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BCO > SEC Filings for BCO > Form 10-Q on 26-Apr-2013All Recent SEC Filings

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Form 10-Q for BRINKS CO


26-Apr-2013

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 vehicle transportation, which we refer to as cash-in-transit ("CIT")

ˇ automated teller machine replenishment, and servicing, and network infrastructure services ("ATM Services")

ˇ secure international transportation of valuables ("Global Services")

ˇ supply chain management of cash ("Cash Management Services") including cash logistics services, 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 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: Latin America; Europe, Middle East, and Africa ("EMEA"); 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 2013, 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 results provide 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 28 - 30.

                                                     Three months
                                                   Ended March 31,           %
(In millions, except for per share amounts)        2013        2012        Change

GAAP
Revenues                                         $  977.4       940.7            4
Segment operating profit (a)                         33.2        71.0          (53 )
Non-segment expense                                 (17.0 )     (24.3 )        (30 )
Operating profit                                     16.2        46.7          (65 )
Income from continuing operations (b)                 2.1        20.9          (90 )
Diluted EPS from continuing operations (b)           0.04        0.43          (91 )

Non-GAAP (d)
Revenues                                         $  973.5       936.9            4
Segment operating profit (a)                         51.0        75.2          (32 )
Non-segment expense                                  (7.6 )      (9.6 )        (21 )
Operating profit                                     43.4        65.6          (34 )
Income from continuing operations (b)                17.1        32.6          (48 )
Diluted EPS from continuing operations (b) (c)       0.35        0.67          (48 )

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 page 20 reconcile the measurement to operating profit, a GAAP measure. Disclosure of total segment operating profit enables investors to assess the total operating performance of Brink's excluding non-segment income and expense. Forward-looking estimates related to total segment operating profit and non-segment income (expense) for 2013 are provided on page 27.

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

(c) Non-GAAP diluted EPS for the first quarter of 2012 as reported in the fourth quarter of 2012 was $0.01 per share lower, or $0.66 per share. The updated presentation reflects additional European operations that we expect to exit during 2013.

(d) Non-GAAP earnings information is contained on pages 28 - 30, 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, changes in currency exchange rates and the remeasurement of net monetary assets in Venezuela under highly inflationary accounting.


Overview

GAAP
Our revenues increased $36.7 million or 4% and our operating profit decreased $30.5 million or 65% in the first quarter of 2013. Revenues increased due to organic growth in our International segment, partially offset by unfavorable changes in currency exchange rates. Operating profit decreased primarily due to the $18.7 million loss related to the February 2013 robbery in Brussels, Belgium, a charge related to the remeasurement of net monetary assets as a result of the devaluation of Venezuela currency ($13.4 million) and a profit decrease in North America.

Our income from continuing operations in 2013 decreased $18.8 million compared to 2012 primarily due to the operating profit decrease mentioned above, partially offset by the positive income tax and noncontrolling interest impacts of the profit decrease.

Our earnings per share from continuing operations was $0.04, down from $0.43 in 2012.

We conformed the method we used in 2012 to allocate certain international overhead expenses to Latin America, EMEA and Asia Pacific to the method we are using in 2013. The 2012 amounts were not materially affected.

Non-GAAP
Non-GAAP results include the following adjustments:
                                                                   Three Months
                                                                 Ended March 31,
                                                                 2013        2012

GAAP Diluted EPS                                               $   0.04        0.43
   Exclude Venezuela monetary asset remeasurement losses           0.17           -
   Exclude U.S. retirement plan expenses                           0.17        0.21
   Exclude employee benefit settlement and severance losses           -        0.01
   Exclude additional European operations to be exited             0.02        0.02
   Exclude gains and losses on acquisitions and dispositions      (0.02 )     (0.02 )
   Adjust quarterly tax rate to full-year average rate            (0.04 )      0.02
Non-GAAP Diluted EPS                                           $   0.35        0.67

Amounts may not add due to rounding. Non-GAAP results are reconciled in more detail to the applicable GAAP results on pages 28 - 30.

Our revenues increased $36.6 million or 4% and our operating profit decreased $22.2 million or 34% in 2013. Revenues increased due to organic growth in our International segment, partially offset by unfavorable changes in currency exchange rates. Operating profit decreased primarily due to the $18.7 million loss related to the February 2013 robbery in Brussels, Belgium and a profit decrease in North America.

