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BCO > SEC Filings for BCO > Form 10-Q on 25-Oct-2013All Recent SEC Filings

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Form 10-Q for BRINKS CO


25-Oct-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 35 - 38.

                                     Third Quarter       %            Nine Months         %
  (In millions, except for per
  share amounts)                    2013      2012     Change      2013       2012      Change

  GAAP
  Revenues                       $ 1,003.0    944.9        6    $ 2,960.4    2,811.4        5
     Segment operating profit(a)      81.7     67.7       21        171.6      193.5      (11)
     Non-segment expense             (20.7)   (22.0)      (6)       (59.3)     (67.6)     (12)
     Operating profit                 61.0     45.7       33        112.3      125.9      (11)
  Income from continuing
  operations(b)                       31.1     21.3       46         47.8       78.6      (39)
  Diluted EPS from continuing
  operations(b)                       0.63     0.44       43         0.98       1.62      (40)

  Non-GAAP(c)
  Revenues                       $ 1,003.0    944.9        6    $ 2,960.4    2,811.4        5
     Segment operating profit(a)      85.4     64.7       32        195.3      196.0        -
     Non-segment expense             (11.3)   (10.4)       9        (30.3)     (31.7)      (4)
     Operating profit                 74.1     54.3       36        165.0      164.3        -
  Income from continuing
  operations(b)                       33.7     28.2       20         72.6       84.7      (14)
  Diluted EPS from continuing
  operations(b)                       0.69     0.58       19         1.48       1.74      (15)

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 23 and 26 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 34.

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

(c) Non-GAAP earnings information is contained on pages 35 - 38, 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
Third Quarter
Our revenues increased $58.1 million or 6% and our operating profit increased $15.3 million or 33% in the third quarter of 2013. Revenues increased due to organic growth in our International segment, partially offset by unfavorable changes in currency exchange rates. Operating profit increased primarily due to organic improvement in our International segment, partially offset by an organic profit decrease in North America and unfavorable changes in currency exchange rates.

Our income from continuing operations in 2013 increased $9.8 million compared to 2012 primarily due to the operating profit increase, partially offset by an increase in income attributable to noncontrolling interests.

Our earnings per share from continuing operations was $0.63, up from $0.44 in 2012.

Nine Months
Our revenues increased $149.0 million or 5% and our operating profit decreased $13.6 million or 11% in the first nine months 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 and a charge related to the remeasurement of net monetary assets as a result of the devaluation of Venezuela currency ($13.4 million). Excluding these items, profit decreased in North America and increased in our International segment.

Our income from continuing operations in 2013 decreased $30.8 million compared to 2012 primarily due to a $21 million non-cash tax benefit in 2012 related to a change in retiree health care funding strategy as well as the operating profit decrease mentioned above.

Our earnings per share from continuing operations was $0.98, down from $1.62 in 2012.

Non-GAAP
Non-GAAP results include the following adjustments:
                                               Three Months                Nine Months
                                           Ended September 30,         Ended September 30,
                                              2013       2012           2013         2012

  GAAP Diluted EPS                         $   0.63       0.44           0.98        1.62
    Exclude Venezuela net monetary asset
    remeasurement losses                        -          -             0.17          -
    Exclude U.S. retirement plan expenses      0.16       0.17           0.48        0.53
    Exclude employee benefit settlement
    and severance losses                       0.01       0.03           0.02        0.05
    Exclude gains and losses on
    acquisitions and dispositions             (0.02)     (0.06)         (0.04)       (0.10)
    Exclude tax benefit from change in
    retiree health care funding strategy        -          -              -          (0.43)
    Adjust quarterly tax rate to
    full-year average rate                    (0.10)      0.01          (0.13)       0.08
  Non-GAAP Diluted EPS                     $   0.69       0.58           1.48        1.74

Amounts may not add due to rounding. Non-GAAP results are reconciled in more detail to the applicable GAAP results on pages 35 - 38.

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

Operating profit increased $19.8 million or 36% in 2013 primarily due to organic growth in our International segment, partially offset by an organic profit decrease in North America and unfavorable changes in currency exchange rates.

