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BCO > SEC Filings for BCO > Form 10-Q on 28-Oct-2011All Recent SEC Filings

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Form 10-Q for BRINKS CO


28-Oct-2011

Quarterly Report


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:
ˇ armored car transportation, which we refer to as cash in transit ("CIT")

ˇ automated teller machine ("ATM") replenishment and servicing

ˇ arranging secure transportation of valuables over long distances and around the world ("Global Services")

ˇ 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 CompuSafeŽ service), coin sorting and wrapping, integrated check and cash processing services ("Virtual Vault Services")

ˇ providing bill payment acceptance and processing services to utility companies and other billers ("Payment Services")

ˇ security and guarding services (including airport security)

We have four geographic operating segments: Europe, Middle East, and Africa ("EMEA"); Latin America; Asia Pacific; and North America, which are aggregated into two reportable segments: International and North America.


RESULTS OF OPERATIONS

Consolidated Review

Non-GAAP Results
Non-GAAP results described in this filing are financial measures that are not required by, or presented in accordance with U.S. generally accepted accounting principles ("GAAP"). The purpose of the non-GAAP results is to report financial information without certain income and expense items and to adjust the quarterly non-GAAP tax rates so that the non-GAAP tax rate in each of the quarters is equal to the full-year non-GAAP tax rate. For 2011, a forecasted full-year tax rate is used. The full year non-GAAP tax rate in both years excludes certain pretax and tax income and expense amounts. The non-GAAP information provides information to assist comparability and estimates of future performance. Brink's believes these measures are helpful in assessing operations and estimating future results and enable period-to-period comparability of financial performance. Non-GAAP results should not be considered as an alternative to revenue, income or earnings per share amounts determined in accordance with GAAP and should be read in conjunction with their GAAP counterparts. The adjustments are described in detail and are reconciled to our GAAP results on pages 34 - 35.

                             Third Quarter              %                Nine Months               %
(In millions, except
per share amounts)        2011          2010          Change         2011          2010          Change

GAAP
Revenues                $   995.8         776.1             28     $ 2,888.4       2,240.9             29
Segment operating
profit (a)                   70.1          58.0             21         158.7         137.0             16
Non-segment expense          (7.6 )       (13.9 )          (45 )       (38.8 )       (37.6 )            3
Operating profit             62.5          44.1             42         119.9          99.4             21
Income from
continuing operations
(b)                          31.5          21.7             45          55.7          37.6             48
Diluted EPS from
continuing operations
(b)                          0.66          0.45             47          1.16          0.77             51

Non-GAAP (c)
Revenues                $   995.8         776.1             28     $ 2,888.4       2,240.9             29
Segment operating
profit (a)                   70.8          58.0             22         170.5         140.2             22
Non-segment expense         (16.9 )       (15.1 )           12         (48.5 )       (42.5 )           14
Operating profit             53.9          42.9             26         122.0          97.7             25
Income from
continuing operations
(b)                          24.9          21.9             14          52.9          47.9             10
Diluted EPS from
continuing operations
(b)                          0.52          0.46             13          1.10          0.98             12

Amounts may not add due to rounding.
(a) Segment operating profit is a non-GAAP measure when presented in any context other than prescribed by ASC Topic 280, Segment Reporting. The tables on pages 20 and 23 reconcile the measurement to operating profit, a GAAP measure. Disclosure of total segment operating profit enables investors to assess the total operating performance of The Brink's Company excluding non-segment income and expense. Forward-looking estimates related to total segment operating profit and non-segment income (expense) for 2011 are provided on page 33.

(b) Amounts reported in this filing are attributable to the shareholders of The Brink's Company and exclude earnings related to noncontrolling interests.

(c) Non-GAAP earnings information is contained on pages 34 -35, including reconciliation to amounts reported under GAAP.

Organic Growth
Organic growth represents the change in revenues or operating profit between the current and prior period, excluding the effect of the following items: acquisitions and dispositions, currency effects, and the 2010 remeasurement of net monetary assets in Venezuela under highly inflationary accounting.


