Corporate Headquarters
The Brink’s Company
1801 Bayberry Court
P.O. Box 18100
Richmond, VA 23226-8100
Telephone: (804) 289-9600
Fax: (804) 289-9770
Web: www.brinkscompany.com
Proven Performance. A Powerful Brand. A Bright Future.
The Brink’s Company
2006 Annual Report
Security, integrity, reliability and performance —
these attributes are at the core of the Brink’s brand,
a globally respected symbol of value and trust.
A B O U T T H E C O M P A N Y
Established in 1859, Brink’s is a global leader in security-related
services. The company has approximately 52,000 employees and
operates in more than 50 countries.
Operating units:
• Brink’s, Incorporated is the world’s premier provider of secure
transportation and cash management services.
• Brink’s Home Security is one of the largest and most successful
residential alarm companies in North America.
The Brink’s Company common stock trades on the New York Stock
Exchange under the ticker symbol BCO.
C O N T E N T S
Financial Highlights .............................................................................1
To Our Shareholders ............................................................................2
Brink’s, Incorporated ...........................................................................4
Brink’s Home Security .........................................................................6
Board of Directors and Senior Management ....................................8
2006 Financial Review.........................................................................9
T H E B R I N K ’ S C O M P A N Y C O R P O R AT E I N F O R M AT I O N
Corporate Headquarters
The Brink’s Company
1801 Bayberry Court
P.O. Box 18100
Richmond, VA 23226-8100
Telephone: (804) 289-9600
Facsimile: (804) 289-9770
www.brinkscompany.com
Annual Meeting
The Annual Meeting of the shareholders of the company
is scheduled to be held at 1 p.m. (EDT) on May 4, 2007,
at The Ritz-Carlton New York, Central Park, 50 Central
Park South, New York, New York 10019.
Inquiries
Communications concerning stock transfer requirements,
lost certificates, dividends or change of address should
be addressed to the company’s transfer agent, American
Stock Transfer & Trust Company, at the address listed
below, or by calling (866) 673-8058.
Inquiries from investors and members of the media
should be directed to:
Edward A. Cunningham
Director – Investor Relations and
Corporate Communications
(804) 289-9708
ecunningham@brinkscompany.com
Auditors
KPMG LLP
Richmond, VA
Common Stock Transfer Agent and Registrar
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
(866) 673-8058
www.amstock.com
The Brink’s Company and its Subsidiaries are
Equal Opportunity Employers.
Investor Information
Copies of the 2006 Annual Report for the company;
press releases announcing quarterly results; the 2006
Form 10-K, including the financial statements and the
financial statement schedules thereto, filed with the
Securities and Exchange Commission; and any other
information filed with or furnished to the Securities
and Exchange Commission, are available free of
charge at www.brinkscompany.com, by calling toll free
(877) 275-7488, or by writing to the Investor Relations
Department at The Brink’s Company Corporate
Headquarters using the address provided. Our Chief
Executive Officer is required to make, and he has
made, an annual certification to the New York Stock
Exchange (NYSE) stating that he was not aware of any
violation by us of the corporate governance listing stan-
dards of the NYSE. Our Chief Executive Officer made
his annual certification to that effect to the NYSE as of
May 26, 2006. In addition, we have filed, as exhibits to
our Annual Report on Form 10-K, the certifications of
our principal executive officer and principal financial
officer required under sections 906 and 302 of the
Sarbanes-Oxley Act of 2002 to be filed with the
Securities and Exchange Commission regarding the
quality of our public disclosure.
Environmental Policy
The Brink’s Company is dedicated to compliance with
environmental laws and sound environmental practices.
The company has accordingly developed broad environ-
mental principles to govern its diverse operations. The
management of each business is required to adopt and
adhere to policies consistent with these broad principles
and to effectively address environmental concerns,
including those of particular application to the activities
of each business.
Management Objectives:
• Recognize environmental management as a high priority.
• Establish environmentally sound programs and practices
for conducting operations, taking into particular consid-
eration the efficient use of energy and the safe disposal
of residual wastes.
• Educate, train and motivate employees to conduct their
activities in an environmentally responsible manner.
• Contribute to the development of business and
governmental programs that enhance environmental
awareness and protection.
F I N A N C I A L H I G H L I G H T S
(Operating results for continuing operations, except where noted)
(In millions except per share data)
Operating Results
Revenues
2006
2005
2004
2003
2002
Brink’s, Incorporated
$ 2,399
$ 2,157
$ 1,932 $ 1,689 $ 1,580
Brink’s Home Security
439
392
346
310
282
Total Revenues
$ 2,838
$ 2,549
$ 2,278 $ 1,999 $ 1,862
Operating Profit
Brink’s, Incorporated
$
175.2
$
111.9
$ 144.7 $
112.5 $
96.1
Brink’s Home Security
Business Segments
Former Operations
100.3
275.5
87.4
199.3
80.8
71.2
60.9
225.5
183.7
157.0
(26.5)
(39.2)
(45.9)
(69.5)
(19.2)
Gain on Sale of Equity Interest
—
—
—
10.4
—
Corporate Expense
(48.4)
(44.7)
(42.2)
(27.3)
(23.1)
Total Operating Profit
$ 200.6
$ 115.4
$
137.4 $
97.3 $ 114.7
Earnings per Share
Continuing Operations(a)
Net Income(a)(b)
Weighted-Average Shares Outstanding(a)
$
$
2.05
11.64
50.5
$
$
$
$
0.74
2.50
57.0
1.29 $
0.71 $
1.08
2.20 $
0.55 $ 0.48
55.3
53.2
52.4
Cash Flow from Operating Activities(b)
$
32.3
$ 314.0
$ 284.9 $ 303.7 $ 241.3
Total Assets
2,188.0
3,036.9
2,692.7
2,548.6
2,459.9
Long-Term Debt, Less Current Maturities
Shareholders’ Equity
126.3
753.8
251.9
837.5
181.6
221.5
304.2
688.5
495.6
381.2
(a) Diluted basis.
(b) Includes Discontinued Operations.
The financial highlights set forth above should be read only in conjunction with Management’s Discussion and Analysis and the consolidated
financial statements.
The Brink’s Company 2006 Annual Report
1
REVENUE
OPERATING PROFIT
The Brink’s Company 2006
Brink’s, Incorporated
Brink’s Home Security
Our next challenge is to accelerate growth,
and our strategy is based on leveraging a very
powerful asset — the Brink’s brand.
To Our Shareholders: In 2006, The Brink’s Company again demonstrated
its commitment to delivering shareholder value. Our stock price increased 33%,
more than doubling the performance of the major U.S. indexes. Since 2002, our
share price has risen 246%.
Michael T. Dan
Chairman, President and
Chief Executive Officer
As we begin 2007, our message to current and prospective shareholders is
simple — Brink’s is a proven performer with a powerful brand, a clear strategy
and a bright future.
Proven Performance
Our stock’s performance is driven by our ability to execute. Some highlights from 2006 include:
• Record earnings and cash flow
• The sale of our last non-core business, generating $1 billion in after-tax proceeds
• $630 million returned to shareholders by repurchasing 21% of outstanding shares
• $225 million contributed to the VEBA, reinforcing that buffer against our legacy liabilities
• Net debt reduced by more than $180 million
• Dividend increased
Our success reflects a substantial shift in strategic direction. Just a few years ago, Brink’s was a
conglomeration of disparate businesses burdened by substantial coal-related legacy liabilities. Our goals
were to shed non-core assets, address the legacy liabilities, and improve results from our core security
businesses. Each of these goals has been achieved. Today, Brink’s is a financially strong company that
is sharply focused on two world-class security businesses.
This ability to execute, to do as we say, is the key to our success with customers and shareholders.
Our next challenge is to accelerate growth, and our strategy is based on leveraging a very powerful
asset — the Brink’s brand.
A Powerful Brand, A Clear Strategy
Security, integrity, reliability and performance — these attributes are at the core of the Brink’s brand,
a globally respected symbol of value and trust. Our name alone is a unique competitive advantage that
2
The Brink’s Company 2006 Annual Report
evokes instant recognition worldwide. We have
only scratched the surface of its potential to
open new doors.
Our strategic direction is clear. We will use our
capital to support growth in our existing businesses
and to enter adjacent markets where our brand
offers an immediate competitive advantage. For
example, providing security for commercial proper-
ties is a logical extension of the Brink’s brand. We
have a small but growing presence in this market,
and we hope to add critical mass through faster
organic growth and acquisitions that add new capa-
bilities. We are also exploring opportunities to enter
other security-related niches that can leverage our
brand, our core competencies, our customer base
and our global footprint.
A Bright Future
The Brink’s Company is now a highly focused
security company that is easier for investors to
understand and value. The next chapter in our long
and successful history promises to be an exciting
one, full of continued change for the better.
Our directors and management team have a well-
established reputation for strategic execution and
for delivering exceptional returns to shareholders.
The opportunities to create additional value, to
extend and enhance our record of proven perform-
ance, have never been more compelling. Personally,
I am more excited — and more confident — about
the future of Brink’s than I have ever been.
I thank the many people who have and will
continue to drive our success — the 52,000 Brink’s
employees around the world, many of whom oper-
ate in difficult and often dangerous conditions. I
also thank our board of directors for its constant
support and guidance.
Finally, I thank our shareholders. I assure you that
we remain committed to enhancing the value of
your investment in The Brink’s Company.
Sincerely,
Michael T. Dan
Chairman, President and Chief Executive Officer
The Brink’s Company
March 8, 2007
T H E B R I N K ’ S C O M P A N Y
SEGMENT REVENUE
($ millions)
$2,838
$2,549
$2,278
$1,999
$1,862
SEGMENT OPERATING PROFIT
($ millions)
$276
$226
$199
$184
$157
02
03
04
05
06
02
03
04
05
06
Brink’s, Incorporated
Brink’s Home Security
Brink’s, Incorporated
Brink’s Home Security
The Brink’s Company generated record revenue and
operating profit in 2006.
DILUTED EARNINGS
PER SHARE FROM
CONTINUING OPERATIONS
ACTUAL SHARES
OUTSTANDING
(millions)
NET DEBT
($ millions)
$2.05
59
49
$217
$1.29
$1.08
$.71
$.74
$33
02
03
04
05
06
05
06
05
06
Strong operating
results helped push
earnings per share
to a new all-time high.
During 2006, Brink’s repurchased
21% of outstanding shares for
$630 million while reducing net
debt by more than $180 million.
TOTAL RETURN TO SHAREHOLDERS
(value of $100 invested on December 31, 2001, including dividends)
$350
$300
$250
$200
$150
◆
▲
$100
$50
$0
◆
▲
02
$295
$168
◆
▲
$135
◆
▲
◆
▲
◆
▲
03
04
05
06
The Brink’s Company
Source - Research Data Group
▲
S&P 500
◆
S&P Midcap 400
The Brink’s Company has demonstrated, and delivered
upon, its commitment to create value for all shareholders.
Our share price increased 33% in 2006 and has risen
246% since 2002.
The Brink’s Company 2006 Annual Report
3
REVENUE
OPERATING PROFIT
Brink’s, Incorporated 2006
The Brink’s brand is a globally respected symbol of value, integrity and trust — and the key to our continued growth as the leader
in secure transportation and other value-added security and cash management solutions.
Brink’s, Incorporated is the world’s leading provider of secure transportation, cash logistics and
other security-related solutions to banks and financial institutions, retailers, government agencies, mints,
jewelers and other commercial operations. Our international network of approximately 8,900 vehicles,
800 facilities and 49,000 employees serves customers in more than 50 countries. Our global infrastructure
and logistical expertise are critical competitive advantages.
A Strong Foundation in Core Services
Our CIT, ATM and coin processing services provide a strong revenue base and a platform for additional
value-added services.
CIT (Cash-in-Transit) Brink’s has been transporting valuables since 1859. Staffed by highly trained security
professionals, our armored trucks are “vaults on wheels” and globally recognized symbols of the Brink’s
brand. Our success in CIT is driven by a combination of rigorous security practices, top-tier intelligence
resources and logistical expertise.
ATM Services Brink’s manages nearly 75,000 ATM units worldwide for banks and other cash dispensing
operators. We provide cash replenishment, cash monitoring and forecasting capabilities, deposit pick-up and
processing services. Advanced online tools deliver consolidated electronic reports for simplified reconciliation.
REVENUE BY REGION
2006 Total = $2.4 billion
North
America
Europe,
Middle East,
Africa
Latin
America
Asia
Pacific
EMEA 44%
North America 34%
Asia Pacific 3%
Latin America 19%
Our global infrastructure is a critical competitive advantage. Brink’s operates in more than 50 countries
throughout the world. In 2006, the U.S., France and Venezuela were the leading drivers of revenue and
profits in their respective regions.
4
The Brink’s Company 2006 Annual Report
B R I N K ’ S , I N C O R P O R AT E D
REVENUE
($ millions)
OPERATING PROFIT
($ millions)
OPERATING PROFIT MARGIN
(percent)
$2,399
$2,157
$1,932
$1,689
$1,580
$175
$145
$113
$112
$96
7.5
7.3
6.7
6.1
5.2
02
03
04
05
06
02
03
04
05
06
02
03
04
05
06
Strong performance in North America and
Latin America — combined with continued
improvement in European operations — led
to substantial increases in revenue and
profitability in 2006.
Coin Processing Brink’s is the world leader in coin wrapping and processing services. Our patented,
high-speed sorting and wrapping machines are used to service retailers, coin-counting machine operators
and highway authorities that rely on Brink’s to deliver the fastest throughput and efficiency in the industry.
A Platform for Value-Added Growth
Our core services and strong customer relationships enable Brink’s to offer a comprehensive suite
of value-added services.
Global Services Brink’s is the world’s leading provider of secure logistics for valuables including diamonds,
jewelry, precious metals, securities, currency, high-tech devices, electronics and pharmaceuticals. Our
logistical expertise ensures reliable pick-up, transport, storage and inventory management.
Cash Logistics Brink’s enables customers to outsource the entire cycle of cash, from point-of-sale through
bank deposit. We provide expert management of cashier balancing and reporting, deposit processing and
consolidation, and electronic information exchange. By outsourcing cash management, customers can focus
on what they do best – selling products and services to their customers.
CompuSafe® Service Cash-intensive operations including convenience stores, restaurants, retail chains and
entertainment venues use CompuSafe® Service to prevent theft and manage cash from customer payment
through bank deposit. Our closed-loop system features currency-recognition technology, multi-language
touch screens, secure storage and electronic interface between point-of-sale and back-office systems.
Security and Guarding Brink’s protects offices, warehouses, stores, airports, public venues and events with
electronic surveillance, access control, fire prevention and highly trained patrolling personnel.
Secure Data Solutions Brink’s provides secure transportation, storage and shredding services for confidential
corporate records, back-up data tapes, product overruns and other sensitive information and media.
Technology Tools Brink’s offers a variety of advanced technology applications including online cash tracking,
cash inventory management, check imaging for real-time deposit processing, and a variety of other web-
based information tools that enable banks and other customers to expand their services more efficiently.
A Commitment to Growth and Innovation
As the world’s premier provider of secure transportation, cash logistics and other security-related services,
our continued success requires that we constantly offer more advanced solutions to our customers. To that
end, we are investing aggressively in value-added technologies and forming strategic relationships that will
strengthen existing services, open new revenue streams, and expand our global footprint.
The Brink’s Company 2006 Annual Report
5
REVENUE
OPERATING PROFIT
Brink’s Home Security 2006
Brink’s Home Security provides peace of mind, 24 hours a day, to more than one million customers throughout North America.
Brink’s Home Security markets, installs, services and monitors security alarm systems for more
than one million customers throughout North America, covering more than 250 metropolitan areas in all
50 states and two Canadian provinces. Our primary customers are residents of single-family homes. Our
presence in the commercial market is small but growing, with more than 50,000 small businesses served.
As the second-largest residential alarm company in North America, our goal in 2007 is to achieve another
year of 10 percent or better growth in revenue, profits and customers.
Customers for Life
Brink’s Home Security strives to create life-long customers by earning the trust of people who rely on us
to protect their families and their most valuable assets. Our success is driven by consistent delivery of what
people expect from the Brink’s brand — high-quality installations with minimal disruption to customers,
superior follow-up service and reliable monitoring. Marketing efforts are focused on people and businesses
with solid credit histories who value high-quality security services. Our industry-leading disconnect rate of
6.4% is a testament to our dedication to providing only the highest level of service to our customers.
Award-Winning Service
Our monitoring representatives and customer care specialists are highly trained to provide “peace of mind,
24 hours a day.” For a fourth consecutive year, Brink’s Home Security was recognized for service excellence
by J.D. Power & Associates under its Call Center ProgramSM, which requires call centers to perform within
the top 20 percent on internal and external measures of customer satisfaction. Qualification required a
detailed audit of recruiting, training, employee incentives, leadership roles and responsibilities, and quality
assurance capabilities.
In addition, Brink’s Home Security is the only national security company in the United States to earn
Installation Quality (IQ) Certification from the Installation Certification Board, a highly respected organiza-
tion comprised of police, fire, insurance, security and state regulatory professionals. Brink’s was honored
for its compliance with strict guidelines for installation, false alarm reduction and customer service.
6
The Brink’s Company 2006 Annual Report
Investing for Growth
With market penetration of residential alarm
systems in the U.S. estimated at less than 30
percent, there is substantial room for continued
growth. Our 2006 capital expenditures of $164
million were focused primarily on supporting new
installations. We also opened a new customer
service center in Knoxville, Tennessee, that adds
ample growth capacity and supplements our
customer service facility in Irving, Texas.
We are also pursuing growth through other
sales channels and expanding into new markets.
For example, Brink’s Home Technologies offers
comprehensive home technology solutions to
home builders and buyers. Offering home security
and low-voltage wiring solutions makes Brink’s
a convenient, one-stop option for selected home
builders who are addressing consumer demand
for synchronized security, entertainment and
communication technologies. We are also expand-
ing our product line and service capabilities in the
commercial sector.
The Brink’s brand is a widely recognized symbol of safety
and security and a key component of our growth strategy.
B R I N K ’ S H O M E S E C U R I T Y
REVENUE
($ millions)
OPERATING PROFIT
($ millions)
$439
$392
$346
$310
$282
$100
$87
$81
$71
$61
02
03
04
05
06
02
03
04
05
06
Our goal in 2007 is to achieve another year of double-digit
percentage growth in revenue and operating profit.
OPERATING
PROFIT MARGIN
(percent)
23.0
23.4
22.3
22.8
21.6
MONTHLY
RECURRING REVENUE
($ millions)
(a)
$33
$29
$26
$23
$21
02
03
04
05
06
02
03
04
05
06
High-quality installations,
superior service and
dependable monitoring
are the keys to sustaining
profitable growth.
SUBSCRIBER GROWTH
(percent)
10.5 10.6 10.4
8.7
7.5
Future cash flows
are driven by steady
subscriber growth and
low disconnect rates.
At the end of 2006,
monthly cash flow
from subscriber fees
exceeded $33 million.
(a) See reconciliation of
non-GAAP measure on
page 30.
Double-digit percentage growth in
our subscriber base has fueled similar
increases in revenue and operating profit.
02
03
04
05
06
ANNUAL DISCONNECT RATE
(percent)
10
8
6
4
2
0
7.1
6.9
6.6
7.2
6.4
02
03
04
05
06
Our industry-leading
disconnect rate
demonstrates our
commitment to provid-
ing the highest level of
security and service to
our customers.
The Brink’s Company 2006 Annual Report
7
B O A R D O F D I R E C T O R S A N D S E N I O R M A N A G E M E N T
B O A R D O F D I R E C T O R S A N D S E N I O R M A N A G E M E N T
The Board of Directors, as elected by the shareholders, is divided into three classes, with the term of
office of one of the three classes of directors expiring each year. Presently, there are twelve members
of the Board of Directors, eleven of whom are outside directors with broad experience in business,
finance and public affairs.
Roger G. Ackerman1, 3, 5
Retired Chairman and Chief Executive Officer –
Corning Incorporated (specialty glass, ceramics
and communications)
Betty C. Alewine1, 4, 5
Retired President and Chief Executive Officer –
COMSAT Corporation (provider of global
satellite services and digital networking
services and technology)
James R. Barker1, 5, 6
Chairman – The Interlake Steamship Company (vessel
owners and operators of self unloaders); Chairman –
New England Fast Ferry Company, LLC (ferry owners
and operators); Vice Chairman – Mormac Marine
Group, Inc. (vessel operating company); and Vice
Chairman – Moran Towing Corporation (tug and
barge owners and operators)
Marc C. Breslawsky1, 2, 4
Retired Chairman and Chief Executive Officer –
Imagistics International Inc. (direct sales,
service and marketing of enterprise office
imaging and document solutions)
John S. Brinzo1, 2, 5
Chairman – Cleveland - Cliffs Inc. (supplier of iron
ore products to the steel industry in North America,
China and Europe)
Lawrence J. Mosner1, 2, 6
Retired Chairman and Chief Executive Officer –
Deluxe Corporation (helps financial institutions
and small businesses better manage, promote,
and grow their businesses)
Carl S. Sloane1, 3, 6
Private Consultant and Ernest L. Arbuckle Professor
of Business Administration, Emeritus, Harvard
University, Graduate School of Business Administration
Ronald L. Turner1, 3, 4
Retired Chairman, President and Chief Executive Officer –
Ceridian Corporation (information services company
engaged in providing outsourcing services to human
resources, transportation and retail markets in the
United States, Canada and Europe)
1 Executive Committee
2 Audit and Ethics Committee
3 Compensation and Benefits Committee
4 Corporate Governance, Nominating and
Management Development Committee
5 Finance and Pension Committee
6 Strategy Committee
E X E C U T I V E O F F I C E R S
James L. Broadhead1, 3, 4
Retired Chairman and Chief Executive Officer –
FPL Group, Inc. (public utility holding company)
Michael T. Dan
Chairman of the Board, President and
Chief Executive Officer
Michael T. Dan1
Chairman of the Board, President and
Chief Executive Officer – The Brink’s Company
Thomas R. Hudson Jr.1, 5, 6
Managing Member – Pirate
Capital LLC (Investment Advisor)
Murray D. Martin1, 2, 6
President and Chief Operating Officer –
Pitney Bowes Inc. (provider of integrated mail
and document management solutions)
James B. Hartough
Vice President — Corporate Finance and Treasurer
Frank T. Lennon
Vice President and Chief Administrative Officer
Austin F. Reed
Vice President, General Counsel and Secretary
Robert T. Ritter
Vice President and Chief Financial Officer
8
The Brink’s Company 2006 Annual Report
2 0 0 6 F I N A N C I A L R E V I E W
MANAGEMENT’S DISCUSSION AND ANALYSIS
CONSOLIDATED FINANCIAL STATEMENTS
Operations
Results of Operations
10
Consolidated Balance Sheets
Consolidated Statements of Operations
Overview of Results ........................................................................13
Consolidated Statements of Comprehensive Income
Consolidated Review .......................................................................16
Consolidated Statement of Shareholders’ Equity
Brink’s, Incorporated ......................................................................17
Consolidated Statements of Cash Flows
Brink’s Home Security, Inc. ...........................................................24
Notes to Consolidated Financial Statements
71
72
73
74
75
Corporate Expense-The Brink’s Company ....................................31
Note 1 – Summary of Significant Accounting Policies .................76
Former Operations..........................................................................31
Note 2 – Segment Information......................................................84
Retained Liabilities and Assets of Former Operations ................32
Note 3 – Earnings Per Share .........................................................86
Primary U.S. Pension Plan .............................................................37
Note 4 – Employee and Retiree Benefits ......................................87
Discontinued Operations ...............................................................39
Note 5 – Income Taxes .................................................................101
Other Operating Income, Net ........................................................41
Note 6 – Property and Equipment ..............................................105
Nonoperating Income and Expense ..............................................41
Note 7 – Acquisitions....................................................................105
Income Taxes ..................................................................................42
Note 8 – Goodwill and Other Intangible Assets .........................106
Minority Interest ............................................................................44
Note 9 – Other Assets ...................................................................107
Foreign Operations .........................................................................44
Note 10 – Accrued Liabilities .......................................................107
Liquidity and Capital Resources
Note 11 – Other Liabilities ............................................................107
Overview..........................................................................................45
Note 12 – Long-Term Debt ..........................................................108
Summary of Cash Flow Information .............................................45
Note 13 – Accounts Receivable .....................................................111
Operating Activities ........................................................................46
Note 14 – Operating Leases...........................................................111
Investing Activities .........................................................................46
Note 15 – Share-Based Compensation Plans...............................112
Business Segment Cash Flows .......................................................47
Note 16 – Capital Stock .................................................................117
Financing Activities ........................................................................49
Note 17 – Discontinued Operations .............................................119
Capitalization ..................................................................................50
Note 18 – Supplemental Cash Flow Information ........................121
Off Balance Sheet Arrangements ...................................................52
Note 19 – Other Operating Income, Net .....................................122
Contractual Obligations..................................................................53
Note 20 – Interest and Other Nonoperating
Other Potential Use of Credit .........................................................53
Income (Expense), Net ...............................................122
Contingent Matters.........................................................................54
Note 21 – Risk Management ........................................................123
MARKET RISK
55
Note 22 – Other Commitments and Contingencies....................124
CRITICAL ACCOUNTING POLICIES
Note 23 – Selected Quarterly Financial Data (Unaudited) ........126
Deferred Tax Asset Valuation Allowance ..................................... 57
SELECTED FINANCIAL DATA
Goodwill and Property and Equipment Valuations......................58
PERFORMANCE GRAPH
127
128
Employee and Retiree Benefit Obligations ...................................59
RECENT ACCOUNTING PRONOUNCEMENTS
FORWARD-LOOKING INFORMATION
MANAGEMENT’S REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
REPORTS OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
63
66
68
69
The Brink’s Company 2006 Annual Report
9
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATIONS
The Brink’s Company
Executive Overview
The Brink’s Company (along with its subsidiaries, the “Company”) conducts business in the security industry in
two segments:
•
Brink’s, Incorporated (“Brink’s”)
• Brink’s Home Security, Inc. (“BHS”)
Brink’s offers transportation and logistics
management services for cash and valuables
throughout the world. These services include
armored car transportation, automated teller
machine (“ATM”) replenishment and servicing,
currency, deposit processing and cash management
services including “Cash Logistics” services,
deploying and servicing safes and safe control
devices, including its patented CompuSafe® service,
coin sorting and wrapping, integrated check and
cash processing services (“Virtual Vault Services”),
arranging the secure transportation of valuables
(“Global Services”), transporting, storing and
destroying sensitive information (“Secure Data
Solutions”) and guarding services, including airport
security.
BHS offers monitored security services in North
America primarily for owner-occupied, single-
family residences. To a lesser extent, BHS offers
security services for commercial and multi-family
properties. BHS typically installs and owns the on-
site security systems and charges fees to monitor
and service the systems. Management’s approach to
each of its security businesses is similar, with a focus
on quality service, the brand, risk management and a
patient and disciplined approach to markets.
Management believes each business is a premium provider of services in the markets that it serves. The
Company’s marketing and sales efforts are enhanced by its brands so the Company seeks to protect their value.
Since the Company’s services focus on handling, transporting, protecting, and managing valuables, its employees
strive to understand and manage risk. Overlaying management’s approach is an understanding that the Company
must be disciplined and patient enough to charge fair prices that reflect the value provided, the risk assumed and
the need for an adequate return for the Company’s investors.
The Brink’s Company 2006 Annual Report
10
The business environments in which the Company’s security businesses operate around the world are constantly
changing. Management must continually adapt to changes in the competitive landscapes, economies in different
parts of the world and even each customer’s level of business. To be successful, management must be able to
balance requirements of local laws and regulations, risk, and the effects of changing demand on the utilization of
its resources. As a result, the Company operates largely on a decentralized basis so local management can adjust
operations to its unique circumstances.
For the same reasons that the Company operates on a decentralized basis, short-term forecasts of performance are
difficult to make with precision. As a result, the Company does not provide detailed earnings forecasts.
The Company measures financial performance on a long-term basis. The key financial factors on which it focuses
are:
• Creation of value through solid returns on capital
• Growth in revenues and earnings
• Generation of cash flow
These and similar measures are critical components of the Company’s incentive compensation programs and
performance evaluations.
On January 31, 2006, the Company sold BAX Global Inc. (“BAX Global”), a wholly owned freight transportation
subsidiary, for approximately $1 billion in cash and recorded a pretax gain of approximately $587 million. BAX
Global’s results of operations have been reported within discontinued operation for all periods reported. The
Company has either retained or indemnified the purchaser for certain liabilities and contingencies. These
indemnities are not expected to generate significant ongoing expenses or cash flows.
11
The Brink’s Company 2006 Annual Report
The Company used the proceeds as follows:
• On January 31, 2006, the Company contributed $225 million to a Voluntary Employees’ Beneficiary
Association trust (“VEBA”) designated to pay retiree medical obligations to former coal operations
employees.
• On March 31, 2006, the Company paid $60 million to settle outstanding Senior Notes, including a make-
whole payment of $1.6 million. The Company has also significantly reduced other debt.
• On April 11, 2006, the Company repurchased approximately 10.4 million shares of the Company’s
•
•
common stock for approximately $530.9 million.
Through October 5, 2006, the Company repurchased approximately 1.8 million additional shares of the
Company’s common stock for $100 million.
In July 2006, the Company paid $20.4 million to settle obligations related to the withdrawal from two
multi-employer pension plans of the former coal operations.
