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BCO > SEC Filings for BCO > Form 10-Q on 28-Jul-2014All Recent SEC Filings

Show all filings for BRINKS CO

Form 10-Q for BRINKS CO


28-Jul-2014

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:
· 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

Brink's reports its financial results in four segments: Latin America; Europe, Middle East and Africa ("EMEA"); North America and Asia Pacific.


RESULTS OF OPERATIONS

Consolidated Review

Non-GAAP and Adjusted Non-GAAP Results
Non-GAAP and Adjusted 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 2014, 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 purpose of Adjusted Non-GAAP results is to report historical Non-GAAP information assuming that our Venezuelan operations had been remeasured using a rate of 50 bolivars to the U.S. dollar.

The Non-GAAP and Adjusted 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. In addition, Brink's believes the measures will help investors assess the ongoing operations. Non-GAAP and Adjusted 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. Amounts reported for prior periods have been updated in this filing to present information consistently for all periods presented.

The adjustments are described in detail and are reconciled to our GAAP results on pages 35 - 39.

Consolidated projections of Non-GAAP targets for 2016 (including segment margin, segment operating profit, and EPS) are not reconciled to GAAP counterparts because we are unable to quantify certain amounts that would be required to be included in the GAAP measure without unreasonable effort.

                                    Second Quarter      %            First Half          %
  (In millions, except for per
  share amounts)                    2014     2013     Change      2014       2013      Change

  GAAP
  Revenues                       $  901.5    969.9       (7)   $ 1,893.1    1,920.4       (1)
     Segment operating profit
     (loss)(a)                       26.1     54.4      (52)       (28.4)      88.7     unfav
     Non-segment expense            (15.4)   (21.6)     (29)       (33.4)     (38.6)     (13)
     Operating profit (loss)         10.7     32.8      (67)       (61.8)      50.1     unfav
  Income (loss) from continuing
  operations(b)                       2.3     13.2      (83)       (56.1)      16.1     unfav
  Diluted EPS from continuing
  operations(b)                      0.05     0.27      (81)       (1.15)      0.33     unfav

  Non-GAAP(c)
  Revenues                       $  901.5    969.9       (7)   $ 1,893.1    1,920.4       (1)
     Segment operating profit(a)     39.8     58.0      (31)       110.7      109.4        1
     Non-segment expense             (9.9)   (11.4)     (13)       (23.1)     (19.0)      22
     Operating profit                29.9     46.6      (36)        87.6       90.4       (3)
  Income from continuing
  operations(b)                      13.4     22.9      (41)        35.5       41.9      (15)
  Diluted EPS from continuing
  operations(b)                      0.27     0.47      (43)        0.72       0.86      (16)

Non-GAAP results are reconciled to the applicable GAAP results on pages 35
- 39. 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 2014 are provided on page 33.

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

(c) These Non-GAAP results for 2014 reflect Venezuela's local earnings translated at 6.3 bolivars to the U.S. dollar through March 23, 2014, and at approximately 50 bolivars to the U.S. dollar from March 24 to June 30, 2014. Also see pages 35 - 39 for Non-GAAP Results Adjusted for Venezuelan Results at 50 Bolivars per U.S. dollar for hypothetical historical results had we used a rate of 50 to translate Venezuela's results for all periods in 2013 and 2014.

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

                                Second Quarter        % Change              First Half            % Change
  (In millions)                 2014      2013     Total   Organic       2014        2013      Total   Organic

  Revenues by region:

      Latin America:
          Mexico            $   104.1     117.5     (11)       (8)   $    210.0       228.1      (8)       (4)
          Brazil                110.9      93.3      19        28         215.2       192.3      12        26
          Venezuela              22.3      96.1     (77)       83         153.6       191.6     (20)       73
          Other                  99.2     106.7      (7)       10         196.1       214.5      (9)       10
              Total             336.5     413.6     (19)       26         774.9       826.5      (6)       24

      EMEA:
          France                139.6     132.4       5         -         274.9       263.9       4         -
          Other                 163.3     161.0       1        (2)        326.0       307.3       6         3
              Total             302.9     293.4       3        (1)        600.9       571.2       5         2

      North America:
          U.S.                  180.3     178.3       1         1         356.1       353.8       1         1
          Canada                 45.4      48.0      (5)        1          89.7        95.7      (6)        1
              Total             225.7     226.3       -         1         445.8       449.5      (1)        1

      Asia Pacific               36.4      36.6      (1)        2          71.5        73.2      (2)        2

  Total Revenues            $   901.5     969.9      (7)       11    $  1,893.1     1,920.4      (1)       11

Amounts may not add due to rounding. Organic percentage change in revenue is equal to the total percentage change in revenue less the change associated with acquisitions and dispositions and less the change in revenues due to foreign currency exchange fluctuations as described in the note to the table on page 23.