Our income from continuing operations in 2013 decreased 48% primarily due to lower operating profit, partially offset by the positive income tax impact of the profit decrease.

Our earnings per share from continuing operations was $0.35, down from $0.67 in 2012.

Outlook for 2013

GAAP
Our organic revenue growth rate for 2013 is expected to be in the 5% to 8% range, and our estimate of the impact of changes in currency exchange rates on revenue is in the negative 2% to negative 4% range. Our operating segment margin is expected to be in the 5.0% to 5.5% range. Our International organic revenue growth rate for 2013 is expected to be in the 7% to 9% range, and our estimate of the impact of changes in currency exchange rates on International revenue is in the negative 3% to negative 5% range. Our International segment margin is expected to be in the 6.0% to 7.0% range. Our North America organic revenue growth rate for 2013 is expected to be in the 0% to 2% range, and we do not expect changes in currency exchange rates to affect North America revenue compared to last year. Our North America segment margin is expected to be in the 1% to 2% range. On February 8, 2013, the Venezuelan government announced a 16% devaluation from the rate we previously used to remeasure our earnings. Our full-year outlook assumes a total devaluation of about 40% - the total impact of which is estimated to be a reduction of $130 million in revenue. See page 24 for more information regarding Venezuela.

Non-GAAP
Our outlook for non-GAAP revenues is the same as our outlook for GAAP revenues.


Our operating segment margin is expected to be in the 6.0% to 6.5% range. Our International segment margin is expected to be in the 7.0% to 8.0% range and our North America segment margin is expected to be in the 2% to 3% range.

See page 27 for a summary of our 2013 Outlook.


Segment Operating Results
                                 Segment Review
                  First Quarter 2013 versus First Quarter 2012

GAAP
                                               Acquisitions /
                                Organic         Dispositions        Currency                             % Change
(In millions)     1Q '12         Change             (b)               (c)          1Q '13          Total         Organic
Revenues:
International:
Latin America    $   386.3           45.9                  3.0          (22.3 )       412.9               7             12
EMEA                 280.4            5.6                    -              -         286.0               2              2
Asia Pacific          37.6            6.6                    -           (1.3 )        42.9              14             18
International        704.3           58.1                  3.0          (23.6 )       741.8               5              8
North America        236.4           (0.4 )                  -           (0.4 )       235.6               -              -
Total            $   940.7           57.7                  3.0          (24.0 )       977.4               4              6
Operating
profit:
International    $    65.2          (13.2 )                0.4          (16.8 )        35.6             (45 )          (20 )
North America          5.8           (8.2 )                  -              -          (2.4 )            NM             NM
Segment
operating
profit                71.0          (21.4 )                0.4          (16.8 )        33.2             (53 )          (30 )
Non-segment
(a)                  (24.3 )          6.2                  1.1              -         (17.0 )           (30 )          (26 )
Total            $    46.7          (15.2 )                1.5          (16.8 )        16.2             (65 )          (33 )
Segment
operating
margin:
International          9.3 %                                                            4.8 %
North America          2.5 %                                                           (1.0 %)
Segment
operating
margin                 7.5 %                                                            3.4 %




Non-GAAP
                                                Acquisitions /
                                 Organic         Dispositions        Currency                            % Change
(In millions)      1Q '12         Change             (b)               (c)          1Q '13         Total         Organic
Revenues:
International:
Latin America     $   386.3           45.9                  3.0          (22.3 )       412.9              7             12
EMEA                  276.6            5.5                    -              -         282.1              2              2
Asia Pacific           37.6            6.6                    -           (1.3 )        42.9             14             18
International         700.5           58.0                  3.0          (23.6 )       737.9              5              8
North America         236.4           (0.4 )                  -           (0.4 )       235.6              -              -
Total             $   936.9           57.6                  3.0          (24.0 )       973.5              4              6
Operating
profit:
International     $    67.2          (14.0 )                0.4           (3.1 )        50.5            (25 )          (21 )
North America           8.0           (7.5 )                  -              -           0.5            (94 )          (94 )
Segment
operating
profit                 75.2          (21.5 )                0.4           (3.1 )        51.0            (32 )          (29 )
Non-segment (a)        (9.6 )          2.0                    -              -          (7.6 )          (21 )          (21 )
Total             $    65.6          (19.5 )                0.4           (3.1 )        43.4            (34 )          (30 )
Segment
operating
margin:
International           9.6 %                                                            6.8 %
North America           3.4 %                                                            0.2 %
Segment
operating
margin                  8.0 %                                                            5.2 %

Amounts may not add due to rounding.
(a) Includes income and expense not allocated to segments (see page 23 for details).

