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BCO > SEC Filings for BCO > Form 10-K on 28-Feb-2014All Recent SEC Filings

Show all filings for BRINKS CO

Form 10-K for BRINKS CO


28-Feb-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE BRINK'S COMPANY

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2013

TABLE OF CONTENTS

Page
OPERATIONS 20

RESULTS OF OPERATIONS
Consolidated Review 24 Segment Operating Results 27 Non-segment Income and Expense 33 Other Operating Income and Expense 34 Nonoperating Income and Expense 35 Income Taxes 36 Noncontrolling Interests 37 Loss from Discontinued Operations 38 Outlook 39 Non-GAAP Results - Reconciled to Amounts Reported under GAAP 40 Foreign Operations 47

LIQUIDITY AND CAPITAL RESOURCES
Overview 48 Operating Activities 48 Investing Activities 49 Financing Activities 51 Capitalization 51 Off Balance Sheet Arrangements 54 Contractual Obligations 55 Contingent Matters 58

APPLICATION OF CRITICAL ACCOUNTING POLICIES
Deferred Tax Asset Valuation Allowance 59 Goodwill, Other Intangible Assets and Property and Equipment Valuations 60 Retirement and Postemployment Benefit Obligations 61 Foreign Currency Translation 65


OPERATIONS

The Brink's Company

The Brink's Company offers transportation and logistics management services for cash and valuables throughout the world. These services include:
· Cash-in-Transit ("CIT") Services - armored vehicle transportation of valuables

· ATM Services - replenishing and maintaining customers' automated teller machines; providing network infrastructure services

· Global Services* - secure international transportation of valuables

· Cash Management Services*

o Currency and coin counting and sorting; deposit preparation and reconciliations; other cash management services

o Safe and safe control device installation and servicing (including our patented CompuSafe® service)

o Check and cash processing services for banking customers ("Virtual Vault Services")

o Check imaging services for banking customers

· Payment Services* - bill payment and processing services on behalf of utility companies and other billers at any of our Brink's or Brink's - operated payment locations in Latin America; Brink's Money™ prepaid payroll cards; Brink's Checkout e-commerce online payment services

· Security and Guarding Services - protection of airports, offices, and certain other locations in Europe with or without electronic surveillance, access control, fire prevention and highly trained patrolling personnel

* We consider these to be High-Value Services as described in more detail on page 3.

Executive Summary

Non-GAAP Financial Measures
We provide an analysis of our operations below on both a generally accepted accounting principles ("GAAP") and non-GAAP basis. The purpose of the non-GAAP information is to report our financial information as follows:
· excluding retirement expenses related to frozen retirement plans and retirement plans from former operations

· without certain income and expense items in 2011, 2012 and 2013

· after adjusting tax expense for certain items

The non-GAAP financial measures are intended to provide information to assist comparability and estimates of future performance. The adjustments are described in detail and are reconciled to our GAAP results on pages 40-46.

2013 versus 2012

GAAP
In 2013, our revenues increased $207.2 million or 6% and operating profit decreased $3.3 million or 2%. Revenues increased primarily due to organic growth in Latin America, partially offset by unfavorable changes in currency exchange rates. Operating profit decreased primarily due to the negative impact of changes in currency exchange rates ($36.1 million) and an organic profit decrease in North America ($26.8 million), partially offset by organic profit improvement in Latin America ($50.6 million) and a decrease in non-segment expenses ($7.8 million).

Income from continuing operations attributable to Brink's shareholders in 2013 decreased 35% compared to 2012 primarily due to higher tax expense ($24.9 million) mainly resulting from a $21.1 million tax benefit related to a change in retiree healthcare funding strategy in 2012, lower interest and other non-operating income ($5.6 million), and higher income attributable to noncontrolling interests ($3.5 million), in addition to the operating profit decrease mentioned above.

Earnings per share from continuing operations was $1.47, down from $2.29 in 2012.

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

Operating profit increased $15.0 million in 2013 primarily due to organic growth in our Latin America segment ($60.3 million), partially offset by an organic decrease in North America ($24.0 million) and the negative impact of changes in currency exchange rates ($22.7 million).


