unpaid
custom duties and VAT. We believe that the range of reasonably
possible losses is between $0.4 million and $3 million for potential penalties
on unpaid VAT and have accrued $0.4 million. Although no penalties on
unpaid VAT have been asserted to date, they could be asserted at any
time. We do not expect to be assessed interest charges in connection
with any penalties on unpaid VAT that may be asserted. We have been
advised that due to the expiration of the applicable statute of limitations, we
are no longer subject to penalties for unpaid customs duties. We
continue to diligently pursue the timely resolution of this matter and,
accordingly, our estimate of the potential losses could change materially in
future periods. We do not believe that the assertion of potential
penalties on unpaid VAT will have a material adverse effect on our liquidity,
financial position or results of operations.
Other
We are
involved in various lawsuits and claims in the ordinary course of
business. We are not able to estimate the range of losses for some of
these matters. We have recorded accruals for losses that are
considered probable and reasonably estimable. We do not believe that
the ultimate disposition of any of these matters will have a material adverse
effect on our liquidity, financial position or results of
operations.
41
Item
3. Quantitative and Qualitative Disclosures About Market Risk
Our
operations have activities in approximately 50 countries. These
operations expose us to a variety of market risks, including the effects of
changes in interest rates and foreign currency exchange rates. In
addition, we consume various commodities in the normal course of business,
exposing us to the effects of changes in the prices of such commodities. These
financial and commodity exposures are monitored and managed by us as an integral
part of our overall risk management program. Our risk management
program seeks to reduce the potentially adverse effects that the volatility of
certain markets may have on our operating results. We have not had any material
change in our market risk exposures in the nine months ended September 30,
2009.
Item
4. Controls and Procedures
Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), we carried out an evaluation, under the supervision and with
the participation of our management, including our Chief Executive Officer
(“CEO”), who is our principal executive officer, and Vice President and Chief
Financial Officer (“CFO”), who is our principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined under Rule 13a-15(e) and 15d-15(e) under the Exchange
Act) as of the end of the period covered by this report. Based upon
that evaluation, as of end of the period covered by this report, our CEO and CFO
concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act, 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 our management, including our CEO
and CFO, as appropriate, to allow timely decisions regarding required
disclosure.
There has
been no change in our internal control over financial reporting during the
quarter ended September 30, 2009, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
42
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 anticipated impact of new accounting standards, the satisfaction
of conditions related to our pending transaction in India, the outcome of
pending litigation, the availability of insurance and the anticipated financial
impact of the disposition of these matters, the outcome of the issue relating to
the non-payment of customs duties and value-added tax by a non-U.S. subsidiary
of Brink’s, Incorporated, organic revenue growth and segment operating profit
margin in 2009 and 2010, improvement of performance in Europe and North America,
future CompuSafe® unit installations and their financial impact, the growth of
cash logistics and other high-margin services, acquisitions and other growth
opportunities, the projected effect of the voluntary contribution to the primary
U.S. pension plan and future contributions, the anticipated effective tax rate
for 2009 and 2010 and our tax position and underlying assumptions, expected
corporate expense and capital expenditures for 2009, anticipated depreciation
and amortization for 2009, future payment of bonds issued by the Peninsula Ports
Authority of Virginia, and the ability to meet our liquidity
needs. Forward-looking information in this document is subject to
known and unknown risks, uncertainties, and contingencies, which could cause
actual results, performance or achievements to differ materially from those that
are anticipated.