(b) Includes operating results and gains/losses on acquisitions, sales and exits of businesses. Also includes impairment charges related to businesses that we expect to dispose of in the near term.

(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 First Quarter 2013 versus First Quarter 2012

Consolidated Segment Review

GAAP
Revenue increased 4% to $977.4 million due primarily to organic growth of 8% in our International segment partially offset by unfavorable changes in currency exchange rates.

Segment operating profit decreased 53% ($37.8 million) reflecting lower profits in both our North America and International segments. Results include a charge of $18.7 million related to a robbery in Brussels, Belgium. This charge impacts North America segment by $3.5 million and International by $15.2 million. First quarter 2013 also includes a $13.4 million charge related to the remeasurement of net monetary assets as a result of the devaluation of Venezuela currency.

Non-GAAP
Revenue increased 4% to $973.5 million due primarily to organic growth of 8% in our International segment partially offset by unfavorable changes in currency exchange rates.

Segment operating profit decreased 32% ($24.2 million) reflecting lower profits in both our North America and International segments. Results include a charge of $18.7 million related to the robbery in Brussels, Belgium. This charge impacts North America segment by $3.5 million and International by $15.2 million.

International Segment Review

Overview
GAAP
Revenues in the first quarter of 2013 for our International segment were 5% higher ($37.5 million) than the same period of 2012 as:
ˇ revenues in Latin America were 7% higher ($26.6 million)

ˇ revenues in EMEA were 2% higher ($5.6 million), and

ˇ revenues in Asia Pacific were 14% higher ($5.3 million).

Operating profit in our International segment decreased 45% ($29.6 million) due to lower profits in Latin America and EMEA. Results include a charge of $15.2 million related to the robbery in Brussels, Belgium and a $13.4 million charge related to the remeasurement of net monetary assets as a result of the devaluation of Venezuela currency.

Non-GAAP
Revenues in the first quarter of 2013 for our International segment were 5% higher ($37.4 million) than the same period of 2012 as:
ˇ revenues in Latin America were 7% higher ($26.6 million)

ˇ revenues in EMEA were 2% higher ($5.5 million), and

ˇ revenues in Asia Pacific were 14% higher ($5.3 million).

Operating profit in our International segment decreased 25% ($16.7 million) due to lower profits in Latin America and EMEA. Results include a charge of $15.2 million related to the robbery in Brussels, Belgium.

Latin America
GAAP
Revenue in Latin America increased 7% ($26.6 million) due to organic growth of 12% ($45.9 million) driven by inflation-based price increases in Venezuela and Argentina, partially offset by an unfavorable currency impact ($22.3 million).

Latin America operating profit decreased 52% due to:
ˇ a charge related to the remeasurement of net monetary assets in Venezuela
($13.4 million)

ˇ 19% organic decrease due to lower profits in Brazil and higher security costs, partially offset by improvement in Venezuela.

Non-GAAP
The analysis of Latin America non-GAAP revenues is the same as the analysis of GAAP revenues.


Latin America operating profit decreased 25% due primarily to a 20% organic decrease due to lower profits in Brazil and higher security costs, partially offset by improvement in Venezuela.

EMEA
GAAP
EMEA revenues increased 2% ($5.6 million) due to organic revenue growth. Organic growth was driven by increased volumes in Global Services, the Netherlands, Ireland and Russia, partially offset by lower revenues in France and Greece.

EMEA operating profit decreased 53% due to lower profits across much of the region and higher security costs, partially offset by organic improvement in the Netherlands and Global Services.

Non-GAAP
EMEA revenues increased 2% ($5.5 million) due to organic revenue growth. Organic growth was driven by increased volumes in Global Services, The Netherlands, Ireland and Russia, partially offset by lower revenues in France and Greece.

EMEA operating profit decreased 48% due to lower profits across much of the region and higher security costs, partially offset by organic improvement in the Netherlands and Global Services.

Asia Pacific
Revenue in Asia Pacific increased 14% ($5.3 million) due mainly to organic growth in China, Hong Kong and India.

Operating profit more than doubled due streamlining the regional cost structure and improved profits in China, Hong Kong and India.

North America Segment

GAAP
Revenues in North America were flat due to organic decrease in the United States offset by organic growth in Canada.

