The Brink’s Company — Q3 2012 Form 10-Q Summary
Business context and reporting period
The Brink’s Company provides cash and valuables transportation and logistics services, including cash-in-transit, ATM servicing, Global Services, Cash Management Services, Payment Services and guarding. Reportable segments are International and North America. This unaudited Form 10-Q covers the three and nine months ended September 30, 2012, with comparison to the same 2011 periods.
Financial performance and position
| Metric | Q3 2012 | Q3 2011 | 9M 2012 | 9M 2011 |
|---|---|---|---|---|
| Revenue | $979.0 million | $995.8 million | $2,912.9 million | $2,888.4 million |
| Operating profit | $37.1 million | $62.5 million | $106.0 million | $119.9 million |
| Income from continuing operations attributable to Brink’s | $13.5 million | $31.5 million | $61.0 million | $55.7 million |
| Diluted EPS from continuing operations | $0.28 | $0.66 | $1.26 | $1.16 |
| Net cash provided by operating activities | Not provided for the quarter | Not provided for the quarter | $129.3 million | $170.0 million |
- Q3 segment operating profit was $59.1 million, compared with $70.1 million; segment margin declined to 6.0% from 7.0%.
- For the nine months, segment operating profit increased to $173.6 million from $158.7 million, while segment margin improved to 6.0% from 5.5%.
- Q3 GAAP operating margin was approximately 3.8%; nine-month GAAP operating margin was approximately 3.6%.
- The nine-month effective tax rate was 21.9%, compared with 34.9% in 2011, primarily reflecting a $21 million non-cash tax benefit from a change in retiree healthcare funding strategy.
- At September 30, 2012, cash and cash equivalents were $202.7 million, total debt was $425.2 million and reported net debt was $248.9 million, compared with $231.6 million at December 31, 2011.
- Cash available for general corporate purposes was $176.3 million after excluding $26.4 million held by cash-logistics operations.
- Total assets were $2.564 billion and total equity was $563.4 million at September 30, 2012.
- Accounts receivable increased to $622.8 million from $550.5 million at December 31, 2011, contributing to operating cash-flow pressure.
- Capital expenditures were $120.6 million and acquisitions used $17.1 million during the first nine months. Total property and equipment acquired, including capital leases, was $132.2 million.
Material changes versus the prior comparable periods
- Q3 revenue declined 2%, primarily from unfavorable currency translation, despite 9% organic revenue growth in International. Nine-month revenue increased 1%, supported by 11% organic International growth.
- Q3 operating profit decreased 41%, driven by higher U.S. retirement-plan expenses, the absence of 2011 gains from the U.S. Document Destruction sale, unfavorable currency effects and impairment losses.
- Nine-month operating profit decreased 12% despite higher International segment profit. Key offsets included increased U.S. retirement expenses, currency effects, the prior-year asset-sale gain and current-year impairment losses.
- International revenue increased 2% for the nine months, while North America revenue declined 3%. North America experienced lower CIT demand and pricing pressure, partly offset by cost reductions.
- Q3 International operating profit declined 17% on a GAAP basis. Latin America was affected by $4 million of Argentine government-receivable write-offs, currency effects and higher severance costs.
- Q3 other operating income declined to $4.5 million from $11.0 million, reflecting approximately $5.8 million of impairment losses and the absence of prior-year disposal gains, partly offset by a $7 million Venezuelan real-estate gain.
- Operating cash flow declined $40.7 million year over year, primarily because of an $11.6 million pension payment to the former CEO, higher taxes paid, lower operating profit and increased working-capital outflows caused by slower customer collections.
- The company increased borrowings from short-term debt and revolving credit facilities to fund operating and investing activities. Financing cash outflow was $12.7 million versus $49.3 million in 2011.
- The Revolving Facility was increased from $400 million to $480 million and extended to January 2017. Approximately $344 million was available at September 30, 2012; the company was in compliance with its financial covenants.
Guidance, outlook, risks and unusual items
- Full-year 2012 organic revenue growth guidance was 5% to 8%, including 7% to 10% for International and a 2% decline for North America.
- Expected 2012 segment margin was 6.7%; International margin guidance was 7.0% to 8.0%, and North America GAAP margin guidance was 3.6% to 4.1%.
- Management expected 2012 non-segment expense of approximately $87 million, including $47 million of retirement-plan costs, compared with $60 million in 2011.
- GAAP effective tax-rate guidance was 26% to 29%; non-GAAP guidance was 37% to 40%, excluding the retiree-healthcare funding tax benefit.
- Interest expense guidance was $21 million to $24 million. Capital expenditures were expected to be approximately $190 million, with total property acquired of approximately $210 million, including $20 million of capital leases.
- MAP-21 reduced required primary U.S. pension contributions for the remainder of 2012. Management projected approximately $273 million of contributions from 2013 through 2021, although actual amounts may vary with actuarial assumptions and investment performance.
- Venezuela represented $235.1 million, or 8%, of nine-month revenue. Currency conversion is subject to government approval and a $350,000-per-legal-entity monthly limit; $34.2 million of Venezuelan cash was denominated in bolivar fuertes and repatriation is expected to remain limited.
- The company had approximately $169 million of cash held by subsidiaries considered permanently invested outside the United States; repatriation could create material additional taxes.
- Material contingencies include residual-value guarantees of approximately $19.9 million on operating leases, ongoing ordinary-course litigation, legacy pension and postretirement obligations, and a $43 million guaranteed bond obligation related to Dominion Terminal Associates.
- Management stated that it expects to meet liquidity needs for more than the next twelve months based on cash, available credit facilities and projected operating cash flow.
Important facts for investors to verify
- Whether International organic growth and the stated 2012 segment-margin targets were achieved, particularly in Latin America and Venezuela.
- The sustainability of operating cash flow given higher receivables, slower collections and reliance on additional borrowings.
- Actual U.S. pension contributions and the effect of actuarial, interest-rate and investment-return changes on the projected $273 million of 2013–2021 funding.
- Venezuela’s ability to obtain U.S. dollars, fund imports and repatriate cash under changing exchange controls.
- The effect of retirement-plan costs, impairment charges, asset dispositions and tax benefits on GAAP versus non-GAAP earnings.
- Debt maturities, revolving-facility availability and compliance with financial covenants.
- Management’s statement that ordinary-course litigation will not materially affect financial condition, despite the inability to estimate potential losses for some matters.