GAAP
Second Quarter
Our revenues decreased $68.4 million or 7% and our operating profit decreased $22.1 million or 67% in the second quarter of 2014. Revenues decreased due to unfavorable changes in currency exchange rates, partially offset by organic growth in our Latin America segment. Operating profit decreased primarily due to unfavorable changes in currency exchange rates, partially offset by lower non-segment expenses.

Our income from continuing operations in 2014 decreased $10.9 million compared to 2013 primarily due to the operating profit decrease mentioned above, partially offset by the income tax and noncontrolling interest impact of the profit decrease.

Our earnings per share from continuing operations was $0.05, down from $0.27 in 2013.

First Half
Our revenues decreased $27.3 million or 1% and our operating profit decreased $111.9 million, resulting in a loss in the first half of 2014. Revenues decreased due to unfavorable changes in currency exchange rates, partially offset by organic growth in our Latin America segment. Operating profit decreased primarily due to a larger charge related to the remeasurement of net monetary assets as a result of the devaluation of Venezuela currency ($122.2 million in 2014 versus $13.4 million in 2013). The higher Venezuela remeasurement charge was partially offset by lower security losses due to the February 2013 robbery in Brussels, Belgium ($18.7 million in 2013) and organic growth in our Latin America segment.

Our income from continuing operations in 2014 decreased $72.2 million compared to 2013 primarily due to the operating profit decrease mentioned above, partially offset by the income tax and noncontrolling interest impact of the profit decrease.

Our earnings per share from continuing operations was ($1.15), down from $0.33 in 2013.


Non-GAAP
Non-GAAP results include the following adjustments:
                                             Three Months              Six Months
                                            Ended June 30,           Ended June 30,
                                             2014      2013         2014       2013

  GAAP Diluted EPS                        $   0.05      0.27        (1.15)      0.33
    Exclude expenses related to currency
    devaluation in Venezuela                  0.12       -           1.65       0.18
    Exclude U.S. retirement plan expenses     0.05      0.16         0.12       0.33
    Exclude employee benefit settlement
    losses                                    0.02      0.01         0.03       0.01
    Exclude gains and losses on
    acquisitions, dispositions, and
    closures                                  0.01       -           0.01      (0.02)
    Exclude share-based compensation
    adjustment                                0.07       -           0.07        -
    Adjust quarterly tax rate to
    full-year average rate                   (0.04)     0.03        (0.02)      0.03
  Non-GAAP Diluted EPS                    $   0.27      0.47         0.72       0.86

Amounts may not add due to rounding. Non-GAAP results are reconciled in more detail to the applicable GAAP results on pages 35 - 39.

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

Our operating profit decreased $16.7 million or 36% primarily due to unfavorable changes in currency exchange rates and organic decreases across all segments.

Our income from continuing operations in 2014 decreased 41% primarily due to the operating profit decrease mentioned above, partially offset by the income tax and noncontrolling interest impact of the profit decrease.

Our earnings per share from continuing operations was $0.27, down from $0.47 in 2013.

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

Our operating profit decreased $2.8 million or 3% due to unfavorable changes in currency exchange rates and increased non-segment expenses, partially offset by the $18.7 million loss related to the February 2013 robbery in Brussels, Belgium and organic profit increase in our Latin America segment.

Our income from continuing operations in 2014 decreased 15% due to lower operating profit and the increase in our effective tax rate and income attributable to noncontrolling interests.

Our earnings per share from continuing operations was $0.72, down from $0.86 in 2013.

Outlook for 2014

GAAP
Overall
Our organic revenue growth rate for 2014 is expected to be in the 8% to 10% range, and our estimate of the negative impact of changes in currency exchange rates on revenue is in the 14% to 16% range. We expect our revenue to be $3.7 billion in 2014. Our operating segment margin is expected to be about 2.5%.

