The Brink’s Company: FY2011 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2011, with fourth-quarter information included in the selected quarterly data. Brink’s provides secure transportation, cash logistics, ATM servicing, global valuables logistics, payment processing, and guarding and security services in more than 100 countries. Reportable segments are International and North America. Approximately 81% of revenue was generated outside the United States.
Key financial metrics
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Revenue | $3,885.5 million | $3,121.5 million | +24% |
| Segment operating profit | $231.1 million | $208.9 million | +11% |
| Segment operating margin | 5.9% | 6.7% | Down 0.8 points |
| Operating profit | $171.3 million | $146.3 million | +17% |
| Income from continuing operations attributable to Brink’s | $73.0 million | $56.8 million | +29% |
| Diluted EPS from continuing operations | $1.52 | $1.17 | +30% |
| Net income attributable to Brink’s | $74.5 million | $57.1 million | +31% |
| Operating cash flow | $247.0 million | $235.3 million | +$11.7 million |
| Capital expenditures | $196.2 million | $148.8 million | +$47.4 million |
| Cash and cash equivalents | $182.9 million | $183.0 million | Approximately flat |
| Total debt | $389.4 million | $389.2 million | Approximately flat |
| Net debt | $231.6 million | $244.7 million | Down $13.1 million |
Consolidated income from continuing operations was $97.0 million in 2011 versus $72.5 million in 2010; the attributable amount was lower because of $24.0 million of income allocated to noncontrolling interests. The GAAP effective tax rate on continuing operations was 38.0%, compared with 48.0% in 2010. Interest expense increased to $24.0 million from $14.8 million.
International revenue increased 32% to $2,911.3 million and International operating profit increased 21% to $199.7 million. North America revenue increased 6% to $974.2 million, but operating profit declined 29% to $31.4 million. Fourth-quarter 2011 revenue was $997.1 million, segment operating profit was $72.4 million, operating profit was $46.9 million, and net income attributable to Brink’s was $15.8 million.
Material changes versus the prior comparable period
- Revenue growth reflected the 2010 Mexico and Canada acquisitions, 8% organic revenue growth, and favorable currency effects. The Mexico acquisition contributed materially to Latin American growth.
- International operations improved across Latin America, EMEA, and Asia Pacific. Latin America revenue increased 66%, while EMEA revenue increased 8% and Asia Pacific revenue increased 22%.
- North America experienced flat organic revenue, continued cash-in-transit volume and pricing pressure, and higher security costs. CompuSafe revenue growth and fuel surcharges partly offset the decline.
- Segment margin declined despite higher segment profit, primarily because revenue growth included acquired operations and because security costs increased across regions.
- Operating cash flow benefited from higher operating profit and working capital, but was reduced by a $50.2 million decline in customer-obligation cash flows and a roughly $10 million Belgium settlement payment.
- Brink’s made no significant acquisitions in 2011 and did not repurchase common stock. It paid $18.7 million of dividends to common shareholders.
- Shareholders’ equity declined to $408.0 million from $516.2 million, primarily because actuarial losses from lower retirement-plan discount rates exceeded net income.
Guidance, outlook, risks, contingencies and unusual items
Management expected 2012 organic revenue growth of 5% to 8%, International organic growth of 7% to 10%, and flat North America organic revenue. Expected 2012 GAAP segment margins were 7.0% to 8.0% for International, 3.6% to 4.6% for North America, and 6.5% to 7.0% in total. Management planned continued investment in higher-margin Cash Logistics, Global Services, information technology, vehicles, facilities, and emerging markets.
- Management expected 2012 capital expenditures of $210 million to $220 million, capital leases of $30 million to $40 million, and total fixed-asset additions of $240 million to $260 million.
- The primary U.S. pension plan required an estimated $31.5 million contribution in 2012, with approximately $197 million of additional contributions projected through 2017. Brink’s expected to use company stock for some or all of these contributions.
- Retirement obligations were substantial: pension liabilities were $381.7 million and other retirement-benefit liabilities were $322.5 million at year-end. The primary U.S. pension plan was approximately 71% funded.
- Brink’s settled the former Belgium cash-in-transit bankruptcy claim for €7 million and recorded an approximately $10 million pretax charge in 2011. Other ordinary-course litigation was accrued where probable and estimable; the company did not expect material adverse effects from those matters.
- Unusual 2011 items included a $6.7 million pretax gain on the sale of the U.S. Document Destruction business, a $10.1 million Belgium settlement loss, a $4.1 million charge related to the former CEO’s retirement, and a $4.2 million discontinued-operations gain from Federal Black Lung Excise Tax refunds.
- Venezuela represented 7% of 2011 revenue and was accounted for as a highly inflationary economy. Currency controls restricted repatriation, and Venezuelan cash could not be freely used for general corporate purposes.
- Principal risks include pricing and competitive pressure, reduced use of cash, foreign exchange and political risk, restrictions on repatriation, customer-valuable losses and insurance availability, cybersecurity and IT failures, labor and regulatory issues, goodwill impairment, pension funding, and debt-covenant compliance.
- At December 31, 2011, $290 million was available under the revolving facility and the company was in compliance with its financial covenants. In January 2012, the facility was increased from $400 million to $480 million and maturity was extended to January 2017.
Most important facts for investors to verify
- Whether International growth and the stated 2012 margin targets offset continued North American pricing and volume pressure.
- The cash impact and funding method for the projected pension contributions, including potential common-stock issuance and dilution.
- The sustainability of cash generation after capital expenditures, capital leases, debt service, and retirement obligations.
- Exposure to Venezuelan currency controls, potential devaluation, and limitations on repatriating earnings and cash.
- Goodwill impairment sensitivity in North America and EMEA, which together carried approximately $146.5 million of goodwill at year-end.
- The effect of Belgium-related matters, former coal-operation obligations, black-lung liabilities, and other contingent claims on future cash flows.
- The composition of non-GAAP results and the extent to which reported earnings depend on acquisitions, currency effects, pension adjustments, tax items, and other unusual items.