• During 2006, the Company paid $67 million of its estimated 2006 U.S. income tax liability. The Company
has not had to make payments for U.S. income taxes in the past several years primarily due to deductions
generated by retiree benefit payments related to former coal operations. The Company expects to
recognize a large gain on its 2006 U.S. federal income tax return as a result of the sale of BAX Global. The
gain recognized in 2006 and the contribution to the VEBA allowed the Company to utilize a significant
amount of its deferred tax assets including minimum tax credits and the deferred tax assets associated
with the coal related liabilities. Accordingly, the Company expects to be in a tax paying position for U.S.
income taxes in future years.
The Company previously sold its natural resource businesses and has retained significant liabilities associated with
former coal operations. Since these liabilities generate ongoing expenses and require significant cash outflows,
the Company considers liability management and funding to be an important activity.
Information about the Company’s liabilities and assets related to its former businesses is contained in a number of
sections of this report, including:
• Retained Liabilities and Assets of Former Operations
• Application of Critical Accounting Policies
Disclosures in the first section show five-year projections for estimated ongoing payments and expense associated
with the retained obligations of the former operations. The second section discusses critical estimates used and
provides a sensitivity analysis for these estimates.
The Brink’s Company 2006 Annual Report
12
RESULTS OF OPERATIONS
Overview of Results
(In millions)
Income from:
Years Ended December 31,
% change
2006
2005
2004
2006
2005
Continuing operations
Discontinued operations
Cumulative effect of change in
accounting principle
Net income
$
$
103.3
483.9
-
587.2
42.3
105.5
(5.4)
142.4
71.5
50.0
-
121.5
144
200+
NM
200+
(41)
111
NM
17
The income items in the above table are reported after tax.
Continuing Operations
2006
Income from continuing operations was higher in 2006 compared to 2005 primarily due to a $85.2 million
improvement in operating profit driven by increases at Brink’s and BHS and lower expenses related to former
operations. This improvement was partially offset by an $11.1 million increase ($7.3 million at Corporate, $2.6
million at Brink’s and $1.2 million at BHS) in compensation charges for stock options as a result of adopting
Statement of Financial Accounting Standards (“SFAS”) 123(R), Share Based Payment, on January 1, 2006. Similar
charges were not recorded in 2005. Brink’s operating profit increased primarily due to growth in Latin America
and France, lower restructuring costs in international operations, and lower U.S. pension costs. BHS operating
profit improved due primarily to subscriber growth. Interest expense decreased in 2006 as a result of reduced debt
levels. The effective tax rate for 2006 was approximately 6 percentage points lower than 2005 since 2005 included
a higher level of charges for valuation allowances, as further described below.
The Company’s income from continuing operations in 2007 could be adversely affected by a tightening insurance
market in the cash handling industry. In addition, the Company does not expect to receive dividends from a real
estate investment due to a weakening housing market. The Company recognized pretax income of $5.1 million in
2006 related to this investment. Anticipated lower investment levels in 2007 will also lower interest income.
Higher interest expense could be incurred in 2007 depending on debt levels or an increase in interest rates.
2005
Income from continuing operations was lower in 2005 compared to 2004 as a result of a lower operating profit and
a higher-than-normal 2005 effective tax rate. Operating profit declined in 2005 versus 2004 as lower operating
profit at Brink’s was partially offset by higher operating profit at BHS. Brink’s operating profit decreased due
primarily to higher operating costs including restructuring charges in several European countries, U.S. pension
costs and increased safety and security costs. BHS operating profit increased due to growth in revenues resulting
primarily from increases in the number of subscribers. The effective tax rate was higher than normal in 2005 as a
result of the recording of valuation allowances against tax deferred assets in certain countries and a higher level of
losses in countries for which the Company does not record tax benefit from such losses.
13
The Brink’s Company 2006 Annual Report
Business Segments
Brink’s 2006 operating profit was higher than 2005 and 2005 operating profit was lower than 2004. BHS reported
improved operating profit in both 2006 and 2005 over the prior-year periods.
Brink’s. Revenues in 2006 increased from 2005 primarily due to growth in existing operations with growth
particularly strong in Latin America and Europe, Middle East, and Africa (“EMEA”). Exchange rate fluctuations
had little impact on revenues in 2006 or 2005. Operating profit was higher in 2006 compared to 2005, largely due
to strong performance in Latin America, lower pension and other benefits expenses in the U.S., and lower costs
and improved margins in EMEA.
BHS. BHS reported 12% growth in revenues in 2006 and 13% in 2005. BHS experienced strong growth in
operating profit in 2006 (15%) and 2005 (8%) resulting primarily from subscriber growth and improved efficiency
from the providing of recurring services to a larger subscriber base. The average number of subscribers increased
10% in 2006 over 2005 and 11% in 2005 over 2004. Growth in operating profit in 2006 over 2005 was stronger
than in 2005 over 2004 primarily as a result of a decrease in the rate of growth of investment in new subscribers as
a result of slower subscriber growth.
Former Operations
Expenses related to former operations in 2006 were $12.7 million lower than 2005 due to earnings on the $225
million VEBA contribution made in the first quarter of 2006. The contribution was funded by proceeds from the
sale of BAX Global.
Expenses related to former operations in 2005 were $6.7 million lower than 2004 primarily as a result of gains
from the sale of substantially all of the Company’s remaining mining interests in Kentucky and the recognition of a
gain on previously sold West Virginia coal assets due to the transfer of liabilities to the buyer.
Income Taxes
The Company’s effective tax rate on income from continuing operations was 40.5% in 2006, 46.7% in 2005 and
32.6% in 2004. The effective tax rate varied from statutory rates in these periods primarily due to changes in
valuation allowances for deferred tax assets and state income taxes. The effective tax rate in 2005 was unusually
high due to $10 million in new valuation allowances, a higher amount of pretax losses incurred in countries for
which the Company does not recognize a tax benefit from losses, and the recording of $3 million in additional tax
on the repatriation of $49 million in dividends under the American Jobs Creation Act.
The Company currently estimates its 2007 effective tax rate will approximate 39% to 41%. The actual 2007 tax rate
could be materially different from the Company’s estimate.
The Brink’s Company 2006 Annual Report
14
Discontinued Operations
BAX Global’s results of operations have been reported as a component of income from discontinued operations for
all years presented. On January 31, 2006, the Company sold BAX Global for approximately $1 billion resulting in a
pretax gain of approximately $587 million. The Company has indemnified the purchaser for various liabilities and
contingencies associated with BAX Global’s operations prior to the date of sale. These indemnities are not
expected to generate significant ongoing expenses or cash flows, although the Company has accrued $9.4 million
for retained tax liabilities that are expected to be paid over the next two or three years.
The Company has accrued for significant contingencies related to benefits for former coal employees. Revisions to
estimated amounts related to these contingent liabilities, including those related to obligations under the Coal
Industry Retiree Health Benefit Act of 1992 (“the Health Benefit Act”), are recorded in discontinued operations
and have been significant in each of the last three years.
In 2006, the Company recognized:
•
•
a $148.3 million pretax benefit primarily as a result of a new federal law amending the Health Benefit Act
that reduced the Company’s obligation for healthcare and death benefits for former coal miners and
a $9.9 million pretax benefit on the settlement of liabilities related to two coal industry multi-employer
pension plans.
In 2005, the Company recognized $15.1 million of pretax income related to a final settlement of claims for refund
of Federal Black Lung Excise tax amounts.
Income from discontinued operations in 2004 also includes operating results of the Company’s former natural
resource businesses through the date of sale and gains and losses from the sale including:
• Coal business – recognized additional pretax gains of $5.0 million in late 2004 under sales agreements
from prior years.
• Gold business – sold in early 2004 for a pretax loss of $0.9 million.
•
Timber business – completed the sale in early 2004 and recognized a $20.7 million pretax gain.
Cumulative Effect of a Change in Accounting Principle
In December 2005, the Company adopted the Financial Accounting Standard Board (“FASB”) Interpretation 47,
Accounting for Conditional Asset Retirement Obligations (“FIN 47”). As a result, the Company recorded the
cumulative effect of a change in accounting principle of $5.4 million, net of tax, for conditional asset retirement
obligations primarily associated with leased facilities. See note 1 to the consolidated financial statements.
15
The Brink’s Company 2006 Annual Report
Consolidated Review
Revenues
Operating Profit
Years Ended December 31,
% change
Years Ended December 31,
% change
(In millions)
2006
2005
2004
2006
2005
2006
2005
2004
2006
2005
Business Segments
Brink’s
BHS
$ 2,398.6
439.0
Business segments
Corporate
Former operations
2,837.6
-
-
2,156.9
392.1
2,549.0
-
-
1,931.9
345.6
2,277.5
-
-
$ 2,837.6
2,549.0
2,277.5
11
12
11
-
-
11
12
13
12
-
-
12
$ 175.2
100.3
275.5
(48.4)
(26.5)
111.9
87.4
199.3
(44.7)
(39.2)
144.7
80.8
225.5
(42.2)
(45.9)
$ 200.6
115.4
137.4
57
15
38
8
(32)
74
(23)
8
(12)
6
(15)
(16)
Revenues in 2006 were 11% higher than 2005 primarily due to the effects of growth in existing operations at
Brink’s and continuing growth in the subscriber base of BHS. The Company’s operating profit increased by 74% in
2006 versus 2005 due to improved performance and lower restructuring charges at Brink’s and continued
subscriber growth at BHS. These increases were partially offset by higher corporate expenses due to $7.3 million of
share-based compensation costs recorded as a result of the adoption of SFAS 123(R) on January 1, 2006.
Effective December 31, 2005, the Company froze the U.S. defined benefit pension plans. Effective January 1, 2006,
the Company enhanced benefits for its U.S. defined contribution 401(k) plan. As a result of these changes, net
expenses were lower in 2006 as follows:
• Brink’s-approximately $11.4 million
• BHS-approximately $2.5 million
• Corporate-approximately $1.9 million.
Revenues in 2005 were 12% higher than 2004 as a result of acquisitions and growth in existing operations at
Brink’s and a larger subscriber base at BHS. The Company’s operating profit in 2005 was 16% lower than in 2004
as a result of 23% lower operating profit at Brink’s due primarily to lower operating profit from Europe compared
to the strong prior year, partially offset by 8% higher operating profit at BHS on continued subscriber growth.
The Brink’s Company 2006 Annual Report
16
Brink’s, Incorporated
Executive Overview
Brink’s provides services related to cash and other valuables to the financial community, retailers and other
businesses. These services include securely transporting and handling valuable assets, managing and processing
currency and deposits and preparing and transmitting financial information.
The Company believes that Brink’s has significant competitive advantages including:
•
•
•
•
•
•
brand name recognition,
reputation for high-quality service,
proprietary cash processing and information systems,
high-quality insurance coverage and general financial strength,
risk management capabilities, and
the ability to serve a customer in multiple markets through a global network.
Because of Brink’s emphasis on managing the risks inherent in handling cash and valuables and the high level of
service provided, Brink’s believes it spends more than its competitors on training and retaining people and on the
facilities and processes needed to provide quality services to customers.
As a result of management’s emphasis on high-quality services and risk management, Brink’s focuses its
marketing and selling efforts on customers who appreciate the value and breadth of the services delivered and the
information capabilities, risk management and financial strength underlying the Brink’s approach to business.
In order to earn an adequate return on capital employed in the business, Brink’s focuses on the effective and
efficient use of its resources and the adequacy of pricing. First, Brink’s attempts to maximize the amount of
business which flows through its branches, vehicles and systems in order to obtain the lowest costs possible
without compromising safety, security or service. Second, due to its higher costs of people and processes, Brink’s
generally charges higher prices than competitors that may not provide the same level of service and risk
management. The Company believes that Brink’s operations are capable of generating operating profit margins
near or above 7% on an annual basis. This level is necessary to earn what management believes is an appropriate
return on its cost of capital.
The industries to which Brink’s provides services have been consolidating. As a result, the strength of customers
in these industries has been increasing. Customers are seeking suppliers, such as Brink’s, with broad geographic
solutions, sophisticated outsourcing capabilities and financial strength.
17
The Brink’s Company 2006 Annual Report
Operationally, Brink’s performance may vary from period to period. Since revenues are generated from charges
per service performed as well as on an ad valorem basis, revenues can be affected by both the level of activity in
economies and the volume of business for specific customers. As contracts generally run for one or more years,
there are costs which must be incurred to prepare to service a new customer or to transition away from one.
Brink’s also periodically incurs costs to reduce operations when volumes decline, including costs to reduce the
number of employees and close or consolidate branch and administrative facilities. In addition, safety and
security costs can vary from period to period depending on Company and industry performance and cost of
insurance coverage.
Cash Logistics is a fully integrated solution that proactively manages the supply chain of cash from point-of-sale
through deposit at a bank. The process includes cashier balancing and reporting, deposit processing and
consolidation, and electronic information exchange. Retail customers use Brink’s Cash Logistics services to count
and reconcile coins and currency in a Brink’s secure environment, to prepare bank deposit information and to
replenish retail locations’ coins and currency in proper denominations.
Because Cash Logistics involves a higher level of service and more complex activities, customers are willing to pay
prices which result in higher margins. The ability to offer Cash Logistics to customers also differentiates Brink’s
from many of its competitors. As a result, management is committed to growing operations in Cash Logistics.
Revenues from Cash Logistics, including coins and notes processing, were $373.0 million for 2006, $333.9 million
for 2005 and $295.2 million for 2004 and are included in the revenues shown in the table above. The increase in
these revenues was due to Organic Revenue Growth and acquisitions.
Brink’s operating profit and related revenues are generally higher in the second half of the year, particularly in the
fourth quarter, because of the generally higher economic activity associated with the holiday season. As a result,
margins are typically lower in the first half than in the second half of the year.
The Brink’s Company 2006 Annual Report
18
Summary of Brink’s Results
Years Ended December 31,
2005
2004
2006
% change
2006
2005
$
$
$
$
$
830.0
1,568.6
2,398.6
778.2
1,378.7
2,156.9
69.9
105.3
175.2
96.0
115.1
49.4
62.5
111.9
90.5
109.0
733.7
1,198.2
1,931.9
55.2
89.5
144.7
81.0
76.2
7
14
11
41
68
57
6
6
6
15
12
(11)
(30)
(23)
12
43
(In millions)
Revenues
North America (a)
International
Operating Profit
North America (a)
International
Cash Flow Information
Depreciation and amortization
Capital expenditures
(a) U.S. and Canada.
2006
Overview
Revenues at Brink’s were 11% higher in 2006 compared to 2005 primarily as a result of a combination of the effects
of newly acquired businesses and core business growth. Operating profit in 2006 was higher than 2005 largely as a
result of:
•
•
•
strong performance in Latin America, particularly in Venezuela, Brazil and Colombia,
improved margins in the U.S. on lower pension and other benefits expenses, and
lower costs in EMEA including restructuring and severance expenses and improved margins in some
operations, particularly France.
19
The Brink’s Company 2006 Annual Report
Supplemental Revenue Analysis
The following table and the similar table for 2005 (included in the 2005 Overview) provide supplemental
information related to Organic Revenue Growth which is not required by U.S. generally accepted accounting
principles (“GAAP”). The Company defines Organic Revenue Growth as the change in revenue from the prior year
due to factors such as changes in prices for products and services (including the effect of fuel surcharges), changes
in business volumes and changes in product mix. Estimates of changes due to fluctuations in foreign currency
exchange rates and the effects of new acquisitions are excluded from Organic Revenue Growth.
The supplemental Organic Revenue Growth information presented is non-GAAP financial information that
management uses to evaluate results of existing operations without the effects of acquisitions, dispositions and
currency exchange rates. The Company believes that this information may help investors evaluate the performance
of the Company’s operations. The limitation of this measure is that the effects of acquisitions, dispositions and
changes in values of foreign currencies cannot be completely separated from changes in prices (including prices
increased due to inflation) and volume of the base business. This supplemental non-GAAP information does not
affect net income or any other reported amounts. This supplemental non-GAAP information should be viewed in
conjunction with the Company’s consolidated statements of operations.
Revenue growth rates for operations outside the U.S. include the effect of changes in currency exchange rates. On
occasion in this report, the change in revenue versus the prior year has been disclosed using constant currency
exchange rates in order to provide information about growth rates without the impact of changing foreign currency
exchange rates. Growth at constant-currency exchange rates equates to growth as measured in local currency. This
measurement of growth using constant-currency exchange rates is higher than growth computed using actual
currency exchange rates when the U.S. dollar is strengthening and lower when the U.S. dollar is weakening.
Changes in currency exchange rates did not materially affect period-to-period comparisons of segment operating
profit for the periods presented herein.
(In millions)
2005 Revenues
Effects on revenue of acquisitions
and dispositions, net
Effects on revenue of changes in
currency exchange rates
Organic Revenue Growth
Year Ended
December 31,
$
2,156.9
41.2
27.9
172.6
2006 Revenues
$
2,398.6
% change
from 2005
N/A
2
1
8
11
North America
Revenues increased in 2006 compared to 2005 primarily as the result of increased volumes in armored
transportation, Global Services and Cash Logistics. Operating profit in 2006 was higher than 2005, partially as a
result of higher revenues, but primarily as a result of lower expenses related to pensions and other employee
benefits. The Company anticipates that safety and security costs may increase in future periods.
Pension expense was $17.3 million lower during 2006 as a result of the Company’s decision to freeze U.S. defined
benefit pension plan benefits at December 31, 2005. This decrease was partially offset by a $5.9 million increase in
the expense associated with the U.S. defined contribution plans in 2006 as these benefits were enhanced.
The Brink’s Company 2006 Annual Report
20
International
Revenues increased in 2006 over 2005 in all regions except for Asia-Pacific. Increased revenue in EMEA was
primarily the result of acquisitions and Organic Revenue Growth. Revenue increases in Latin America were
primarily due to Organic Revenue Growth, including the effects of inflation. The revenue decrease in Asia-Pacific
was primarily due to the loss of a major customer in Australia during the second quarter of 2006. It is expected that
the loss of this customer will adversely affect year-over-year revenue comparisons by about $10 million during the
first half of 2007. International operating profit in 2006 was higher due to the effects of strong volumes in EMEA
and Latin America and lower restructuring costs. The Company anticipates that future results may be affected by
higher safety and security costs.
EMEA. Revenues increased to $1,047.4 million in 2006 from $952.0 million in 2005, an increase of $95.4 million
or 10% (9% on a constant currency basis) largely as a result of Organic Revenue Growth and acquisitions. In
addition, 2006 revenues were affected by competitive pressures. Brink’s acquired operations in:
• Mauritius in the second quarter of 2006,
• Poland, Hungary, and the Czech Republic (sold January 2007) in the second quarter of 2005, and
•
Luxembourg, Scotland and Ireland in the first quarter of 2005.
These acquisitions increased revenues by approximately $36 million in 2006 over 2005 but did not have a
significant impact on operating profit.
Operating profit increased approximately $22 million in 2006 compared to 2005 due to:
•
•
lower restructuring and severance expenses which had been primarily recorded in Belgium and the
Netherlands in 2005. The actions leading to such charges in 2005 improved operating profit in 2006, and
improved operations in France.
The Company is highly focused on improving pricing and performance in EMEA and expects to continue to see
operating margin improvements in 2007. If operating margins do not improve in the near term, the Company may
decide to take actions to improve long-term performance. Restructuring charges may result from these decisions
and could lower margins in 2007.
Latin America. Revenues increased to $454.2 million in 2006 from $355.1 million in 2005, an increase of 28%
(26% on a constant currency basis). This increase was due primarily to price increases in economies with
relatively higher levels of inflation and higher volumes, particularly in Venezuela, Brazil, Colombia, Argentina and
Chile. The increase in volumes was a reflection of the overall improvement in Latin American economies.
Operating profit in 2006 was 67% higher than 2005 due to the above-mentioned volume increases, and cost
reduction and productivity improvements across the region. The increase in operating profit in the region was also
bolstered by pricing improvement in Brazil.
Asia-Pacific. Revenues decreased to $67.0 million in 2006 from $71.6 million in 2005, a decrease of 6% (6% on a
constant currency basis). This decrease was primarily due to the loss of a major customer in Australia, partially
offset by stronger performance of the Global Service operations in Hong Kong and Japan. Excluding the
restructuring charges, operating profit in 2006 was about the same as 2005.
In 2006, the Company’s Australian operation lost its largest customer. The Company took actions to restructure
the operation in the second and third quarters, and recorded charges of $5 million in 2006. The charges
principally related to paying or accruing employee severance payments and lease obligations for closed branches.
The Company expects that revenue in the first half of 2007 will be reduced by approximately $10 million as a result
of the loss of this customer.
21
The Brink’s Company 2006 Annual Report
2005
Overview
Revenues at Brink’s were 12% higher in 2005 compared to 2004 as a result of a combination of the effects of newly
acquired businesses, core business growth and changes in currency exchange rates. Operating profit in 2005 was
lower than 2004 despite additional profits on higher revenues, largely as a result of:
•
•
•
higher costs in EMEA including restructuring and severance expenses to scale down
operations in several markets with lower volume,
higher pension expenses in the U.S., and
higher safety and security expenses.
Supplemental Revenue Analysis
(In millions)
2004 Revenues
Effects on revenue of acquisitions
and dispositions, net
Effects on revenue of changes in
currency exchange rates
Organic Revenue Growth
Year Ended
December 31,
$
1,931.9
104.0
18.2
102.8
2005 Revenues
$
2,156.9
% change
from 2005
N/A
5
1
5
12
North America
Revenues increased in 2005 compared to 2004 primarily as the result of increased volumes in U.S. armored car,
U.S. Cash Logistics services, U.S. Global Services and substantially all Canadian lines of business. Operating profit
in 2005 was lower than 2004 primarily due to $6.0 million in higher U.S. pension costs due to higher amortization
of actuarial losses, and higher safety and security costs, partially offset by additional profits from revenue growth.
In addition, U.S. revenues and operating profit were affected by the effects of Hurricane Katrina. The Company
anticipates that lost revenue in 2005 and 2006 will be recovered under business interruption insurance coverage.
The Company expects to collect $1.0 million to $1.5 million of insurance proceeds when its claim is ultimately
settled in 2007. The Company will record a gain when the business interruption insurance claim is settled.
The Brink’s Company 2006 Annual Report
22
International
Revenues increased in 2005 over 2004 in all regions. Increased revenue in EMEA was primarily the result of
acquisitions. Revenue increases in Latin America and Asia-Pacific were primarily due to Organic Revenue Growth.
Operating profit in 2005 was lower than 2004 in EMEA, while operating profits in Latin America and Asia-Pacific
were higher as compared to 2004. International operating profit in 2004 was reduced by charges of approximately
$3.1 million due to adjustments to non-income tax accruals.
EMEA. Revenues increased to $952.0 million in 2005 from $826.7 million in 2004, an increase of $125.3 million
or 15% (15% on a constant currency basis) largely as a result of acquisitions and, to a lesser extent, organic revenue
growth in a few markets, which was largely offset by declines in the Netherlands and Belgium. In addition, 2005
revenues were affected by competitive pressures and weak European economies. Acquisitions increased revenues
by approximately $104 million in 2005 over 2004 but did not have a significant impact on operating profit.
Operating profit decreased by approximately $32 million in 2005 compared to 2004 due to:
•
•
•
•
•
Lower volumes in Belgium and the Netherlands as a result of the loss of locally significant customers,
$8.6 million higher restructuring and severance expenses primarily in Belgium, the United Kingdom and
the Netherlands,
lower volumes in Greece in the year after the Athens Olympics,
higher safety and security costs in the region, and
higher fuel costs.
Latin America. Revenues increased to $355.1 million in 2005 from $303.5 million in 2004, an increase of 17%
(13% on a constant currency basis). This increase was due primarily to higher volumes, particularly in Venezuela,
Colombia, Argentina and Chile. The increase in revenues was a reflection of the overall improvement in Latin
American economies.
Operating profit in 2005 was 21% higher than 2004 due to the above-mentioned volume increases, and cost
reduction and productivity improvements across the region. The increase in operating profit in the region was
partially offset by operating losses in Brazil caused by intense price competition.
Asia-Pacific. Revenues increased to $71.6 million in 2005 from $68.0 million in 2004, an increase of 5% (3% on a
constant currency basis). This increase was primarily due to exceptionally strong performance in Hong Kong
partially offset by weaker performance in Korea. Operating profit in 2005 was about the same as 2004, reflecting
improved performance in most countries, but offset by lower volumes in Korea and Australia.
Other. As discussed in “Liquidity and Capital Resources – Contingent Matters – Value-added taxes (“VAT”) and
customs duties” below and in note 22 to the consolidated financial statements, international operating profit was
reduced by expense of approximately $1.1 million in 2004 related to unpaid VAT and customs duties, including an
estimate of related penalties. At any time, the Company could be assessed penalties materially in excess of those
accrued.
23
The Brink’s Company 2006 Annual Report
Brink’s Home Security
Executive Overview
BHS has reported strong growth in revenues and earnings for several years due to its ability to attract and retain
customers through brand reputation and quality service while operating as efficiently as possible consistent with
the desired level of service.
In order to achieve higher efficiency and effectiveness, BHS focuses on controlling initial marketing and
installation costs by matching sales representative staffing levels with the number of sales opportunities and the
size of the technician workforce with available installation volume. BHS then strives to keep customer service and
monitoring costs as low as possible without detracting from its high-quality service levels.
The Company believes customer retention is driven by disciplined customer selection practices and high customer
service levels. In order to obtain customers who are less likely to disconnect, the Company seeks to attract
customers with solid credit scores and the willingness to pay reasonable up-front fees. Once there is agreement to
install an alarm system, the Company provides a high-quality installation followed up with continuing high-quality
customer service and alarm monitoring. BHS believes its disconnect rate benefits from consistently following this
strategy.
The Company believes that the performance of the U.S. economy may affect the performance of BHS. However, the
Company believes this effect is not as significant as it is for industries with close ties to national economic
performance. There is some seasonality in performance as disconnect expenses can impact operating earnings.
Since more household moves take place during the second and third quarters of each year, the disconnect rate and
related expenses are typically higher in those quarters than in the first and fourth quarters.
The Brink’s Company 2006 Annual Report
24
Years Ended December 31,
2005
2004
2006
% change
2006
2005
$
439.0
392.1
345.6
12
Summary of Brink’s Home Security’s Results
(In millions)
Revenues
Operating Profit
Recurring services (a)
Investment in new subscribers (b)
Monthly recurring revenues (c)
Cash Flow Information
Depreciation and amortization (d)
Impairment charges from subscriber
disconnects
Amortization of deferred revenue (e)
Deferral of subscriber acquisition costs
$
$
$
184.3
(84.0)
100.3
167.5
(80.1)
87.4
147.8
(67.0)
80.8
33.1
29.1
26.1
67.6
58.1
51.5
47.1
(31.2)
45.2
(29.5)
38.4
(26.1)
13
13
20
8
11
13
18
13
17
18
10
5
15
14
16
4
6
7
10
(current year payments)
(24.4)
(22.9)
(19.5)
Deferral of revenue from new subscribers
(current year receipts)
44.9
40.7
Capital expenditures:
Security systems
Other (f)
Capital expenditures
150.1
13.8
163.9
138.3
23.9
162.2
34.6
113.2
4.4
117.6
9
(42)
1
22
200+
38
(a)
(b)
(c)
(d)
(e)
(f)
Reflects operating profit generated from the existing subscriber base including the amortization of deferred revenues.
Primarily marketing and selling expenses, net of the deferral of direct selling expenses (primarily a portion of sales commissions),
incurred in the acquisitions of new subscribers.
This measure is reconciled below under the caption “Reconciliation of Non-GAAP Measures.”
Includes amortization of deferred subscriber acquisition costs.
Includes amortization of deferred revenue related to active subscriber accounts as well as acceleration of amortization of deferred
revenue related to subscriber disconnects.
Other capital expenditures in 2006 include $6.1 million for the construction costs of and equipment purchased for the Knoxville,
Tennessee, facility ($7.4 million in 2005), which became operational on February 28, 2006. Capital expenditures in 2005 include $10.2
million for the purchase of BHS’s headquarters in Irving, Texas, which was formerly leased.
25
The Brink’s Company 2006 Annual Report
Overview
Operating profit comprises recurring services minus the cost of the investment in new subscribers. Recurring
services reflect the monthly monitoring and service earnings generated from the existing subscriber base,
including the amortization of deferred revenues. Impairment charges from subscriber disconnects and
depreciation and amortization expenses, including the amortization of deferred subscriber acquisition costs, are
also charged to recurring services. Operating profits from recurring services are affected by the size of the
subscriber base, the amount of operational costs including depreciation, the level of subscriber disconnect activity
and changes in the average monthly monitoring fee per subscriber.
Investment in new subscribers is the net expense (primarily marketing and selling expenses) incurred to add to
the subscriber base every year. The amount of the investment in new subscribers charged to income may be
influenced by several factors, including the growth rate of new subscriber installations and the level of costs
incurred to attract new subscribers. As a result, increases in the rate of investment (the addition of new
subscribers) may have a negative effect on current operating profit but a positive impact on long-term operating
profit, cash flow and economic value.
Capital expenditures are primarily for the equipment, labor and related overhead costs associated with system
installations for new subscribers.
The Brink’s Company 2006 Annual Report
26
Subscriber Activity
(Subscriber data in thousands)
2006
2005
2004
2006
2005
Years Ended December 31,
% change
Number of subscribers:
Beginning of period
Installations (a)
Disconnects (a)
End of period (b)
Average number of subscribers
Disconnect rate (c)
1,018.8
175.0
(68.9)
1,124.9
1,072.5
921.4
167.3
(69.9)
1,018.8
972.8
833.5
146.0
(58.1)
921.4
875.5
6.4%
7.2%
6.6%
5
(1)
10
10
15
20
11
11
(a) Customers who move from one location and then initiate a new monitoring agreement at a new location are not included in either
installations or disconnects. Dealer accounts cancelled and charged back to the dealer during the specified contract term are also
excluded from installations and disconnects. Inactive sites that are returned to service reduce disconnects. 2005 disconnects include
4,700 disconnects as a result of Hurricane Katrina.