Income from continuing operations attributable to Brink's shareholders in 2013 increased 3% primarily due to the operating profit increase mentioned above and lower tax expense ($3.5 million), partially offset by higher income attributable to noncontrolling interests ($10.1 million).

Earnings per share from continuing operations was $2.37, up from $2.32 in 2012.

2012 versus 2011

GAAP
In 2012, our revenues increased $72.1 million or 2% and operating profit decreased $27.5 million or 14% from 2011. Revenues increased due to organic growth in our Latin America and EMEA segments, partially offset by unfavorable changes in currency exchange rates and an organic decrease in our North America segment. Operating profit decreased primarily due to increased U.S. retirement plan expenses ($28.2 million), the negative impact of changes in currency exchange rates ($15.2 million) and a gain recognized in 2011 on the sale of the U.S. Document Destruction business ($6.7 million), partially offset by organic profit improvement in our EMEA segment ($21.7 million) and a gain on the sale of real estate in Venezuela ($7.2 million).

Income from continuing operations attributable to Brink's shareholders in 2012 increased 11% compared to 2011 primarily due to lower tax expense ($36.9 million) mainly resulting from a $21.1 million tax benefit related to a change in retiree healthcare funding strategy, and lower income attributable to noncontrolling interests ($3.2 million), partially offset by the operating profit decrease mentioned above.

Earnings per share from continuing operations was $2.29, up from $2.09 in 2011.

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

Our operating profit decreased $1.2 million in 2012. Operating profit decreased primarily due to the negative impact of changes in currency exchange rates ($15.2 million) and lower results in our Latin America ($8.0 million) and Asia Pacific ($6.0 million) segments on an organic basis, partially offset by organic improvement in our EMEA ($21.7 million) and North American ($7.1 million) segments.

Income from continuing operations attributable to Brink's shareholders in 2012 was flat versus 2011 as lower income attributable to noncontrolling interests ($4.1 million) was offset by higher tax expense ($3.0 million) and the lower operating profit mentioned above.

Earnings per share from continuing operations was $2.32, down from $2.34 in 2011.

Outlook
See page 39 for a summary of our 2014 Outlook.

GAAP
Overall
Our organic revenue growth rate for 2014 is expected to be in the 5% to 8% range, and our estimate of the negative impact of changes in currency exchange rates on revenue is in the 3% to 5% range. Our operating segment margin is expected to be about 6.8%.

By Segment
Latin America organic revenue growth rate for 2014 is expected to be in the 12% to 14% range, and our estimate of the negative impact of changes in currency exchange rates on Latin America revenue is in the 6% to 8% range. Our Latin America segment margin is expected to be in the 7.5% to 9.5% range.

EMEA organic revenue growth rate for 2014 is expected to be in the 0% to 2% range, and our estimate of the negative impact of changes in currency exchange rates on EMEA revenue is in the 1% to 3% range. Our EMEA segment margin is expected to be in the 6% to 8% range.

North America organic revenue growth rate for 2014 is expected to be in the 0% to 2% range, with no impact of changes in currency exchange rates. Our North America segment margin is expected to be in the 1.5% to 2.5% range for 2014. We expect the North American margin to improve in 2014 and 2015, and we have a goal to reach 7% in 2016.


Asia Pacific organic revenue growth rate for 2014 is expected to be in the 5% to 7% range, and our estimate of the negative impact of changes in currency exchange rates on Asia Pacific revenue is in the 1% to 3% range. Our Asia Pacific segment margin is expected to be in the 9.5% to 11.5% range.

Non-GAAP
Overall
Our outlook for non-GAAP revenues is the same as our outlook for GAAP revenues. Our outlook for non-GAAP operating segment margin is expected to be about 7%.

By Segment
Our outlook for non-GAAP segment margin is the same as our outlook for GAAP segment margin for all segments except for North America. North America non-GAAP segment margin excludes the cost of U.S. retirement plans and is expected to be in the 2.5% to 3.5% range.

Performing Branches in U.S.
Performing branches is an internal profitability metric we use to measure our U.S. operations. We considered 45% of our branches to be performing branches in the U.S. at the end of 2013. Our goal is to increase performing branches to 75% by the end of 2016.