Overview
GAAP
Third Quarter
Revenues in the quarter improved 28% from the prior year period. The increase was mainly due to our 2010 acquisition in Mexico, along with the positive impact of organic revenue growth and currency translation in our International segment. Operating profit increased 42% during the third quarter of 2011 compared to the same period of 2010. The operating profit improvement is mainly the result of the positive effects of acquisitions and dispositions in the last two years. In the third quarter of 2011, we recognized a $7 million gain on the sale of our U.S. Document Destruction business and a $2 million bargain purchase gain related to our 2010 business acquisition in Mexico. The operating profit comparison to last year also benefited as a result of $2 million in losses in the third quarter of 2010 related to our former Belgium CIT business. Organic profit growth in our segments as well as the positive impact of currency translation also contributed to higher profits in the 2011 quarter.

Income from continuing operations and net income attributable to Brink's, and the related per share amounts, in the third quarter of 2011 were higher than the same 2010 period. The above described positive factors affecting operating profit, along with a $4 million income tax benefit related to the release of a U.S. valuation allowance, contributed to the improvement in these earnings measures. These positive factors were partially offset by higher interest expense of $2 million in 2011 due primarily to higher interest rates from the January 2011 issuance of $100 million in unsecured private placement notes and higher overall borrowings to fund acquisitions.

Our 2012 expenses related to retirement plans in the U.S., which are recorded as part of non-segment income (expense) and U.S. segment operating profit, may increase from currently projected amounts depending on market data at the time of the year-end remeasurement. Based on recent market data for interest rates and plan asset performance, we believe our expenses could increase significantly in 2012.

Nine Months
Revenues in the first nine months improved 29% from the prior year period. The increase was mainly due to our 2010 acquisition in Mexico. Organic revenue growth and favorable changes in foreign currency rates in our International segment also contributed to the increase. Operating profit increased 21% during the first nine months of 2011 compared to the same period of 2010 primarily due to higher segment operating profit from our International segment. International segment operating profit growth reflects the positive impact of currency translation, lower losses from the exit of the Belgium CIT business and organic improvement in Latin America. These positive factors more than offset a $10 million settlement loss in Belgium recognized in the second quarter of 2011. Global Services, which operates in all regions, continued to show improved performance. Non-segment expenses were up slightly as the effects of higher general, administrative and retirement expenses and lower royalties exceeded the 2011 gains on sales of businesses and assets.

Income from continuing operations and net income attributable to Brink's, and the related per share amounts, in the first nine months of 2011 were higher than the same 2010 period. In addition to the above described factors affecting operating profit, the increase in these earnings measures also benefited from $4 million of gains on the sale and exchange of available-for-sale securities in 2011, the fact that 2010 results included an income tax charge of $14 million related to U.S. healthcare legislation and a $4 million income tax benefit related to the release of a U.S. valuation allowance in 2011. The positive impact of these items was partially offset by an $8 million non-cash income tax benefit related to an income tax settlement which was recognized in 2010 and higher interest expense in 2011. The increase in interest expense was due primarily to higher interest rates from the January 2011 issuance of $100 million in unsecured private placement notes and higher overall borrowings to fund acquisitions. Additionally, we recognized a $4 million gain in discontinued operations in the second quarter of 2011 due to the statute of limitations expiration on 2009 federal black lung excise tax refunds.


Non-GAAP
Non-GAAP results include the following adjustments:
                                                  Three Months                   Nine Months
                                              Ended September 30,            Ended September 30,
                                              2011            2010           2011            2010

GAAP Diluted EPS                           $     0.66            0.45           1.16            0.77
Exclude gains on asset sales,
acquisition and disposition                     (0.14 )             -          (0.20 )             -
Exclude Belgium settlement charge                   -               -           0.13               -
Exclude U.S. tax valuation allowance
release                                         (0.09 )             -          (0.09 )             -
Exclude income tax charge related to
U.S. healthcare legislation                         -               -              -            0.28
Adjust quarterly tax rate to full-year
average rate                                     0.08            0.02           0.08           (0.05 )
Other                                            0.01           (0.01 )         0.02           (0.02 )
Non-GAAP Diluted EPS                       $     0.52            0.46           1.10            0.98

Amounts may not add due to rounding. Non-GAAP results are reconciled in more detail to the applicable GAAP results on pages 34 -35.