(b) The total number of subscribers at December 31, 2006, includes approximately 50,000 commercial customers. The Company sees
expansion of BHS’ commercial customer base as a significant growth opportunity.
(c) The disconnect rate is a ratio, the numerator of which is the number of customer cancellations during the period and the denominator of
which is the average number of customers during the period. The gross number of customer cancellations is reduced for customers who
move from one location and then initiate a new monitoring agreement at a new location, accounts charged back to the dealers because the
customers cancelled service during the specified contractual term, and inactive sites that are returned to active service during the period.
Installations increased 5% in 2006 and 15% in 2005 as compared to the prior-year periods due primarily to growth
in traditional installation volume as well as from installations through the growing dealer network and home
builder activity. Installation growth slowed in 2006 due to several factors, including sluggish real estate activity in
many markets, changes in the Company’s marketing program early in the year, and a reported decrease in overall
industry spending on direct advertising. The Company has adjusted its marketing program and expects to see
improvement in the rate of installation growth.
The annualized disconnect rate for 2006 decreased to 6.4% compared to 7.2% in 2005. In 2005 the annualized
disconnect rate was 6.7% excluding the effects of Hurricane Katrina. BHS has maintained a low disconnect rate in
recent years by improving subscriber selection and retention processes. Household moves are a major driver of
disconnects. The disconnect rate may not materially improve in the future since some disconnects cannot be
prevented because of factors beyond the Company’s control, including customers moving and canceling service.
BHS has observed a slowing in the rate of household moves in many regions of the country throughout most of
2006, a trend which may continue for much of 2007. Household moves, a primary cause of disconnects, are also a
significant contributor to installation volume. Therefore, for the first quarter of 2007 the growth rate of new
installations may be lower than in the comparable quarter in the prior year, although the growth rates for the
second, third and fourth quarters of 2007 should improve from the rates reported for the respective comparable
quarters of 2006.
27
The Brink’s Company 2006 Annual Report
2006
The 12% increase in BHS’ revenues in 2006 over 2005 was primarily due to the larger subscriber base and slightly
higher average monitoring rates. These factors also contributed to a 14% increase in monthly recurring revenues
for December 2006 as compared to December 2005. The Company intends to selectively raise monitoring prices
in the future.
Operating profit increased $12.9 million in 2006 compared to 2005 due to higher profit from recurring services,
which was only slightly offset by the increased cost of investment in new subscribers. Higher profit from recurring
services in 2006 was primarily due to incremental revenues and cost efficiencies generated from the larger
subscriber base, partially offset by initial costs of starting up and integrating the operations of the new Knoxville
facility with those of the existing Irving, Texas, facility. Higher investment in new subscribers was primarily due to
increased installation volume. The growth of investment in new subscribers in 2006 compared to 2005 was less
than in the prior year comparison as a result of slower installation growth.
As a result of the sharp slowdown in the new housing market in the second half of the year, pre-wire activity for
major homebuilders was down more than 10% for the full year. However, monitored activations for completed
homes increased 7%.
The construction of a second monitoring center in Knoxville, Tennessee, was completed and the facility began
operations in the first quarter of 2006. The Knoxville monitoring center provides additional service capacity for
the existing subscriber base, increases capacity to sustain continued growth, and provides enhanced security and
disaster recovery capabilities. As expected, operating the new facility resulted in additional general and
administrative expense during 2006.
As previously discussed, BHS’s costs in 2006 related to retirement plans were $2.5 million lower primarily as a
result of the Company’s decision to freeze U.S. defined benefit pension plan benefits at December 31, 2005.
Fuel costs stabilized and copper prices declined during the second half of 2006 from the elevated levels of early
2006, although the costs of both were generally higher throughout 2006 than during much of 2005. These higher
costs have not significantly affected operating profit to date primarily because a large portion of these costs are
capitalized as part of the costs of installing new monitoring sites. If higher fuel and copper costs are sustained, and
BHS is not able to increase prices, margins in the future could be affected.
During the fourth quarter of 2006, the Company filed a business interruption and property damage insurance
claim on approximately 2,700 sites adversely affected by Hurricane Katrina. Proceeds in the amount of $2.4
million were received during the first quarter of 2007. Approximately $1 million of the proceeds will be applied
against the receivable for recoveries of property losses, and the balance will be recorded as an operating gain in the
first quarter of 2007. BHS anticipates filing an additional insurance claim related to property damage and business
interruption covering another approximately 2,000 sites. BHS believes this second claim will range in value from
approximately $1.6 million to $2.4 million, and anticipates that this claim could be settled later in 2007.
Approximately $1 million from this second claim is expected to offset the remaining property damage receivables,
and the balance will be recorded as an additional operating gain when the proceeds are received.
In 2007, BHS expects double-digit growth rates in subscribers, revenues and operating profit. BHS continues to
increase its presence in commercial alarm installation and monitoring business, and is attempting to increase the
volume of its installation business in new homes through relationships with major home builders. As a result, the
cost of investment in new subscribers may grow faster than new subscriber installations in the future.
The Brink’s Company 2006 Annual Report
28
2005
The 13% increase in BHS’ revenue in 2005 over 2004 was primarily due to the larger subscriber base and slightly
higher average monitoring rates. These factors also contributed to an 11% increase in monthly recurring revenues
for 2005 as compared to 2004.
Operating profit increased $6.6 million in 2005 compared to 2004 as higher profit from recurring services was
partially offset by increased investment in new subscribers. Higher profit from recurring services in 2005 was
primarily due to incremental revenues and cost efficiencies generated from the larger subscriber base. Higher
investment in new subscribers was primarily due to increased volume and higher costs of installation activity. As a
result of a sharp increase in home technology installations for major homebuilders, costs were higher in 2005
compared to 2004. Additionally, reductions in the estimate for allowance for doubtful accounts resulted in an
increase to operating profit of $3.3 million in 2005. However, this increase was partially offset by increased costs
associated with subscriber disconnects, as discussed below.
As of December 31, 2005, approximately 3,700 disconnects were caused by Hurricane Katrina and the Company
accrued an additional 1,000 subscriber disconnects. Accordingly, 4,700 subscriber disconnects (0.5% of
subscriber base) were included in 2005 disconnects and are a component of the disconnect rate in 2005.
29
The Brink’s Company 2006 Annual Report
Reconciliation of Non-GAAP Measures - Monthly Recurring Revenues
The purpose of this table is to reconcile monthly recurring revenues, a non-GAAP measure, to its closest GAAP
counterpart, revenues.
(In millions)
Monthly recurring revenues (“MRR”) (a)
Amounts excluded from MRR:
Amortization of deferred revenue
Other revenues (b)
Revenues on a GAAP basis:
December
January – November
January – December
Years Ended December 31,
$
2006
33.1
2.5
2.1
37.7
401.3
$
439.0
2005
29.1
3.3
2.5
34.9
357.2
392.1
2004
26.1
2.1
1.8
30.0
315.6
345.6
(a) MRR is calculated based on the number of subscribers at period end multiplied by the average fee per subscriber received in the last
month of the period for contracted monitoring and maintenance services.
(b) Revenues that are not pursuant to monthly contractual billings.
The Company uses MRR to evaluate BHS’ performance, and believes the presentation of MRR is useful to investors
because the measure is widely used in the industry to assess the amount of recurring revenues from subscriber fees
that a home security business produces. This supplemental non-GAAP information should be viewed in
conjunction with the Company’s consolidated statements of operations.
The Brink’s Company 2006 Annual Report
30
Corporate Expense – The Brink’s Company
(In millions)
2006
2005
Corporate expense
$
48.4
44.7
2004
42.2
2006
8
2005
6
Years Ended December 31,
% change
Corporate expense was higher in 2006 compared to 2005 due primarily to recording $7.3 million in 2006 of share-
based compensation costs as a result of adopting a new accounting standard, partially offset by lower professional
and consulting fees associated with Section 404 of the Sarbanes-Oxley Act of 2002 as the Company outsourced less
work during 2006. See notes 1 and 15 to the consolidated financial statements for further information regarding
the adoption of SFAS 123(R), Share-Based Payment.
Corporate expense was higher in 2005 compared to 2004 due to higher professional fees and higher employee
pension and medical benefit costs.
Former Operations
For the components of expense from former operations, see “Expenses in Continuing Operations” within
“Retained Liabilities and Assets of Former Operations.”
31
The Brink’s Company 2006 Annual Report
Retained Liabilities and Assets of Former Operations
Executive Overview
The Company retains obligations which arose primarily as the result of its long history of operating in the coal
industry. Since these obligations require significant annual cash outflows and the recording of significant annual
expenses, management believes it is important to closely monitor and manage these obligations and address the
related financial effects.
Some of these obligations (reclamation, advance minimum royalties and workers’ compensation) have shorter
terms and lesser values. The Company expects the cash payments for these obligations to be concentrated over the
next few years and then end or decline significantly.
Other obligations (retiree medical benefit plan and Black Lung) have longer terms and higher estimated costs.
Payments associated with these liabilities are projected to be made over the next 60 years or more. These liabilities
are largely medical benefits-related, so medical inflation is an important consideration. These obligations cover a
pool of individuals that is essentially capped since the Company no longer operates within the coal industry. Since
most of the covered individuals are, for the most part, above or near normal retirement age, these obligations
should see a steady decrease in the number of participants and beneficiaries over time.
The net present value of these obligations is a valuable tool for assessing their fair value as of a point in time.
However, such values will fluctuate over time solely due to changes in market interest rates. As a result, the
Company believes the critical factor in evaluating each obligation is the cash flow needed to satisfy it.
The Company employs a team of employees, along with third parties, to monitor and control these liabilities with a
primary goal of reducing future cash outflows. The primary activities of this group are to verify participant
eligibility, design and implement plans that provide the required benefits at the lowest cost, and verify costs
charged to the plans.
The Company has established a VEBA to help manage the financial impact of the retiree medical benefit plan
obligation. The VEBA is used as a tax-efficient way to fund this obligation. A funded VEBA should help insulate the
Company’s assets and cash flow from this obligation. At December 31, 2006, the VEBA held investments with a fair
value of $459 million. The Company elected to begin using the assets of the VEBA to fund benefit payments
beginning January 1, 2007.
The Company refers to its various long-term liabilities and assets related to its former operations as its “legacy”
liabilities and assets.
The legacy liabilities and assets in the following table are based on a variety of estimates, including actuarial
assumptions, as described in the Application of Critical Accounting Policies and in the notes to the consolidated
financial statements. These estimated liabilities and assets will change in the future to reflect payments made,
investment returns, annual actuarial revaluations, periodic revaluations of reclamation liabilities and other
changes in estimates. Actual amounts could differ materially from the estimated amounts.
The Brink’s Company 2006 Annual Report
32
Summary of Legacy Liabilities and Assets
(In millions)
Legacy liabilities:
Company-sponsored retiree medical (a):
Before Medicare subsidy and VEBA
Medicare subsidy value
VEBA asset value
Company-sponsored retiree medical
Black lung (b)
Worker’s compensation
Health Benefit Act (c)
Advance minimum royalties
Reclamation
Legacy liabilities
Legacy assets:
Other (d)
Deferred tax assets (e)
December 31,
2006
$
631.6
(60.7)
(459.3)
111.6
46.7
22.8
19.2
8.5
4.1
212.9
10.6
95.8
$
$
(a) Company-sponsored retiree medical liabilities are accounted for in accordance with Statement of Financial Accounting Standards
(“SFAS”) 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, as amended by SFAS 158, Employer’s Accounting
for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132(R). SFAS 158
requires the Company to recognize the funded status of the Company-sponsored retiree medical plan as a liability in the balance sheet and
to recognize changes in that funded status through comprehensive income in the year in which the changes occur. The unfunded balance
recorded through accumulated other comprehensive income, that will be recognized through the statement of operations in future
periods, was $229.8 million before income tax benefits as of December 31, 2006.
(b) Black lung liabilities are accounted for in accordance with SFAS 106 as amended by SFAS 158. The unfunded balance recorded though
accumulated other comprehensive income, that will be recognized through the statement of operations in future periods, was $9.8 million
before income tax benefits as of December 31, 2006.
(c) Health Benefit Act liabilities are accounted for in accordance with EITF 92-13, Accounting for Estimated Payments in Connection with the
Coal Industry Retiree Health Benefit Act of 1992 and, accordingly, the Company has accrued the undiscounted estimate of its projected
obligation. Changes in 2006 to the Health Benefit Act under which benefits are paid materially reduced the Company’s estimate of its
liability. The Company uses various assumptions to estimate its liability to The United Mine Workers of America (“UMWA”) Combined
Fund (the “Combined Fund”) for future annual premiums, including the number of beneficiaries in future periods and medical inflation.
(d)
“Other Assets” in the table is primarily a receivable from the state of Virginia related to tax benefits earned on coal produced in prior years.
The Company expects to receive approximately $8 million in 2007 and $1 million in each of 2008 and 2009.
(e) The Company has not yet taken deductions in its tax returns for most of the retained liabilities associated with the former coal
business, and has recorded a deferred tax asset for this future benefit for these temporary differences between book and tax bases.
Under the Health Benefit Act, the Company and various current and former subsidiaries are jointly and severally
liable for approximately $300 million of postretirement medical and Health Benefit Act obligations in the above
table. The Company is reviewing the alternative means to lessen the impact of joint and several liabilities as
allowed by the Tax Relief and Health Care Act of 2006 (the “2006 Act”). The purchasers of the Company’s BAX
Global and natural resources assets have been indemnified by the Company for the related contingent liability.
33
The Brink’s Company 2006 Annual Report
Projected Payments and Expenses of Retained Retiree Liabilities and Administrative Costs
The following tables include the actual cash payments and GAAP expense (continuing operations only) related to
legacy liabilities for 2004, 2005, and 2006, and as projected for the next five years.
Cash Payments
(In millions)
Actual Payments
Projected Payments
Years Ending December 31,
2004
2005
2006
2007
2008
2009
2010
2011
Postretirement benefits other than pensions:
Company-sponsored medical plans (a):
Before Medicare subsidy
Estimated effect of Medicare subsidy
Benefit payments made from VEBA
Subtotal
Health Benefit Act
Black lung
Withdrawal liability
Workers’ compensation
Advance minimum royalties
Reclamation and inactive mine costs
Administration and other
Cash proceeds and receipts
Total
VEBA contributions (a)
$ 35
-
-
35
9
7
-
5
1
3
8
(6)
$ 62
$ 50
36
-
-
36
8
6
-
5
1
5
5
(2)
64
-
38
(2)
-
36
7
6
20
4
1
1
5
(1)
79
225
$ 42
(3)
(42)
(3)
6
5
-
3
1
1
5
-
$
$
18
-
44
(3)
(44)
(3)
4
5
-
2
1
1
4
-
14
-
47
(4)
(47)
(4)
2
4
-
2
1
1
4
-
10
-
48
(4)
(48)
(4)
1
4
-
2
1
1
4
-
9
-
49
(4)
(49)
(4)
1
4
-
1
1
1
3
-
7
-
(a) The Company has contributed cash to a VEBA to be used to make future payments for the Company’s retiree medical plans. The Company
reevaluates its contribution policy annually and is not obligated to fund the VEBA. The Company may elect at any time to use either these
assets or its cash from operations to pay benefits for its retiree medical plans. The Company expects to pay benefits using funds held by
the VEBA in 2007 and later years.
Expenses in Continuing Operations
(In millions)
Actual Expense
Projected Expense
Years Ending December 31,
2004
2005
2006
2007
2008
2009
2010
2011
Postretirement benefits other than pensions:
Company-sponsored medical plans
Before Medicare subsidy and VEBA
Estimated effect of Medicare subsidy
Estimated investment income in VEBA
$ 52
(6)
(9)
Subtotal
Black lung
Pension (a)
Administrative and other
Other income, net
Total
37
5
2
9
(7)
$ 46
54
(6)
(13)
35
4
5
7
(12)
39
53
(6)
(34)
13
4
4
7
(1)
27
$ 51
(6)
(39)
6
4
-
6
-
$
16
50
(7)
(38)
5
3
(5)
5
-
8
50
(7)
(38)
5
3
(8)
4
-
4
49
(7)
(38)
4
3
(10)
4
-
1
49
(8)
(37)
4
3
(12)
4
-
(1)
(a)
Includes U.S. pension costs (credits) for BAX Global in 2006 and in the projection period. The above projection does not assume any
future pension contributions will be made. If voluntary or required contributions are made, projected expenses from that year forward
would be reduced by the expected long-term return on those contributions.
The Brink’s Company 2006 Annual Report
34
The above projected payments and expenses are estimated based on the same assumptions used in determining the
estimated legacy liabilities at December 31, 2006. The actual amount of cash payments and GAAP expense in
future periods may be materially different than amounts presented. The amounts paid or expensed in the future
depend on many factors, including inflation in health care and other costs, the ultimate impact of the 2003
Medicare reform bill, discount rates, the level of contributions to and the investment performance of the VEBA,
whether the Company’s assets or VEBA assets are used to pay benefits, the number of participants in various
benefit programs, and the level of administrative costs needed to manage the retained liabilities.
Following are comments covering the more significant legacy liabilities in the above tables. For additional
information, please see note 4 to the consolidated financial statements. Each of these liabilities and assets is
affected by estimates and judgments. More information is available at “Application of Critical Accounting
Policies” later in Management’s Discussion and Analysis.
Company-Sponsored Retiree Medical Benefits Obligations and VEBA
The Company provides postretirement health care benefits to eligible former coal miners and their dependents.
With the assistance of actuaries, the Company annually reevaluates the estimated future cash flows, expenses and
current values of the obligations. Projected payments are expected to increase each year for the next five years as a
result of medical inflation and as eligible participants attain retirement age. This increase will be partially offset by
reductions in the number of participants through mortality.
The unfunded status decreased to $112 million at December 31, 2006, from $448 million at December 31, 2005 due
to a $225 million contribution to the VEBA, earnings in the VEBA of $49 million, an increase in the discount rate
by 25 basis points to 5.75% and a reduction in the estimated future payments to be required for eligible
participants who have not yet retired.
A VEBA has been established by the Company under Internal Revenue Code Section 501(c)(9). In general, a
contribution made to the VEBA becomes deductible for federal income tax purposes in the year in which it is made.
Investment earnings within the VEBA and distributions from the VEBA to pay designated benefits or to reimburse
the Company for designated benefit payments have no federal income tax effect on the Company. The Company
can determine the timing and size of any payment from the VEBA to cover expenses of eligible participants.
The following table summarizes the activity in the VEBA for the last three years:
(In millions)
2004
2005
2006
Balance at
January 1,
$
105
172
185
Contributions
Earnings
Benefit
Payments
Balance at
December 31,
50
-
225
17
13
49
-
-
-
172
185
459
The VEBA’s assets are allocated among active investment managers of equities and fixed income securities.
Approximately 72% of the VEBA assets are invested in equities and 28% are invested in fixed income securities.
The VEBA’s assets are being invested in a similar fashion to the Company’s primary U.S. pension plan and the
Company has estimated the same expected long-term rate of return of 8.75% per year.
35
The Brink’s Company 2006 Annual Report
Health Benefit Act Obligations
In October 1992, the Health Benefit Act was enacted as part of the Energy Policy Act of 1992. The Health Benefit Act
established rules for the payment of future health care benefits for thousands of retired union mine workers and
their dependents. The Health Benefit Act established a trust fund, The United Mine Workers of America Combined
Benefit Fund (the “Combined Fund”), to which “signatory operators” and “related persons,” including The Brink’s
Company and some of its subsidiaries and former subsidiaries (collectively, the “Brink’s Companies”) were jointly
and severally liable to pay annual premiums for those beneficiaries directly assigned to a signatory operator and its
related persons, on the basis set forth in the Health Benefit Act.
In addition, the Health Benefit Act provided that assigned companies, including the Brink’s companies, were
required to fund, pro rata according to the total number of assigned beneficiaries, a portion of the health benefits
for unassigned beneficiaries if these benefits were not funded from other designated sources. To date, almost all
of the funding for unassigned beneficiaries has been provided from transfers from the Abandoned Mine Land
Reclamation Fund (the “AML Fund”) or other government sources.
In December 2006, the Tax Relief and Health Care Act of 2006 (the “2006 Act”) was enacted. By providing
alternative funding, the 2006 Act substantially reduces, but does not eliminate, the Health Benefit Act obligations
of the Company related to health care and death benefits of former miners who were not eligible for such benefits
under contractual arrangements with the Company. The Company has estimated the projected cash flows and the
undiscounted liability pursuant to the 2006 Act. Such estimates have been prepared using actuarial information as
of December 31, 2006. The Company’s liability for Health Benefit Act obligations is equal to the undiscounted
estimated amount of future annual premiums the Company expects to pay the Combined Fund. Any changes to
expected future obligations determined during annual reevaluations are recorded as expenses or benefits within
discontinued operations.
The Company recognized a pretax benefit within discontinued operations in 2006 of $148.3 million primarily to
reflect the impact of the 2006 Act. There was no impact on income from continuing operations.
The 2006 Act also provides elective mechanisms to reduce the impact of joint and several liabilities on the
Company and its assets. The Company is exploring the feasibility and costs associated with these mechanisms.
Black Lung Obligations
The Company makes payments to former miners who have been determined to have pneumoconiosis (black lung
disease). Such payments primarily cover disability payments and condition-related medical expenses. These
payments stretch out over many years and have been discounted to a net present value. Actuarial gains and losses
are deferred and amortized into continuing expense over the average remaining life expectancy of all participants
(approximately 10 years).
The unfunded status of the black lung obligation decreased to $46.7 million in 2006 from $51.7 million in 2005
largely due to cash benefit payments of $6.4 million made in 2006 and by the effect of increasing the discount rate
by 25 basis points to 5.75% as of December 31, 2006.
Future cash payments are expected to gradually decline as the number of participants declines through mortality.
Future expense levels are also expected to decline as the remaining value of the obligation declines.
The Brink’s Company 2006 Annual Report
36
Primary U.S. Pension Plan
The Company maintains a noncontributory defined benefit pension plan covering substantially all U.S. non-union
employees who meet vesting and other requirements. The Company froze benefit levels for the primary U.S.
defined benefit pension plan effective December 31, 2005. As a result, participants in the plan ceased earning
additional benefits at December 31, 2005. Participants who have not met requirements for vesting are continuing
to accrue vesting service in accordance with terms of the plans. Using actuarial assumptions as of December 31,
2006, this plan had an accumulated benefit obligation (“ABO”) of approximately $744 million. The ABO is an
estimate of the benefits earned through December 31, 2006. Since the plan is frozen and no additional benefits
will accrue, the Projected Benefit Obligation (“PBO”) is now the same as the ABO.
The ABO represents the net present value of expected future cash flows discounted to December 31, 2006 at 5.75%.
The Company selects a discount rate for its pension liability after reviewing published long-term yield information
for a small number of high-quality fixed-income securities (Moody’s AA bond yields). The Company, with the aid
of its advisors, also calculates an average yield for a broader range of long-term high-quality securities with
maturities in line with expected benefit payments. As market interest rates fluctuate, the net present value of the
Company’s obligation will change. The impact of a one percentage point (100 basis points) change in the discount
rate used at December 31, 2006, would have been as follows:
(In millions)
Increase (decrease) in:
ABO at December 31, 2006
2007 expense
Increased
by 1.0%
$
(106)
(11)
Discount Rates
Decreased
by 1.0%
$
108
9
At December 31, 2006, the fair value of the plan’s assets was approximately $677 million. The Company uses a
long-term rate of return assumption to determine expected annual income from plan assets. This expected annual
income reduces future plan expense. The Company’s expected long-term rate of return in 2007 is 8.75%. If the
Company were to use a different long-term rate of return assumption, annual pension expense would be different.
The historical and projected benefit payments and expense for the U.S. plan are set out in the table below. The
projected benefit payments and expense reflect assumptions used in the valuation at December 31, 2006. These
assumptions are reviewed annually, and it is likely that they will change in future years.
(In millions)
Years Ending December 31,
2004
Payment of benefits (paid from plan trust) $
Expense (income)
25
27
Actual
2005
26
42
2006
28
7
2007
31
(1)
$
Projected
2008
33
(10)
2009
34
(15)
As can be noted from reviewing the above tables, freezing the plan significantly reduced pension expense in 2006.
The level of expense increased in 2005 largely due to a reduction in the discount rate assumption used as a result of
decreasing market interest rates. The above expense amounts were charged to the business segments in
approximately the following proportions: Brink’s – 37%, BHS – 5%, Corporate – 2%, BAX Global and former
operations – 56%.
37
The Brink’s Company 2006 Annual Report
The amount of cash the Company may have to contribute in the future for the Company’s primary U.S. pension plan
is determined using a different set of assumptions than is used for financial accounting purposes.
The Company does not project any contributions to the primary U.S. pension plan in the next five years, but this
estimate could change. Actual investment returns and interest rates are likely to differ from those assumed at
December 31, 2006. Voluntary contributions have the effect of reducing and potentially delaying later required
contributions. The Company has made voluntary contributions aggregating $11 million over the last three years.
The pension plan’s benefits will be paid out over an extended period of time. Accordingly, the Company takes a
long-term approach to funding levels and contribution policies. Historically, long-term returns on assets invested
have significantly exceeded the discount rate for pension liabilities so it is expected that a portion of the future
liability will be funded by investment returns. On a GAAP basis, the plan was 91% funded at December 31, 2006.
The Pension Protection Act of 2006 (“PPA”) was signed by the President on August 17, 2006. While the Act will
have some effect on specific plan provisions in our retirement program, its primary effect will be to change the
minimum funding requirements for plan years beginning in 2008. Until regulations are issued by the U.S.
Treasury Department, the financial effect is uncertain.
The Brink’s Company 2006 Annual Report
38
Discontinued Operations
(In millions)
Gain (loss) on sale of
BAX Global
Timber
Gold
Coal
Results from operations
BAX Global (a)
Timber
Gold
Adjustments to contingent liabilities and assets
of former operations
Health Benefit Act liabilities
Withdrawal liabilities
Litigation settlement gain
Reclamation liabilities
Workers’ compensation liabilities
Other
Income from discontinued operation before income taxes
Income tax (expense) benefit
$
586.7
-
-
-
7.0
-
-
148.3
9.9
-
0.6
(0.4)
(0.8)
751.3
(267.4)
Years Ended December 31,
2005
2006
2004
-
20.7
(0.9)
5.0
49.5
(0.5)
(1.2)
3.2
15.4
-
(0.1)
(4.9)
(3.3)
82.9
(32.9)
50.0
(2.8)
-
-
-
86.8
-
-
2.3
6.1
15.1
(6.2)
0.4
0.1
101.8
3.7
105.5
Income from discontinued operations
$
483.9
(a)
Revenues of BAX Global were $230.0 million in 2006, $2,899.4 million in 2005 and $2,440.6 million in 2004. In accordance with SFAS
144, Accounting for the Impairment or Disposal of Long-Lived Assets, BAX Global ceased depreciating and amortizing long-lived assets
after November 2005, the date that BAX Global was classified as held for sale. Had BAX Global not ceased depreciation and amortization,
its pretax income would have been $3.3 million lower in 2006 and $4.9 million lower in 2005.
The operating results of BAX Global and former natural resource operations have been classified as discontinued
operations for all periods presented.
BAX Global
On January 31, 2006, the Company sold BAX Global, a wholly owned freight transportation subsidiary, for
approximately $1 billion in cash, resulting in a pretax gain of approximately $587 million ($375 million after tax).
See note 17 to the consolidated financial statements. Accordingly, BAX Global’s results of operations have been
reported herein as discontinued operations for all periods presented. BAX Global’s assets and liabilities were
classified as held for sale on the Company’s 2005 consolidated balance sheet.
BAX Global’s revenues increased 19% in 2005 compared to 2004 due to improved volumes in all regions and, in
particular, Asia-Pacific. BAX Global’s operating profit in 2005 was $38.8 million higher compared to 2004
primarily due to an increase in air export volumes and improved margins in Asia-Pacific. The increase in 2005
operating profit was partially offset by a $2.9 million charge covering ancillary costs which management concluded
could not be billed back to customers.
39
The Brink’s Company 2006 Annual Report
Former Natural Resource Operations
The Company sold the remaining portion of its timber business in 2004 for $33.7 million. After deducting the
book value of related assets and the payment of $6.2 million to purchase equipment formerly leased, the Company
recognized a $20.7 million pretax gain.
In February 2005, the Company received additional cash proceeds from the previous sale of its coal business in
Virginia; the related pretax gain of $5 million was recorded in 2004.
In 2004, the Company sold its gold operations for approximately $1.1 million in cash plus the assumption of
liabilities and recognized a $0.9 million loss.
Adjustments to Contingent Assets and Liabilities of Former Operations
Health Benefit Act Liabilities. The Company has obligations under the Health Benefit Act, as described in note 4 to
the consolidated financial statements. The estimated liability is reduced each year as payments are made. In
addition, the Company reduced the estimated liability:
•
•
•
by $148.3 million in 2006, primarily due to the 2006 Act. The new law significantly reduced the
Company’s future estimated payments to the Combined Fund.
by $2.3 million in 2005 due primarily to a one-year extension of funding by the AML Fund of
unassigned benefits and a lower-than-projected per-beneficiary health care premium rate, partially
offset by a higher number of unassigned beneficiaries attributed to the Company.
by $3.2 million in 2004 due primarily to a slight decrease in the number of beneficiaries assigned to
the Company at October 1, 2004, compared to the amount estimated at the end of 2003. As a result, the
estimate of assigned beneficiaries in future periods was also lowered.
