The Brink’s Company: FY2015 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2015, with quarterly data for the fourth quarter. Brink’s provides secure logistics and security services, including cash-in-transit, ATM replenishment and maintenance, cash management, international transportation of valuables, payment services and guarding. The company served customers in more than 100 countries, operated subsidiaries in 41 countries, employed approximately 59,900 people and generated 76% of revenue outside the United States.
Beginning in 2015, Venezuela was excluded from reportable segment results and presented as an item not allocated to segments because of currency restrictions, hyperinflation and the inability to repatriate cash. Reportable segments comprise the five largest markets, three Global Markets regions and Payment Services.
Key financial metrics
| In millions, except per-share data | 2015 | 2014 | Change |
|---|---|---|---|
| GAAP revenue | $3,061.4 | $3,562.3 | (14%) |
| GAAP operating profit (loss) | $56.6 | $(27.5) | Improved |
| GAAP operating margin | 1.8% | (0.8%) | Improved |
| Income (loss) from continuing operations attributable to Brink’s | $(9.1) | $(54.8) | Improved |
| Diluted EPS from continuing operations | $(0.19) | $(1.12) | Improved |
| Net loss attributable to Brink’s | $(11.9) | $(83.9) | Improved |
| Non-GAAP revenue | $2,976.9 | $3,350.5 | (11%) |
| Non-GAAP operating profit | $156.8 | $124.2 | 26% |
| Non-GAAP operating margin | 5.3% | 3.7% | Improved |
| Non-GAAP diluted EPS from continuing operations | $1.69 | $1.01 | 67% |
GAAP results include significant Venezuela-related, restructuring, retirement, disposition and other unusual items. Non-GAAP results exclude Venezuela and specified items and are not a substitute for GAAP measures.
- Fourth quarter: Revenue was $765.8 million versus $881.2 million in the prior-year quarter; operating profit was $33.0 million versus a $23.7 million loss; and loss from continuing operations attributable to Brink’s was $3.2 million versus a $25.5 million loss.
- Cash flow: Net cash provided by operating activities was $208.8 million, up from $141.3 million. Capital expenditures were $101.1 million, down from $136.1 million. Net cash used in investing activities was $103.7 million and net cash used in financing activities was $49.0 million.
- Liquidity: Cash and cash equivalents were $198.3 million, including $37.1 million held for Cash Management Services customers. Cash available for general corporate purposes was $161.2 million.
- Debt: Total debt was $430.5 million, down from $466.6 million. Net debt was $269.3 million, down from $318.4 million. Debt represented 57% of total debt plus equity, compared with 50% in 2014. The company reported compliance with all financial covenants.
- Balance sheet: Total assets were $1.947 billion, total liabilities were $1.616 billion and total equity was $330.6 million. Brink’s shareholders’ equity was $317.9 million.
- Dividends: Quarterly dividends remained $0.10 per share, or $0.40 per share for the year. A $0.10 per-share dividend was declared for payment in March 2016.
Material changes versus the prior comparable period
- GAAP revenue declined primarily because of $891.3 million of unfavorable currency effects, including the Venezuelan bolivar devaluation and broad U.S. dollar strength. Organic growth was 11% on a GAAP basis and 3% excluding Venezuela.
- Non-GAAP operating profit rose $32.6 million, supported by cost reductions, lower corporate expenses and improved results in Latin America, Mexico and Asia. EMEA and the United States experienced organic operating profit declines.
- The 2014 restructuring reduced the workforce by approximately 1,700 positions and generated approximately $50 million of annual direct cost savings in 2015 versus 2014. The company recorded an additional $1.9 million of related charges in 2015.
- A new 2015 restructuring program generated $11.6 million of charges, is expected to eliminate approximately 1,000 to 1,200 positions and is projected to produce $25 million to $35 million of 2016 cost savings.
- Venezuela revenue fell to $84.5 million from $211.8 million. The company recorded an $18.1 million currency remeasurement loss and a $35.3 million impairment charge. Accumulated other comprehensive losses attributable to Brink’s shareholders related to Venezuela were approximately $113 million.
- Retirement-related expense declined substantially after the prior-year U.S. pension lump-sum settlement. U.S. and Mexican retirement-plan expense was $31.2 million in 2015 versus $79.0 million in 2014.
- The company sold its Irish guarding operation and its 70% interest in a Russian cash-management business, recognizing a $5.9 million loss on the Russian disposition.
Guidance, outlook, commentary and risks
- For 2016, management projected approximately 5% organic revenue growth, offset by an estimated 9% negative currency impact, resulting in expected non-GAAP revenue of approximately $2.85 billion.
- 2016 non-GAAP operating profit was projected at $190 million to $210 million, with an operating margin of 6.7% to 7.4%. Non-GAAP income from continuing operations attributable to Brink’s was projected at $101 million to $111 million, or $2.00 to $2.20 diluted EPS.
- Expected 2016 capital expenditures were $100 million to $110 million, capital leases approximately $20 million, and total fixed-asset additions $120 million to $130 million. Management expected no additional contributions to the primary U.S. pension plan until 2020 under current assumptions.
- In February 2016, Brink’s decided to wind down most operations in Ireland, which generated approximately $15 million of 2015 revenue. Expected 2016 losses from operations and disposition were $20 million to $25 million.
- In January 2016, under an agreement with Starboard Value, the CEO agreed to step down no later than the 2016 annual meeting; two directors retired and three new independent directors were appointed. Additional 2016 leadership and restructuring costs were expected to be $5 million to $10 million.
- Key risks include foreign currency volatility, Venezuelan currency restrictions and possible deconsolidation or shutdown, competitive pricing pressure, reduced use of cash, execution of restructuring savings, cybersecurity and IT failures, loss of customer valuables, insurance availability, pension and retiree medical obligations, deferred tax asset realization, regulatory compliance and debt covenant compliance.
- The company accrued $2 million for a Mexican legal matter, with reasonably possible additional losses of up to $10 million. A Mexican antitrust investigation was ongoing; the company could not estimate the probability or amount of any loss.
Most important facts for investors to verify
- Reconcile GAAP losses and the 1.8% GAAP operating margin with the 5.3% non-GAAP margin, particularly the treatment of Venezuela and restructuring items.
- Assess whether projected 2016 cost savings and operating-margin improvement are achieved, especially in the United States, Mexico and EMEA.
- Monitor currency devaluations, cash repatriation restrictions and the carrying value of Venezuelan assets and accumulated translation losses.
- Review liquidity after excluding restricted or permanently reinvested foreign cash, and monitor upcoming facility expirations, debt maturities and covenant headroom.
- Evaluate pension, UMWA, black-lung and other retirement obligations, including sensitivity to discount rates, investment returns and healthcare inflation.
- Follow the Ireland wind-down, executive transition, Starboard-related governance changes and associated costs.
- Track the Mexican antitrust investigation and the pending legal claim against the Mexican subsidiary.