These
risks, uncertainties and contingencies, many of which are beyond our control,
include but are not limited to, the impact of the global economic slowdown on
our business opportunities, access to the capital and credit markets, the recent
market volatility and its impact on the demand for our services, the
implementation of investments in technology and value-added services and cost
reduction efforts and their impact on revenue and profit growth, the ability to
identify and execute further cost and operational improvements and efficiencies
in our core businesses, the willingness of our customers to absorb fuel
surcharges and other future price increases, the actions of competitors, our
ability to identify strategic opportunities and integrate them successfully,
acquisitions and dispositions made in the future, our ability to integrate
recent acquisitions, regulatory and labor issues and higher security threats,
the impact of turnaround actions responding to current conditions in Europe, the
return to profitability of operations in jurisdictions where we have recorded
valuation adjustments, the input of governmental authorities regarding the
non-payment of customs duties and value-added tax, the stability of the
Venezuelan economy and changes in Venezuelan policy regarding exchange rates,
the potential for a devaluation of the bolivar fuerte, the likelihood that
Venezuela will be designated “highly inflationary” for accounting purposes as of
January 1, 2010, the absence of the currency conversion project in Venezuela,
variations in costs or expenses and performance delays of any public or private
sector supplier, service provider or customer, our ability to obtain appropriate
insurance coverage, positions taken by insurers with respect to claims made and
the financial condition of insurers, safety and security performance, our loss
experience, changes in insurance costs, risks customarily associated with
operating in foreign countries including changing labor and economic conditions,
currency devaluations, safety and security issues, political instability,
restrictions on repatriation of earnings and capital, nationalization,
expropriation and other forms of restrictive government actions, costs
associated with the purchase and implementation of cash processing and security
equipment, changes in the scope or method of remediation or monitoring of our
former coal operations, the timing of the pass-through of certain costs to third
parties and the timing of approvals by governmental authorities relating to the
disposal of the coal assets, changes to estimated liabilities and assets in
actuarial assumptions due to payments made, investment returns, annual actuarial
revaluations, and periodic revaluations of reclamation liabilities, the funding
requirements, accounting treatment, investment performance and costs and
expenses of our pension plans, the VEBA and other employee benefits, whether the
Company’s assets or the VEBA’s assets are used to pay benefits, the risk that
the recent contribution to the U.S. pension plan does not have the anticipated
effects on the company’s or the plan’s financial condition, black lung claims
incidence, the number of dependents of mine workers for whom benefits are
provided, mandatory or voluntary pension plan contributions, the nature of our
hedging relationships, the strength of the U.S. dollar relative to foreign
currencies, foreign currency exchange rates, changes in estimates and
assumptions underlying our critical accounting policies, seasonality, pricing
and other competitive industry factors, and fuel prices. Additional
factors that could cause our results to differ materially from those described
in the forward-looking statements can be found under “Risk Factors” in
Item 1A of our Annual Report on Form 10-K for the period ended
December 31, 2008 and in our other public filings with the Securities and
Exchange Commission. The information included in this document is
representative only as of the date of this document, and The Brink’s Company
undertakes no obligation to update any information contained in this
document.
43
Part II - Other
Information
Item 1A. Risk
Factors.
We are
exposed to risk in the operation of our businesses, including, but not limited
to, those referenced in Item 1A. Risk Factors and Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations of our
Annual Report on Form 10-K for the year ended December 31, 2008, and under Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations of this Quarterly Report on Form 10-Q. On September 24,
2009, we filed a shelf registration statement on Form S-3 (File No. 333-162113)
(the “Form S-3”). The Form S-3 contained an update of certain of the
risk factors contained in our Annual Report on Form 10-K for the year ended
December 31, 2008, and Quarterly Report on Form 10-Q for the quarter ended June
30, 2009. We do not believe there have been any material changes to the risk
factors previously disclosed in our Annual Report on Form 10-K for the year
ended December 31, 2008, except as follows (all of which were previously
included in the Form S-3, except certain financial information has been updated
to September 30, 2009):
Earnings
of our Venezuelan operations may not be fully repatriated at the official
currency exchange rate of 2.15 bolivar fuertes to the U.S. dollar, the bolivar
fuerte currency could be subject to a currency devaluation, and the Venezuelan
economy may be designated as highly inflationary for accounting purposes, any of
which could materially impact our consolidated results of
operations.