Our income from continuing operations in 2013 increased $5.5 million compared to 2012 primarily due to the operating profit increase, partially offset by income tax effects of the profit increase and an increase in income attributable to noncontrolling interests.

Our earnings per share from continuing operations was $0.69, up from $0.58 in 2012.

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

Operating profit was flat in 2013 primarily due to the $18.7 million loss related to the February 2013 robbery in Brussels, Belgium. Excluding this item, profit decreased in North America and increased in our International segment.


Our income from continuing operations in 2013 decreased 14% primarily due to an increase in income attributable to noncontrolling interests.

Our earnings per share from continuing operations was $1.48, down from $1.74 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 for 2013 is expected to be in the 6.0% to 6.5% range. Our International organic revenue growth rate for 2013 is expected to be in the 8% to 10% 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 for 2013 is expected to be in the 7.0% to 8.0% 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 for 2013. We expect the North American margin to improve in 2014 and 2015, and we have a goal to reach 7% in 2016.

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 6.5% to 7.0% range. Our International segment margin is expected to be in the 8.0% to 9.0% range and our North America segment margin is expected to be in the 2% to 3% range.

See page 34 for a summary of our 2013 Outlook.


Segment Operating Results
                                 Segment Review
                  Third Quarter 2013 versus Third Quarter 2012
  GAAP
                                                  Acquisitions /
                                        Organic    Dispositions    Currency                  % Change
  (In millions)               3Q '12    Change         (a)           (b)       3Q '13     Total   Organic
  Revenues:
    International:
       Latin America        $  385.2      76.1              3.8      (41.3)      423.8      10        20
       EMEA                    286.0       2.2                -       13.0       301.2       5         1
       Asia Pacific             39.1       6.7                -       (2.3)       43.5      11        17
          International        710.3      85.0              3.8      (30.6)      768.5       8        12
          North America        234.6       2.4                -       (2.5)      234.5       -         1
             Total          $  944.9      87.4              3.8      (33.1)    1,003.0       6         9
  Operating profit:
    International           $   59.4      29.0              0.8       (8.2)       81.0      36        49
    North America                8.3      (7.4)               -       (0.2)        0.7     (92)      (89)
       Segment operating
       profit                   67.7      21.6              0.8       (8.4)       81.7      21        32
       Non-segment             (22.0)      0.3              1.0          -       (20.7)     (6)       (1)
             Total          $   45.7      21.9              1.8       (8.4)       61.0      33        48
  Segment operating margin:
    International               8.4%                                             10.5%
    North America               3.5%                                              0.3%
             Segment
             operating
             margin             7.2%                                              8.1%




  Non-GAAP
                                                  Acquisitions /
                                        Organic    Dispositions    Currency                   % Change
  (In millions)               3Q '12    Change         (a)           (b)       3Q '13     Total    Organic
  Revenues:
    International:
       Latin America        $  385.2      76.1              3.8      (41.3)      423.8      10         20
       EMEA                    286.0       2.2                -       13.0       301.2       5          1
       Asia Pacific             39.1       6.7                -       (2.3)       43.5      11         17
          International        710.3      85.0              3.8      (30.6)      768.5       8         12
          North America        234.6       2.4                -       (2.5)      234.5       -          1
             Total          $  944.9      87.4              3.8      (33.1)    1,003.0       6          9
  Operating profit:
    International           $   54.2      35.0              0.8       (8.2)       81.8      51         65
    North America               10.5      (6.7)               -       (0.2)        3.6     (66)       (64)
       Segment operating
       profit                   64.7      28.3              0.8       (8.4)       85.4      32         44
       Non-segment             (10.4)     (0.9)               -          -       (11.3)      9          9
             Total          $   54.3      27.4              0.8       (8.4)       74.1      36         50
  Segment operating margin:
    International               7.6%                                             10.6%
    North America               4.5%                                              1.5%
             Segment
             operating
             margin             6.8%                                              8.5%

Amounts may not add due to rounding.