By Segment
Latin America organic revenue growth rate for 2014 is expected to be in the 21% to 23% range, and our estimate of the negative impact of changes in currency exchange rates on Latin America revenue is in the 32% to 36% range. Our Latin America segment margin is expected to be in the (1.0)% to (3.0)% range.

EMEA organic revenue growth rate for 2014 is expected to be in the 0% to 2% range, and our estimate of the positive 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 10.5% to 12.5% 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 6.5%. We are targeting Non-GAAP segment margin rate of 8% resulting in a range of $290 to $330 million of Non-GAAP segment operating profit and $2.50 to $3.00 of earnings per share by 2016.

By Segment
Our outlook for Non-GAAP revenues is the same as our outlook for GAAP revenues. Our outlook for Non-GAAP segment margin is the same as our outlook for GAAP segment margin for our EMEA and Asia Pacific segments. Latin America Non-GAAP segment margin excludes the expenses related to currency devaluation in Venezuela and is expected to be in the 7.0% to 9.0% range. 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. During the second quarter, we revised our definition of a performing branch to better align with the industry. We considered 56% of our branches to be performing branches in the U.S. at the end of 2013. Our goal is to increase performing branches to 85% by the end of 2016. We define a performing branch as a branch that has positive operating profit after all country overhead costs have been allocated to the branches.

See page 33 for a summary of our 2014 Outlook.


Segment Operating Results
                                 Segment Review
                 Second Quarter 2014 versus Second Quarter 2013
  GAAP
                                              Acquisitions /
                                    Organic    Dispositions    Currency                 % Change
  (In millions)           2Q '13    Change         (a)           (b)       2Q '14    Total   Organic
  Revenues:
    Latin America       $  413.6     107.9                -     (185.0)     336.5     (19)       26
    EMEA                   293.4      (2.9)               -       12.4      302.9       3        (1)
    North America          226.3       2.4                -       (3.0)     225.7       -         1
    Asia Pacific            36.6       0.6                -       (0.8)      36.4      (1)        2
         Total          $  969.9     108.0                -     (176.4)     901.5      (7)       11

  Operating profit:
    Latin America       $   24.4      (6.1)               -      (19.8)      (1.5)   unfav      (25)
    EMEA                    18.7      (2.0)               -        0.6       17.3      (7)      (11)
    North America            6.3      (0.4)               -       (0.2)       5.7     (10)       (6)
    Asia Pacific             5.0      (0.4)               -          -        4.6      (8)       (8)
      Segment operating
      profit                54.4      (8.9)               -      (19.4)      26.1     (52)      (16)
      Non-segment          (21.6)      6.2                -          -      (15.4)    (29)      (29)
         Total          $   32.8      (2.7)               -      (19.4)      10.7     (67)       (8)

  Segment operating
  margin:
    Latin America           5.9%                                           (0.4%)
    EMEA                    6.4%                                             5.7%
    North America           2.8%                                             2.5%
    Asia Pacific           13.7%                                            12.6%
         Segment
         operating
         margin             5.6%                                             2.9%



  Non-GAAP
                                               Acquisitions /
                                     Organic    Dispositions    Currency                 % Change
  (In millions)            2Q '13    Change         (a)           (b)      2Q '14    Total    Organic
  Revenues:
    International:
       Latin America     $  413.6     107.9                -     (185.0)    336.5     (19)        26
       EMEA                 293.4      (2.9)               -       12.4     302.9       3         (1)
       North America        226.3       2.4                -       (3.0)    225.7       -          1
       Asia Pacific          36.6       0.6                -       (0.8)     36.4      (1)         2
          Total          $  969.9     108.0                -     (176.4)    901.5      (7)        11

  Operating profit:
    Latin America        $   25.1      (4.6)               -      (10.0)     10.5     (58)       (18)
    EMEA                     18.7      (1.5)               -        0.6      17.8      (5)        (8)
    North America             9.2      (2.2)               -       (0.2)      6.8     (26)       (24)
    Asia Pacific              5.0      (0.3)               -          -       4.7      (6)        (6)
       Segment operating
       profit                58.0      (8.6)               -       (9.6)     39.8     (31)       (15)
       Non-segment          (11.4)      1.5                -          -      (9.9)    (13)       (13)
          Total          $   46.6      (7.1)               -       (9.6)     29.9     (36)       (15)