Definition of Organic Growth
Organic growth represents the change in revenues or operating profit between the current and prior period, excluding the effect of: acquisitions and dispositions, changes in currency exchange rates (as described on page 27) and the remeasurement of net monetary assets in Venezuela under highly inflationary accounting.

Business and Strategy Overview
We have four geographic operating segments:
· Latin America

· Europe, Middle East, and Africa ("EMEA")

· North America (U.S. and Canada)

· Asia Pacific

We believe that Brink's has significant competitive advantages including:
· brand name recognition

· reputation for a high level of service and security

· risk management and logistics expertise

· value-based solutions expertise

· global infrastructure and customer base

· proprietary cash processing and information systems

· proven operational excellence

· high-quality insurance coverage and general financial strength

We focus our time and resources on service quality, protecting and strengthening our brand, and addressing our risks. Our marketing and sales efforts are enhanced by the "Brink's" brand, so we seek to protect and build its value. Because our services focus on handling, transporting, protecting and managing valuables, we strive to understand and manage risk. Overlaying our approach is an understanding that we must be disciplined and patient enough to charge prices that reflect the value provided, the risk assumed and the need for an adequate return for our investors.

Because of our emphasis on managing risks while providing a high level of service, we focus our marketing and selling efforts on customers who appreciate the value and breadth of our services, information and risk management capabilities, and financial strength.

In order to earn an adequate return on capital, we focus on the effective and efficient use of resources as well as appropriate pricing levels. We attempt to maximize the amount of business that flows through our branches, vehicles and systems in order to obtain the lowest costs possible without compromising safety, security or service.

Business environments around the world change constantly. We must adapt to changes in competitive landscapes, regional economies and each customer's level of business.


The industries we serve have been consolidating. As a result, the demands and expectations of customers in these industries have grown. Customers are increasingly seeking suppliers, such as Brink's, with broad geographic solutions, sophisticated outsourcing capabilities and financial strength.

Operating results may vary from period to period. Because revenues are generated from charges per service performed or based on the value of goods transported, they can be affected by both the level of economic activity and the volume of business for specific customers. As contracts generally run for one or more years, costs are incurred to prepare to serve, or to transition away, from a customer. We also periodically incur costs to reduce operations when volumes decline, including costs to reduce the number of employees and close or consolidate branch and administrative facilities. In addition, security costs can vary depending on performance, cost of insurance coverage, and changes in crime rates (i.e., attacks and robberies).

Cash Management Services is a fully integrated solution that proactively manages the supply chain of cash from point-of-sale through bank deposit. The process includes cashier balancing and reporting, deposit processing and consolidation, and electronic information exchange (including "same-day" credit capabilities). Retail customers use Brink's Cash Management Services to count and reconcile coins and currency in a secure environment, to prepare bank deposit information, and to replenish customer coins and currency in proper denominations.

Because Cash Management Services involves a higher level of service and more complex activities, customers are charged higher prices, which result in higher margins. The ability to offer Cash Management Services to customers differentiates Brink's from many of its competitors. Management is focused on continuing to grow Cash Management Services revenue.

Brink's revenues and related operating profit are generally higher in the second half of the year, particularly in the fourth quarter, due to generally increased economic activity associated with the holiday season.

Former Businesses
We have significant liabilities associated with our former coal operations, primarily related to retirement plans, which are partially funded by plan trusts.

Information about liabilities related to former operations is contained in the following sections of this report:
· Non-segment Income (Expense) on page 33

· Liquidity and Capital Resources - Contractual Obligations - on page 55

· Application of Critical Accounting Policies - on page 59

· Notes 3 and 18 to the consolidated financial statements, which begin on page


RESULTS OF OPERATIONS

Consolidated Review


                                             GAAP                    % Change                   Non-GAAP(c)                % Change
  Years Ended December 31,       2013        2012        2011      2013    2012        2013        2012        2011      2013    2012
  (In millions, except for
  per share amounts)