Our
Venezuelan operations, which are 61% owned by Brink’s, constitute a material
portion of our overall consolidated operations. Our revenues in Venezuela
represented 11% of our total 2008 revenues and 12% of our total revenues for the
nine months ended September 30, 2009, and the proportionate contribution of our
Venezuelan operations to our total operating profit and net income has been, and
we expect it will continue to be, materially in excess of the proportionate
contribution of such operations to our total revenues. In addition,
at September 30, 2009, on a consolidated basis, we held bolivar
fuerte-denominated net assets of $225.0 million and net monetary assets of
$111.7 million. Net assets attributable to Brink’s (which includes
our majority interest in the operations and other assets that we wholly own)
were $152.1 million at September 30, 2009.
There are
two currency exchange rates which may be used to convert Venezuelan bolivar
fuertes into other currencies: an official rate and a market
rate. The use of the official rate to convert cash held in bolivar
fuertes into other currencies requires the approval of the Venezuelan
government’s currency control organization. The official rate has
been fixed at 2.15 bolivar fuertes to the U.S. dollar despite significant
inflation in recent periods. The market rate, which has been lower
than the official rate over the past 18 months by a range of approximately 35%
to 70%, may be used to obtain U.S. dollars without the approval of the currency
control organization.
Reported results would be lower if
we use a less favorable currency exchange rate to translate our financial
statements. For our Venezuelan operations, we prepare our
financial statements using the official rate, which is consistent with the
guidance issued by the International Practices Task Force of the Center for
Audit Quality (the “IPTF”) and U.S. GAAP. This guidance provides
that, in the absence of unusual circumstances, the rate used for dividend
remittances should be used to translate foreign financial statements. Recently,
there has been speculation regarding changes to the official rate in Venezuela
which could, directly or indirectly, result in a devaluation of the official
rate. If there is a devaluation of the official rate, our reported
results after the devaluation will be translated at the new currency exchange
rate and our revenues and operating profits could be materially lower. In
addition, we have experienced a delay in receiving government approvals in
recent periods for repatriating dividends at the official rate and it is unclear
when, if ever, our dividends will be approved at this rate. If our
Venezuelan dividends are not approved for repatriation at the official rate, we
could elect to repatriate dividends using the market rate. If in the
future we repatriate our dividends at the market rate, we may begin translating
our financial statements at the market rate, which could result in our reported
results being materially lower.
Reported
results would have been adversely affected if revenues, operating profits and
net assets (including our cash balances held in bolivar fuertes) of our
Venezuelan operations had been reported using a less favorable currency exchange
rate. For each 10% decline in the currency exchange rate we use to
translate our bolivar fuerte denominated financial statements, our revenues,
operating profit and net income attributable to Brink’s for the first nine
months of 2009 would have been reduced by $27.1 million, $4.3 million, and $2.2
million, respectively. This decline could have a significant impact
on our reported results in the fourth quarter of 2009 because, as previously
disclosed, (i) our second quarter results included higher foreign currency
transaction costs in Venezuela, and (ii) our revenues and related operating
profits are generally higher in the second half of the year, particularly in the
fourth quarter. In addition, we would record potentially material
foreign currency translation adjustments in equity in the period of devaluation
for our subsidiaries that use the bolivar fuerte as their functional
currency. We would also record potentially material charges to
earnings in the period of devaluation as a result of remeasuring our bolivar
fuerte-denominated assets held by subsidiaries that do not use the bolivar
fuerte as their functional currency. The bolivar fuerte-denominated
assets held by these subsidiaries include cash and intercompany
receivables.
44
Repatriated cash may be lower than
the amount included in our consolidated balance sheet. Cash
held in bolivar fuertes has been increasing as a result of not receiving
approvals for our dividends. If we decide to repatriate cash using
the market rate rather than the official rate, we would receive a significantly
lower amount of cash than is reported in our consolidated balance
sheet.
