The Brink’s Company: FY2013 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2013, including unaudited fourth-quarter data. Brink’s provides secure transportation, cash-in-transit, ATM, cash-management, payment, global logistics, security and guarding services in more than 100 countries. Approximately 82% of 2013 revenue was generated outside the United States.
Effective December 31, 2013, the Company changed its reportable segments to Latin America, Europe, Middle East and Africa (EMEA), North America and Asia Pacific. The filing was audited by KPMG, which issued unqualified opinions on the financial statements and internal control over financial reporting.
Key financial metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Revenue | $3,942.2 million | $3,735.0 million | Up 6% |
| Operating profit | $171.7 million | $175.0 million | Down 2% |
| Operating margin | Approximately 4.4% | Approximately 4.7% | Down approximately 30 bps |
| Income from continuing operations attributable to Brink’s | $71.9 million | $111.2 million | Down 35% |
| Diluted EPS from continuing operations | $1.47 | $2.29 | Down 36% |
| Net income attributable to Brink’s | $56.8 million | $88.9 million | Down 36% |
| GAAP operating cash flow | $201.5 million | $250.5 million | Down $49.0 million |
| Capital expenditures | $177.7 million | $177.9 million | Essentially flat |
| Cash and cash equivalents | $255.5 million | $201.7 million | Up $53.8 million |
| Total debt | $436.0 million | $389.3 million | Up $46.7 million |
| Net debt | $211.8 million | $231.6 million | Down $19.8 million |
Non-GAAP continuing-operations income attributable to Brink’s was $115.9 million, or $2.37 diluted EPS, compared with $112.7 million, or $2.32 diluted EPS, in 2012. Non-GAAP results exclude items including U.S. retirement-plan costs, Venezuela remeasurement losses and selected acquisition, disposition and benefit-related items.
At December 31, 2013, $224.2 million of cash was considered available for general corporate purposes after excluding cash held for customers. The Company had $359 million available under its principal revolving facility and stated that liquidity was sufficient to meet needs for more than twelve months.
Fourth-quarter 2013 performance
| Metric | Fourth quarter 2013 |
|---|---|
| Revenue | $1,039.4 million |
| Segment operating profit | $84.2 million |
| Operating profit | $62.4 million |
| Income from continuing operations attributable to Brink’s | $26.0 million |
| Net income attributable to Brink’s | $40.9 million |
| Diluted EPS from continuing operations | $0.53 |
Fourth-quarter net income benefited from a $14.9 million gain from discontinued operations, while continuing-operations results remained the more relevant measure of ongoing performance.
Segment performance and material changes
| Segment | 2013 revenue | 2013 operating profit | Key change versus 2012 |
|---|---|---|---|
| Latin America | $1,720.7 million | $149.9 million | Revenue up 9%; profit up 11% |
| EMEA | $1,178.3 million | $81.5 million | Revenue up 5%; profit down 7% |
| North America | $898.4 million | $4.7 million | Revenue up 1%; profit down 85% |
| Asia Pacific | $144.8 million | $16.7 million | Revenue up 6%; profit up 90% |
- Organic revenue grew 8%, led by Latin America, but foreign-currency movements reduced reported revenue by $121.9 million.
- Reported operating profit was reduced by approximately $36.1 million from currency effects, including a $13.4 million Venezuela remeasurement loss.
- A February 2013 robbery in Brussels resulted in an $18.7 million loss.
- North American profit declined because of lower U.S. cash-in-transit demand, pricing pressure and higher security costs. Management identified only 45% of U.S. branches as performing at year-end.
- Latin American growth was driven substantially by inflation-based price increases. Venezuela generated $447.1 million of revenue, or 11% of consolidated revenue.
- The Company acquired Brazil-based Rede Trel for approximately $27.7 million and completed several dispositions, including operations in Germany, Hungary, Turkey, Poland, France, China and Canada.
- Discontinued operations produced a $15.1 million net loss, including $16.2 million of severance expense related to the German cash-in-transit business.
Guidance, outlook and management commentary
- 2014 organic revenue growth guidance was 5% to 8%, with an expected negative currency impact of 3% to 5%.
- 2014 GAAP segment operating margin guidance was approximately 6.8%; non-GAAP guidance was approximately 7%.
- Latin America organic revenue growth was expected at 12% to 14%, with a 7.5% to 9.5% margin.
- EMEA organic revenue growth was expected at 0% to 2%, with a 6% to 8% margin.
- North America organic revenue growth was expected at 0% to 2%, with a 1.5% to 2.5% margin. Management targeted a 7% North American margin by 2016.
- 2014 capital expenditures were expected at $185 million to $195 million, with total property and equipment acquired, including capital leases, expected at $200 million to $210 million.
- Interest expense guidance was $27 million to $29 million, and the effective tax-rate range was 33% to 37%.
- The Company expected approximately $26 million of net income attributable to noncontrolling interests and approximately $64 million of GAAP non-segment expense in 2014.
Risks, contingencies and unusual items
- Venezuela presented significant currency and liquidity risk. The Company held $93.8 million of bolivar-denominated cash and did not expect to repatriate Venezuelan cash for the foreseeable future. A further devaluation could materially reduce reported cash, revenue and earnings.
- Approximately $226 million of cash was held by foreign subsidiaries considered permanently invested; repatriation could create material additional taxes.
- The primary U.S. pension plan was approximately 88% funded. Expected contributions totaled approximately $109.5 million from 2014 through 2018, including approximately $25.9 million in 2014.
- Legacy UMWA, black-lung, retiree medical and other former-coal obligations remained material. Contractual obligations totaled $1.16 billion, including retirement obligations, debt, leases and purchase commitments.
- The Company accrued $3.1 million for a Mexican legal proceeding; reasonably possible additional losses could reach $10 million, plus VAT and interest, according to the filing.
- Key operating risks include declining use of cash, competitive pricing pressure, security losses, insurance availability and costs, labor actions, cybersecurity and IT failures, regulatory changes, foreign exchange volatility and the realization of U.S. deferred tax assets.
- The Company reported $242 million of U.S. deferred tax assets, whose realization depends in part on achieving projected U.S. margin improvements.
Important facts for investors to verify
- Whether North America’s turnaround plan can improve margins from 0.5% in 2013 to the 2014 guidance range and ultimately to the 7% 2016 target.
- Whether Latin American organic growth is sustainable after separating inflation-driven price increases from underlying volume growth.
- The effects of future Venezuelan devaluations, currency restrictions and the inability to repatriate local cash.
- Actual operating cash flow after customer-held cash, capital expenditures, acquisitions, dividends and pension contributions.
- Future funding requirements and actuarial sensitivity for pension, UMWA, black-lung and retiree medical obligations.
- Compliance with debt covenants and refinancing or renewal requirements for credit facilities expiring in 2014 and later periods.
- The resolution and potential additional exposure from the Mexican legal proceeding and other unquantified claims.
- The reconciliation between GAAP and non-GAAP results, particularly the treatment of retirement costs, Venezuela currency losses and disposition-related items.