Third Quarter
The analysis of non-GAAP revenues is the same as the analysis of GAAP revenues.

Operating profit increased 26% during the third quarter of 2011 compared to the same period of 2010. The operating profit improvement is mainly the result of the positive effects of acquisitions and dispositions in the last two years. Organic growth in our segments and the positive impact of currency translation also contributed to higher profits in the 2011 quarter.

Income from continuing operations attributable to Brink's and related per share amounts in the third quarter of 2011 were higher than the same 2010 period. The above described positive factors were partially offset by higher interest expense of $2 million. Higher interest expense was due primarily to higher interest rates from the January 2011 issuance of $100 million in unsecured private placement notes and increased borrowings related to acquisitions.

Nine Months
The analysis of non-GAAP revenues is the same as the analysis of GAAP revenues.

Operating profit increased 25% during the first nine months of 2011 compared to the same period of 2010. International segment operating profit growth reflects organic improvement in Latin America and EMEA, the positive impact of currency translation and lower losses due to the exit of the Belgium CIT business. Global Services, which operates in all regions, continued to show improved performance.

Income from continuing operations attributable to Brink's and related per share amounts in the nine months of 2011 were higher than the same 2010 period primarily due to the improved results of our International segment, partially offset by higher interest expense. Higher interest expense was due primarily to higher interest rates from the January 2011 issuance of $100 million in unsecured private placement notes and increased borrowings related to acquisitions.


Segment Operating Results
                                 Segment Review
                  Third Quarter 2011 versus Third Quarter 2010

GAAP
                                Organic        Acquisitions /        Currency                             % Change
(In millions)     3Q '10         Change       Dispositions (b)         (c)          3Q '11         Total          Organic
Revenues:
International:
EMEA             $   299.8           16.6                  (8.3 )         27.8         335.9             12               6
Latin America        215.5           46.1                 104.9            8.6         375.1             74              21
Asia Pacific          32.1            6.0                     -            2.2          40.3             26              19
International        547.4           68.7                  96.6           38.6         751.3             37              13
North America        228.7            1.0                  12.0            2.8         244.5              7               -
Total            $   776.1           69.7                 108.6           41.4         995.8             28               9
Operating
profit:
International    $    52.6            2.9                   3.1            2.8          61.4             17               6
North America          5.4            2.4                   0.7            0.2           8.7             61              44
Segment
operating
profit                58.0            5.3                   3.8            3.0          70.1             21               9
Non-segment
(a)                  (13.9 )         (2.5 )                 8.8              -          (7.6 )          (45 )            18
Total            $    44.1            2.8                  12.6            3.0          62.5             42               6
Segment
operating
margin:
International          9.6 %                                                             8.2 %
North America          2.4 %                                                             3.6 %
Segment
operating
margin                 7.5 %                                                             7.0 %



Non-GAAP
                                 Organic        Acquisitions /        Currency                             % Change
(In millions)      3Q '10         Change       Dispositions (b)         (c)          3Q '11         Total          Organic
Revenues:
International:
EMEA              $   299.8           16.6                  (8.3 )         27.8         335.9             12               6
Latin America         215.5           46.1                 104.9            8.6         375.1             74              21
Asia Pacific           32.1            6.0                     -            2.2          40.3             26              19
International         547.4           68.7                  96.6           38.6         751.3             37              13
North America         228.7            1.0                  12.0            2.8         244.5              7               -
Total             $   776.1           69.7                 108.6           41.4         995.8             28               9
Operating
profit:
International     $    52.6            2.9                   3.8            2.8          62.1             18               6
North America           5.4            2.4                   0.7            0.2           8.7             61              44
Segment
operating
profit                 58.0            5.3                   4.5            3.0          70.8             22               9
Non-segment (a)       (15.1 )         (1.8 )                   -              -         (16.9 )           12              12
Total             $    42.9            3.5                   4.5            3.0          53.9             26               8
Segment
operating
margin:
International           9.6 %                                                             8.3 %
North America           2.4 %                                                             3.6 %
Segment
operating
margin                  7.5 %                                                             7.1 %

Amounts may not add due to rounding.