Results may be reported as highly
inflationary in the future. Venezuela has experienced significant
inflation in the last several years. As a result, Venezuela’s economy
may be considered highly inflationary in the future. Subsidiaries of
U.S. companies that operate in highly inflationary countries must use the U.S.
dollar as the functional currency. Under a highly inflationary basis
of accounting, net monetary assets held in bolivar fuertes would be remeasured
into U.S. dollars on each balance sheet date, with remeasurement adjustments and
other transaction gains and losses recognized in earnings. Recently,
the IPTF indicated that, based on inflation projections of various government
sources, and absent any unexpected reversals in inflation trends, Venezuela
would constitute a highly inflationary economy on or prior to January 1, 2010.
If Venezuela is determined to be highly inflationary for accounting purposes, we
would thereafter be prohibited from recognizing deferred tax benefits that
result from inflationary indexing of assets and liabilities, thereby increasing
our reported U.S. GAAP effective income tax rate and reducing net income,
potentially materially. Assuming that Venezuela had been deemed
highly inflationary for accounting purposes as of January 1, 2009 (and assuming
no change in the applicable foreign currency exchange rate), our consolidated
effective income tax rate would have increased from 29% to approximately 36% and
we would have experienced a reduction in consolidated net income of $8.9
million, and a reduction of net income attributable to Brink’s of $5.4 million
for the first nine months of 2009. In addition, if
Venezuela’s economy is considered highly inflationary in the future and there is
a subsequent decline in the currency exchange rate we use to translate our
bolivar fuerte denominated financial statements, we could incur an additional
material loss in earnings in connection with the remeasurement of our net
monetary assets.
The
weak economy is expected to have a negative impact on demand for our
services.
Global
economic conditions have deteriorated significantly, and demand for our services
has been negatively impacted in regions where we provide our
services. For example, demand for our services is significantly
affected by the amount of discretionary consumer and business spending which
historically has displayed significant cyclicality. Further
deterioration in general global economic conditions would have a negative impact
on our financial condition, results of operations and cash flows, although it is
difficult to predict the extent and the length of time the economic downturn
will affect our business.
We have significant retirement
obligations. Poor
investment performance of retirement plan holdings could unfavorably affect our
liquidity and results of operations.
We have
substantial pension and retiree medical obligations, a portion of which have
been funded. The amount of these obligations is significantly
affected by factors that are not in our control, including interest rates used
to determine the present value of future payment streams, investment returns,
medical inflation rates, participation rates and changes in laws and
regulations. Our liabilities for these plans increased by $465
million in 2008 primarily as a result of significant decline in value of plan
investments, which was a primary reason for our decision to make a voluntary
$150 million cash and stock contribution on August 20, 2009. The
funded status of The Brink’s Company Pension-Retirement Plan was approximately
85% as of August 20, 2009. We expect that we will be required to make
significant contributions to The Brink’s Company Pension-Retirement Plan in the
next several years. This could adversely affect our liquidity and our
ability to use our resources to make acquisitions and to otherwise grow our
business. We also expect our future net periodic costs of our
retirement plans will be adversely affected by the investment losses sustained
in 2008. If these investments have additional losses, our future cash
requirements and costs for these plans will be further adversely
affected.
We
have significant operations outside the United States.
We
currently operate in approximately 50 countries. Revenue outside the
U.S. was approximately 70% of total revenue in 2008. We expect
revenue outside the U.S. to continue to represent a significant portion of total
revenue. Business operations outside the U.S. are subject to
political, economic and other risks inherent in operating in foreign countries,
such as:
·
|
the
difficulty of enforcing agreements, collecting receivables and protecting
assets through foreign legal
systems;
|
·
|
trade
protection measures and import or export licensing
requirements;
|
·
|
difficulty
in staffing and managing widespread
operations;
|
·
|
required
compliance with a variety of foreign laws and
regulations;
|
·
|
changes
in the general political and economic conditions in the countries where we
operate, particularly in emerging
markets;
|
·
|
threat
of nationalization and
expropriation;
|
45
·
|
higher
costs and risks of doing business in a number of foreign
jurisdictions;
|
·
|
limitations
on the repatriation of earnings;
|
·
|
fluctuations
in equity, revenues and profits due to changes in foreign currency
exchange rates, including measures taken by governments to devalue
official currency exchange rates;
and
|
·
|
inflation
levels exceeding that of the U.S.