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

(b) 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 2013 versus Third Quarter 2012

Consolidated Segment Review

GAAP
Revenue increased 6% to $1,003.0 million due primarily to organic growth of 12% in our International segment partially offset by unfavorable changes in currency exchange rates.

Cost of revenues increased 5% to $799.7 million driven by higher labor costs from inflation-based wage increases. Selling, general and administrative costs remained flat at $143.5 million as higher labor costs were offset by the write-off of government receivables in Argentina in 2012 and the benefits of corporate cost control actions.

Segment operating profit increased 21% ($14.0 million) reflecting profit growth in our International segment partially offset by lower profits in our North America segment.

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

Segment operating profit increased 32% ($20.7 million) reflecting profit growth in our International segment partially offset by lower profits in our North America segment.

International Segment Review

Overview
GAAP
Revenues in the third quarter of 2013 for our International segment were 8% higher compared to the same period of 2012 as:
ˇ revenues in Latin America were 10% higher ($38.6 million)

ˇ revenues in EMEA were 5% higher ($15.2 million), and

ˇ revenues in Asia Pacific were 11% higher ($4.4 million).

Operating profit in our International segment increased 36% ($21.6 million) due to improved profits in Latin America and Asia Pacific.

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

Operating profit in our International segment increased 51% ($27.6 million) due to improved profits in Latin America and Asia Pacific.

Latin America
GAAP
Revenue in Latin America increased 10% ($38.6 million) due to organic growth of 20% ($76.1 million) driven by inflation-based price increases in Venezuela, Argentina and Brazil, partially offset by an unfavorable currency impact ($41.3 million), primarily due to a devaluation in Venezuela.

Latin America operating profit increased 70% due to:
ˇ higher profits in Venezuela despite a gain on a building sale ($7.2 million) in 2012,

ˇ organic improvement in Argentina and Brazil, despite government-mandated wage increases,

ˇ decreased severance charges, and

ˇ write-offs of government receivables in Argentina in 2012,

partially offset by an unfavorable currency impact ($9.5 million).

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

Latin America operating profit more than doubled due to:


ˇ significant organic improvement in Venezuela and, to a lesser extent, in Argentina and Brazil, despite government-mandated wage increases,

ˇ decreased severance charges, and

ˇ write-offs of government receivables in Argentina in 2012,

partially offset by an unfavorable currency impact ($9.5 million).

EMEA
Revenue in EMEA increased 5% ($15.2 million) due to 1% organic growth ($2.2 million) and favorable changes in currency exchange rates ($13.0 million). Organic growth was driven by higher volumes in Ireland and Russia, partially offset by:
ˇ lower volumes in the United Kingdom, and

ˇ lower volumes in France due to a customer loss.

EMEA operating profit increased 3% due to favorable changes in currency exchange rates ($1.4 million) and the benefit of a change in tax legislation in France, partially offset by a profit decrease in the United Kingdom and a customer loss in France.

Asia Pacific
Revenue in Asia Pacific increased 11% ($4.4 million) due to organic growth ($6.7 million) in Hong Kong and China partially offset by unfavorable changes in currency exchange rates ($2.3 million).

Operating profit more than doubled due to streamlining the regional cost structure and other growth across the region.

North America Segment

GAAP
Revenues in North America were flat due to an organic increase in the United States and Canada offset by unfavorable changes in currency exchange rates ($2.5 million).

Operating profit decreased $7.6 million due to lower CIT demand and continued pricing pressure in the U.S.

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

Operating profit decreased $6.9 million due to lower CIT demand and continued pricing pressure in the U.S.