This estimated liability will be adjusted in future periods as assumptions change.
Withdrawal Liabilities. The Company withdrew from the UMWA 1950 and 1974 pension plans in June 2005 as the
last employees working under UMWA labor agreements left the Company. As a result of the withdrawal from these
coal-related plans, the Company settled its liabilities and made final payments to the plans amounting to $20.4
million in July 2006. A pretax benefit of $9.9 million related to this settlement was recorded in 2006.
Prior to the 2006 settlement payment, the Company estimated the obligation based on the funded status of the
multi-employer plans at the most recent measurement date. The changes in the Company’s liability in 2005 and
2004 were due to changes in the UMWA plans’ unfunded liabilities.
Federal Black Lung Excise Tax. In 1999, the U.S. District Court of the Eastern District of Virginia entered a final
judgment in favor of the Company, ruling that the Federal Black Lung Excise Tax (“FBLET”) is unconstitutional as
applied to export coal sales. Through December 31, 2004, the Company had received refunds including interest of
$27.2 million. In December 2005, the Company reached a final settlement agreement related to all claims for
FBLET refunds and recorded a pretax gain of $15.1 million. The Company received payments covering this refund
during the first quarter of 2006.
Other. The Company recorded $6.2 million in 2005, to reflect an increase in the estimated cost of reclamation at
its former coal mines. The estimate of the cost of reclamation may change in the future.
In 2004, the Company recognized expense of $4.9 million to reflect an increase in the expected settlement of coal-
related workers’ compensation claims. In 2004, the Company settled legal and other contingencies related to its
former coal operations and recognized additional expense of $3.3 million.
The Brink’s Company 2006 Annual Report
40
Other Operating Income, Net
Other operating income, net, is a component of the operating segments’ previously discussed operating profits.
Years Ended December 31,
% change
(In millions)
2006
2005
2004
Share in earnings of equity affiliates
Royalty income
Gains on sale of operating assets and
mineral rights, net
Foreign currency transaction losses, net
Impairment losses
Penalties on unpaid value-added taxes
Other
$
3.3
1.8
0.4
(1.0)
(1.5)
-
2.9
Total
$
5.9
3.4
2.0
9.6
(3.1)
(1.3)
-
4.4
15.0
1.0
1.6
5.7
(0.2)
(0.3)
(0.4)
3.7
11.1
2006
(3)
(10)
(96)
(68)
15
-
(34)
(61)
2005
200+
25
68
200+
200+
(100)
19
35
Gains on sale of operating assets and mineral rights, net in 2005 included $5.8 million related to a 2003 West
Virginia coal asset sale, due to the formal transfer of liabilities in 2005 to the buyer. In addition, a $3.1 million gain
on the sale of residual assets and mineral rights related to former mining operations in Kentucky was recognized in
2005.
Gains on sale of operating assets and mineral rights, net in 2004 included $5.7 million related to the disposal of
residual assets of the Company’s former coal operations.
Nonoperating Income and Expense
Interest Expense
(In millions)
Interest expense
Years Ended December 31,
% change
2006
2005
$
13.2
18.6
2004
20.8
2006
(29)
2005
(11)
Interest expense in 2006 decreased from 2005 levels due to the repayment of the Senior Notes and other
borrowings with a portion of the proceeds from the sale of BAX Global, resulting in lower average debt levels.
Interest expense in 2005 was lower than 2004 as a result of repaying a portion of the Senior Notes and because of
lower interest accruals for contingent income tax matters. In addition, interest expense in 2004 included $0.7
million related to value-added tax matters as discussed in note 22 to the consolidated financial statements.
The Company expects interest expense will increase in 2007, depending on borrowing levels and interest rates.
41
The Brink’s Company 2006 Annual Report
Interest and Other Income, Net
Years Ended December 31,
% change
(In millions)
2006
2005
2004
Interest income
Dividend income from real estate investment
Gains on sales of marketable securities, net
Senior Notes prepayment make-whole amount
Other, net
$
13.9
5.1
1.0
(1.6)
(1.5)
Total
$
16.9
4.7
4.1
0.2
-
0.3
9.3
3.8
-
4.3
-
(0.2)
7.9
2006
196
24
200+
NM
NM
82
2005
24
NM
(95)
-
NM
18
Interest income increased in 2006 from 2005 due to the higher average levels of marketable securities acquired
with a portion of the proceeds from the sale of BAX Global. The Company divested these securities prior to
December 31, 2006.
Dividend income in 2006 was higher than 2005 due to higher payouts from a real estate investment. The Company
does not expect to receive any dividends on its real estate investment in 2007.
The Company made a $1.6 million make-whole payment associated with the prepayment of the Senior Notes in
2006.
Upon the restriction of the VEBA to pay benefits under the postretirement medical plans of the Company,
unrealized gains of $4.4 million were recorded in 2004 within Gains on sales of marketable securities, net.
Income Taxes
Provision (benefit) for
income taxes
Effective tax rate
Years Ended December 31,
2006
2005
2004
2006
2005
2004
(In millions)
(In percentages)
Continuing operations
Discontinued operations
$
82.7
267.4
49.5
(3.7)
40.6
32.9
40.5%
35.6%
46.7%
(3.6)%
32.6%
39.7%
Overview
The Company’s effective tax rate has varied in the past three years from the statutory U.S. federal rate due to
various factors, including:
•
•
•
•
•
•
changes in valuation allowances,
changes in the geographical mix of earnings,
timing of benefit recognition for uncertain tax positions,
state income taxes,
repatriation of earnings in 2005, and
the initial recognition of a net deferred tax benefit in 2005 recorded as a result of the decision to sell the
stock of BAX Global.
The Brink’s Company 2006 Annual Report
42
The Company establishes or reverses valuation allowances for deferred tax assets depending on all available
information including historical and expected future operating performance of its subsidiaries. Changes in
judgment about the future realization of deferred tax assets can result in significant adjustments to the valuation
allowances. Based on the Company’s historical and future expected taxable earnings, management believes it is
more likely than not that the Company will realize the benefit of the deferred tax assets, net of valuation
allowances.
The Company currently believes its effective income tax rate in 2007 will be approximately 39% to 41%. The actual
2007 tax rate could be materially different from the Company’s estimate.
Continuing Operations
2006
The effective income tax rate on continuing operations in 2006 was higher than the 35% U.S. statutory tax rate
primarily due to $6.7 million of state income tax expense and an $8.4 million net increase in the valuation
allowance for non-U.S. deferred tax assets, primarily related to European operations.
2005
The effective income tax rate on continuing operations in 2005 was higher than the 35% U.S. statutory tax rate
primarily as a result of new valuation allowances in various countries in South America and Europe, the effects of
losses in tax jurisdictions for which the Company does not record a tax benefit for such losses and $3 million of tax
expense related to the repatriation of non-U.S. earnings. This was partially offset by the favorable resolution of
contingent state income tax matters.
2004
The effective income tax rate on continuing operations in 2004 was lower than the U.S. statutory tax rate primarily
as a result of lower foreign income taxes, partially offset by state income taxes and the recording of income tax
expense of $2.1 million for net valuation allowance adjustments.
Discontinued Operations
Discontinued operations include the tax provision or benefit associated with the Company’s BAX Global and other
former businesses, and the resolution of associated contingent tax matters.
2006
The effective tax rate in 2006 approximated the 35% U.S. statutory tax rate.
2005
The effective tax rate in 2005 was lower than the 35% U.S. statutory tax rate primarily as a result of an income tax
benefit of $27.4 million recorded upon the resolution of income tax matters with the Internal Revenue Service
related to the former natural resource business. In addition, the Company recognized a $7.0 million net deferred
tax benefit for the excess of the tax basis over the carrying value of the Company’s investment in BAX Global as a
result of the Company’s decision to sell BAX Global’s stock.
2004
The effective tax rate in 2004 was higher than the U.S. statutory tax rate due to state income tax expense.
Other
As of December 31, 2006, the Company has not recorded U.S. federal deferred income taxes on approximately $195
million of undistributed earnings of foreign subsidiaries and equity affiliates. It is expected that these earnings
will be permanently reinvested in operations outside the U.S. It is not practical to compute the estimated deferred
tax liability on these earnings.
43
The Brink’s Company 2006 Annual Report
Minority Interest
(In millions)
Minority interest
Years Ended December 31,
% change
2006
2005
2004
$
18.3
14.3
12.4
2006
28
2005
15
The increase in minority interest in the last two years is primarily due to increases in the earnings of Brink’s
Venezuelan and Colombian subsidiaries.
Foreign Operations
The Company operates in approximately 50 countries outside the U.S., each with a local currency other than the
U.S. dollar. Because the financial results of the Company are reported in U.S. dollars, they are affected by changes
in the value of various foreign currencies in relation to the U.S. dollar. Changes in exchange rates may also affect
transactions which are denominated in currencies other than the functional currency. The diversity of foreign
operations helps to mitigate a portion of the impact that foreign currency fluctuations in any one country may have
on the translated results.
The Company, from time to time, uses foreign currency forward contracts to hedge transactional risks associated
with foreign currencies, as discussed under “Market Risk Exposures” below.
Brink’s Venezuelan subsidiaries (“Brink’s Venezuela”) were considered to be operating in a highly inflationary
economy in 2002. Since then, Venezuela’s economy has not been considered to be highly inflationary. It is
possible that Venezuela’s economy may be considered highly inflationary again at some time in the future.
The Company is exposed to certain risks when it operates in highly inflationary economies, including the risk that
•
•
•
the rate of price increases for services will not keep pace with cost inflation;
adverse economic conditions in the highly inflationary country may discourage business growth which
could affect demand for the Company’s services; and
the devaluation of the currency may exceed the rate of inflation and reported U.S dollar revenues and
profits may decline.
Brink’s Venezuela is also subject to local laws and regulatory interpretations that determine the exchange rate at
which repatriating dividends may be converted. It is possible that Brink’s Venezuela may be subject to less
favorable exchange rates on dividend remittances in the future. The Company’s reported U.S. dollar revenues,
earnings and equity would be adversely affected if revenues and operating profits of Brink’s Venezuela were to be
reported using a less favorable currency exchange rate.
The Company is also subject to other risks customarily associated with doing business in foreign countries,
including labor and economic conditions, political instability, controls on repatriation of earnings and capital,
nationalization, expropriation and other forms of restrictive action by local governments. The future effects, if any,
of these risks on the Company cannot be predicted.
The Brink’s Company 2006 Annual Report
44
LIQUIDITY AND CAPITAL RESOURCES
Overview
Over the last three years, the Company has used the cash generated from operations and the divestiture of BAX
Global and other noncore businesses to both repurchase shares and strengthen its balance sheet by reducing debt
and making contributions to the VEBA. Cash flows in the last three years also included significant cash payments
associated with retained liabilities of the former coal operations.
The sale of BAX Global in January 2006 provided the Company with cash of approximately $1 billion. The Company
used the proceeds to contribute to the VEBA, pay down debt and repurchase shares of its common stock.
Summary of Cash Flow Information
(In millions)
Cash flows from operating activities
Continuing operations:
Before contributions to VEBA
Contributions to VEBA
Subtotal
Discontinued operations:
BAX Global
Federal Black Lung Excise Tax refunds
Settlement of pension withdrawal liabilities
Other
Operating activities
Cash flows from investing activities
Continuing operations:
Capital expenditures
Net proceeds from disposal of:
BAX Global (a)
Natural resource interests
Acquisitions
Purchases of marketable securities, net
Other
Subtotal
Discontinued operations:
BAX Global
Natural resources
Investing activities
Years Ended December 31,
$ change
2006
2005
2004
2006
2005
$
257.2
(225.0)
32.2
5.8
15.1
(20.4)
(0.4)
32.3
259.8
-
259.8
54.2
-
-
-
314.0
281.9
(50.0)
231.9
$
(2.6)
(225.0)
(227.6)
52.8
-
-
0.2
284.9
(48.4)
15.1
(20.4)
(0.4)
(281.7)
(22.1)
50.0
27.9
1.4
-
-
(0.2)
29.1
(279.3)
(271.7)
(194.9)
(7.6)
(76.8)
1,010.5
-
(14.4)
(9.6)
5.7
712.9
-
5.0
(53.2)
(6.0)
3.5
(322.4)
-
28.6
(14.8)
(4.2)
11.9
(173.4)
(5.2)
-
707.7
(72.8)
-
(395.2)
(48.3)
(0.8)
(222.5)
1,010.5
(5.0)
38.8
(3.6)
2.2
1,035.3
67.6
-
1,102.9
-
(23.6)
(38.4)
(1.8)
(8.4)
(149.0)
(24.5)
0.8
(172.7)
Cash flows before financing activities
$
740.0
(81.2)
62.4
$ 821.2
(143.6)
(a) Net of $90.3 million of cash held by BAX Global at the date of sale.
45
The Brink’s Company 2006 Annual Report
Operating Activities
2006
Operating cash flows from continuing operations decreased by $227.6 million in 2006 compared to 2005 primarily
due to a $225 million contribution to the VEBA made in 2006. In addition, higher cash flows from operating
activities from Brink’s were partially offset by higher U.S. federal tax payments related to the sale of BAX Global.
Operating cash flows from discontinued operations in 2006 includes $15.1 million of FBLET refunds, as well as
payments of $20.4 million in July 2006 to settle the Company’s withdrawal liabilities related to multi-employer
pension plans.
The Company contributed $225 million to the VEBA in 2006 using proceeds from the sale of BAX Global. The
Company contributed $50 million in 2004. No contributions were made to the VEBA in 2005.
2005
Operating cash flow from continuing operations increased by $27.9 million in 2005 compared to 2004 primarily
due to the absence of a contribution to the VEBA in 2005. This $50 million improvement in cash outflow for 2005
was partially offset by lower operating profit and an increase in receivables.
Investing Activities
Continuing Operations
Investing cash flows increased by $1.1 billion in 2006 compared to 2005 primarily due to the sale of BAX Global in
2006. In addition, investing cash flows in 2006 benefited from lower cash outflows of $38.8 million for
acquisitions. Cash from investing activities in 2005 included $76.8 million of higher capital expenditures
compared to 2004.
Capital Expenditures
(In millions)
Capital Expenditures
Brink’s
BHS
Corporate
Years Ended December 31,
$ change
2006
2005
2004
2006
2005
Capital expenditures
$
279.3
$
115.1
163.9
0.3
109.0
162.2
0.5
271.7
76.2
117.6
1.1
194.9
$ 6.1
1.7
(0.2)
$
7.6
32.8
44.6
(0.6)
76.8
Capital expenditures in 2006 were $7.6 million higher than in 2005, primarily as a result of $12.7 million higher
spending on security systems at BHS. Higher spending on new subscribers more than offset a reduction in
spending on facilities at BHS.
Capital expenditures in 2007 are currently expected to range from $315 million to $335 million. Expected capital
expenditures for 2007 reflect an increase in customer installations at BHS and higher spending on branches and
vehicles at Brink’s.
The Brink’s Company 2006 Annual Report
46
Proceeds from Dispositions
Cash flows from investing activities included cash proceeds of approximately $1 billion in 2006 from the sale of
BAX Global. Sales of natural resource businesses provided cash of $5.0 million in 2005 and $28.6 million in 2004.
Acquisitions
As previously described, Brink’s made a number of acquisitions in the last three years including several operations
in Europe. Cash paid for acquisitions totaled $14.4 million in 2006, $53.2 million in 2005 and $14.8 million in
2004.
Discontinued Operations
Cash used by investing activities was lower in 2006 compared to 2005 because capital expenditures at BAX Global
were included in the Company’s consolidated cash flow for only one month in 2006. Cash used for investing
activities increased by $23.7 million in 2005 from 2004 primarily as a result of higher capital expenditures at BAX
Global.
Business Segment Cash Flows
The Company’s cash flows before financing activities for each of the operating segments are presented below.
(In millions)
2006
2005
2004
2006
2005
Years Ended December 31,
$ change
Cash flows before financing activities
Continuing operations:
Business segments:
Brink’s
BHS
Subtotal of business segments
Corporate and former operations:
Net proceeds from disposal of:
BAX Global (a)
Natural resource interests
Contributions to the VEBA, net
Purchases of marketable securities, net
Contributions to primary U.S. pension plan
Other
Subtotal of continuing operations
Discontinued operations:
BAX Global
Federal Black Lung Excise Tax refunds
Settlement of pension withdrawal liabilities
Other
$
70.8
11.7
82.5
(11.5)
14.6
3.1
108.5
47.6
156.1
$
82.3
(2.9)
79.4
(120.0)
(33.0)
(153.0)
1,010.5
-
(225.0)
(9.6)
-
(113.3)
745.1
0.2
15.1
(20.4)
-
-
5.0
-
(6.0)
-
(64.7)
(62.6)
(18.6)
-
-
-
(81.2)
-
28.6
(50.0)
(4.2)
(11.0)
(61.0)
58.5
4.5
-
-
(0.6)
62.4
1,010.5
(5.0)
(225.0)
(3.6)
-
(48.6)
807.7
18.8
15.1
(20.4)
-
-
(23.6)
50.0
(1.8)
11.0
(3.7)
(121.1)
(23.1)
-
-
0.6
$ 821.2
(143.6)
Cash flows before financing activities
$ 740.0
(a) Net of $90.3 million of cash held by BAX Global at the date of sale.
47
The Brink’s Company 2006 Annual Report
Overview
Cash flows before financing activities from the Company’s business segments totaled $241.7 million over the last
three years. The sale of BAX Global in 2006 for approximately $1 billion also contributed significantly to the cash
available before financing activities. Using this cash, the Company made $275 million in voluntary contributions
to its VEBA over the last three years. Cash flows before financing activities in the last three years also included
significant annual cash payments associated with retained liabilities of the former coal operations.
Brink’s
Cash flows before financing activities at Brink’s increased by $82.3 million in 2006 due to a higher operating profit
in 2006 and a $38.8 million decrease in cash used for acquisitions.
Cash flows before financing activities decreased in 2005 over 2004 primarily due to an increase in cash used for
acquisitions, capital expenditures and working capital needs, as well as lower operating profits.
BHS
The decrease in BHS’ cash flows before financing activities in 2006 is primarily due to a higher income tax rate,
partially offset by higher earnings.
The year-over-year decrease in cash flows before financing activities at BHS in 2005 is primarily due to $10.2
million spent for the purchase of BHS’ headquarter facilities, $7.4 million for the development of the Knoxville
facility and a $24 million increase in capital expenditures for new installations partially offset by an increase in
operating profit.
Corporate and Former Operations
The Company received approximately $1 billion in net proceeds for the sale of BAX Global during 2006. The
Company immediately contributed $225 million to the VEBA. The Company paid $67 million in 2006 of estimated
U.S. income tax liability, principally as a result of the large gain on the sale of BAX Global. The Company did not
pay federal income taxes in the U.S. in 2005 or 2004.
The Company paid $38 million in 2006 ($36 million in 2005 and $35 million in 2004) for coal-related medical
plan benefits for retirees. The Company elected to begin using the assets of the VEBA to fund benefit payments
beginning January 1, 2007. This election will improve cash flows in future periods.
The Company received $33.6 million in total net proceeds during 2005 and 2004 from the sale of substantially all
of its remaining natural resource interests.
Discontinued Operations
Cash flows before financing activities from discontinued operations in 2006 included only one month of
operations for BAX Global compared to a full year in 2005. Additionally in 2006, the Company received $15.1
million in FBLET refunds and paid $20.4 million to settle two multi-employer pension plan withdrawal liabilities.
Cash flows before financing activities from discontinued operations in 2005 decreased primarily due to a decrease
in the sale of accounts receivable as a result of the termination of the securitization program and an increase in
capital expenditures, partially offset by improved operating results at BAX Global.
The Brink’s Company 2006 Annual Report
48
Financing Activities
Summary of Financing Activities
(In millions)
2006
2005
2004
Years Ended December 31,
Net borrowings (repayments) of debt:
Short-term debt
Revolving Facility
Senior Notes
Other
Net borrowings (repayments) of debt
Purchase of outstanding shares of the Company
Dividends to:
Shareholders of the Company
Minority interests in subsidiaries
Proceeds from exercise of stock options and other
Discontinued operations, net
$
3.8
(76.2)
(76.7)
(10.3)
(159.4)
(630.9)
(10.1)
(9.0)
21.0
5.4
Cash flows from financing activities
$
(783.0)
14.0
107.1
(18.3)
(16.2)
86.6
-
(5.5)
(6.7)
26.9
(7.7)
93.6
(7.9)
(12.5)
-
(16.4)
(36.8)
-
(5.4)
(4.8)
22.4
(2.3)
(26.9)
During 2006, the Company used $630.9 million to purchase 12.2 million shares of its common stock, an average
cost of $51.80 per share. These shares include 10.4 million shares purchased at $51.20 per share in a $530 million
Dutch auction self-tender offer on April 11, 2006.
The Company made scheduled payments of $18.3 million in January 2006 related to its Senior Notes. On March 31,
2006, the Company prepaid the outstanding $58.4 million balance of its Senior Notes and made a make-whole
payment of $1.6 million. The Senior Notes were terminated upon prepayment. In addition, the Company
significantly reduced other debt during 2006.
The Company’s operating liquidity needs are typically financed by short-term debt and the Revolving Facility,
described below.
On May 5, 2006, the board of directors authorized an increase in the Company’s regular dividend to an annual rate
of $0.25 per share, up from an annual rate of $0.10 per share. The Company paid dividends of $0.0625 per share in
the second, third and fourth quarters of 2006 and a $0.025 per share dividend on its common stock in the first
quarter of 2006. In each quarter of 2005 and 2004, the Company paid $0.025 per share quarterly dividends on its
common stock. On January 25, 2007, the board declared a regular quarterly dividend of $0.0625 per share payable
on March 1, 2007. Future dividends are dependent on the earnings, financial condition, cash flow and business
requirements of the Company, as determined by the board of directors.
49
The Brink’s Company 2006 Annual Report
Capitalization
The Company uses a combination of debt, leases and equity to capitalize its operations. As of December 31, 2006,
debt as a percentage of capitalization (defined as total debt and shareholders’ equity) was 18% compared to 27% at
December 31, 2005. The decrease resulted from lower debt of $142.7 million partially offset by the impact of a
reduction in equity of $83.7 million. Equity decreased in 2006 primarily as a result of the Company’s share
repurchase programs and the implementation of a new accounting standard for pension and other postretirement
benefit obligations, partially offset by over $100 million in income from continuing operations, the gain on the sale
of BAX Global, and by the reduction of Health Benefit Act obligations.
Summary of Debt, Equity and Other Liquidity Information
(In millions)
Debt:
Short-term debt:
Multi-currency revolving facility
and other committed facilities
Long-term debt:
Revolving Facility
Letter of Credit Facility
Senior Notes
Dominion Terminal
Associates bonds
Other
Debt
Shareholders’ equity
Other Liquidity Information:
Cash and cash equivalents
Net Debt (b)
Amount available
under credit facilities
December 31,
2006
Outstanding Balance
December 31,
2006
2005
$ change (a)
$
48
348
9
$ 405
$
33.4
52.1
-
-
43.2
41.5
$ 170.2
$ 753.8
$ 137.2
33.0
25.5
123.6
-
76.7
43.2
43.9
312.9
837.5
96.2
216.7
$
7.9
(71.5)
-
(76.7)
-
(2.4)
(142.7)
(83.7)
41.0
(183.7)
$
$
$
(a)
In addition to cash borrowings and repayments, the change in the debt balance also includes changes in currency exchange rates.
(b) See reconciliation of Non-GAAP measure below.
Reconciliation of Net Debt and Net Financings to GAAP Measures
(In millions)
Short-term debt
Long-term debt
Debt
Less cash and cash equivalents
Net Debt (a)
Amounts sold under accounts receivable
securitization facility
Net Financings (a)
December 31,
2006
2005
2004
2003
2002
$
33.4
136.8
170.2
(137.2)
33.0
-
$
33.0
25.5
287.4
312.9
(96.2)
216.7
-
216.7
27.5
216.7
244.2
(169.0)
75.2
25.0
100.2
35.8
238.7
274.5
(128.7)
145.8
77.0
222.8
41.8
317.5
359.3
(102.3)
257.0
72.0
329.0
(a) Net Debt and Net Financings are non-GAAP measures. Net Debt is equal to short-term debt plus the current and noncurrent portion
of long-term debt (“Debt” in the tables), less cash and cash equivalents. Net Financings are equal to Net Debt plus the amount sold
under the accounts receivable securitization facility.
The Brink’s Company 2006 Annual Report
50
The supplemental Net Debt and Net Financing information is non-GAAP financial information that management
believes is an important measure to evaluate the Company’s financial leverage. This supplemental non-GAAP
information does not affect any reported amounts. This supplemental non-GAAP information should be viewed in
conjunction with the Company’s consolidated balance sheets.
Debt
The Company entered into a new unsecured $400 million revolving bank credit facility with a syndicate of banks
in the third quarter of 2006. The new facility replaces a $400 million revolving credit facility that was scheduled to
mature in 2009. The new facility’s interest rate is based on LIBOR plus a margin, prime rate, or competitive bid.
The facility allows the Company to borrow (or otherwise satisfy credit needs) on a revolving basis over a five-year
term ending August 2011. As of December 31, 2006, $347.9 million was available under the revolving credit
facility. The new and prior facility are referred to as the “Revolving Facility” herein.
The Company has an unsecured $150 million credit facility with a bank to provide letters of credit and other
borrowing capacity over a five-year term ending in December 2009 (the “Letter of Credit Facility”). As of
December 31, 2006, $8.7 million was available for use under this revolving credit facility. The Revolving Facility
and the multi-currency revolving credit facilities described below are also used for the issuance of letters of credit
and bank guarantees.
The Company has three unsecured multi-currency revolving bank credit facilities totaling $96.2 million at
December 31, 2006, of which $48.2 million was unused. When rates are favorable, the Company also borrows from
other banks under short-term uncommitted agreements. Various foreign subsidiaries maintain other secured and
unsecured lines of credit and overdraft facilities with a number of banks. Amounts borrowed under these
agreements are included in short-term borrowings.
The Company made scheduled payments of $18.3 million in January 2006 related to its Senior Notes. On March 31,
2006, the Company prepaid the outstanding $58.4 million balance of its Senior Notes and made a make-whole
payment of $1.6 million. The Senior Notes were terminated upon prepayment. In addition, the Company
significantly reduced other debt during 2006.
The Company’s Brink’s and BHS subsidiaries have guaranteed the Revolving Facility and the Letter of Credit
Facility. The Revolving Facility, the Letter of Credit Facility and the multi-currency revolving bank credit facilities
contain various financial and other covenants. The financial covenants, among other things, limit the Company’s
total indebtedness, limit asset sales, limit the use of proceeds from sales of assets and provide for minimum
coverage of interest costs. The credit agreements do not provide for the acceleration of payments should the
Company's credit rating be reduced. If the Company were not to comply with the terms of its various loan
agreements, the repayment terms could be accelerated and the commitments could be withdrawn. An acceleration
of the repayment terms under one agreement could trigger the acceleration of the repayment terms under the other
loan agreements. The Company was in compliance with all financial covenants at December 31, 2006.
The Company has guaranteed bonds of $43.2 million issued by the Peninsula Ports Authority of Virginia. The
guarantee originated as part of the Company’s former interest in Dominion Terminal Associates, a deep water coal
terminal. The Company continues to pay interest on and guarantee payment of the $43.2 million principal amount
and ultimately will have to pay for the retirement of the bonds in accordance with the terms of the guarantee. The
bonds bear a fixed interest rate of 6.0% and mature in 2033. The bonds may mature prior to 2033 upon the
occurrence of specified events such as the determination that the bonds are taxable or the failure of the Company to
abide by the terms of its guarantee.
The Company believes it has adequate sources of liquidity to meet its near-term requirements.
51
The Brink’s Company 2006 Annual Report
Equity
At December 31, 2006, the Company had 100 million shares of common stock authorized and 48.5 million shares
issued and outstanding. Of the outstanding shares, 2.3 million shares were held by The Brink’s Company
Employee Benefits Trust (the “Employee Benefits Trust”) at December 31, 2006, and have been accounted for
similarly to treasury stock for earnings per share calculation purposes.
As further discussed below, during 2006 the Company purchased and retired approximately 12.2 million shares of
its common stock for $630.9 million. The shares purchased and retired approximated 21% of the number of
shares outstanding on December 31, 2005.
Dutch auction
On March 8, 2006, the Company’s board of directors authorized a “Dutch Auction” self-tender offer to purchase up
to 10 million shares of the Company’s common stock. Under certain circumstances up to an additional 2% of the
outstanding common stock was authorized to be purchased in the tender offer. The tender offer began on March 9,
2006, and expired on April 6, 2006, and was subject to the terms and conditions described in the offering
materials mailed to the Company’s shareholders and filed with the Securities and Exchange Commission. On April
11, 2006, the Company purchased 10,355,263 shares in the tender offer at $51.20 per share for a total of
approximately $530.2 million in cash. The Company incurred $0.7 million in costs associated with the purchase.
Other Repurchases
Following the self-tender offer, the board authorized additional Company common stock purchases of up to $100
million from time to time as market conditions warranted and as covenants under existing agreements permitted.
The additional stock purchase program did not require any specific number of shares be purchased. Under the
program, the Company used $100 million to purchase 1,823,118 shares of common stock between May 22 and
October 5, 2006, at an average price of $54.85 per share. The Company has no remaining authority under the
program.
