The Brink’s Company: Q2 2012 Form 10-Q Summary
Business context and reporting period
The Brink’s Company provides cash-in-transit, ATM, global valuables transportation, cash management, payment processing and guarding services in more than 100 countries. Reportable segments are International and North America. This unaudited Form 10-Q covers the three and six months ended June 30, 2012, compared with the corresponding 2011 periods.
Financial performance and liquidity
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $967.1 million | $979.3 million | $1,933.9 million | $1,892.6 million |
| Operating profit | $26.5 million | $20.4 million | $68.9 million | $57.4 million |
| Operating margin | 2.7% | 2.1% | 3.6% | 3.0% |
| Net income attributable to Brink’s | $30.5 million | $7.9 million | $47.5 million | $27.9 million |
| Diluted EPS from continuing operations | $0.63 | $0.11 | $0.98 | $0.50 |
| Cash flow from operating activities | Not separately provided for the quarter | $30.3 million | $69.3 million |
- International revenue was $729.5 million in Q2 and $1,459.9 million for the first half; North America revenue was $237.6 million and $474.0 million, respectively.
- International segment operating profit increased to $36.4 million in Q2 and $97.3 million for the first half. North America segment operating profit was $11.4 million in Q2 and $17.2 million for the first half.
- Cash and cash equivalents were $126.9 million at June 30, 2012, compared with $182.9 million at December 31, 2011. Cash available for general corporate purposes was $121.2 million.
- Total debt was $405.8 million, up from $389.4 million at year-end 2011. Reported net debt was $284.6 million, compared with $231.6 million at December 31, 2011.
- Net cash used in investing activities was $78.3 million, including $73.0 million of capital expenditures and $16.4 million for acquisitions. Net cash used in financing activities was $9.3 million.
- Capital expenditures were $73.0 million in the first half, and total property and equipment acquired, including capital leases, was $81.7 million.
- Current assets were $957.9 million versus current liabilities of $699.6 million. Total equity was $535.4 million.
Material changes versus the prior comparable period
- Q2 revenue declined 1% because unfavorable currency effects more than offset 7% organic growth in International. First-half revenue increased 2%, supported by 8% International organic growth.
- Q2 operating profit increased 30%, and first-half operating profit increased 20%, primarily from organic improvement in International. Currency effects reduced Q2 operating profit by approximately $5 million and first-half operating profit by approximately $7 million.
- GAAP earnings benefited materially from a $21 million non-cash tax benefit related to a change in the funding strategy for retiree healthcare obligations. The Q2 effective tax rate was negative 45.9%; the first-half rate was 9.8%.
- Non-segment expenses rose to $21.3 million in Q2 and $45.6 million for the first half, mainly from higher retirement costs and share-based compensation associated with the appointment of a permanent CEO.
- Q2 and first-half results benefited from the absence of the approximately $10 million Belgium bankruptcy settlement charge recorded in 2011.
- Operating cash flow fell $39.0 million year over year, reflecting pension payments, lower customer-related cash balances, higher tax payments and working-capital outflows.
- The company acquired a logistics software provider in France for approximately $16.4 million in cash, contributing to higher investing outflows and increased net debt.
Guidance, outlook, risks and unusual items
- Management expected 2012 organic revenue growth of 5% to 8%, International growth of 7% to 10%, and flat North America organic revenue.
- Expected full-year segment margin was approximately 7%; International margin guidance was 7.0% to 8.0%, and North America margin guidance was 3.6% to 4.6% on a GAAP basis or 4.5% to 5.5% on a non-GAAP basis.
- Expected 2012 non-segment expense was approximately $89 million on a GAAP basis, including higher retirement costs, and approximately $41 million on a non-GAAP basis.
- GAAP effective tax-rate guidance was 26% to 29%; non-GAAP guidance was 37% to 40%. Interest expense guidance was $22 million to $25 million.
- The company expected 2012 capital expenditures of approximately $215 million, total property and equipment acquired of approximately $235 million, and depreciation and amortization of $165 million to $180 million.
- Brink’s stated that available cash, credit facilities and projected operating cash flow should satisfy liquidity needs for more than the next twelve months. The amended revolving facility was increased to $480 million and extended to January 2017; $369 million was available at June 30, 2012.
- The company was in compliance with all financial covenants at June 30, 2012. Noncompliance could accelerate repayment obligations and result in withdrawal of commitments.
- U.S. retirement obligations remained significant. The company contributed $9 million of common stock to its primary U.S. pension plan during the first quarter and $7 million in cash in July. Under then-current law, an additional $15.5 million was expected to be required during the remainder of 2012, although new legislation was expected to reduce or defer that requirement.
- Venezuela represented $151.7 million, or 8%, of first-half revenue. Currency-conversion limits, inflation, restrictions on repatriation and political or regulatory changes could constrain the use of Venezuelan cash. Venezuelan net monetary assets were $60.5 million, and the company reported $81.0 million of equity-method investment in Venezuelan operations.
- Other exposures include foreign-exchange volatility, labor and regulatory changes, security risks, customer pricing pressure, litigation, former coal-operation liabilities, black lung claims, underfunded retirement plans and operating-lease residual value guarantees of approximately $22.5 million.
- Foreign currency contracts had a notional value of $59.7 million and a fair-value liability of $0.5 million at June 30, 2012.
Most important facts for investors to verify
- Separate the $21 million non-cash tax benefit and other nonrecurring items from recurring earnings; GAAP diluted EPS was $0.63 in Q2 versus non-GAAP EPS of $0.40.
- Assess whether International organic growth and margin improvement can offset currency pressure, North American volume and pricing weakness, and higher retirement costs.
- Monitor operating cash conversion, which weakened substantially despite higher operating profit, and the resulting increase in net debt.
- Verify the ultimate effect of new pension-funding legislation on required contributions and future cash usage.
- Evaluate Venezuela’s currency controls, cash repatriation restrictions and exposure to local economic and political conditions.
- Confirm compliance with debt covenants and the availability of revolving, foreign subsidiary and letter-of-credit facilities.
- Review the assumptions underlying the 2012 guidance, particularly the approximately 7% segment margin target, tax-rate ranges and projected retirement-plan costs.