Segment Review Nine Months 2013 versus Nine Months 2012

  GAAP
                                                    Acquisitions /
                                          Organic    Dispositions    Currency                  % Change
  (In millions)                YTD '12    Change         (a)           (b)       YTD '13    Total   Organic
  Revenues:
    International:
       Latin America        $  1,147.4     176.5             11.1      (84.7)    1,250.3       9        15
       EMEA                      840.2      16.6                -       15.6       872.4       4         2
       Asia Pacific              115.2      18.2                -       (4.5)      128.9      12        16
          International        2,102.8     211.3             11.1      (73.6)    2,251.6       7        10
          North America          708.6       4.0                -       (3.8)      708.8       -         1
             Total          $  2,811.4     215.3             11.1      (77.4)    2,960.4       5         8
  Operating profit:
    International           $    168.0      23.4              1.6      (26.5)      166.5      (1)       14
    North America                 25.5     (20.2)               -       (0.2)        5.1     (80)      (79)
       Segment operating
       profit                    193.5       3.2              1.6      (26.7)      171.6     (11)        2
       Non-segment               (67.6)      7.1              1.2          -       (59.3)    (12)      (11)
             Total          $    125.9      10.3              2.8      (26.7)      112.3     (11)        8
  Segment operating margin:
    International                  8.0%                                              7.4%
    North America                  3.6%                                              0.7%
             Segment
             operating
             margin                6.9%                                              5.8%

  Non-GAAP
                                                    Acquisitions /
                                          Organic    Dispositions    Currency                  % Change
  (In millions)                YTD '12    Change         (a)           (b)       YTD '13    Total   Organic
  Revenues:
    International:
       Latin America        $  1,147.4     176.5             11.1      (84.7)    1,250.3       9        15
       EMEA                      840.2      16.6                -       15.6       872.4       4         2
       Asia Pacific              115.2      18.2                -       (4.5)      128.9      12        16
          International        2,102.8     211.3             11.1      (73.6)    2,251.6       7        10
          North America          708.6       4.0                -       (3.8)      708.8       -         1
             Total          $  2,811.4     215.3             11.1      (77.4)    2,960.4       5         8
  Operating profit:
    International           $    163.9      29.1              1.6      (13.1)      181.5      11        18
    North America                 32.1     (18.1)               -       (0.2)       13.8     (57)      (56)
       Segment operating
       profit                    196.0      11.0              1.6      (13.3)      195.3       -         6
       Non-segment               (31.7)      1.4                -          -       (30.3)     (4)       (4)
             Total          $    164.3      12.4              1.6      (13.3)      165.0       -         8
  Segment operating margin:
    International                  7.8%                                              8.1%
    North America                  4.5%                                              1.9%
             Segment
             operating
             margin                7.0%                                              6.6%

Amounts may not add due to rounding.

See page 23 for footnote explanations.


Segment Review Nine Months 2013 versus Nine Months 2012

Consolidated Segment Review
GAAP
Revenue increased 5% to $2,960.4 million due primarily to organic growth of 10% in our International segment partially offset by unfavorable changes in currency exchange rates.

Cost of revenues increased 6% to $2,415.0 million driven by higher labor costs from inflation-based wage increases, as well as a $18.7 million charge related to a robbery in Brussels, Belgium. Selling, general and administrative costs increased 3% to $425.7 million due primarily to higher labor costs, partially offset by the write-off of government receivables in Argentina in 2012 and the benefits of corporate cost control actions.

Segment operating profit decreased 11% ($21.9 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 the North America segment by $3.5 million and International by $15.2 million. The first half of 2013 also includes a $13.4 million charge in our International segment related to the remeasurement of net monetary assets as a result of the devaluation of Venezuela currency.

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

Segment operating profit was flat versus 2012, reflecting higher profits in our International segment offset by lower results in our North America segment. Results include a charge of $18.7 million related to the robbery in Brussels, Belgium. This charge impacts the North America segment by $3.5 million and International by $15.2 million.

International Segment Review

Overview
GAAP
Revenues in the first half of 2013 for our International segment were 7% higher ($148.8 million) than the same period of 2012 as:
ˇ revenues in Latin America were 9% higher ($102.9 million),

ˇ revenues in EMEA were 4% higher ($32.2 million), and

ˇ revenues in Asia Pacific were 12% higher ($13.7 million).

Operating profit in our International segment decreased 1% ($1.5 million) due to lower profits in EMEA, mostly offset by growth in Asia Pacific. Results include a charge of $15.2 million related to the robbery in Brussels, Belgium and a . . .

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