Preferred Stock
At December 31, 2006, the Company has the authority to issue up to 2.0 million shares of preferred stock, par value
$10 per share.
Off Balance Sheet Arrangements
The Company has operating leases that are described in the notes to the consolidated financial statements. See
note 14 for operating leases that have residual value guarantees or other terms that cause the agreement to be
considered a variable interest. The Company uses operating leases to lower its cost of financings. The Company
believes operating leases are an important component of its capital structure.
The Brink’s Company 2006 Annual Report
52
Contractual Obligations
The following table reflects the contractual obligations of the Company as of December 31, 2006.
(In millions)
2007
2008
2009
2010
2011
Later
Years
Total
Estimated Payments Due by Period
Contractual obligations
Long-term debt obligations
Capital lease obligations
Operating lease obligations
Purchase obligations:
Service contracts
Other
Other long-term liabilities reflected on the
Company’s balance sheet under GAAP -
non-coal related workers compensation
and other claims
Subtotal
Legacy liabilities (a)
Total
$
2.4
8.1
77.2
11.3
7.9
12.9
5.3
63.3
8.2
-
22.2
129.1
18.0
147.1
$
15.6
105.3
14.0
119.3
1.0
4.1
46.6
8.4
-
8.2
68.3
10.0
78.3
0.9
2.3
32.2
8.5
-
4.1
48.0
9.0
57.0
53.0
1.0
22.1
8.7
-
4.7
89.5
7.0
96.5
44.7
1.1
60.0
-
-
10.5
116.3
201.8
318.1
114.9
21.9
301.4
45.1
7.9
65.3
556.5
259.8
816.3
(a) The projected payments for liabilities related to former operations (legacy liabilities) are discussed in “Results of Operations – Retained
Liabilities and Assets of Former Operations”. The Company elected to begin using the assets of the VEBA to fund benefit payments
beginning January 1, 2007. The Company estimates the following cash payments using VEBA assets for the next 5 years: $42 million in
2007, $44 million in 2008, $47 million in 2009, $48 million in 2010 and $49 million in 2011. The Company may elect at any time to use
either these assets or its cash from operations to pay benefits for its retiree medical plans. Estimated payments above exclude
administration and other payments.
Other Potential Use of Credit
Surety Bonds and Letters of Credit
The Company is required by various state and federal laws to provide security with regard to its obligations to pay
workers’ compensation, reclaim lands used for mining by the Company’s former coal operations and satisfy other
obligations. As of December 31, 2006, the Company had outstanding surety bonds with third parties totaling
approximately $45.2 million that it has arranged in order to satisfy various security requirements. Most of these
bonds provide financial security for obligations which have already been recorded as liabilities. Surety bonds are
typically renewable on a yearly basis; however, there can be no assurance the bonds will be renewed or that
premiums in the future will not increase.
If the remaining surety bonds are not renewed, the Company believes that it has adequate available borrowing
capacity under its Letter of Credit Facility and its Revolving Facility to provide letters of credit or other collateral to
secure its obligations.
The Company has issued letters of credit of $141.3 million under its $150 million Letter of Credit Facility,
described in “Debt” above. At December 31, 2006, all of these issued letters of credit were used to secure the
Company’s obligations.
53
The Brink’s Company 2006 Annual Report
Contingent Matters
Income Tax
The Company and its subsidiaries are subject to tax examinations in various U.S. and foreign jurisdictions and the
Company has accrued approximately $27 million for related contingencies at December 31, 2006. While it is
difficult to predict the final outcome of the various issues that may arise during an examination, the Company
believes that it has adequately provided for potential contingent income tax liabilities and interest. The Company
expects the adoption of FIN 48, Accounting for Uncertainty in Income Taxes-an interpretation of SFAS 109, to
increase retained earnings at January 1, 2007, by up to $10 million.
Former Operations
The Company has recorded estimated liabilities for contingent obligations, including those for premiums to the
Combined Fund, coal-related workers’ compensation claims and reclamation obligations. These are discussed in
more detail at “Results of Operations – Retained Liabilities and Assets of Former Operations – Legacy Liabilities
and Assets.”
BAX Global is defending a claim related to the apparent diversion by a third party of goods being transported for a
customer. Although BAX Global is defending this claim vigorously and believes that its defenses have merit, it is
possible that this claim ultimately may be decided in favor of the claimant. If so, the Company expects that the
ultimate amount of reasonably possible unaccrued losses could range from $0 to $10 million. The Company has
contractually indemnified the purchaser of BAX Global for this contingency.
The Company has retained all pre-closing tax assets and liabilities related to BAX Global, except deferred income
taxes. The Company has $9.4 million accrued for these net tax liabilities at December 31, 2006.
Insurance claims
The Company filed insurance claims of $2.4 million in 2006 (which were collected in early 2007) and anticipates
filing additional insurance claims of $2.6 million to $3.9 million in 2007 related to property damage and business
interruption insurance coverage for losses sustained by Brink’s and BHS from Hurricane Katrina. As of December
31, 2006, the Company has recorded a receivable of $1.8 million covering property damage, of which approximately
$1 million related to the $2.4 million claim collected in the first quarter of 2007. Because the Company’s property
damage insurance coverage provides for replacement value, the Company expects to record proceeds in excess of
realized losses when the claims are ultimately settled. In addition, payments for lost revenues under business
interruption coverage will be recognized as operating income when the claims are settled. As a result, the
Company expects to recognize gains of between $3 million and $5 million in 2007 for amounts collected in excess
of previously recorded receivables.
Value-added taxes (“VAT”) and customs duties
During 2004, the Company determined that one of its non-U.S. Brink’s business units had not paid customs duties
and VAT with respect to the importation of certain goods and services. The Company was advised that civil and
criminal penalties could be asserted for the non-payment of these customs duties and VAT. Although no penalties
have been asserted to date, they could be asserted at any time. The business unit has provided the appropriate
government authorities with an accounting of unpaid customs duties and VAT and has made payments covering its
calculated unpaid VAT. The Company believes that the range of reasonably possible losses is between $0.4 million
and $3.0 million for potential penalties on unpaid VAT and has accrued $0.4 million. The Company believes that
the range of possible losses for unpaid customs duties and associated penalties, none of which has been accrued, is
between $0 and $35 million. The Company believes that the assertion of the penalties on unpaid customs duties
would be excessive and would vigorously defend against any such assertion. The Company does not expect to be
assessed interest charges in connection with any penalties that may be asserted. The Company continues to
diligently pursue the timely resolution of this matter and, accordingly, the Company’s estimate of the potential
losses could change materially in future periods. The assertion of potential penalties may be material to the
Company’s financial position and results of operations.
The Brink’s Company 2006 Annual Report
54
MARKET RISK EXPOSURES
The Company’s operations have activities in approximately 50 countries. These operations expose the Company to
a variety of market risks, including the effects of changes in interest rates, commodity prices and foreign currency
exchange rates. These financial and commodity exposures are monitored and managed by the Company as an
integral part of its overall risk management program.
The Company periodically uses various derivative and non-derivative financial instruments, as discussed below, to
hedge its interest rate, commodity prices and foreign currency exposures when appropriate. The risk that
counterparties to these instruments may be unable to perform is minimized by limiting the counterparties used to
major financial institutions with investment grade credit ratings. The Company does not expect to incur a loss
from the failure of any counterparty to perform under the agreements. The Company does not use derivative
financial instruments for purposes other than hedging underlying financial or commercial exposures.
The sensitivity analyses discussed below for the market risk exposures were based on the facts and circumstances
in effect at December 31, 2006. Actual results will be determined by a number of factors that are not under
management’s control and could vary materially from those disclosed.
Interest Rate Risk
The Company uses both fixed and floating rate debt and leases to finance its operations. Floating rate obligations,
including the Company’s Revolving Facility, expose the Company to fluctuations in cash flows due to changes in the
general level of interest rates. Fixed rate obligations, including the Company’s Dominion Terminal Associates
debt, are subject to fluctuations in fair values as a result of changes in interest rates.
Based on the contractual interest rates on the floating rate debt at December 31, 2006, a hypothetical 10% increase
in rates would increase cash outflows by approximately $0.6 million over a twelve-month period (in other words,
the Company’s weighted average interest rate on its floating rate instruments was 5.66% per annum at December
31, 2006. If that average rate were to increase by 57 basis points to 6.23%, the cash outflows associated with these
instruments would increase by $0.6 million annually). The effect on the fair value of the Company’s Dominion
Terminal Associates debt for a hypothetical 10% decrease in the yield curve from year-end 2006 levels would result
in a $3.6 million increase in the fair value of this debt.
55
The Brink’s Company 2006 Annual Report
Commodity Price Risk
The Company consumes various commodities in the normal course of its business and, from time to time, may use
derivative financial instruments to minimize the variability in forecasted cash flows due to price movements in
these commodities. The derivative contracts are entered into in accordance with guidelines set forth in the
Company’s risk management policies. At December 31, 2006, the Company had no outstanding commodity based
derivative contracts.
Foreign Currency Risk
The Company, primarily through its Brink’s operations, has exposure to the effects of foreign currency exchange
rate fluctuations on the results of all of its foreign operations. The Company’s foreign operations generally use
local currencies to conduct business but their results are reported in U.S. dollars.
The Company is exposed periodically to the foreign currency rate fluctuations that affect transactions not
denominated in the functional currency of domestic and foreign operations. To mitigate these exposures, the
Company, from time to time, enters into foreign currency forward contracts. At December 31, 2006, no significant
foreign currency forward contracts were outstanding. The Company does not use derivative financial instruments
to hedge investments in foreign subsidiaries since such investments are long-term in nature.
The effects of a hypothetical simultaneous 10% appreciation in the U.S. dollar from year-end 2006 levels against
all other currencies of countries in which the Company has continuing operations are as follows:
(In millions)
Translation of 2006 earnings into U.S. dollars
Transactional exposures
Translation of net assets of foreign subsidiaries
Hypothetical Effects
Increase/ (decrease)
$
(3.4)
(4.0)
(38.8)
The hypothetical foreign currency effects above detail the consolidated impact of a simultaneous change in the
value of a large number of foreign currencies relative to the U. S. dollar. The foreign currency exposure impact
related to a change in an individual currency could be significantly different.
The Brink’s Company 2006 Annual Report
56
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The application of accounting principles requires the use of assumptions, estimates and judgments which are the
responsibility of management. Management makes estimates and judgments based on, among other things,
knowledge of operations, markets, historical trends and likely future changes, similarly situated businesses and,
when appropriate, the opinions of advisors with relevant knowledge and experience. Many assumptions, estimates
and judgments are straightforward; others are not. Reported results could have been materially different had
management used a different set of assumptions, estimates and judgments.
Deferred Tax Asset Valuation Allowance
It is common for companies to record expenses and accruals before the related payments are actually made. In the
U.S., and most other countries and tax jurisdictions, many deductions for tax return purposes cannot be taken until
the expenses are paid. Similarly, some tax credits and tax loss carry forwards cannot be used until future periods
when sufficient taxable income is generated. In these circumstances, under GAAP, companies accrue for the tax
benefit expected to be received in future years if, in the judgment of management, it is “more likely than not” that
the company will receive the tax benefits. These benefits (deferred tax assets) are often offset, in whole or in part,
by the effects of deferred tax liabilities which relate primarily to deductions available for tax return purposes under
existing tax laws and regulations before such costs are reported as expenses under GAAP.
As of December 31, 2006, the Company had approximately $192 million of net deferred tax assets on its
consolidated balance sheet. A significant amount of the Company’s deferred tax assets relates to expected future
tax deductions arising from retiree medical and other coal-related expenses the Company has already recorded in
its financial statements. For more details associated with this net balance, see note 5 to the accompanying
consolidated financial statements.
Since there is no absolute assurance that these assets will be ultimately realized, management reviews the
Company’s deferred tax positions to determine if it is more likely than not that the assets will be realized. Periodic
reviews include, among other things, the nature and amount of the taxable income and expense items, the expected
timing when assets will be used or liabilities will be required to be reported and the reliability of historical
profitability of businesses expected to provide future earnings. Furthermore, management considers tax-planning
strategies it can use to increase the likelihood that the tax assets will be realized. If after conducting the periodic
review, management determines that the realization of the tax asset does not meet the “more-likely-than-not”
criteria, an offsetting valuation allowance is recorded thereby reducing net earnings and the deferred tax asset in
that period. For these reasons and since changes in estimates can materially affect net earnings, management
believes the accounting estimate related to deferred tax asset valuation allowances is a “critical accounting
estimate.”
Due to its expectation that the historical profitability of the Company’s U.S. portion of the Brink’s and BHS
operations will continue and the lengthy period over which coal-related liabilities will become available for
deduction on tax returns, management has concluded that it is more likely than not that these U.S. federal net
deferred tax assets will be realized.
For U.S. state jurisdictions and non-U.S. jurisdictions, the Company has evaluated its ability to fully utilize the net
deferred tax assets on an individual jurisdiction basis. Due to a recent history of losses in some non-U.S.
jurisdictions and doubts about whether future operating performance will be sufficiently profitable to realize
deferred tax assets, the Company has approximately $54 million of valuation allowances at December 31, 2006.
Among other things, should tax statutes, the timing of deductibility of expenses or expectations for future
performance change, the Company could decide to adjust its valuation allowances, which would increase or
decrease tax expense, possibly materially.
57
The Brink’s Company 2006 Annual Report
Goodwill and Property and Equipment Valuations
Accounting Policies
At December 31, 2006, the Company had property and equipment of $981.9 million and goodwill of $124.0 million,
net of accumulated depreciation and amortization. The Company reviews these assets for possible impairment
using the guidance in SFAS 142, Goodwill and Other Intangible Assets, for goodwill and SFAS 144, Accounting for
the Impairment or Disposal of Long-lived Assets, for property and equipment and other long-lived assets. The
review for impairment requires the use of significant judgments about the future performance of the Company’s
operating subsidiaries and, as such, the Company believes they represent critical accounting estimates.
Application of Accounting Policies
Goodwill
Goodwill is reviewed for impairment at least annually. The Company estimates the fair value of Brink’s, the only
reporting unit that has goodwill, primarily using estimates of future cash flows. The fair value of the reporting unit
is compared to its carrying value to determine if an impairment is indicated. To date, no impairment has been
identified. Due to a history of profitability and cash flow, the carrying value of goodwill of Brink’s is believed to be
appropriate.
Property and Equipment
To determine if an impairment exists related to property and equipment, the Company compares estimates of the
future undiscounted net cash flows of groups of assets to their carrying value when events or changes in
circumstances indicate the carrying amount may not be recoverable. For purposes of assessing impairment, assets
are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash
flows of other groups of assets.
Brink’s has not had any material impairments of property and equipment in the last three years.
Each quarter, when BHS customers disconnect their monitoring service, BHS records an impairment charge
estimate based on the carrying value of the related security systems determined to be permanently disconnected
which takes into account future expected reconnections. Future reconnection experience is estimated using
historical data. Should the estimate of future reconnection experience change, BHS’s impairment charges would
be affected.
The Brink’s Company 2006 Annual Report
58
Employee and Retiree Benefit Obligations
The Company provides its employees and retirees benefits through Company-sponsored plans, including defined
benefit pension plans and retiree medical benefit plans and statutory requirements (e.g., black lung and workers’
compensation obligations).
The primary benefits which require the Company to make cash payments over an extended period of years are:
• Pension obligation
• Retiree medical obligation
• Black Lung obligation
• Workers’ compensation obligation
Accounting Policy
The Company accounts for its pension plans under SFAS 87, Employers’ Accounting for Pensions, as amended.
The Company accounts for its retiree medical obligations and Black Lung obligations under SFAS 106, Employers’
Accounting for Postretirement Benefits Other Than Pensions, as amended. SFAS 87 and SFAS 106 have been
amended by SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and 132(R). As a result of annual remeasurements, the Company
records changes in liabilities and associated expenses over time as required under these accounting standards.
As is normal for these benefits, cash payments will be made for periods ranging from the current year to over
seventy years from now for some of these benefits. The amount of the cash payments and related expenses will be
affected over time by inflation, salary increases, investment returns and market interest rates, changes in the
numbers of plan participants and changes in the benefit obligations and/or laws and regulations covering the
benefit obligations. Because of the inherent volatility of these items and because the obligations are significant,
the Company believes these represent critical accounting estimates.
The critical accounting estimates that determine the carrying values of liabilities and the resulting annual expense
are discussed below. The plans that are affected by the assumptions discussed are identified parenthetically in the
relevant title.
Application of Accounting Policy
Discount Rate (Pension, Retiree Medical and Black Lung)
A discount rate is used to determine the present value of future payments. The rate should reflect returns expected
from high-quality bonds and will fluctuate over time with market interest rates. In general, the Company’s liability
changes in an inverse relationship to interest rates, i.e. the lower the discount rate, the higher the associated plan
obligation.
The Company selects a discount rate for its plan obligations after reviewing published long-term yield information
for a small number of high-quality fixed-income securities (e.g. Moody’s AA bond yields). The Company’s
advisors also calculate yields for the broader range of long-term high-quality securities with maturities in line with
expected payments. After considering these factors, the Company selected a discount rate of 5.75% as of
December 2006 and 5.50% as of December 31, 2005. The average Moody’s AA bond yields for the ten year period
ended December 31, 2006 was approximately 6.7%.
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The Brink’s Company 2006 Annual Report
Sensitivity Analysis
The discount rate selected at year end materially affects the valuations of plan obligations at year end and
calculations of net periodic expenses for the following year.
The tables below compare hypothetical plan obligation valuations as of December 31, 2006, and estimated
expenses for 2007 if the Company had used discount rates that were 100 basis points lower or higher.
Plan Obligations at December 31, 2006
(In millions)
Primary U.S. pension plan benefit obligation
Coal-related retiree medical accumulated postretirement
benefit obligation (“APBO”)
Black Lung APBO
Projected 2007 Expense (Benefit)
(In millions)
Primary U.S. pension plan
Coal-related retiree medical
Black Lung
Hypothetical
4.75%
$
852.6
634.4
50.2
Hypothetical
4.75%
$
8.0
7.1
3.6
Actual
5.75%
744.3
570.9
46.7
Actual
5.75%
(0.9)
5.5
3.5
Hypothetical
6.75%
638.6
518.0
43.0
Hypothetical
6.75%
(11.5)
4.0
3.4
Return on Assets (Pension and Retiree Medical)
The Company’s primary U.S. defined benefit pension plan had assets at December 31, 2006, valued at
approximately $677 million. This pension plan’s assets are invested primarily using actively managed accounts
with asset allocation targets of 47.5% domestic equities and 22.5% international equities, both of which include a
broad array of market capitalization sizes and investment styles, and 30% fixed income securities. The Company’s
policy does not permit certain investments, including investments in The Brink’s Company common stock, unless
part of a commingled fund. The plan rebalances its assets on a quarterly basis if actual allocations of assets are
outside predetermined ranges. Among other factors, the performance of asset groups and investment managers
will affect the long-term rate of return.
The Company-sponsored retiree medical plan had assets in a VEBA at December 31, 2006, valued at approximately
$459 million. The assets in the VEBA are invested and managed on a similar basis to the pension plan.
Accordingly, the same long-term rate of return assumption is used for the VEBA.
Pension accounting principles require companies to use estimates of expected asset returns over long periods of
time. The Company selects the expected long-term rate of return assumption using advice from its investment
advisor and its actuary considering the plan’s asset allocation targets and expected overall investment manager
performance and a review of its most recent ten-year historical average compounded rate of return. After
following the above process, the Company selected 8.75% as its expected long-term rate of return as of December
31, 2006 and 2005.
It is unlikely that in any given year the actual rate of return will be the same as the assumed long-term rate of
return. In general, if actual returns exceed the expected long-term rate of return, future levels of expense will go
down and vice-versa. Over the last ten years, the annual returns of the Company’s primary pension plan have
fluctuated from a high of a 27.5% gain (2003) to a low of a 9.3% loss (2002) and averaged, on a compounded basis,
over 9.7%, net of fees, per annum over the period. During that time period, there were seven years in which
returns exceeded the assumed long-term rate of return and three years, the three years ended December 31, 2002,
with returns below the assumed long-term rate of return.
The Brink’s Company 2006 Annual Report
60
If the Company were to use a different long-term rate of return assumption, it would affect annual pension expense
but would have no immediate effect on funding requirements. For every hypothetical change of 100 basis points in
the assumed long-term rate of return on plan assets, the Company’s U.S. annual pension plan expense in 2006
would have increased or decreased by approximately $6 million before tax. Similarly, the 2006 benefit of
investment income in the VEBA would have increased or decreased by approximately $4 million.
The reduction (or “credit”) to pension expense associated with the assumed investment return fluctuates based on
the level of plan assets (over time, the higher the level of assets, the higher the credit and vice versa) and the
assumed rate of return (the higher the rate, the higher the credit and vice versa).
For the pension plan, the Company calculates expected investment returns by applying the expected long-term rate
of return to the market-related value of plan assets. The market-related value of the plan assets is different from
the actual or fair-market value of the assets. The actual or fair-market value is the value of the assets at a point in
time that is available to make payments to pensioners and to cover any transaction costs. The market-related value
recognizes changes in fair-value on a straight-line basis over five years. This recognition method spreads the
effects of year-over-year volatility in the financial markets over several years.
The Company has elected to calculate expected investment returns on assets in the VEBA by applying the expected
long-term rate of return to the fair market value of the assets at year end. This method is likely to cause the credit
from the VEBA’s expected return to fluctuate more than the similar credit in the pension plan.
Salary Inflation (Pension)
Historically, pension expense and liabilities varied with the expected rate of salary increases – the higher or lower
the annual increase, the higher or lower the liability and expense. Since the Company has frozen benefits under
the U.S. defined benefit pension plan, this assumption will no longer affect future pension expense and liability for
that plan.
Medical Inflation (Retiree Medical)
Changes in medical inflation will affect liability and expense amounts differently for the Company’s plans. There is
a direct link between medical inflation and expected spending for postretirement medical benefits under the
Company-sponsored plan for 2006 and for later years.
For the Company-sponsored retiree medical plan, the Company assumed an inflation rate of 9% for 2007, and
projects this rate to decline to 5% by 2012. The average annual increase for medical inflation in the plan for the last
five years has been about 9%. Because of the volatility of medical inflation it is likely that there will be future
adjustments to these estimates, although the direction and extent of these adjustments cannot be predicted at the
present time.
If the Company had assumed that the health care cost trend rates would be 100 basis points higher in each future
year, the APBO for the coal-related retiree medical benefit plan would have been approximately $65 million higher
at December 31, 2006 and the expense for 2006 would have been $3.4 million higher. If the Company had assumed
that the future health care cost trend rate would be 100 basis points lower, the APBO would have been
approximately $56 million lower at December 31, 2006, and the related 2006 expenses would have been $2.9
million lower.
Workers’ Compensation
Besides the effects of changes in medical costs, worker’s compensation costs are affected by the severity and types
of injuries, changes in state and federal regulations and their application and the quality of programs which assist
an employee’s return to work. The Company’s liability for future payments for workers’ compensation claims is
evaluated annually with the assistance of its actuary.
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The Brink’s Company 2006 Annual Report
Numbers of Participants (All Plans)
The valuations of all of these benefit plans are affected by the life expectancy of the participants. Accordingly, the
Company relies on actuarial information to predict the number and life expectancy of participants. The Company
uses the following mortality table for its major plans.
Plan
Retiree medical
Black Lung
U.S. pension
Mortality table
RP-2000 Combined Healthy Blue Collar
1983 Group Annuity Mortality
RP-2000 Combined Healthy Blue Collar
The 2006 number of participants by major plan is as follows:
Plan
Coal-related
All other
Total retiree medical
Black Lung
U.S. pension
Number of participants
5,193
2,001
7,194
766
24,662
Since the Company is no longer operating in the coal industry, it anticipates that the number of participants in the
coal-related postretirement medical plan will decline over time due to mortality. Since the U.S. pension plan has
been frozen, the number of its participants should also decline over time.
Changes in Laws (All Plans)
The Company’s valuations of its liabilities are determined under existing laws and regulations. Changes in laws and
regulations which affect the ultimate level of liabilities and expense are reflected once the changes are final and
their impact can be reasonably estimated. Recent changes in laws that provide government subsidies for amounts
paid for pharmaceuticals for medicare-eligible medical plan participants have reduced the Company’s liability.
In December 2006, the Tax Relief and Health Care Act of 2006 (the “2006 Act”) was signed into law. By providing
alternative funding, the 2006 Act substantially reduces, but does not eliminate, the Health Benefit Act obligations
of the Company related to health care and death benefits of former miners who were not eligible for such benefits
under contractual arrangements with the Company. The Company has estimated the projected cash flows and the
undiscounted liability pursuant to the 2006 Act. Such estimates have been prepared using actuarial information as
of December 31, 2006. The Company’s liability for Health Benefit Act obligations is equal to the undiscounted
estimated amount of future annual premiums the Company expects to pay the Combined Fund. Any changes to
expected future obligations determined during annual reevaluations are recorded as expenses or benefits within
discontinued operations.
The Brink’s Company 2006 Annual Report
62
RECENT ACCOUNTING PRONOUNCEMENTS
Adopted Standards
The Company adopted Statement of Financial Accounting Standard (“SFAS”) 123(R), Share-Based Payment,
effective January 1, 2006. Prior to adopting SFAS 123(R), the Company accounted for share-based compensation
using the intrinsic-value method under Accounting Principles Board Opinion 25, Accounting for Stock Issued to
Employees, (“APB 25”) as permitted by SFAS 123, Accounting for Stock-Based Compensation. Under the
intrinsic-value method no share-based compensation cost was recognized as all options granted had an exercise
price equal to the market value of the underlying common stock on the date of grant. SFAS 123(R) eliminates the
use of the intrinsic-value method of accounting and requires companies to recognize the cost of employee services
received in exchange for awards of equity instruments based on the fair value of those awards. In addition, SFAS
123(R) requires additional accounting and disclosures for the income tax and cash flow effects of share-based
payment arrangements.
The Company adopted SFAS 123(R) using the “modified prospective” transition method. Under the modified
prospective transition method, the Company began recognizing share-based compensation costs on January 1,
2006, but did not restate prior periods. The amount of compensation cost recognized was computed based on the
requirements of SFAS 123(R) for share-based awards granted, modified or settled in 2006, and based on the
requirements of SFAS 123 for the unvested portion of awards granted prior to 2006. Under SFAS 123(R), cash
flows from the tax benefit of tax deductions for stock options in excess of compensation cost are classified in the
consolidated statements of cash flows as a financing activity. Under SFAS 123, these cash flows were included in
operating activities and the prior-year amounts have not been reclassified. In addition, under SFAS 123(R), the
Company no longer separately reports The Brink’s Company Employee Benefits Trust (the “Employee Benefits
Trust”) in its consolidated statement of shareholders’ equity and consolidated balance sheet; it is now offset with
capital in excess of par value. See note 15 for more information and for the required pro forma disclosures under
SFAS 123 for periods prior to 2006.
The Company adopted SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R), effective December 31, 2006. Prior to the
adoption of SFAS 158, the Company accounted for its pension plans under SFAS 87, Employers’ Accounting for
Pensions, as previously amended, and for its Company-sponsored retiree medical plans and black lung obligations
under SFAS 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, as previously amended.
SFAS 158 requires companies to recognize the funded status of a defined benefit postretirement plan (other than a
multi-employer plan) as an asset or liability in its balance sheet and to recognize changes in funded status through
comprehensive income in the year in which the changes occur. The adoption of SFAS 158 reduced the amount of
consolidated equity reported by the Company as of December 31, 2006, by $162.9 million. In addition, SFAS 158
requires current liability classification only when the actuarial present value of benefits payable in the next twelve
months exceeds the fair value of plan assets. See note 4 for more information.
The Company adopted Securities and Exchange Commission Staff Accounting Bulletin 108 (“SAB 108”), effective
December 31, 2006, which is codified as SAB Topic 1.N, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements. SAB 108 requires companies to quantify
misstatements using both a balance sheet and an income statement approach (“dual method” approach) and to
evaluate whether either approach results in an error that is material in light of relevant quantitative and qualitative
factors. Prior to the adoption of SAB 108, the Company evaluated errors using only the income statement
approach.
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The Brink’s Company 2006 Annual Report
The Company had previously identified that it had been incorrectly applying its accounting policy for recording
impairment charges upon subscriber disconnects at BHS. Prior to the adoption of SAB 108, the Company
determined this incorrect application was not material to the financial statements using the income statement
approach. The correction of this application was considered material using the dual method approach due to the
impact on the trend of segment operating profit of BHS. Upon adoption of SAB 108, to correctly apply its
accounting policy to subscriber disconnects, the Company recorded a $3.8 million ($2.4 million after tax) increase
to retained earnings.
In March 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation 47, Accounting
for Conditional Asset Retirement Obligations (“FIN 47”), an interpretation of SFAS 143, Asset Retirement
Obligations. FIN 47 clarifies that the term “conditional asset retirement obligation” as used in SFAS 143 includes a
legal obligation associated with the retirement of a tangible long-lived asset in which the timing and/or method of
settlement is conditional on a future event that may or may not be within the control of the entity. An entity is
required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated, even if conditional on a future event. The Company has conditional asset
retirement obligations primarily associated with leased facilities. The Company adopted FIN 47 on December 31,
2005, and recognized the following:
(In millions)
Adjustment at December 31, 2005
Increase in assets (a):
Leasehold improvements
Noncurrent deferred income tax asset
Increase in liabilities - asset retirement obligations (b)
$
3.8
0.9
4.7
(10.1)
Cumulative effect of change in accounting principle, net of tax (c)
$
(5.4)
(a)
(b)
(c)
Includes $1.1 million of assets held for sale.