Operating profit decreased $8.2 million due to lower CIT demand and continued pricing pressure in the U.S. and the $3.5 million impact of the loss related to the robbery in Brussels, Belgium.

Non-GAAP
The analysis of North America non-GAAP revenues is the same as the analysis of North America GAAP revenues.

Operating profit decreased $7.5 million due to lower CIT demand and continued pricing pressure in the U.S. and the $3.5 million impact of the loss related to the robbery in Brussels, Belgium.

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 (Loss). 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.


Non-segment Income (Expense)

GAAP                                                       Three Months
                                                         Ended March 31,              %
(In millions)                                           2013          2012          change

General and administrative                           $     (8.0 )       (10.2 )          (22 )
Retirement costs (primarily former operations)            (10.5 )       (14.7 )          (29 )
Gains (losses) on business acquisitions and
dispositions                                                1.1             -            fav
Royalty income                                              0.4           0.6            (33 )
Non-segment income (expense)                         $    (17.0 )       (24.3 )          (30 )

Non-segment expenses in the first quarter of 2013 were $7.3 million lower than 2012 mainly due to decreased retirement costs ($4.2 million) and lower benefit costs in general and administrative expenses ($2.2 million). We also recognized a gain related to a favorable purchase price adjustment on the 2010 Mexico acquisition ($1.1 million) in the first quarter of 2013.

Outlook for 2013
We believe that non-segment expenses will be approximately $83 million in 2013,
or $6 million lower than 2012 because of a decrease in costs related to
retirement plans. See page 27 for a summary of our 2013 Outlook.


Non-GAAP                           Three Months
                                 Ended March 31,           %
(In millions)                    2013        2012        change

General and administrative     $   (8.0 )     (10.2 )        (22 )
Royalty income                      0.4         0.6          (33 )
Non-segment income (expense)   $   (7.6 )      (9.6 )        (21 )

Non-segment expenses on a non-GAAP basis in the first quarter of 2013 were $2.0 million lower than 2012 mainly due to decreased benefit costs ($2.2 million).

Outlook for 2013
We estimate that non-segment expenses on a non-GAAP basis will be approximately $41 million in 2013, or $1 million lower than 2012 primarily as a result of lower benefit costs in general and administrative expenses. See page 27 for a summary of our 2013 Outlook.


Foreign Operations

We currently serve customers in more than 100 countries, including approximately 50 countries where we operate subsidiaries.

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 are unknown.

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. Brink's Venezuela is subject to local laws and regulatory interpretations that determine the exchange rate at which repatriating dividends may be converted and Brink's Argentina may in the future be subject to similar restrictions.

From time to time, we use foreign currency forward and swap contracts to hedge transactional risks associated with foreign currencies. At March 31, 2013, the notional value of our shorter term outstanding foreign currency contracts was $69.4 million with remaining weighted average contract maturities of approximately one month. These shorter term foreign currency contracts primarily offset exposures in the Euro and Mexican peso. Additionally, these shorter term contracts are not designated as hedges for accounting purposes, and accordingly, changes in their fair value are recorded immediately in earnings. We recognized losses of $0.4 million on such contracts in the first quarter of 2013.

At March 31, 2013, we also had a longer term cross currency swap contract with a notional value of $21.5 million. This currency contract, which has a weighted average maturity of 3.2 years, was entered into to hedge exposure in Brazilian real and is designated as a cash flow hedge for accounting purposes. We recognized net gains of $0.2 million on this contract, of which gains of $0.4 million were included other operating income (expense) to offset transaction losses of $0.4 million and expenses of $0.2 million were included in other income in the first quarter of 2013.

At March 31, 2013, the fair value of all outstanding foreign currency contracts was not significant.

Venezuelan operations
Our Venezuelan operations constitute a material portion of our overall consolidated operations, and accounted for $95.6 million or 9.8% of total Brink's revenues and represented a significant component of total segment operating profit in the three months ended March 31, 2013.

We consolidate our Venezuelan results using our accounting policy for subsidiaries operating in highly inflationary economies.

In June 2010, the Venezuelan government established an exchange process that required that each transaction be approved by the government's central bank (the "SITME" rate). The majority of SITME transactions were approved at a rate of 5.3 bolivar fuertes to the dollar and we used this rate to remeasure our bolivar fuerte-denominated earnings into U.S. dollars each period, and monetary assets . . .

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