  Revenues                   $  3,942.2     3,735.0     3,662.9       6       2    $  3,942.2     3,735.0     3,662.9       6       2
     Segment operating
     profit(a)                    252.8       263.9       262.3      (4)      1         283.4       268.1       267.6       6       -
     Non-segment expense          (81.1)      (88.9)      (59.8)     (9)     49         (42.6)      (42.3)      (40.6)      1       4
     Operating profit             171.7       175.0       202.5      (2)    (14)        240.8       225.8       227.0       7      (1)
  Income from continuing
  operations(b)                    71.9       111.2       100.3     (35)     11         115.9       112.7       112.5       3       -
  Diluted EPS from
  continuing operations(b)         1.47        2.29        2.09     (36)     10          2.37        2.32        2.34       2      (1)

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 Accounting Standards Codification Topic 280, Segment Reporting. The tables on pages 27 and 30 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 2014 are provided on page 39.

(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 40 -46, including reconciliation to amounts reported under GAAP.

 Summary Reconciliation of Non-GAAP Diluted EPS
  Years Ended December 31,                          2013      2012      2011

  GAAP Diluted EPS                                $  1.47      2.29      2.09
     Exclude Venezuela net monetary asset
     remeasurement losses                            0.17         -         -
     Excludes U.S. retirement plan expenses          0.65      0.70      0.37
     Exclude employee benefit settlement,
     severance losses, CEO retirement costs and
     other                                           0.04      0.06      0.08
     Exclude gains and losses on acquisitions and
     asset dispositions                              0.04     (0.29)    (0.20)
     Exclude tax benefit from change in retiree
     health care funding strategy                       -     (0.43)        -
  Non-GAAP Diluted EPS                            $  2.37      2.32      2.34

Amounts may not add due to rounding. Non-GAAP results are reconciled in more detail to the applicable GAAP results on pages 40-46.

Revenues

GAAP

2013 versus 2012

Revenues in 2013 increased $207.2 million or 6% due to organic growth in our Latin America ($261.7 million), EMEA ($25.5 million), Asia Pacific ($15.3 million) and North America ($11.0 million) segments, partially offset by unfavorable changes in currency exchange rates ($121.9 million).

Revenues increased 8% on an organic basis due mainly to higher average selling prices (including the effects of inflation in several Latin American countries).

See page 22 for our definition of "organic."

2012 versus 2011

Revenues in 2012 increased $72.1 million or 2% due to organic growth in our Latin America ($215.4 million) and EMEA ($69.9 million) segments, partially offset by:
††††††††† † unfavorable changes in currency exchange rates ($192.3 million)

††††††††† † an organic decrease in our North America segment ($25.5 million).

Revenues increased 7% on an organic basis due mainly to higher average selling prices (including the effects of inflation in several Latin American countries).


Non-GAAP
2013 versus 2012
The analysis of non-GAAP revenues is the same as the analysis of GAAP revenues.

2012 versus 2011
The analysis of non-GAAP revenues is the same as the analysis of GAAP revenues.

Costs and Expenses

GAAP

2013 versus 2012
Cost of revenues increased 6% to $3,197.1 million driven by higher labor costs from inflation-based wage increases. Selling, general and administrative costs increased 3% to $564.0 million due primarily to higher labor costs.

2012 versus 2011
Cost of revenues increased 2% to $3,024.3 million driven by higher labor costs from inflation-based wage increases. Selling, general and administrative costs increased 7% to $546.7 million due primarily to higher labor costs.

Operating Profit

GAAP
2013 versus 2012
Operating profit decreased 2% due mainly to:
· the negative impact of changes in currency exchange rates ($36.1), including a $13.4 million charge related to the remeasurement of net monetary assets as a result of the devaluation of Venezuela currency

· an organic decrease in our North America segment

· the $18.7 million loss related to the February 2013 robbery in Brussels, Belgium

· the 2012 gain recognized on the sale of real estate in Venezuela ($7.2 million)

partially offset by organic growth in our Latin America and Asia-Pacific segments and lower non-segment expenses ($7.8 million).

2012 versus 2011
Operating profit decreased 14% due mainly to:
· increased U.S. retirement plan expenses ($28.2 million)

· the negative impact of changes in currency exchange rates ($15.2 million)

· the 2011 gain recognized on the sale of the U.S. Document Destruction business
($6.7 million)

· an organic decrease in our Asia Pacific segment ($6.0 million)

partially offset by organic improvement in our EMEA segment ($21.7 million) and a gain on the sale of real estate in Venezuela ($7.2 million).