Includes $2.1 million of liabilities held for sale.
Includes $1.0 million of cumulative effect of change in accounting principle, net of tax, related to BAX Global.
In July 2005, the FASB issued FASB Staff Position (“FSP”) APB 18-1, Accounting by an Investor for Its
Proportionate Share of Accumulated Other Comprehensive Income of an Investee Accounted for under the Equity
Method in Accordance with APB Opinion 18 upon a Loss of Significant Influence. FSP APB 18-1 requires an
investor’s proportionate share of an investee’s equity adjustments for other comprehensive income to be offset
against the carrying value of the investment at the time significant influence is lost. FSP APB 18-1 requires
comparative financial statements be retrospectively adjusted to reflect the provisions of the FSP APB 18-1. The
Company adopted FSP APB 18-1 on October 1, 2005. The carrying value (before the effect of FSP APB 18-1) of
Brink’s cost method investment that was previously accounted for under the equity method was $8.9 million at
December 31, 2005 and 2004. Cumulative currency losses of $14.5 million at December 31, 2005 and 2004 were
reclassified from accumulated other comprehensive loss and increased the carrying value of the Company’s related
investment to $23.4 million. This reclassification had no effect on net income.
In December 2004, the FASB issued FSP FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004. The American Jobs Creation Act
introduced a limited-time 85% dividends-received deduction on the repatriation of foreign earnings to U.S.
taxpayers, provided certain criteria are met. FSP FAS 109-2 provides accounting and disclosure guidance for the
repatriation provision. FSP FAS 109-2 was effective immediately and the required disclosures have been included
in note 5 to the Company’s consolidated financial statements.
The Brink’s Company 2006 Annual Report
64
Standards Not Yet Adopted
In July 2006, the FASB issued FASB Interpretation 48, Accounting for Uncertainty in Income Taxes – an
interpretation of SFAS 109. This interpretation clarifies the accounting for uncertainty in income taxes recognized
in an entity’s financial statements in accordance with SFAS 109, Accounting for Income Taxes. It prescribes a
recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or
expected to be taken on a tax return. The Company is required to adopt this interpretation in the first quarter of
2007. The Company expects the adoption of this interpretation to increase retained earnings at January 1, 2007, by
up to $10 million.
In September 2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 defines fair value, establishes
a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS
157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that
a fair value measurement should be determined based on assumptions that market participants would use in
pricing the asset or liability. The Company is required to adopt SFAS 157 in the first quarter of 2008. The
Company does not expect that the implementation of SFAS 157 will have a material effect on the Company’s results
of operations or financial position.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Liabilities – Including
an amendment of FASB Statement No. 115. SFAS 159 permits entities to choose to measure certain financial assets
and liabilities at fair value (the “fair value option”). Unrealized gains and losses, arising subsequent to adoption,
are reported in earnings. The Company is required to adopt SFAS 159 in the first quarter of 2008. The Company
does not expect that the implementation SFAS 159 will have a material effect on the Company’s results of
operations or financial position.
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The Brink’s Company 2006 Annual Report
FORWARD-LOOKING INFORMATION
This document contains both historical and forward-looking information. Words such as “anticipates,”
“estimates,” “expects,” “projects,” “intends,” “plans,” “believes,” “may,” “should” and similar expressions may
identify forward-looking information. Forward-looking information in this document includes, but is not limited
to, statements regarding costs associated with indemnities and tax liabilities from the BAX Global sale, income tax
gains from the sale of BAX Global, a tightening insurance market, the receipt of dividends from a real estate
investment, future interest income and interest expense, the realization of deferred tax assets, the anticipated
effective tax rate for 2007 and the Company’s future tax position, Brink’s competitive advantages and ability to
generate operating profit margins near or above 7% annually, variances in Brink’s performance from period to
period, operational growth in Brink’s Cash Logistics business, future increases in safety and security costs, future
effects of the loss of a Brink’s customer in Australia, expected improved Brink’s performance in EMEA, possible
actions to improve long-term performance with accompanying restructuring expenses, expected insurance
recoveries from claims filed in connection with Hurricane Katrina, the outcome of the issue relating to the non-
payment of customs duties and value-added tax by a non-U.S. subsidiary of Brink’s, Incorporated, BHS customer
retention efforts, the effect of the U.S. economy on BHS’ performance, expectations regarding future growth rates
in installations, subscribers, revenues and operating profit at BHS, changes in the disconnect rate and related
expenses at BHS, future increases in BHS monitoring rates, expansion of BHS’ commercial customer base, future
fuel and copper costs, BHS presence in commercial alarm installation, monitoring and installations in new homes
through relationships with major builders, expenses and cash outflows related to former coal operations,
anticipated changes in the Company’s estimated liability related to the Health Benefit Act, the estimated payout
period for annual Health Benefit Act Obligations, future cash payments for black lung obligations, projected
payments and expense for the primary U.S. pension plan and its expected long-term rate of return, possible
pension plan contributions, future interest expense increases, the use of earnings from foreign subsidiaries and
equity affiliates, the possibility that Venezuela may be considered highly inflationary again, the possibility that
Brink’s Venezuela may be subject to less favorable exchange rates on dividend remittances, capital expenditures in
2007, the adequacy of sources of liquidity to meet the Company’s near term requirements, estimated contractual
obligations for the next five years, the Company’s provision for contingent income tax liabilities and interest, the
outcome of pending litigation, the effectiveness of the Company’s hedges, the likelihood of losses due to non-
performance by parties to hedging instruments, assumptions regarding future interest rates and compensation
expenses, the carrying value of Brink’s goodwill, the impact of exchange rates, estimates of future reconnection
experience at BHS and the impact of any change in estimates on BHS’ impairment charges, estimated discount
rates and expected returns on assets related to legacy liabilities, the Company’s salary increase assumption,
changes in the assumed level of inflation for a number of the Company’s benefit plans, future contributions to and
use of the VEBA and expected investment returns on funds held by the VEBA, the impact of recent and future
accounting rule changes, payment obligations and future amortizations under the Company-sponsored coal-
related plans, and the Company’s borrowing capacity under the Letter of Credit Facility and the Revolving Facility,
involve forward-looking information which is subject to known and unknown risks, uncertainties, and
contingencies which could cause actual results, performance or achievements, to differ materially from those that
are anticipated.
These risks, uncertainties and contingencies, many of which are beyond the control of the Company, include, but
are not limited to, strategic initiatives and acquisition opportunities, the Company’s tax position and the tax impact
of various possible uses of the proceeds from the BAX Global sale, decisions by the Company’s Board of Directors,
the satisfaction or waiver of limitations on the use of proceeds contained in various of the Company’s financing
arrangements, the demand for capital, the timing of the pass-through of costs by third parties and governmental
authorities relating to the disposal of the coal assets, retirement decisions by mine workers, performance of the
investments made by the multi-employer plans, estimates made by the multi-employer plans, the number of
participants in the multi-employer plans and the cost to administer the plans, comparisons of hours worked by
covered coal employees over the last five years versus industry averages, black lung claims incidence, the number
of dependents of mine workers for whom benefits are provided, actual medical and legal expenses related to
benefits, changes to the number of Health Benefit Act plan participants and their dependents, the funding and
benefit levels of Health Benefit Act plans, changes in mortality rates of Health Benefit Act plan participants and
their dependants, the funding and benefit levels of multi-employer plans and pension plans, changes in inflation
The Brink’s Company 2006 Annual Report
66
rates (including medical inflation) and interest rates, acquisitions and dispositions made by the Company in the
future, the ability of the operations to identify losses as relating to Hurricane Katrina and positions taken by
insurers, the financial condition of the insurers, the willingness of BHS’ customers to absorb price increases and
the actions of BHS’ competitors, BHS’ ability to maintain subscriber growth, the return to profitability of
operations in jurisdictions where the Company has recorded valuation adjustments, the ability of Brink’s
competitors to provide safe and reliable service at a lesser cost, Brink’s ability to cost effectively match customer
demand with appropriate resources, Brink’s loss experience, changes in insurance costs, Brink’s ability to
integrate recent acquisitions, the performance of Brink’s EMEA operations and the effect of recent and possible
future restructurings efforts, the input of governmental authorities regarding the non-payment of customs duties
and value-added tax, the ability of the home security industry to dissuade law enforcement and municipalities from
refusing to respond to alarms, the willingness of BHS’ customers to pay for private response personnel or other
alternatives to police responses to alarms, the demand for capital by the Company and the availability of such
capital, the cash, debt and tax position and growth needs of the Company, the funding level of and accounting for
the VEBA and the VEBA’s investment performance, whether the Company’s assets or the VEBA’s assets are used to
pay benefits, the determination of taxes owed from the BAX Global sale, the stability of the Venezuelan economy
and changes in Venezuelan policy regarding exchange rates for dividend remittances, discovery of new facts
relating to civil suits, the addition of claims or changes in relief sought by adverse parties, changes in the scope or
method of remediation or monitoring, the nature of the Company’s hedging relationships, the financial
performance of the Company, overall economic and business conditions, foreign currency exchange rates, changes
in assumptions underlying the Company’s critical accounting policies, as more fully described in the section
“Application of Critical Accounting Policies” but including, the likelihood that net deferred tax assets will be
realized, discount rates, expectations of future performance, the timing of deductibility of expenses, estimated
reconnection experience at BHS, anticipated return on assets, projections regarding the number of participants in
and beneficiaries of the Company’s employee and retiree benefit plans, inflation, and the promulgation and
adoption of new accounting standards and interpretations, including FASB Interpretation 48, SFAS 157 and SFAS
159, mandatory or voluntary pension plan contributions, the impact of continuing initiatives to control costs and
increase profitability, pricing and other competitive industry factors, fuel and copper prices, new government
regulations, legislative initiatives, judicial decisions, variations in costs or expenses and the ability of
counterparties to perform.
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The Brink’s Company 2006 Annual Report
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal
control over financial reporting is designed to provide reasonable assurance to the Company’s management and
board of directors regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2006. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control – Integrated Framework”.
Based on our assessment, we believe that, as of December 31, 2006, the Company’s internal control over financial
reporting is effective based on those criteria.
Management’s assessment of the effectiveness of internal control over financial reporting as of December 31,
2006, has been audited by KPMG LLP; the independent registered public accounting firm which also audited the
Company’s consolidated financial statements. KPMG’s attestation report on management’s assessment of the
Company’s internal control over financial reporting appears on page 69 hereof.
The Brink’s Company 2006 Annual Report
68
REPORT of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
The Brink’s Company
We have audited management’s assessment, included in the accompanying Management’s Report on Internal
Controls over Financial Reporting, that The Brink’s Company (the “Company”) maintained effective internal
control over financial reporting as of December 31, 2006, based on criteria established in “Internal Control –
Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the
Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, evaluating management’s
assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, management’s assessment that The Brink’s Company maintained effective internal control over
financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established
in “Internal Control – Integrated Framework” issued by COSO. Also, in our opinion, The Brink’s Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006,
based on criteria established in “Internal Control – Integrated Framework” issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of The Brink’s Company and subsidiaries as of December 31, 2006 and
2005, and the related consolidated statements of operations, comprehensive income, shareholders’ equity and
cash flows for each of the years in the three-year period ended December 31, 2006, and our report dated February
27, 2007, expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Richmond, Virginia
February 27, 2007
69
The Brink’s Company 2006 Annual Report
REPORT of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
The Brink’s Company
We have audited the accompanying consolidated balance sheets of The Brink’s Company and subsidiaries (the
“Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations,
comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended
December 31, 2006. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of The Brink’s Company and subsidiaries as of December 31, 2006 and 2005, and the results of
their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in
conformity with U.S. generally accepted accounting principles.
As disclosed in note 1 to the consolidated financial statements, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 123R, Share-Based Payment, on January 1, 2006, Statement of Financial
Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans, on December 31, 2006, and Securities and Exchange Commission Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements, on December 31, 2006.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006,
based on criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February 27, 2007, expressed an
unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial
reporting.
/s/ KPMG LLP
Richmond, Virginia
February 27, 2007
The Brink’s Company 2006 Annual Report
70
THE BRINK’S COMPANY
and subsidiaries
Consolidated Balance Sheets
(In millions, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, (net of estimated uncollectible
amounts: 2006 – $11.6; 2005 - $11.3)
Prepaid expenses and other
Deferred income taxes
Assets held for sale
Total current assets
Property and equipment, net
Goodwill
Deferred income taxes (note 1)
Other
Total assets
December 31,
2006
2005
$
137.2
469.4
72.4
71.8
-
750.8
981.9
124.0
142.2
189.1
96.2
419.1
36.0
174.0
976.5
1,701.8
867.4
103.8
196.9
167.0
$
2,188.0
3,036.9
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings
Current maturities of long-term debt
Accounts payable
Income taxes payable
Accrued liabilities (note 1)
Liabilities held for sale
Total current liabilities
Long-term debt
Accrued pension costs (note 1)
Postretirement benefits other than pensions (note 1)
Deferred revenue
Deferred income taxes
Other
Total liabilities
Commitments and contingent liabilities (notes 4, 5, 12, 14, 17 and 22)
Shareholders’ equity:
Common stock, par value $1 per share:
Shares authorized: 100.0
Shares issued and outstanding: 2006 – 48.5; 2005 – 58.7
Capital in excess of par value
Retained earnings
Employee Benefits Trust, at market value:
(1.2 shares not allocated to participants in 2005) (note 1)
Accumulated other comprehensive income (loss):
Benefit plan experience loss
Benefit plan prior service cost
Minimum pension liabilities
Foreign currency translation
Unrealized gains on marketable securities
Accumulated other comprehensive loss (note 1)
Total shareholders’ equity
$
33.4
10.5
142.8
33.9
386.1
-
606.7
126.3
135.5
180.1
164.5
20.8
200.3
1,434.2
48.5
414.7
552.0
-
(236.3)
(8.8)
-
(17.7)
1.4
(261.4)
753.8
25.5
35.5
118.8
14.8
439.8
491.4
1,125.8
251.9
170.0
304.8
150.7
18.8
177.4
2,199.4
58.7
530.6
488.0
(55.2)
-
-
(151.6)
(33.7)
0.7
(184.6)
837.5
Total liabilities and shareholders’ equity
$
2,188.0
3,036.9
See accompanying notes to consolidated financial statements.
71
The Brink’s Company 2006 Annual Report
Years Ended December 31,
2005
2004
2006
$
2,837.6
2,549.0
2,277.5
2,176.1
466.8
2,642.9
5.9
2,041.8
406.8
2,448.6
15.0
1,790.7
360.5
2,151.2
11.1
THE BRINK’S COMPANY
and subsidiaries
Consolidated Statements of Operations
(In millions, except per share amounts)
Revenues
Expenses:
Operating expenses
Selling, general and administrative expenses
Total expenses
Other operating income, net
Operating profit
Interest expense
Interest and other income, net
200.6
(13.2)
16.9
204.3
82.7
121.6
(18.3)
103.3
483.9
587.2
-
Income from continuing operations before income taxes and minority interest
Provision for income taxes
Income from continuing operations before minority interest
Minority interest
Income from continuing operations
Income from discontinued operations, net of income taxes
Income before cumulative effect of change in accounting principle
Cumulative effect of change in accounting principle, net of income taxes (a)
Net income
$
587.2
Earnings per common share
Basic:
Continuing operations
Discontinued operations
Cumulative effect of change in accounting principle
Net income
Diluted:
Continuing operations
Discontinued operations
Cumulative effective of change in accounting principle
Net income
Weighted-average common shares outstanding
Basic
Diluted
$
$
2.07
9.69
-
11.75
2.05
9.59
-
11.64
50.0
50.5
115.4
(18.6)
9.3
106.1
49.5
56.6
(14.3)
42.3
105.5
147.8
(5.4)
142.4
0.75
1.88
(0.10)
2.53
0.74
1.85
(0.09)
2.50
137.4
(20.8)
7.9
124.5
40.6
83.9
(12.4)
71.5
50.0
121.5
-
121.5
1.31
0.92
-
2.23
1.29
0.91
-
2.20
56.3
57.0
54.6
55.3
(a) As discussed in note 1, the Company adopted FIN 47 during 2005 on a cumulative basis as of December 31, 2005, resulting in a change in
the Company’s method of accounting for conditional asset retirement obligations. Pro forma amounts, assuming the new method of
accounting for conditional retirement obligations was applied retroactively, are presented in note 1.
See accompanying notes to consolidated financial statements.
The Brink’s Company 2006 Annual Report
72
THE BRINK’S COMPANY
and subsidiaries
Consolidated Statements of Comprehensive Income
(In millions)
Net income
Other comprehensive income (loss):
Minimum pension liability adjustments:
Adjustments to minimum pension liability
Tax benefit (expense) related to minimum pension liability adjustment
Reclassification for sale of BAX Global Inc.
Minimum pension liability adjustments, net of tax
Foreign currency:
Translation adjustments arising during the year
Tax benefit (expense) related to translation adjustments
Reclassification adjustment for sales of foreign subsidiaries
Reclassification of translation losses upon changing to cost
method accounting for investment (see note 1)
Foreign currency translation adjustments, net of tax
Cash flow hedges:
Unrealized net gains on cash flow hedges arising during the year
Tax expense related to unrealized net gains on cash flow hedges
Reclassification adjustment for net gains realized in net income
Tax expense related to net gains realized in net income
Unrealized net losses on cash flow hedges, net of tax
Marketable securities:
Unrealized net gains on marketable securities arising during the year
Tax expense related to unrealized net gains on marketable securities
Reclassification adjustment for net gains realized in net income
Tax expense related to net gains realized in net income
Unrealized net gains (losses) on marketable securities, net of tax
Years Ended December 31,
2005
2006
2004
$ 587.2
142.4
121.5
90.0
(31.7)
11.1
69.4
29.0
(0.1)
(12.9)
-
16.0
-
-
-
-
-
2.0
(0.7)
(1.0)
0.4
0.7
(33.3)
11.6
-
(21.7)
(32.3)
2.3
-
-
(30.0)
-
-
-
-
-
1.2
(0.4)
(0.2)
0.1
0.7
(9.2)
1.4
-
(7.8)
25.7
0.9
0.8
14.5
41.9
2.6
(0.9)
(2.8)
1.0
(0.1)
0.1
-
(4.3)
1.5
(2.7)
31.3
Other comprehensive income (loss)
86.1
(51.0)
Comprehensive income
$ 673.3
91.4
152.8
See accompanying notes to consolidated financial statements.
73
The Brink’s Company 2006 Annual Report
THE BRINK’S COMPANY
and subsidiaries
Consolidated Statements of Shareholders’ Equity
Years Ended December 31, 2006, 2005 and 2004
(In millions)
Capital
in Excess
of Par
Value
Retained
Earnings
Common
Stock
Balance as of December 31, 2003
$
54.3
383.0
237.2
Accumulated
Other
Employee
Benefits Comprehensive
Trust
(14.0)
Loss
Total
(164.9)
495.6
Net income
Other comprehensive income
Common stock dividends ($0.10 per share)
Retire shares of common stock
Employee Benefits Trust:
Shares issued to trust
Remeasurement
Distributions for benefit programs
Tax benefit of stock options exercised
Balance as of December 31, 2004
Net income
Other comprehensive loss
Common stock dividends ($0.10 per share)
Retire shares of common stock
Employee Benefits Trust:
Shares issued to trust
Remeasurement
Distributions for benefit programs
Tax benefit of stock options exercised
-
-
-
(0.1)
2.5
-
-
-
56.7
-
-
-
(0.1)
2.1
-
-
-
-
-
-
(2.1)
65.0
22.5
(27.3)
15.1
Balance as of December 31, 2005
58.7
530.6
Net income
Other comprehensive income
Shares repurchased (see note 16):
“Dutch Auction” self-tender offer
Other
Common stock dividends ($0.2125 per share)
Retire shares of common stock
Employee Benefits Trust (see notes 1 and 16):
Shares issued to trust
Distributions for benefit programs
Share-based compensation cost
Excess tax benefit of stock options exercised
Adoption of new accounting standards:
Statement of Financial Accounting Standard
(“SFAS”) 123(R) (see notes 1 and 16)
SFAS 158, net of income taxes of $110.2
(see notes 1 and 4)
Securities and Exchange Commission
Staff Accounting Bulletin 108, net of
income taxes of $1.4 (see note 1)
-
-
(10.4)
(1.8)
-
-
2.0
-
-
-
-
-
-
-
-
(89.0)
(15.9)
-
(0.7)
(2.0)
23.1
17.7
6.1
(55.2)
-
-
-
-
-
(0.2)
58.9
28.7
(17.7)
4.7
121.5
-
(5.4)
(0.4)
-
-
-
-
-
-
-
-
(61.4)
(28.7)
59.2
-
-
31.3
-
-
-
-
-
-
121.5
31.3
(5.4)
(0.7)
-
-
41.5
4.7
457.4
352.9
(44.9)
(133.6)
688.5
142.4
-
(5.5)
(1.8)
-
-
-
-
488.0
587.2
-
(431.5)
(82.3)
(10.1)
(1.5)
-
(0.2)
-
-
-
-
2.4
-
-
-
-
(67.1)
(22.5)
79.3
-
(55.2)
-
-
-
-
-
-
-
-
-
-
55.2
-
-
-
-
(51.0)
-
-
-
-
-
-
(184.6)
-
86.1
-
-
-
-
-
-
-
-
-
142.4
(51.0)
(5.5)
(4.0)
-
-
52.0
15.1
837.5
587.2
86.1
(530.9)
(100.0)
(10.1)
(2.2)
-
22.9
17.7
6.1
-
(162.9)
(162.9)
-
2.4
(261.4)
753.8
Balance as of December 31, 2006
$
48.5
414.7
552.0
See accompanying notes to consolidated financial statements.
The Brink’s Company 2006 Annual Report
74
THE BRINK’S COMPANY
and subsidiaries
Consolidated Statements of Cash Flows
(In millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations
Cumulative effect of change in accounting principle
Depreciation and amortization
Impairment charges from subscriber disconnects
Amortization of deferred revenue
Deferred income taxes
Provision for uncollectible accounts receivable
Share-based compensation
Other operating, net
Postretirement benefit funding (more) less than expense:
Pension
Other than pension
Change in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable
Accounts payable and accrued liabilities
Deferral of subscriber acquisition cost
Deferral of revenue from new subscribers
Other, net
Discontinued operations, net
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Acquisitions
Marketable securities:
Purchases
Sales
Cash proceeds from disposal of:
BAX Global, net of $90.3 million of cash disposed
Natural resource interests
Other property and equipment
Other, net
Discontinued operations, net
Net cash provided (used) by investing activities
Cash flows from financing activities:
Long-term debt:
Additions
Repayments
Short-term borrowings (repayments), net
Repurchase shares of common stock of The Brink’s Company
Excess tax benefits from exercise of stock options
Proceeds from exercise of stock options
Dividends to:
Shareholders of The Brink’s Company
Minority interest holders in subsidiaries
Other, net
Discontinued operations, net
Net cash provided (used) by financing activities
Effect of exchange rate changes on cash
Cash and cash equivalents:
Increase (decrease)
Balance at beginning of year
Amount held by BAX Global at December 31, 2005
Balance at end of year
See accompanying notes to consolidated financial statements.
Years Ended December 31,
2005
2006
2004
$ 587.2
142.4
(483.9)
-
164.3
47.1
(31.2)
151.3
7.9
11.1
26.4
10.5
(257.4)
(49.6)
(170.8)
(24.4)
44.9
(1.2)
0.1
32.3
(279.3)
(14.4)
(1,663.7)
1,654.1
1,010.5
-
5.2
0.5
(5.2)
707.7
132.3
(295.5)
3.8
(630.9)
5.1
18.6
(10.1)
(9.0)
(2.7)
5.4
(783.0)
5.4
(37.6)
96.2
78.6
137.2
$
(105.5)
5.4
149.3
45.2
(29.5)
11.8
3.6
-
17.1
38.0
(11.5)
(42.2)
16.8
(22.9)
40.7
1.1
54.2
314.0
(271.7)
(53.2)
(7.2)
1.2
-
5.0
3.8
(0.3)
(72.8)
(395.2)
211.9
(139.3)
14.0
-
-
28.3
(5.5)
(6.7)
(1.4)
(7.7)
93.6
(6.6)
5.8
169.0
(78.6)
96.2
121.5
(50.0)
-
133.2
38.4
(26.1)
8.6
4.2
-
17.2
14.3
(61.8)
(16.0)
26.0
(19.5)
34.6
7.3
53.0
284.9
(194.9)
(14.8)
(5.3)
1.1
-
28.6
8.8
3.1
(49.1)
(222.5)
89.5
(118.4)
(7.9)
-
-
24.2
(5.4)
(4.8)
(1.8)
(2.3)
(26.9)
4.8
40.3
128.7
-
169.0
75
The Brink’s Company 2006 Annual Report
THE BRINK’S COMPANY
and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
The Brink’s Company (along with its subsidiaries, the “Company”) conducts business in the security industry,
through two wholly owned subsidiaries:
• Brink’s, Incorporated (“Brink’s”)
• Brink’s Home Security, Inc. (“BHS”)
On January 31, 2006, the Company sold BAX Global Inc. (“BAX Global”), a wholly owned freight transportation
subsidiary, for approximately $1 billion in cash and has recorded a pretax gain of approximately $587 million. BAX
Global’s results of operations have been reported within discontinued operations for all periods presented. BAX
Global’s assets and liabilities in 2005 have been classified as held for sale. In prior years, the Company sold its
natural resource businesses and interests, and the results of these operations have also been reported as
discontinued operations. The Company has significant liabilities associated with its former coal operations and
expects to have significant ongoing expenses and cash outflows related to these obligations. See notes 4 and 17.
Principles of Consolidation
The consolidated financial statements include the accounts of The Brink’s Company and the subsidiaries it
controls. Control is determined based on ownership rights or, when applicable, based on whether the Company is
considered to be the primary beneficiary of a variable interest entity. The Company’s interest in 20%- to 50%-
owned companies that are not controlled are accounted for using the equity method (“equity affiliates”), unless the
Company does not sufficiently influence the management of the investee. Other investments are accounted for as
cost-method investments or as available-for-sale marketable securities. All material intercompany accounts and
transactions have been eliminated in consolidation.
Revenue Recognition
Brink’s. Revenue is recognized when services are performed. Services related to armored car transportation, ATM
servicing, cash logistics and coin sorting and wrapping are performed in accordance with the terms of customer
contracts, which have prices that are fixed and determinable. Brink’s assesses the customer’s ability to meet the
contractual terms, including payment terms, before entering into contracts. Customer contracts generally are
automatically extended after the initial contract period until either party terminates the agreement.
BHS. Monitoring revenues are recognized monthly as services are provided pursuant to the terms of subscriber
contracts, which have contract prices that are fixed and determinable. BHS assesses the subscriber’s ability to
meet the contract terms, including payment terms, before entering into the contract. Nonrefundable installation
revenues and a portion of the related direct costs of acquiring new subscribers (primarily sales commissions) are
deferred and recognized over an estimated 15 year subscriber relationship period. When an installation is
identified for disconnection, any unamortized deferred revenues and deferred costs related to that installation are
recognized at that time.
The Brink’s Company 2006 Annual Report
76
BAX Global (discontinued operation). Revenues related to transportation services are recognized, together with
related variable transportation costs, on the date shipments depart from facilities en route to destination locations.
BAX Global and its customer agree to the terms of the shipment, including pricing, prior to shipment. Pricing
terms are fixed and determinable, and BAX Global only agrees to shipments when it believes that the collectibility
of related billings is reasonably assured. Export freight service revenues are shared among the origin and
destination countries.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and investments with original maturities of
three months or less.
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for
doubtful accounts is the Company’s best estimate of the amount of probable credit losses on the Company’s
existing accounts receivable. The Company determines the allowance based on historical write-off experience
using industry and customer specific data. The Company reviews its allowance for doubtful accounts quarterly.
Account balances are charged off against the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated principally on the straight-line method
based on the estimated useful lives of individual assets or classes of assets.
Leased property and equipment meeting capital lease criteria is capitalized at the lower of the present value of the
related lease payments or the fair value of the leased asset at the inception of the lease. Amortization is calculated
on the straight-line method based on the lease term.
Leasehold improvements are recorded at cost. Amortization is calculated principally on the straight-line method
over the lesser of the estimated useful life of the leasehold improvement or lease term. Renewal periods are
included in the lease term when the renewal is determined to be reasonably assured.
Estimated Useful Lives
Buildings
Building leasehold improvements
Security systems
Vehicles
Capitalized software
Other machinery and equipment
Machinery and equipment leasehold improvements
Years
10 to 25
3 to 10
15
3 to 12
3 to 6
3 to 20
3 to 10
Expenditures for routine maintenance and repairs on property and equipment are charged to expense. Major
renewals, betterments and modifications are capitalized and amortized over the lesser of the remaining life of the
asset or, if applicable, the lease term. Major maintenance of aircraft used by BAX Global (discontinued operation)
was capitalized when incurred and amortized over flying time to the next scheduled maintenance date.
77
The Brink’s Company 2006 Annual Report
BHS retains ownership of most security systems installed at subscriber locations. Costs for those systems are
capitalized and depreciated over the estimated lives of the assets. Costs capitalized as part of security systems
include equipment and materials used in the installation process, direct labor required to install the equipment at
subscriber sites, and other costs associated with the installation process. These other costs include the cost of
vehicles used for installation purposes and the portion of telecommunication, facilities and administrative costs
incurred primarily at BHS’ branches that are associated with the installation process. In 2006, direct labor and
other costs represented approximately 69% of the amounts capitalized, while equipment and materials represented
approximately 31% of amounts capitalized. In addition to regular straight-line depreciation expense each period,
the Company charges to expense the carrying value of security systems estimated to be permanently disconnected
based on each period’s actual disconnects and historical reconnection experience.