  Segment operating
  margin:
    Latin America            6.1%                                            3.1%
    EMEA                     6.4%                                            5.9%
    North America            4.1%                                            3.0%
    Asia Pacific            13.7%                                           12.9%
          Segment
          operating
          margin             6.0%                                            4.4%

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 sum of the "monthly currency changes" adjusted for any additional expense recorded under highly inflationary accounting rules. 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. Venezuela is translated to the U.S. dollar under highly inflationary accounting rules. Net monetary assets in local currency are remeasured to U.S. dollars using current exchange rates with losses recognized in earnings. Nonmonetary assets under these rules are not remeasured to a lower basis in U.S. dollars when the currency devalues. Instead, these assets retain their higher U.S. dollar historical bases and the excess basis is recognized in earnings as each asset is consumed.


Segment Review Second Quarter 2014 versus Second Quarter 2013

Total Segment Operating Profit

GAAP
Revenue decreased 7% to $901.5 million due primarily to unfavorable changes in currency exchange rates partially offset by organic growth of 26% in our Latin America segment.

Cost of revenues decreased 5% to $754.6 million primarily due to currency devaluation in Venezuela. Selling, general and administrative costs decreased 7% to $135.1 million primarily due to currency devaluation in Venezuela.

Segment operating profit decreased 52% to $26.1 million reflecting the negative impact of changes in currency exchange rates and organic decreases in all segments.

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

Segment operating profit decreased 31% to $39.8 million due to the negative impact of changes in currency exchange rates and organic decreases in all segments.

Latin America

GAAP
Revenue in Latin America decreased 19% ($77.1 million) due to unfavorable currency impact ($185 million) primarily driven by devaluation in Venezuela, partially offset by 26% organic growth ($107.9 million) driven by inflation-based price increases in Venezuela and Argentina, and volume and price growth in Brazil.

Latin America operating profit decreased $25.9 million to an operating loss of $1.5 million due to:
· unfavorable currency impact ($19.8 million) and

· organic decreases in Mexico, Venezuela, Chile and Colombia,

partially offset by organic improvements in Argentina and Brazil.

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

Latin America operating profit decreased 58% ($14.6 million) due to:
· organic decreases in Mexico, Venezuela, Chile and Colombia, and

· unfavorable currency impact ($10.0 million),

partially offset by organic improvements in Argentina and Brazil.

EMEA

GAAP
Revenue in EMEA increased 3% ($9.5 million) due to favorable changes in currency exchange rates ($12.4 million). Revenue decreased 1% ($2.9 million) on an organic basis due to lower volumes in our Global Services line of business, partially offset by organic growth in Russia.

EMEA operating profit decreased 7% ($1.4 million) due to lower profits in France and in our Global Services line of business, partially offset by organic profit growth in the Netherlands and Germany.

Non-GAAP

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

EMEA operating profit decreased 5% ($0.9 million) due to lower profits in France and our Global Services line of business, partially offset by organic profit growth in the Netherlands and Germany.


North America

GAAP
Revenue in North America was flat as unfavorable currency impact ($3.0 million) offset organic growth in the United States and Canada.

Operating profit decreased $0.6 million due to lower CIT demand and continued pricing pressure in the U.S. and investments in our Global Payments line of business offset by improvement from cost efficiency measures.

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

Operating profit decreased $2.4 million due to lower CIT demand and continued pricing pressure in the U.S. and investments in our Global Payments line of business offset by improvement from cost efficiency measures.

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.

Asia Pacific

GAAP
Revenue in Asia Pacific was flat as organic growth was offset by unfavorable changes in currency exchange rates.

Operating profit decreased 8%.

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

Operating profit decreased 6%.


Segment Review First Half 2014 versus First Half 2013

  First Half
  GAAP
                                                Acquisitions /
                                      Organic    Dispositions    Currency                  % Change
  (In millions)            YTD '13    Change         (a)           (b)       YTD '14    Total   Organic
  Revenues:
    Latin America       $    826.5     202.3                -     (253.9)      774.9      (6)       24
    EMEA                     571.2       9.1                -       20.6       600.9       5         2
    North America            449.5       3.5                -       (7.2)      445.8      (1)        1
    Asia Pacific              73.2       1.3                -       (3.0)       71.5      (2)        2
         Total          $  1,920.4     216.2                -     (243.5)    1,893.1      (1)       11

  Operating profit:
. . .
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