(a) Includes income and expense not allocated to segments (see page 27 for details).

(b) Includes operating results and gains/losses on acquisitions, sales and exit of businesses.

(c) Revenue and Segment Operating Profit: The "Currency" amount in the table is the summation of the monthly currency changes, plus (minus) the U.S. dollar amount of remeasurement currency gains (losses) of bolivar fuerte-denominated net monetary assets recorded under highly inflationary accounting rules related to the Venezuelan operations. The monthly currency change is equal to the Revenue or Operating Profit for the month in local currency, on a country-by-country basis, multiplied by the difference in rates used to translate the current period amounts to U.S. dollars versus the translation rates used in the year-ago month. The functional currency in Venezuela is the U.S. dollar under highly inflationary accounting rules. Remeasurement gains and losses under these rules are recorded in U.S. dollars but these gains and losses are not recorded in local currency. Local currency Revenue and Operating Profit used in the calculation of monthly currency change for Venezuela have been derived from the U.S. dollar results of the Venezuelan operations under U.S. GAAP (excluding remeasurement gains and losses) using current period currency exchange rates.


Segment Review Third Quarter 2011 versus Third Quarter 2010

Consolidated Segment Review

GAAP
Revenue increased 28% to $996 million due primarily to our 2010 acquisition in Mexico along with 13% organic growth in our International segment and the positive impact of currency translation. Segment operating profit increased 21% ($12 million) due to favorable currency exchange rates, lower losses from the exit of our Belgium CIT business and organic profit growth in both reportable segments. Global Services, which operates in all regions, continued to benefit from an increase in the global movement of valuables, especially banknotes and precious metals.

Non-GAAP
Revenue improved by 28% to $996 million due primarily to our 2010 acquisition in Mexico along with 13% organic growth in our International segment and the positive impact of currency translation. Segment operating profit increased 22% ($13 million). Favorable changes in foreign currency rates as well as lower losses from the exit of our Belgium CIT business contributed to International segment operating profit growth. Both International and North America reported organic profit growth in the third quarter. Global Services, which operates in all regions, continued to benefit from an increase in the global movement of valuables, especially banknotes and precious metals.

Summary of Pretax Non-GAAP Adjustments                       Three Months
                                                          Ended September 30,
(In millions)                                      2011                              2010

International:
Mexico employee benefit settlement losses     $     0.7                                 -
Non-segment:
Gain on sale of U.S. Document Destruction
business                                           (6.7 )                               -
Acquisition of controlling interests               (2.1 )                               -
Gains (losses) on sale of property and
other assets                                       (0.5 )                               -
Royalty from BHS                                      -                              (1.2 )

International Segment Review

Overview
GAAP
Revenues in the third quarter of 2011 for our International segment were 37% higher than the same period of 2010 as:
ˇ revenues in EMEA were 12% higher ($36 million),

ˇ revenues in Latin America were 74% higher ($160 million), and

ˇ revenues in Asia Pacific were 26% higher ($8 million).

Operating profit in our International segment increased $9 million due to organic growth, favorable currency exchange rates and lower losses from the exit of the Belgium CIT business.

Non-GAAP
The analysis of non-GAAP International segment revenues is the same as the analysis of GAAP International segment revenues.

Operating profit in our International segment was $10 million higher due primarily to organic growth, favorable currency exchange rates and lower losses from the exit of the Belgium CIT business.

EMEA
GAAP
EMEA revenues increased 12% ($36 million) during the 2011 quarter compared to the 2010 quarter.

The primary factors that increased revenues during the period included:
ˇ favorable currency impact ($28 million), and

ˇ organic growth ($17 million);

partially offset by revenue loss related to the exit of our former Belgium CIT business ($9 million).