Costs related to the development or purchase of internal-use software is capitalized and amortized over the
estimated useful life of the software. Costs that are capitalized include external direct costs of materials and
services to develop or obtain the software, and internal costs, including compensation and employee benefits for
employees directly associated with a software development project.
Goodwill and Other Intangible Assets
Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible
net assets of businesses acquired. Intangible assets arising from business acquisitions include covenants not to
compete, customer lists and other identifiable intangibles. Intangible assets that are subject to amortization have,
at December 31, 2006, average remaining useful lives ranging from 1 to 9 years and are amortized primarily on a
straight-line basis.
Impairment of Long-Lived Assets
Goodwill is tested for impairment at least annually by comparing the carrying value of each reporting unit to its
estimated fair value. The Company bases its estimates of fair value on projected future cash flows. The Company
completed goodwill impairment tests during each of the last three years with no impairment charges required.
Long-lived assets other than goodwill are reviewed for impairment when events or changes in circumstances
indicate the carrying value of an asset may not be recoverable.
For long-lived assets other than goodwill that are to be held and used in operations, an impairment is indicated
when the estimated total undiscounted cash flow associated with the asset or group of assets is less than carrying
value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as
the difference between the carrying value and fair value.
Long-lived assets held for sale are carried at the lower of carrying value or fair value less cost to sell. Fair values are
determined based on quoted market values, discounted cash flows or internal and external appraisals, as
applicable.
Investments Held by VEBA Trust
Prior to January 1, 2004, the Company accounted for investments held by its Voluntary Employees’ Beneficiary
Association trust (“VEBA”) as available-for-sale marketable securities. Effective January 1, 2004, the Company
restricted the use of the assets held by its VEBA to pay only obligations of its coal-related retiree medical plan and,
accordingly, began accounting for the VEBA as a plan asset. Since January 1, 2004, the VEBA is reflected as a direct
offset to the liability within postretirement benefits other than pensions on the Company’s balance sheet. With the
restriction in the use of the VEBA, an unrealized net gain of $4.4 million was recognized in 2004 within interest
and other income, net.
The Brink’s Company 2006 Annual Report
78
Health Benefit Act Liabilities
The Company is obligated to pay premiums to the United Mine Workers Association Combined Benefit Fund (the
“Combined Fund”) pursuant to rules established by the Coal Industry Retiree Health Benefit Act of 1992, as
amended, (the “Health Benefit Act”) as further discussed in note 4. Postretirement benefit obligations to the
Combined Fund are recorded as a liability when they are probable and estimable in accordance with Emerging
Issues Task Force (“EITF”) 92-13, Accounting for Estimated Payments in Connection with the Coal Industry
Retiree Health Benefit Act of 1992.
Income Taxes
Deferred tax assets and liabilities are recorded to recognize the expected future tax benefits or costs of events that
have been reported in different years for financial statement purposes than tax purposes. Deferred tax assets and
liabilities are determined based on the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which these items are expected to reverse. Management
periodically reviews recorded deferred tax assets to determine if it is more-likely-than-not that they will be
realized. If management determines it is not more-likely-than-not that a deferred tax asset will be realized, an
offsetting valuation allowance is recorded, reducing earnings and the deferred tax asset in that period. See “New
Accounting Standards-Standards not yet adopted” below for more information.
Foreign Currency Translation
The Company’s consolidated financial statements are reported in U.S. dollars. A substantial amount of the
Company’s business is transacted in other currencies due to the large number of countries in which the Company
operates. In addition, the Company’s foreign subsidiaries maintain their records primarily in the currency of the
country within which they operate. Accordingly, income, expense and balance sheet values must be translated into
U.S. dollars. The value of assets and liabilities of foreign subsidiaries are translated into U.S. dollars using rates of
exchange at the balance sheet date and resulting cumulative translation adjustments are recorded in other
comprehensive income (loss). Revenues and expenses are translated at rates of exchange in effect during the year.
Transaction gains and losses and translation adjustments relating to subsidiaries in countries with highly
inflationary economies are included in net income. No subsidiaries operated in highly inflationary economies for
the three years ended December 31, 2006.
Derivative Instruments and Hedging Activities
All derivative instruments are recorded in the consolidated balance sheets at fair value. If the derivative has been
designated as a cash flow hedge, changes in the fair value are recognized in other comprehensive income (loss)
until the hedged transaction is recognized in earnings.
Concentration of Credit Risks
Financial instruments which potentially subject the Company to concentrations of credit risks are principally cash
and cash equivalents and accounts receivables. Cash and cash equivalents are held by major financial institutions.
The Company routinely assesses the financial strength of significant customers and this assessment, combined
with the large number and geographic diversity of its customers, limits the Company’s concentration of risk with
respect to accounts receivable.
Use of Estimates
In accordance with U.S. generally accepted accounting principles (“GAAP”), management of the Company has
made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial statements. Actual results could differ
materially from those estimates. The most significant estimates used by management are related to goodwill and
other long-lived assets, pension and other postretirement benefit obligations, and deferred tax assets.
79
The Brink’s Company 2006 Annual Report
Minority Interest
The Company has revised the presentation of minority interest for all years presented from a deduction in arriving
at income before income taxes to a reduction in earnings after taxes.
Reclassifications
Certain prior-year amounts have been reclassified to conform to the current year’s financial statement
presentation.
New Accounting Standards
Adopted Standards
The Company adopted Statement of Financial Accounting Standard (“SFAS”) 123(R), Share-Based Payment,
effective January 1, 2006. Prior to adopting SFAS 123(R), the Company accounted for share-based compensation
using the intrinsic-value method under Accounting Principles Board Opinion 25, Accounting for Stock Issued to
Employees, (“APB 25”) as permitted by SFAS 123, Accounting for Stock-Based Compensation. Under the
intrinsic-value method no share-based compensation cost was recognized as all options granted had an exercise
price equal to the market value of the underlying common stock on the date of grant. SFAS 123(R) eliminates the
use of the intrinsic-value method of accounting and requires companies to recognize the cost of employee services
received in exchange for awards of equity instruments based on the fair value of those awards. In addition, SFAS
123(R) requires additional accounting and disclosures for the income tax and cash flow effects of share-based
payment arrangements.
The Company adopted SFAS 123(R) using the “modified prospective” transition method. Under the modified
prospective transition method, the Company began recognizing share-based compensation costs on January 1,
2006, but did not restate prior periods. The amount of compensation cost recognized was computed based on the
requirements of SFAS 123(R) for share-based awards granted, modified or settled in 2006, and based on the
requirements of SFAS 123 for the unvested portion of awards granted prior to 2006. Under SFAS 123(R), cash
flows from the tax benefit of tax deductions for stock options in excess of compensation cost are classified in the
consolidated statements of cash flows as a financing activity. Under SFAS 123, these cash flows were included in
operating activities and the prior-year amounts have not been reclassified. In addition, under SFAS 123(R), the
Company no longer separately reports The Brink’s Company Employee Benefits Trust (the “Employee Benefits
Trust”) in its consolidated statement of shareholders’ equity and consolidated balance sheet; it is now offset with
capital in excess of par value. See note 15 for more information and for the required pro forma disclosures under
SFAS 123 for periods prior to 2006.
The Company adopted SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R), effective December 31, 2006. Prior to the
adoption of SFAS 158, the Company accounted for its pension plans under SFAS 87, Employers’ Accounting for
Pensions, as previously amended, and for its Company-sponsored retiree medical plans and black lung obligations
under SFAS 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, as previously amended.
SFAS 158 requires companies to recognize the funded status of a defined benefit postretirement plan (other than a
multi-employer plan) as an asset or liability in its balance sheet and to recognize changes in funded status through
comprehensive income in the year in which the changes occur. The adoption of SFAS 158 reduced the amount of
consolidated equity reported by the Company as of December 31, 2006, by $162.9 million. In addition, SFAS 158
requires current liability classification only when the actuarial present value of benefits payable in the next twelve
months exceeds the fair value of plan assets. See note 4 for more information.
The Brink’s Company 2006 Annual Report
80
The changes in the balance sheet at December 31, 2006, arising from the adoption of SFAS 158 are included below:
(In millions)
December 31, 2006
Before adoption of
SFAS 158
Changes due
to SFAS 158
After adoption of
SFAS 158
Noncurrent deferred income tax asset
Accrued liabilities
Accrued pension costs
Postretirement benefits other than pensions
Accumulated other comprehensive loss
$
32.0
432.9
94.5
(98.8)
(98.5)
110.2
(46.8)
41.0
278.9
(162.9)
142.2
386.1
135.5
180.1
(261.4)
The Company adopted Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin 108 (“SAB 108”),
effective December 31, 2006, which is codified as SAB Topic 1.N, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 requires
companies to quantify misstatements using both a balance sheet and an income statement approach (“dual
method” approach) and to evaluate whether either approach results in an error that is material in light of relevant
quantitative and qualitative factors. Prior to the adoption of SAB 108, the Company evaluated errors using only the
income statement approach.
The Company had previously identified that it had been incorrectly applying its accounting policy for recording
impairment charges upon subscriber disconnects at BHS. Prior to the adoption of SAB 108, the Company
determined this incorrect application was not material to the financial statements using the income statement
approach. The correction of this application was considered material using the dual method approach due to the
impact on the trend of segment operating profit of BHS. Upon adoption of SAB 108, to correctly apply its
accounting policy to subscriber disconnects, the Company recorded a $3.8 million ($2.4 million after tax) increase
to retained earnings.
In March 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation 47, Accounting
for Conditional Asset Retirement Obligations (“FIN 47”), an interpretation of SFAS 143, Asset Retirement
Obligations. FIN 47 clarifies that the term “conditional asset retirement obligation” as used in SFAS 143 includes a
legal obligation associated with the retirement of a tangible long-lived asset in which the timing and/or method of
settlement is conditional on a future event that may or may not be within the control of the entity. An entity is
required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated, even if conditional on a future event. The Company has conditional asset
retirement obligations primarily associated with leased facilities. The Company adopted FIN 47 on December 31,
2005, and recognized the following:
(In millions)
Adjustment at December 31, 2005
Increase in assets (a):
Leasehold improvements
Noncurrent deferred income tax asset
Increase in liabilities - asset retirement obligations (b)
$
3.8
0.9
4.7
(10.1)
Cumulative effect of change in accounting principle, net of tax (c)
$
(5.4)
(a)
(b)
(c)
Includes $1.1 million of assets held for sale.
Includes $2.1 million of liabilities held for sale.
Includes $1.0 million of cumulative effect of change in accounting principle, net of tax, related to BAX Global.
81
The Brink’s Company 2006 Annual Report
If the Company had adopted FIN 47 on January 1, 2003, the adoption date of SFAS 143, net income and earnings
per share would have been the following on a pro forma basis in the two years ended December 31, 2005:
Years Ended December 31,
2004
(In millions, except per share amounts)
121.5
Net income, as reported
-
Add back cumulative effect
(1.0)
Less total depreciation and interest accretion expense, net of tax
2005
142.4
5.4
(1.6)
$
Pro forma net income
$
146.2
120.5
Net income per common share:
Basic:
As reported
Pro forma
Diluted:
As reported
Pro forma
$
$
2.53
2.60
2.50
2.57
2.23
2.21
2.20
2.18
The pro forma amounts were measured using the same information, assumptions and interest rates used to
measure the liability for conditional asset retirement obligations recognized upon adoption of FIN 47.
In July 2005, the FASB issued FASB Staff Position (“FSP”) APB 18-1, Accounting by an Investor for Its
Proportionate Share of Accumulated Other Comprehensive Income of an Investee Accounted for under the Equity
Method in Accordance with APB Opinion 18 upon a Loss of Significant Influence. FSP APB 18-1 requires an
investor’s proportionate share of an investee’s equity adjustments for other comprehensive income to be offset
against the carrying value of the investment at the time significant influence is lost. FSP APB 18-1 requires
comparative financial statements be retrospectively adjusted to reflect the provisions of the FSP APB 18-1. The
Company adopted FSP APB 18-1 on October 1, 2005. The carrying value (before the effect of FSP APB 18-1) of
Brink’s cost method investment that was previously accounted for under the equity method was $8.9 million at
December 31, 2005 and 2004. Cumulative currency losses of $14.5 million at December 31, 2005 and 2004 were
reclassified from accumulated other comprehensive loss and increased the carrying value of the Company’s related
investment to $23.4 million. This reclassification had no effect on net income.
In December 2004, the FASB issued FSP FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004. The American Jobs Creation Act (“AJCA”)
introduced a limited-time 85% dividends-received deduction on the repatriation of foreign earnings to U.S.
taxpayers, provided certain criteria are met. FSP FAS 109-2 provides accounting and disclosure guidance for the
repatriation provision. FSP FAS 109-2 was effective immediately and the required disclosures have been included
in note 5 to the Company’s consolidated financial statements.
The Brink’s Company 2006 Annual Report
82
Standards Not Yet Adopted
In July 2006, the FASB issued FASB Interpretation 48, Accounting for Uncertainty in Income Taxes – an
interpretation of SFAS 109. This interpretation clarifies the accounting for uncertainty in income taxes recognized
in an entity’s financial statements in accordance with SFAS 109, Accounting for Income Taxes. It prescribes a
recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or
expected to be taken on a tax return. The Company is required to adopt this interpretation in the first quarter of
2007.
In September 2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 defines fair value, establishes
a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS
157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that
a fair value measurement should be determined based on assumptions that market participants would use in
pricing the asset or liability. The Company is required to adopt SFAS 157 in the first quarter of 2008. The
Company does not expect that the implementation of SFAS 157 will have a material effect on the Company’s results
of operations or financial position.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Liabilities – Including
an amendment of FASB Statement No. 115. SFAS 159 permits entities to choose to measure certain financial assets
and liabilities at fair value (the “fair value option”). Unrealized gains and losses, arising subsequent to adoption,
are reported in earnings. The Company is required to adopt SFAS 159 in the first quarter of 2008. The Company
does not expect that the implementation of SFAS 159 will have a material effect on the Company’s results of
operations or financial position.
83
The Brink’s Company 2006 Annual Report
Note 2 - Segment Information
The Company conducts business in two operating segments: Brink’s and BHS. These reportable segments are
identified by the Company based on how resources are allocated and operating decisions are made. Management
evaluates performance and allocates resources based on operating profit or loss, excluding corporate allocations.
In January 2006, the Company sold BAX Global, a wholly owned freight transportation subsidiary of the Company.
Accordingly, BAX Global’s results of operations have been reported as discontinued operations for all periods
presented and are not included in revenues and operating profit segment information. Discontinued operations
are discussed in note 17. BAX Global’s assets and liabilities were classified as held for sale on the Company’s
consolidated balance sheet for 2005.
Brink’s offers services globally including armored car transportation, automated teller machine (“ATM”)
replenishment and servicing, currency, deposit processing and cash management services including “Cash
Logistics” services, deploying and servicing safes and safe control devices, including its patented CompuSafe®
service, coin sorting and wrapping, integrated check and cash processing services (“Virtual Vault Services”),
arranging the secure transportation of valuables (“Global Services”), transporting, storing and destroying sensitive
information (“Secure Data Solutions”) and guarding services, including airport security. Brink’s operates in
approximately 50 countries.
BHS offers monitored security services in North America primarily for owner-occupied, single-family residences.
To a lesser extent, BHS offers security services for commercial and multi-family properties. BHS typically installs
and owns the on-site security systems, and charges fees to monitor and service the systems.
Revenues
Operating Profit
(In millions)
Business Segments
Brink’s
BHS
Business Segments
Corporate
Former operations
(In millions)
Business Segments
Brink’s
BHS
Corporate
Property and equipment
Amortization of BHS deferred subscriber
acquisition costs
Amortization of Brink’s intangible assets
Years Ended December 31,
2004
2005
2006
Years Ended December 31,
2005
2006
2004
$ 2,398.6
439.0
2,837.6
2,156.9
392.1
1,931.9
345.6
2,549.0 2,277.5
-
-
-
-
-
-
$ 2,837.6
2,549.0 2,277.5
$ 175.2
100.3
275.5
(48.4)
(26.5)
$ 200.6
111.9
87.4
199.3
(44.7)
(39.2)
115.4
144.7
80.8
225.5
(42.2)
(45.9)
137.4
Capital Expenditures
Depreciation and Amortization
Years Ended December 31,
2004
2005
2006
Years Ended December 31,
2006
2005
2004
$
115.1
163.9
0.3
279.3
-
-
109.0
162.2
0.5
271.7
-
-
76.2
117.6
1.1
194.9
-
-
$ 92.3
57.1
0.7
150.1
10.5
3.7
87.3
49.1
0.7
137.1
9.0
3.2
79.1
42.9
0.7
122.7
8.6
1.9
$
279.3
271.7
194.9
$ 164.3
149.3
133.2
The Brink’s Company 2006 Annual Report
84
(In millions)
Business Segments
Brink’s
BHS
Business Segments
Corporate
Former natural resource operations and interests:
Net deferred tax assets
Other residual coal assets
BAX Global
(In millions)
Other BHS Information
Assets
December 31,
2005
1,096.7
585.1
1,681.8
89.3
255.1
34.2
976.5
2004
1,055.7
440.6
1,496.3
101.3
230.1
25.3
839.7
2006
$ 1,334.9
646.3
1,981.2
95.1
95.1
16.6
-
$ 2,188.0
3,036.9
2,692.7
Years Ended December 31,
2005
2006
2004
Impairment charges from subscriber disconnects
Amortization of deferred revenue
Deferral of subscriber acquisition costs (current year payments)
Deferral of revenue from new subscribers (current year receipts)
$
47.1
(31.2)
(24.4)
44.9
45.2
(29.5)
(22.9)
40.7
38.4
(26.1)
(19.5)
34.6
(In millions)
Geographic
International:
France
Venezuela
Other
Subtotal
United States:
Business segments
Corporate
Subtotal
Long-Lived Assets (a)
December 31,
2005
2004(b)
2006
Revenues
Years Ended December 31,
2005
2004
2006
$
160.8
50.2
280.9
491.9
713.9
2.8
716.7
145.9
34.6
234.8
415.3
641.4
3.2
644.6
168.1
32.0
283.9
484.0
776.6
3.8
780.4
$ 1,208.6
1,059.9
1,264.4
$
546.5
171.7
973.0
508.1
129.0
846.6
466.6
112.3
710.5
1,691.2
1,483.7
1,289.4
1,146.4
-
1,146.4
$ 2,837.6
1,065.3
-
1,065.3
2,549.0
988.1
-
988.1
2,277.5
(a) Long-lived assets include property and equipment, net; goodwill; other intangible assets, net; and deferred charges.
(b)
Includes $321.1 million of long-lived assets related to BAX Global.
Revenues are recorded in the country where service is initiated or performed. The Company has no single
customer that represents more than 10% of total revenue.
85
The Brink’s Company 2006 Annual Report
(In millions)
Net assets outside the U.S.
Europe, Middle East and Africa
Latin America
Asia Pacific
Other
(a)
Includes $222.2 million in 2005 and $213.1 million in 2004 related to BAX Global.
(In millions)
Investments in unconsolidated equity affiliates
Brink’s
Other
Share of earnings of unconsolidated equity affiliates
Brink’s
Other
$
2006
246.3
133.5
32.7
34.6
$
447.1
2006
10.4
4.8
15.2
3.0
0.3
3.3
$
$
$
$
December 31,
2005 (a)
2004 (a)
190.5
123.9
166.1
38.4
518.9
252.5
92.0
155.2
53.6
553.3
December 31,
2005
2004
10.2
5.5
15.7
3.0
0.4
3.4
11.9
5.2
17.1
1.0
-
1.0
Undistributed earnings of equity affiliates included in consolidated retained earnings approximated $7.1 million at
December 31, 2006, $8.7 million at December 31, 2005, and $8.6 million at December 31, 2004.
Note 3 - Earnings Per Share
Shares used to calculate earnings per share are as follows:
(In millions)
Weighted-average common shares outstanding
Basic
Effect of dilutive stock options
Diluted
Antidilutive stock options excluded from denominator
Years Ended December 31,
2004
2005
2006
50.0
0.5
50.5
0.3
56.3
0.7
57.0
-
54.6
0.7
55.3
0.6
Shares of the Company’s common stock held by The Brink’s Company Employee Benefits Trust (the “Employee
Benefits Trust”) that have not been allocated to participants under the Company’s various benefit plans are
excluded from earnings per share calculations since they are treated as treasury shares for the calculation of
earnings per share. During 2006, the Company issued 2.0 million shares of common stock to the Employee
Benefits Trust. The Employee Benefits Trust held 2.3 million unallocated shares at December 31, 2006, 1.2 million
unallocated shares at December 31, 2005, and 1.1 million unallocated shares at December 31, 2004.
The Brink’s Company 2006 Annual Report
86
Note 4 – Employee and Retiree Benefits
The employee benefit plans and other liabilities described below cover eligible employees and retirees. The
measurement date for all plans is December 31.
Pension Plans
The Company has noncontributory defined benefit pension plans covering substantially all U.S. non-union
employees who meet vesting and other minimum requirements. The Company also has other contributory and
noncontributory defined benefit plans for eligible non-U.S. employees. Benefits under most of the plans are based
on salary (including commissions, bonuses, overtime and premium pay) and years of service. The Company’s
policy is to fund at least the minimum actuarially determined amounts required by applicable regulations.
Effective December 31, 2005, the Company froze benefit levels for its U.S. defined benefit pension plans. As a
result, participants in the U.S. defined benefit pension plans ceased to earn additional benefits after 2005,
although participants who had not met requirements for vesting continue to accrue vesting service in accordance
with the terms of the plans.
The Company has retained the obligations and assets related to the participation of BAX Global’s employees in the
Company’s U.S. pension plans. Pension obligations and assets of BAX Global’s non-U.S. subsidiaries have been
assumed by the purchaser and these accrued and prepaid amounts were reported as assets and liabilities held for
sale at December 31, 2005. Pension expenses for BAX Global employees for the periods through January 31, 2006,
the date of sale, have been included in discontinued operations. After January 31, 2006, pension expense related to
participation by BAX Global employees in U.S. pension plans is reported in continuing operations.
87
The Brink’s Company 2006 Annual Report
The weighted-average assumptions used in determining the net pension cost and benefit obligations for the
Company’s pension plans were as follows:
Discount rate:
Pension cost
Benefit obligation at year end
Expected long-term rate of return on assets -
Pension cost
Average rate of increase in salaries (a):
Pension cost
Benefit obligation at year end
U.S. Plans
Non-U.S. Plans
2006
2005
2004
2006
2005
2004
5.50%
5.75%
5.75%
5.50%
6.25%
5.75%
4.75%
4.82%
5.32%
4.75%
5.55%
5.32%
8.75%
8.75%
8.75%
5.82%
6.04%
6.37%
N/A (b)
N/A (b)
5.03%
N/A (b)
5.03%
5.03%
3.06%
2.99%
3.21%
3.06%
3.09%
3.21%
(a) Salary scale assumptions are determined through historical experience and vary by age and industry.
(b) Not applicable at December 31, 2006 or 2005 because the U.S. plan benefits were frozen and pension benefit payments will be based on
salaries earned through December 31, 2005.
The RP-2000 Combined Healthy Blue Collar mortality table was used to estimate the expected lives of participants
in the U.S. pension plans at December 31, 2006 and 2005. The 1983 Group Annuity Mortality table was used to
estimate the expected lives of participants in the U.S. pension plans at December 31, 2004. Expected lives of
participants in non-U.S. pension plans were estimated using mortality tables in the country of operation.
The net pension cost for the Company’s pension plans is as follows:
(In millions)
Years Ended December 31,
U.S. Plans
2005
2004
2006
Non-U.S. Plans
2005
2004
2006
28.2
-
42.0
43.8
(50.6) (49.9)
22.9
0.2
45.2
17.1
-
8.5
23.5
40.8
(49.5)
14.4
-
29.2
$ 8.0
8.7
(8.4)
3.3
-
$ 11.6
10.1
10.6
(10.0)
3.3
-
14.0
8.7
9.4
(8.8)
3.1
-
12.4
Service cost
Interest cost on PBO
Return on assets - expected
Amortization of losses
Curtailment loss
Net pension cost
Included in:
Continuing operations
Discontinued operations
$
$
$
Total
2005
38.3
54.4
(59.9)
26.2
0.2
59.2
2006
$ 8.0
50.7
(59.0)
20.4
-
$ 20.1
2004
32.2
50.2
(58.3)
17.5
-
41.6
Net pension cost
$
8.5
8.3
0.2
33.3
11.9
45.2
21.4
7.8
29.2
$ 11.2
0.4
9.8
4.2
8.1
4.3
$ 11.6
14.0
12.4
$ 19.5
0.6
$ 20.1
43.1
16.1
59.2
29.5
12.1
41.6
The Brink’s Company 2006 Annual Report
88
Reconciliations of the projected benefit obligation (“PBO”), plan assets, funded status and net pension assets at
December 31, 2006 and 2005 for all of the Company’s pension plans are as follows:
(In millions)
U.S. Plans
Non-U.S. Plans
Total
Years Ended December 31,
2006
2005
2006
2005
2006
2005
PBO at beginning of year
Service cost
Interest cost
Plan participant contributions
Plan amendments
Acquisitions
Benefits paid
Actuarial (gain) loss
Curtailment gain
Foreign currency exchange
Sale of BAX Global
PBO at end of year
$ 764.3
-
42.0
-
-
-
(29.0)
(11.5)
-
-
-
$ 765.8
Fair value of plan assets at beginning of year $ 620.0
85.8
Return on assets – actual
-
Acquisitions
-
Plan participant contributions
0.5
Employer contributions
(29.0)
Benefits paid
-
Foreign currency exchange
-
Sale of BAX Global
762.4
28.2
43.8
-
-
-
(26.8)
66.7
(110.0)
-
-
764.3
595.1
51.2
-
-
0.5
(26.8)
-
-
Fair value of plan assets at end of year
$ 677.3
620.0
Funded status
Unrecognized experience loss
Unrecognized prior service cost
Net pension (liability) asset
$
(88.5)
(a)
(a)
$
(88.5)
(144.3)
185.8
-
41.5
Included in:
Accrued pension cost:
Current, included in accrued liabilities
Noncurrent
Liabilities held for sale
Accumulated other comprehensive loss
$
(0.9)
(87.6)
-
(a)
Net pension (liability) asset
$
(88.5)
(0.6)
(143.7)
-
185.8
41.5
232.4
8.0
8.7
2.4
13.7
-
(5.8)
(5.5)
-
15.4
(63.2)
206.1
171.2
14.9
-
2.4
8.4
(5.8)
10.5
(43.7)
157.9
(48.2)
(a)
(a)
(48.2)
(0.3)
(47.9)
-
(a)
(48.2)
210.7
10.1
10.6
3.1
-
4.1
(5.7)
17.3
(0.6)
(17.2)
-
232.4
158.1
16.9
2.6
3.1
8.2
(5.7)
(12.0)
-
171.2
(61.2)
64.3
0.8
3.9
996.7
8.0
50.7
2.4
13.7
-
(34.8)
(17.0)
-
15.4
(63.2)
971.9
791.2
100.7
-
2.4
8.9
(34.8)
10.5
(43.7)
835.2
(136.7)
(a)
(a)
973.1
38.3
54.4
3.1
-
4.1
(32.5)
84.0
(110.6)
(17.2)
-
996.7
753.2
68.1
2.6
3.1
8.7
(32.5)
(12.0)
-
791.2
(205.5)
250.1
0.8
(136.7)
45.4
(5.2)
(26.3)
(14.9)
50.3
(1.2)
(135.5)
-
(a)
(5.8)
(170.0)
(14.9)
236.1
3.9
(136.7)
45.4
Amounts recognized in accumulated other
comprehensive income (loss) consist of:
Benefit plan experience loss
Benefit plan prior service cost
Foreign currency exchange
$ (122.1)
-
-
(122.1)
Accumulated amounts recognized
in the consolidated statements of operations
33.6
Net amount recognized in the consolidated
balance sheets
$
(88.5)
(a)
Not applicable due to adoption of SFAS 158.
(a)
(a)
(a)
(a)
(a)
(a)
(31.6)
(13.6)
(1.4)
(46.6)
(a)
(a)
(a)
(a)
(153.7)
(13.6)
(1.4)
(168.7)
(1.6)
(a)
32.0
(a)
(a)
(a)
(a)
(a)
(48.2)
(a)
(136.7)
(a)
89
The Brink’s Company 2006 Annual Report
The Company estimates that $12.9 million of experience loss and $1.4 million of prior service cost will be
amortized from accumulated other comprehensive income into net pension cost during 2007.
The actuarial gain in 2006 is primarily due to an increase in the discount rate and changes to employee census data.
The actuarial loss in 2005 was primarily due to lower discount rates and longer projected lives. The decrease in
both the service cost and curtailment gain in 2006 for the U.S Plans is due to freezing the plans effective December
31, 2005.
Actuarial losses are amortized on a straight-line basis over the average remaining service period of employees
expected to receive benefits under the plans. Due to the adoption of SFAS 158, effective December 31, 2006, the
deferred actuarial losses are recorded as an increase to accumulated other comprehensive loss.
Information comparing plan assets to plan obligations as of December 31, 2006 and 2005 are aggregated below.
