The Brink’s Company: 2011 Second-Quarter Form 10-Q Summary
Business context and reporting period
The filing covers the quarter and six months ended June 30, 2011. Brink’s provides cash-in-transit, ATM servicing, global valuables transportation, cash logistics, payment processing, guarding and related security services in more than 100 countries. Reportable segments are International and North America.
Key financial metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $979.3 million, up 34% | $1,892.6 million, up 29% |
| Operating profit | $20.4 million, down 35% | $57.4 million, up 4% |
| Operating margin | Approximately 2.1% | Approximately 3.0% |
| Income from continuing operations attributable to Brink’s | $5.3 million; diluted EPS $0.11 | $24.2 million; diluted EPS $0.50 |
| Net income attributable to Brink’s | $7.9 million; diluted EPS $0.16 | $27.9 million; diluted EPS $0.58 |
| Net cash provided by operating activities | $69.3 million for the six months, versus $48.5 million |
Segment operating profit was $36.6 million in the second quarter and $88.6 million for the first half. Segment operating margin was 3.7% in the second quarter and 4.7% for the first half, compared with 6.0% and 5.4%, respectively, in the prior-year periods.
At June 30, 2011, cash and cash equivalents were $155.9 million, compared with $183.0 million at December 31, 2010. Total debt was $398.3 million, including $41.8 million of short-term debt and $356.5 million of long-term debt. Management’s supplemental net debt was $273.2 million, or $286.3 million excluding cash and debt in Venezuela. Cash available for general corporate purposes was $125.1 million.
Cash flows before financing activities were $8.2 million, compared with negative $28.3 million in the prior-year period. Capital expenditures were $71.6 million, compared with $61.2 million, and acquisitions used $1.4 million, compared with $13.6 million. The company also acquired $29.7 million of armored vehicles and CompuSafe equipment through capital leases.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by the 2010 Mexico acquisition, favorable currency translation and organic growth in International. First-half organic revenue growth was 8%; second-quarter organic growth was 9%.
- International revenue increased 47% in the second quarter and 39% for the first half. North America revenue increased 7% in the quarter and 6% for the first half, largely from the Canada acquisition and currency effects.
- Second-quarter GAAP segment operating profit declined 17%, principally because of a $10.1 million Belgium settlement charge, higher restructuring and severance costs, and accounting corrections. Excluding specified unusual items, non-GAAP segment operating profit increased 13%.
- North America operating profit was essentially flat in the second quarter and declined 17% for the first half because of lower U.S. cash-in-transit demand and pricing pressure.
- Interest expense increased to $5.9 million in the quarter and $11.7 million in the first half, versus $2.3 million and $4.8 million, respectively, due to higher borrowings and interest rates, including the January 2011 issuance of $100 million of unsecured notes.
- The effective tax rate on continuing operations was 35.9% in the quarter and 33.2% for the first half, compared with 21.1% and 58.2%, respectively, in 2010. The prior-year periods included significant tax effects from a settlement and U.S. healthcare legislation.
Guidance, outlook, risks and unusual items
Management expects 2011 organic revenue growth in the mid-to-high single-digit percentage range. Including approximately $400 million of acquisition-related Mexico revenue at approximately break-even margins, the 2011 segment operating margin is expected to be at the high end of the 6.5% to 7.0% range.
- Expected 2011 interest expense is $20 million to $24 million; the effective tax rate is expected to be 36% to 39%; and net income attributable to noncontrolling interests is expected to be $20 million to $24 million.
- Expected 2011 capital expenditures are $180 million to $190 million, capital leases are $40 million to $50 million, and depreciation and amortization is $160 million to $170 million.
- Brink’s Belgium filed for bankruptcy and was deconsolidated in November 2010. The company recorded an approximately $10 million pretax charge for a settlement expected to be finalized in the third quarter of 2011. The original claim could have resulted in a loss of up to approximately $29 million absent settlement.
- Second-quarter income from discontinued operations included a $4.2 million pretax gain related to the expiration of the statute of limitations on Federal Black Lung Excise Tax refunds.
- Second-quarter accounting corrections reduced current-period income from continuing operations by $3.3 million after tax. Management concluded the corrections were not material to the current or prior annual periods.
- Venezuela represented $114 million, or 6%, of first-half revenue. Currency controls and the SITME process limit dollar conversions and may restrict cash repatriation. Venezuelan subsidiaries held $10.2 million of bolivar-denominated cash at June 30, 2011.
- The company had $83.2 million of foreign-currency contracts outstanding and reported no material change in market-risk exposures during the first half.
- Retirement obligations remain significant. Recorded accrued pension costs were $263.5 million and other retirement benefits were $218.7 million at June 30, 2011. The company expects U.S. pension contributions to begin in 2012.
- Management stated that current cash, available credit and projected operating cash flows should satisfy liquidity needs for more than the next 12 months. The company was in compliance with financial covenants at June 30, 2011.
Most important facts for investors to verify
- Whether the company achieves the projected 2011 organic revenue growth and 6.5% to 7.0% segment margin, particularly after integrating the Mexico and Canada acquisitions.
- The final resolution and cash cost of the Belgium settlement, including satisfaction of all release conditions.
- North American demand, pricing pressure and the sustainability of International segment improvement excluding currency effects.
- Venezuelan exchange controls, cash repatriation limitations, local-currency exposure and the carrying value of Venezuelan investments.
- Debt refinancing requirements, credit-facility availability, interest expense and compliance with covenants.
- Actual capital expenditures, capital-lease obligations and future pension and other retirement-benefit funding requirements.
- The effect of the $3.3 million after-tax accounting correction and other non-GAAP adjustments on comparability with reported GAAP results.