Non-GAAP
2013 versus 2012
Operating profit increased 7% due mainly to organic growth in our Latin America and Asia-Pacific segments, partially offset by:
· the negative impact of changes in currency exchange rates ($22.7 million)

· an organic decrease in our North America segment

· the $18.7 million loss related to the February 2013 robbery in Brussels, Belgium.

2012 versus 2011
Operating profit decreased $1.2 million primarily due to:
· the negative impact of changes in currency exchange rates ($15.2 million)

· organic decreases in our Latin America ($8.0 million) and Asia Pacific ($6.0 million) segments

partially offset by organic improvement in our EMEA ($21.7 million) and North American ($7.1 million) segments.


Income from continuing operations and net income, and related per share amounts
(attributable to Brink's)

GAAP
2013 versus 2012
Income from continuing operations attributable to Brink's shareholders in 2013 decreased 35% compared to 2012 primarily due to higher tax expense ($24.9 million) mainly resulting from a $21.1 million tax benefit related to a change in retiree healthcare funding strategy in 2012, lower interest and other non-operating income ($5.6 million) and higher income attributable to noncontrolling interests ($3.5 million), in addition to the operating profit decrease mentioned previously.

Earnings per share from continuing operations was $1.47, down from $2.29 in 2012.

2012 versus 2011
Income from continuing operations attributable to Brink's shareholders in 2012 increased 11% compared to 2011 primarily due to lower tax expense ($36.9 million) mainly resulting from a $21.1 million tax benefit related to a change in retiree healthcare funding strategy and lower income attributable to noncontrolling interests ($3.2 million), partially offset by the operating profit decrease mentioned above.

Earnings per share from continuing operations was $2.29, up from $2.09 in 2011.

Non-GAAP
2013 versus 2012
Income from continuing operations attributable to Brink's shareholders in 2013 increased 3% primarily due to the operating profit increase mentioned above and lower tax expense ($3.5 million), partially offset by higher income attributable to noncontrolling interests ($10.1 million).

Earnings per share from continuing operations was $2.37, up from $2.32 in 2012.

2012 versus 2011
Income from continuing operations attributable to Brink's shareholders in 2012 was flat versus 2011 as lower income attributable to noncontrolling interests ($4.1 million) was offset by higher tax expense ($3.0 million) and the operating profit decrease mentioned above.

Earnings per share from continuing operations was $2.32, down from $2.34 in 2011.


Segment Operating Results
                                 Segment Review
                                2013 versus 2012
  GAAP
                                                  Acquisitions /
                                        Organic    Dispositions    Currency                  % Change
  (In millions)               2012      Change         (a)           (b)        2013      Total   Organic
  Revenues:
    Latin America         $  1,579.4     261.7             15.6     (136.0)    1,720.7       9        17
    EMEA                     1,125.9      25.5                -       26.9     1,178.3       5         2
    North America              893.3      11.0                -       (5.9)      898.4       1         1
    Asia Pacific               136.4      15.3                -       (6.9)      144.8       6        11
         Total            $  3,735.0     313.5             15.6     (121.9)    3,942.2       6         8

  Operating profit:
    Latin America         $    135.1      50.6              1.8      (37.6)      149.9      11        37
    EMEA                        88.1      (8.8)               -        2.2        81.5      (7)      (10)
    North America               31.9     (26.8)               -       (0.4)        4.7     (85)      (84)
    Asia Pacific                 8.8       8.2                -       (0.3)       16.7      90        93
      Segment operating
      profit                   263.9      23.2              1.8      (36.1)      252.8      (4)        9
      Non-segment              (88.9)      5.8              2.0          -       (81.1)     (9)       (7)
         Total            $    175.0      29.0              3.8      (36.1)      171.7      (2)       17

  Segment operating
  margin:
    Latin America                8.6%                                              8.7%
    EMEA                         7.8%                                              6.9%
    North America                3.6%                                              0.5%
    Asia Pacific                 6.5%                                             11.5%
. . .
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