The organic revenue growth of 6% ($17 million) was due to higher volume in Greece, the Netherlands, Germany, emerging markets and Global Services.

EMEA operating profit increased by $7 million due primarily to:
ˇ improved results in Greece, the Netherlands and Global Services,

ˇ lower losses from the exit of Belgium CIT business ($2 million), and

ˇ favorable currency exchange rates ($2 million).

Non-GAAP
The analysis of non-GAAP EMEA revenues and operating profit is the same as the analysis of GAAP EMEA revenues and operating profit.

Latin America
GAAP
Revenue in Latin America increased 74% ($160 million) due to our acquisition in Mexico ($105 million), organic growth of 21% ($46 million) and favorable currency impact ($9 million). The organic growth was driven by inflation-based price increases across the region.

Latin America operating profit increased 16% due primarily to organic growth in Argentina, Chile and Colombia, partially offset by a decline in Venezuela.

Non-GAAP
Latin America operating profit increased 19% due primarily to organic growth in Argentina, Chile and Colombia, partially offset by a decline in Venezuela.

Asia Pacific
Revenue and operating profit increased due to growth across most of the region.

North America Segment

Revenues in North America increased 7% ($16 million) due to the Canada acquisition in 2010 ($13 million) and favorable currency impact ($3 million).

Operating profit increased $3 million due to growth in Canada and lower severance ($1 million) more than offset lower CIT demand and continued pricing pressure in the U.S.

Most of the armored vehicles used by our U.S. operations are accounted for as operating leases. The cost related to these leases is recognized as rental expense in the Consolidated Statements of Income. Since March 2009, we have acquired armored vehicles in the U.S. either by purchasing or by leasing under agreements that we have accounted for as capital leases. We currently expect to continue acquiring new vehicles in the U.S. with capital leases. The cost of vehicles under capital lease is recognized as depreciation and interest expense. Because of the shift in the way we acquire vehicles in the U.S., our depreciation and interest related to the U.S. fleet is higher and our rental expense is lower compared to earlier periods and we expect this trend to continue.

Outlook
2011. Our organic revenue growth rate for 2011 is expected to be in the mid-to-high single-digit percentage range. After factoring the addition of approximately $400 million of acquisition-related 2011 revenue from Mexico at approximately break-even margin rates, our 2011 segment operating profit margin is expected to be in the 6.0% to 6.3% range versus our targeted range of 6.5% to 7.0% as a result of lower than expected profit growth in Latin America and persistent challenging market conditions in North America and EMEA.

2012. Our organic revenue growth rate for 2012 is expected to continue to be in the mid-to-high single-digit percentage range, and our operating segment margin is expected to be in the 6.5% to 7.0% range.

During 2012, we intend to pursue higher margin business opportunities and continue to invest in information technology. We expect continued profit growth in Mexico and the rest of Latin America during 2012. We are projecting North America to improve margins in 2012, and we expect the upward momentum of our Global Services business to continue across all regions.

See page 33 for a summary of our Outlook.


Segment Review Nine Months 2011 versus Nine Months 2010

Nine Months
GAAP
                                  Organic         Acquisitions /         Currency                                % Change
(In millions)     YTD '10         Change         Dispositions (b)           (c)          YTD '11          Total          Organic
Revenues:
International:
EMEA             $    885.1            47.5                   (22.4 )          66.3          976.5              10                5
Latin America         583.5           115.6                   315.0            53.8        1,067.9              83               20
Asia Pacific           87.5            20.0                       -             6.2          113.7              30               23
International       1,556.1           183.1                   292.6           126.3        2,158.1              39               12
North America         684.8             0.4                    36.9             8.2          730.3               7                -
Total            $  2,240.9           183.5                   329.5           134.5        2,888.4              29                8
Operating
profit:
International    $    110.9            13.8                    (6.8 )          14.9          132.8              20               12
North America          26.1            (1.8 )                   1.1             0.5           25.9              (1 )             (7 )
Segment
operating
profit                137.0            12.0                    (5.7 )          15.4          158.7              16                9
Non-segment
. . .
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