|
We are
exposed to certain risks when we operate in countries that have high levels of
inflation, including the risk that:
·
|
the
rate of price increases for services will not keep pace with cost
inflation;
|
·
|
adverse
economic conditions may discourage business growth which could affect
demand for our services; and
|
·
|
the
devaluation of the currency may exceed the rate of inflation and reported
U.S. dollar revenues and profits may
decline.
|
We try to
manage these risks by monitoring current and anticipated political and economic
developments and adjusting operations as appropriate. Changes in the
political or economic environments of the countries in which we operate could
have a material adverse effect on our business, financial condition, results of
operations and cash flows.
We operate in
highly competitive industries.
We
compete in industries that are subject to significant competition and pricing
pressures. We face significant pricing pressures from competitors in
most markets. Because we believe we have competitive advantages such
as brand name recognition and a reputation for a high level of service and
security, we resist competing on price alone. However, continued
pricing pressure could impact our customer base or pricing structure and have an
adverse effect on our business, financial condition, results of operations and
cash flows.
Our earnings and cash flow could be
materially affected by increased losses of customer
valuables.
We
purchase insurance coverage for losses of customer valuables for amounts in
excess of what we consider prudent deductibles and/or
retentions. Insurance is provided by different groups of underwriters
at negotiated rates and terms. Coverage is available to us in major
insurance markets, although premiums charged are subject to fluctuations
depending on market conditions. Our loss experience and that of other
armored carriers affects premium rates charged to us. We are
self-insured for losses below our coverage limits and recognize expense up to
these limits for actual losses. Our insurance policies cover losses
from most causes, with the exception of war, nuclear risk and various other
exclusions typical for such policies. The availability of
high-quality and reliable insurance coverage is an important factor in order for
us to obtain and retain customers and to manage the risks of our
business. If our losses increase, or if we are unable to obtain
adequate insurance coverage at reasonable rates, our financial condition,
results of operations and cash flows could be materially and adversely
affected.
We depend heavily on the availability
of fuel and the ability to pass higher fuel costs to
customers.
Fuel
prices have fluctuated significantly in recent years. In some
periods, our operating profit has been adversely affected because we are not
able to immediately offset the full impact of higher fuel prices through
increased prices or fuel surcharges. We do not have any long-term
fuel purchase contracts, and have not entered into any other hedging
arrangements that protect against fuel price increases. A significant
increase in fuel costs and an inability to pass increases on to customers or a
shortage of fuel could adversely affect our results of operations and cash
flows.
We operate in regulated
industries.
Our U.S.
operations 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 interprovincial operations in
Canada are subject to regulation by Canadian and provincial regulatory
authorities. Our international operations are regulated to varying
degrees by the countries in which we operate.
Changes
in laws or regulations could require a change in the way we operate, 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 our operating permits and licenses. If laws
and regulations were to change or we failed to comply, our business, financial
condition, results of operations and cash flows could be materially and
adversely affected.
46
We have retained obligations from the
sale of BAX Global.
In
January 2006 we sold BAX Global. We retained some of the obligations
related to these operations, primarily for taxes owed prior to the date of sale
and for any amounts paid related to one pending litigation matter for which we
have accrued a loss reserve of $13.2 million. In addition, we
provided indemnification customary for these sorts of
transactions. Future unfavorable developments related to these
matters could require us 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 our financial condition, results of operations
and cash flows.
47
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 Joseph W. Dziedzic, 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 Joseph W. Dziedzic, 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.
|
48
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
|
|
October
29, 2009
|
By: /s/ Joseph W.
Dziedzic
|
Joseph
W. Dziedzic
|
|
(Vice
President -
|
|
Chief
Financial Officer)
|
|
(principal
financial officer)
|
49