The ABO differs from the PBO in that the ABO is the obligation earned through the date noted. The PBO includes
assumptions about future compensation levels for non-U.S. plans.
(In millions)
December 31,
PBO
ABO
Fair value of plan assets
ABO Greater
Than Plan Assets
Plan Assets
Greater Than ABO
Total
2006
2005
2006
2005
2006
2005 (a)
$
902.0
893.9
774.5
994.5
978.1
789.2
69.9
60.2
60.7
2.2
1.1
2.0
971.9
954.1
835.2
996.7
979.2
791.2
(a)
At December 31, 2005, includes BAX Global’s non-U.S. pension plans with PBO of $60.8 million, ABO of $56.5 million and fair value of
plan assets of $41.8 million.
The Company’s weighted-average asset allocations at December 31, 2006 and 2005 by asset category are as follows:
(In millions, except percentages)
U.S. Plans
Non-U.S. Plans
December 31,
Equity securities
Debt securities
Other
Total
Plan assets at fair value
Actual return on assets during year
$
$
2006
71%
29%
-
100%
677.3
85.8
2005
72%
28%
-
100%
620.0
51.2
2006
50%
50%
-
100%
157.9
14.9
2005
57%
41%
2%
100%
171.2
16.9
Assets of U.S. pension plans are invested primarily using actively managed accounts with asset allocation targets of
70% equities, which include a broad array of market capitalization sizes and investment styles, and 30% fixed
income securities. The Company’s policy does not permit certain investments, including investments in The
Brink’s Company common stock, unless part of a commingled fund. Fixed-income investments must have an
investment grade rating at the time of purchase. The plan rebalances its assets on a quarterly basis if actual
allocations of assets are outside predetermined ranges. Among other factors, the performance of asset groups and
investment managers will affect the long-term rate of return.
The Company selects the expected long-term rate of return assumption for its U.S. pension plan using advice from
its investment advisor and its actuary considering the plan’s asset allocation targets and expected overall
investment manager performance and a review of its most recent ten-year historical average compounded rate of
return.
The Brink’s Company 2006 Annual Report
90
Based on December 31, 2006, data, assumptions and funding regulations, the Company does not currently plan to
make a contribution to the primary U.S. plan in 2007. There are limits to the amount of benefits which can be paid
to participants from a U.S. qualified pension plan. The Company maintains a nonqualified U.S. plan to pay
benefits for those eligible current and former employees in the U.S. whose benefits exceed the regulatory limits.
Assets of non-U.S. plans are invested primarily using actively managed accounts with weighted-average asset
allocation targets of 47% equities, and 53% fixed income securities. The Company selects the expected long-term
rates of return for its non-U.S. pension plans using advice from its investment advisors and its actuary considering
plan asset allocation targets and expected overall investment manager performance.
The Company expects to contribute approximately $0.9 million to its supplemental U.S. pension plan and $8.5
million to its non-U.S. pension plans in 2007.
The Company’s projected benefit payments at December 31, 2006, for each of the next five years and the aggregate
five years thereafter are as follows:
(In millions)
2007
2008
2009
2010
2011
2012 through 2016
Total
Termination Benefits
U.S. Plans
Non-U.S. Plans
$
32.1
33.9
35.4
37.2
39.2
230.2
$ 408.0
4.2
5.0
5.7
6.5
6.5
42.9
70.8
Total
36.3
38.9
41.1
43.7
45.7
273.1
478.8
The Company periodically restructures operations and is required to pay termination benefits pursuant to union
contracts and statutory or legal requirements. These termination benefits are recorded pursuant to the provisions
of SFAS 88, Employers’ Accounting for Settlement and Curtailments of Defined Benefit Pension Plans and
Termination Benefits.
During 2006, the Company’s Brink’s Australian subsidiary lost its largest customer. The Company took actions to
restructure the subsidiary in the second and third quarters, and recorded charges of $2.6 million for termination
benefits.
During 2005, one of the Company’s Brink’s European subsidiaries resized its operations and accrued $6.1 million
in termination benefits. During 2006, the Company reduced this estimate by $0.4 million.
91
The Brink’s Company 2006 Annual Report
Multi-employer Pension Plans
The Company contributes to multi-employer pension plans in a few of its non-U.S. subsidiaries. Multi-employer
pension expense (excluding changes to the withdrawal liability discussed below) have been classified in continuing
and discontinued operations as follows:
(In millions)
Multi-employer Expense
Continuing operations
Discontinued operations
Years Ended December 31,
2004
2005
2006
$
$
1.8
-
1.8
2.9
0.3
3.2
3.4
0.3
3.7
The Company withdrew from the UMWA 1950 and 1974 pension plans in June 2005 as the last employees working
under UMWA labor agreements left the Company. The Company settled its multi-employer pension withdrawal
liabilities and made final payments to the plans of $20.4 million in July 2006, resulting in a $9.9 million pretax
gain recognized in discontinued operations. During 2005, the UMWA reduced the estimate of the unfunded status
of the plans and, accordingly, the Company reduced its estimated $36.6 million withdrawal liability by $6.1 million
to $30.5 million.
Savings Plans
The Company sponsors various defined contribution plans to assist eligible employees provide for retirement.
Employee’s eligible contributions to the primary U.S. 401(k) plan were matched at 75% during 2005 and 2004.
Beginning January 1, 2006, the matching contribution increased from 75% to 125% of eligible employee
contributions. The Company’s matching contribution expense is as follows:
(In millions)
U.S. 401(k)
Other Plans
Total
Years Ended December 31,
2006
2005
2004
2006
2005
2004
2006
2005
2004
Continuing operations
Discontinued operations
$
16.5
0.5
6.5
3.6
7.3
3.6
$ 2.2
0.4
$
17.0
10.1
10.9
$ 2.6
2.6
4.3
6.9
2.1
3.7
5.8
$ 18.7
0.9
9.1
7.9
9.4
7.3
$ 19.6
17.0
16.7
The Brink’s Company 2006 Annual Report
92
Postretirement Benefits Other Than Pensions
Summary
The Company has various postretirement benefits other than pensions. The related liability amounts recorded on
the balance sheets for the last two years are detailed below.
(In millions)
Company-sponsored plans
Health Benefit Act
Black Lung
Included in:
Current, included in accrued liabilities
Liabilities held for sale
Noncurrent
December 31,
2006
126.5
19.2
46.7
192.4
12.3
-
180.1
192.4
$
$
$
$
2005
156.8
174.9
39.5
371.2
56.4
10.0
304.8
371.2
Company-Sponsored Plans
The Company provides postretirement health care benefits (the “Company-sponsored plans”) for eligible active
and retired employees in the U.S. and Canada of the Company’s current and former businesses, including eligible
participants of the former coal operations (the “coal-related” plans). The U.S. postretirement health care
obligations related to BAX Global were assumed by the purchaser in January 2006. At December 31, 2005, $10.0
million was classified as a component of liabilities held for sale for these plans. BAX Global’s postretirement
expenses have been included in discontinued operations. The components of net periodic postretirement costs
related to Company-sponsored plans were as follows:
(In millions)
Years Ended December 31,
Service cost
Interest cost on accumulated
postretirement benefit
obligations (“APBO”)
Return on assets – expected
Amortization of (gains) losses
Net periodic postretirement
Coal-related plans
2005
2006
2004
Other plans
2005
2006
2004
Total
2005
2004
2006
$
-
-
-
$
0.3
1.0
1.0
$
0.3
1.0
1.0
31.8
(34.2)
15.1
33.9
(15.1)
15.7
32.2
(9.2)
13.5
0.9
-
(0.1)
1.5
-
0.3
1.6
-
0.3
32.7
(34.2)
15.0
35.4
(15.1)
16.0
33.8
(9.2)
13.8
costs
$
12.7
34.5
36.5
Included in:
Continuing operations
Discontinued operations
Net periodic postretirement
$
12.7
-
34.5
-
36.5
-
$
$
1.1
2.8
2.9
$
13.8
37.3
39.4
1.0
0.1
1.3
1.5
1.5
1.4
$
13.7
0.1
35.8
1.5
38.0
1.4
costs
$
12.7
34.5
36.5
$
1.1
2.8
2.9
$
13.8
37.3
39.4
93
The Brink’s Company 2006 Annual Report
Reconciliations of the APBO and funded status to the accrued other postretirement benefit cost (the amount
recorded on the balance sheet) for Company-sponsored plans at December 31, 2006 and 2005 are as follows:
(In millions)
Years Ended December 31,
APBO at beginning of year
Service cost
Interest cost
Plan amendments
Benefits paid
Medicare subsidy received
Actuarial (gain) loss, net
Foreign currency exchange
Sale of BAX Global
APBO at end of year
Fair value of plan assets at beginning of year
Employer contributions:
Payments to beneficiaries
Payments to VEBA
Return on assets – actual
Benefits paid
Medicare subsidy received
Fair value of plan assets at end of year
Funded status
Unrecognized experience loss
Unrecognized prior service credit
Accrued other postretirement benefit cost
at end of year
Amounts recognized in accumulated other
comprehensive income (loss) consist of:
Benefit plan experience (loss) gain
Benefit plan prior service credit
Accumulated amounts recognized
Coal-related plans
Other plans
Total
2006
2005
2006
2005
2006
2005
$ 633.0
-
31.8
-
(37.8)
2.3
(58.4)
-
-
617.7
-
33.9
-
(35.6)
-
17.0
-
-
$
26.0
0.3
0.9
-
(0.6)
-
(3.0)
-
(8.7)
$ 570.9
633.0
$
14.9
30.2
1.0
1.5
(2.1)
(2.0)
-
(2.8)
0.2
-
26.0
$
-
659.0
0.3
32.7
-
(38.4)
2.3
(61.4)
-
(8.7)
647.9
1.0
35.4
(2.1)
(37.6)
-
14.2
0.2
-
$ 585.8
659.0
$
185.3
172.4
$
-
-
$
185.3
172.4
35.5
225.0
49.0
(37.8)
2.3
$ 459.3
35.6
-
12.9
(35.6)
-
185.3
$
(111.6)
(a)
(a)
(447.7)
318.1
-
0.6
-
-
(0.6)
-
-
2.0
-
-
(2.0)
-
-
36.1
225.0
49.0
(38.4)
2.3
$ 459.3
37.6
-
12.9
(37.6)
-
185.3
(14.9)
(a)
(a)
(26.0)
0.3
(1.5)
$ (126.5)
(a)
(a)
(473.7)
318.4
(1.5)
$
$
$
(111.6)
(129.6)
$
(14.9)
(27.2)
$ (126.5)
(156.8)
$ (229.8)
-
(229.8)
(a)
(a)
(a)
$
0.9
1.9
2.8
(a)
(a)
(a)
$ (228.9)
1.9
(227.0)
(a)
(a)
(a)
in the consolidated statements of operations
118.2
(a)
(17.7)
(a)
100.5
(a)
Net amount recognized in the consolidated
balance sheets
(a) Not applicable due to adoption of SFAS 158
$
(111.6)
(a)
$
(14.9)
(a)
$ (126.5)
(a)
The Company estimates that $11.6 million of experience loss and $0.2 million of prior service credit will be
amortized from accumulated other comprehensive income into net periodic postretirement cost during 2007.
The Brink’s Company 2006 Annual Report
94
The APBO for each of the plans was determined using the unit credit method and an assumed discount rate as
follows:
Company-sponsored plans
2006
2005
2004
Weighted-average discount rate:
Postretirement cost
Benefit obligation at year end
Expected long-term rate of return
on assets – postretirement cost
5.50%
5.75%
8.75%
5.75%
5.50%
8.75%
6.25%
5.75%
8.75%
For Company-sponsored coal-related plans, the assumed health care cost trend rate used to compute the 2006
APBO was 9% for 2007, declining ratably to 5% in 2012 and thereafter (in 2005: 10% for 2006 declining ratably to
5% in 2011 and thereafter). Other plans in the U.S. provide for fixed-dollar value coverage for eligible participants
and, accordingly, are not adjusted for inflation.
The RP-2000 Combined Healthy Blue Collar mortality table is primarily used to estimate expected lives of
participants at December 31, 2006 and 2005. The 1983 Group Annuity Mortality table was used to estimate
expected lives of participants at December 31, 2004.
The table below shows the estimated effects of a one percentage point change in the assumed health care cost trend
rates for each future year.
Effect of Change in Assumed
Health Care Trend Rates
(In millions)
Increase 1%
Decrease 1%
Higher (lower):
Service and interest cost in 2006
APBO at December 31, 2006
$
3.5
66.2
(2.9)
(56.1)
On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
“Medicare Act”) was signed into law. The Medicare Act introduced a prescription drug benefit under Medicare as
well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least
actuarially equivalent to Medicare prescription drug benefits. Because of the broadness of coverage provided
under the Company’s plan, the Company believes that the plan benefits are at least actuarially equivalent to the
Medicare benefits. The estimated effect of the legislation has been recorded as a reduction to the APBO, as
permitted by FSP 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003. The estimated value of the projected federal subsidy assumes no
changes in participation rates and assumes that the subsidy is received in the year after claims are paid. The
estimated reduction in per capita claim costs for participants over 65 years old was 12%.
The Company’s net periodic postretirement costs were approximately $6.2 million lower in 2006, $6.1 million
lower in 2005 and $5.8 million lower in 2004 due to the Act as a result of lower amortization of losses. The
estimated net present value of the subsidy, reflected as a reduction to the APBO, was approximately $61 million at
December 31, 2006 and $62 million at December 31, 2005.
Actuarial gains and losses are not recognized immediately in earnings for Company-sponsored plans. The portion
of the deferred gains or losses that exceeds 10% of the greater of the accumulated postretirement benefit obligation
or plan assets at the beginning of the year is amortized into earnings over the average remaining life expectancy for
inactive participants.
95
The Brink’s Company 2006 Annual Report
The coal-related plans had an actuarial gain in 2006 primarily related to changes in assumptions for the
participation rate for retirees and the change in discount rate from 5.50% to 5.75%.
The coal-related plans had an actuarial loss in 2005 primarily related to the reduction in the discount rate and
longer projected lives, partially offset by actuarial gains pursuant to enrollment verification death audit performed
by the Company. The Company’s other plans had net actuarial gains in 2005 primarily due to expected reduced per
capita claims as a result of an amendment of a Canadian plan.
The Company’s asset allocations at December 31, 2006 and 2005 by asset category are as follows:
(In millions, except percentages)
Equity securities
Debt securities
Other
Total
Plan assets at fair value
Actual return on assets during year
December 31,
2006
72%
28%
-%
100%
$ 459.3
49.0
$
December 31,
2005
71%
28%
1%
100%
185.3
12.9
$
$
Plan assets of the Company-sponsored postretirement medical plan held by the VEBA are invested primarily using
actively managed accounts with asset allocation targets of 70% equities, which include a broad array of market
capitalization sizes and investment styles, and 30% fixed income securities. The Company’s policy does not permit
certain investments, including investments in The Brink’s Company common stock, unless part of a commingled
fund. Fixed-income investments must have an investment grade rating at the time of purchase. The plan
rebalances its assets on a quarterly basis if actual allocations of assets are outside predetermined ranges. Among
other factors, the performance of asset groups and investment managers will affect the long-term rate of return.
The Company selects the expected long-term rate of return assumption after reviewing advice from its investment
advisor and its actuary considering the plan’s asset allocation targets and expected overall investment manager
performance and after reviewing the most recent ten-year historical average compounded rate of return for the
primary U.S. pension plan which is invested similarly.
In January 2006, the Company contributed $225 million to the VEBA with a portion of the proceeds from the sale of
BAX Global. The Company determines whether it will make other discretionary contributions on an annual basis,
although it does not currently expect to make further contributions in the next several years.
The Company’s projected benefit payments at December 31, 2006, for each of the next five years and the aggregate
five years thereafter are as follows:
(In millions)
2007
2008
2009
2010
2011
2012 through 2016
Total
Before Medicare Subsidy
$
Coal-related Plans
42.2
44.4
46.7
48.0
48.9
237.8
$ 468.0
Other Plans
1.0
1.0
1.0
0.9
0.9
4.5
9.3
Subtotal
43.2
45.4
47.7
48.9
49.8
242.3
477.3
Medicare
Subsidy (a)
(3.0)
(3.2)
(3.5)
(3.6)
(3.7)
(20.6)
(37.6)
Net Projected
payments
40.2
42.2
44.2
45.3
46.1
221.7
439.7
(a) Only the coal-related plans are expected to meet the requirements to receive the Medicare subsidy.
The Brink’s Company 2006 Annual Report
96
Health Benefit Act Liabilities
Background
In October 1992, The Coal Industry Retiree Health Benefit Act of 1992 (the “Health Benefit Act”) was enacted as
part of the Energy Policy Act of 1992. The Health Benefit Act established rules for the payment of future health care
benefits for thousands of retired union mine workers and their dependents.
Assigned Beneficiaries. The Health Benefit Act established a trust fund, The United Mine Workers of America
Combined Benefit Fund (the “Combined Fund”), to which “signatory operators” and “related persons,” including
The Brink’s Company and some of its subsidiaries and former subsidiaries (collectively, the “Brink’s Companies”)
were jointly and severally liable to pay annual premiums for those beneficiaries directly assigned to a signatory
operator and its related persons, on the basis set forth in the Health Benefit Act.
On an annual basis, the Brink’s companies receive notices from the Social Security Administration (the “SSA”)
with regard to the current number of assigned beneficiaries for which the Brink’s companies are deemed
responsible under the Health Benefit Act.
Unassigned Beneficiaries. In addition, the Health Benefit Act provided that assigned companies, including the
Brink’s companies, were required to fund, pro rata according to the total number of assigned beneficiaries, a
portion of the health benefits for unassigned beneficiaries if these benefits are not funded from other designated
sources. To date, almost all of the funding for unassigned beneficiaries has been provided from transfers from the
Abandoned Mine Land Reclamation Fund (the “AML Fund”) or other government sources.
2006 Act. In December 2006, the Tax Relief and Health Care Act of 2006 (the “2006 Act”) was enacted. By
providing alternative funding, the 2006 Act substantially reduced the Health Benefit Act obligations of the
Company for assigned beneficiaries. The 2006 Act eliminated the Company’s obligation for unassigned
beneficiaries. The Company recorded a $148.3 million gain within discontinued operations during 2006 primarily
due to the effects of the 2006 Act. The 2006 Act also provides elective mechanisms to reduce the impact of joint
and several liability on the Company and its assets.
Information and Assumptions Used to Estimate Obligation
Information provided by the Combined Fund and assumptions made by the Company are as follows:
At the beginning of the plan year
Number of assigned beneficiaries for the Brink’s companies
Total unassigned pool of beneficiaries
Percent of total unassigned pool allocated to the Brink’s companies
Health benefit premium per beneficiary
2006
1,962
N/A
N/A
3,361
$
2005
2,140
15,349
10.0%
3,228
According to the Health Benefit Act, the rate of inflation for per-beneficiary health care premiums cannot exceed
the medical care component of the Consumer Price Index. At December 31, 2006 and 2005, annual inflation rates
for per-beneficiary health care premiums were assumed to be 4.5% for all future years. The U.S. Life mortality
table has been used to estimate a gradual decline in the number of beneficiaries.
97
The Brink’s Company 2006 Annual Report
Undiscounted Obligation for Health Benefit Act Liabilities
(In millions)
Combined Fund:
Assigned beneficiaries
Unassigned beneficiaries
Other
Reconciliation of Health Benefit Act Liabilities
(In millions)
Beginning of the year
Actuarial and other gains, net (a)
Payments
End of the year
December 31,
2006
2005
$
$
$
12.4
-
6.8
19.2
2006
174.9
(148.3)
(7.4)
$
19.2
103.7
64.7
6.5
174.9
Years Ended December 31,
2005
185.5
(2.3)
(8.3)
174.9
2004
197.5
(3.2)
(8.8)
185.5
(a)
Included in income from discontinued operations.
The $148.3 million gain during 2006 was primarily related to the 2006 Act.
The $2.3 million actuarial gain in 2005 was primarily related to a one-year extension of funding by the AML of
unassigned benefits and a lower-than-projected per-beneficiary health care premium rate, partially offset by a
higher number of unassigned beneficiaries attributed to the Company.
The $3.2 million actuarial gain in 2004 is primarily related to a slight decrease in the number of beneficiaries
assigned to the Company at October 1, 2004, compared to the amount estimated at the end of 2003. As a result, the
estimate of assigned beneficiaries in future periods was also lower.
The Company currently estimates that its annual cash funding under the Health Benefit Act will be significantly
lower in 2007 and in subsequent years due to the signing of the 2006 Act. The Company’s projected benefit
payments at December 31, 2006, for each of the next five years and the aggregate five years thereafter are as
follows:
(In millions)
2007
2008
2009
2010
2011
2012 though 2016
Total
Projected
Payments
$
$
6.5
3.7
2.4
1.0
0.3
1.2
15.1
The Brink’s Company 2006 Annual Report
98
Pneumoconiosis (Black Lung) Obligations
The Company acts as self-insurer with respect to almost all black lung obligations. Provision is made for estimated
benefits based on annual reports prepared by independent actuaries. Unrecognized losses, representing the
excess of the present value of expected future benefits over existing accrued liabilities, are amortized over the
average remaining life expectancy of participants (approximately 10 years). The components of net periodic
postretirement benefit costs related to black lung obligations were as follows:
(In millions)
Interest cost on APBO
Amortization of losses
Net periodic postretirement costs
2006
2.6
1.1
3.7
$
$
Years Ended December 31,
2005
2.9
1.2
4.1
2004
3.6
1.2
4.8
Reconciliations of the APBO and funded status to the accrued other postretirement benefit costs for black lung
obligations at December 31, 2006 and 2005 are as follows:
(In millions)
APBO at beginning of year
Interest costs
Benefits paid
Actuarial gain, net
APBO at end of year
Funded status
Unrecognized experience loss
Accrued other postretirement benefit cost at end of year
Amounts recognized in accumulated other comprehensive income
(loss) consist of – benefit plan experience loss
Accumulated amounts recognized
in the consolidated statements of operations
Net amount recognized in the consolidated balance sheets
(a) Not applicable due to adoption of SFAS 158.
Years Ended December 31,
2006
51.7
2.6
(6.4)
(1.2)
46.7
(46.7)
(a)
(46.7)
(9.8)
(36.9)
(46.7)
$
$
$
$
$
$
2005
55.2
2.9
(6.1)
(0.3)
51.7
(51.7)
12.2
(39.5)
(a)
(a)
(a)
The Company estimates that $1.0 million of the benefit plan experience loss will be amortized from accumulated
other comprehensive income into net periodic postretirement cost during 2007.
99
The Brink’s Company 2006 Annual Report
The 1983 Group Annuity Mortality table is used to estimate expected lives of participants. The following are the
other key actuarial assumptions for the black lung obligations:
Black Lung Benefits
Discount rate:
Postretirement cost
Benefit obligation at year end
Medical cost inflation
2006
2005
5.50%
5.75%
8.00%
5.75%
5.50%
8.00%
The Company’s projected benefit payments for black lung benefits at December 31, 2006, for each of the next five
years and the aggregate five years thereafter are as follows:
(In millions)
2007
2008
2009
2010
2011
2012 through 2016
Total
Projected
Payments
4.8
4.6
4.4
4.3
4.1
18.2
40.4
$
$
The Brink’s Company 2006 Annual Report
100
Note 5 - Income Taxes
(In millions)
Years Ended December 31,
2005
2004
2006
Income from continuing operations before income taxes and minority interest
U.S.
Foreign
Total
Income tax expense (benefit)
Current
U.S. federal
State
Foreign
Deferred
U.S. federal
State
Foreign
$
113.6
90.7
$ 204.3
45.1
61.0
106.1
56.5
68.0
124.5
$ (125.3)
15.0
41.7
(68.6)
156.1
(3.7)
(1.1)
151.3
$
82.7
(0.3)
1.9
36.1
37.7
10.0
(2.1)
3.9
11.8
49.5
0.1
5.4
26.5
32.0
13.2
-
(4.6)
8.6
40.6
The U.S. federal current income tax benefit on continuing operations in 2006 was offset by U.S. federal current tax expense
included in income from discontinued operations.
(In millions)
Comprehensive provision (benefit) for income taxes allocable to
Continuing operations
Discontinued operations
Change in accounting principle
Other comprehensive income (loss)
Shareholders’ equity
Years Ended December 31,
2005
2004
2006
$
82.7
267.4
(108.8)
32.1
(6.1)
$ 267.3
49.5
(3.7)
(0.9)
(13.6)
(15.1)
16.2
40.6
32.9
-
(3.9)
(4.7)
64.9
101
The Brink’s Company 2006 Annual Report
The components of the net deferred tax asset are as follows:
(In millions)
Deferred tax assets
Deferred revenue
Postretirement benefits other than pensions
Pension liabilities
Workers’ compensation and other claims
Multi-employer pension plan withdrawal liabilities
Investment in BAX Global
Other assets and liabilities
Net operating loss carryforwards
Alternative minimum and other tax credits
Subtotal
Valuation allowances
Total deferred tax assets
Deferred tax liabilities
Property and equipment, net
Prepaid assets
Other assets and miscellaneous
Total deferred tax liabilities
Net deferred tax asset
Included in:
Current assets
Noncurrent assets
Current liabilities, included in accrued liabilities
Noncurrent liabilities
December 31,
2006
2005
$
$
$
75.1
74.3
51.1
41.9
-
-
88.9
50.3
3.0
384.6
(54.3)
330.3
92.8
26.1
19.1
138.0
192.3
71.8
142.2
(0.9)
(20.8)
69.1
115.6
78.1
42.4
10.9
9.2
70.0
44.1
79.4
518.8
(42.1)
476.7
84.3
25.3
18.5
128.1
348.6
174.0
196.9
(3.5)
(18.8)
348.6
Net deferred tax asset
$
192.3
The valuation allowances relate to deferred tax assets in various state and non-U.S. jurisdictions. Based on the
Company’s historical and expected future taxable earnings, and a consideration of available tax-planning
strategies, management believes it is more likely than not that the Company will realize the benefit of the existing
deferred tax assets, net of valuation allowances, at December 31, 2006.
The following table reconciles the difference between the actual tax provision from continuing operations and the
amounts obtained by applying the statutory U.S. federal income tax rate of 35% in each year to the income from
continuing operations before income taxes.
The Brink’s Company 2006 Annual Report
102
(In millions)
Income tax expense computed at 35% statutory rate
Increases (reductions) in taxes due to:
Adjustments to valuation allowances
State income taxes, net
Medicare subsidy of postretirement costs
Repatriation of foreign earnings under the AJCA
Foreign income taxes
Foreign tax credit carryover
Taxes on undistributed earnings of foreign affiliates
Other
Years Ended December 31,
2005
2004
2006
$
71.5
37.1
43.6
8.4
6.7
(2.1)
-
(2.6)
-
0.5
0.3
18.6
(0.9)
(2.1)
2.9
(0.3)
(3.9)
0.7
(2.6)
49.5
2.1
3.9
(2.0)
-
(4.7)
-
(1.7)
(0.6)
40.6
Actual income tax expense on continuing operations
$
82.7
Adjustments to the beginning-of-year valuation allowance of $1.7 million in 2006, $10.0 million in 2005 and $1.4
million in 2004 related primarily to several international operations with a recent history of losses. The valuation
allowance also increased by $6.7 million in 2006, $8.6 million in 2005 and $0.7 million in 2004 to offset the net
increase in deferred tax assets in jurisdictions where the Company had previously concluded that valuation
allowances were necessary. The valuation allowances were required due to the Company’s assessment that these
assets did not meet the more-likely-than-not recognition criteria of SFAS 109.
The Company recognized tax benefits related to uncertain tax positions upon favorable settlements of issues
relating primarily to the Company’s state tax returns in 2005.
As of December 31, 2006, the Company has not recorded U.S. federal deferred income taxes on approximately $195
million of undistributed earnings of foreign subsidiaries and equity affiliates. It is expected that these earnings
will be permanently reinvested in operations outside the U.S. It is not practical to compute the estimated deferred
tax liability on these earnings.
The Company repatriated cash of $71.2 million in 2005, including $22.4 million related to BAX Gobal’s non-U.S.
subsidiaries, under the repatriation provision of the American Jobs Creation Act of 2004. The Company
recognized $3.6 million of additional income tax expense in 2005, including $0.7 million included as a component
of discontinued operations, related to the repatriation.
The Company’s U.S. entities file a consolidated U.S. federal income tax return.
103
The Brink’s Company 2006 Annual Report
The gross amount of the net operating loss carryforwards as of December 31, 2006, was $162.7 million. The tax
benefit of net operating loss carryforwards, before valuation allowances, as of December 31, 2006 was $50.3
million, and expire as follows:
(In millions)
Year of expiration:
2007-2011
2012-2016
2017 and thereafter
Unlimited
Federal
State
Foreign
Total
$
$
-
-
-
-
-
-
-
1.0
-
1.0
5.8
0.7
-
42.8
49.3
5.8
0.7
1.0
42.8
50.3
The Company and its subsidiaries are subject to tax examinations in various U.S. and foreign jurisdictions and the
Company has accrued approximately $27 million for related contingencies at December 31, 2006. While it is
difficult to predict the final outcome of the various issues that may arise during an examination, the Company
believes that it has adequately provided for potential contingent income tax liabilities and interest.
The Brink’s Company 2006 Annual Report
104
Note 6 - Property and Equipment
The following table presents the Company’s property and equipment that is classified as held and used:
December 31,
(In millions)
Land
Buildings
Leasehold improvements
Security systems
Vehicles
Capitalized software
Other machinery and equipment
Accumulated depreciation and amortization
Property and equipment, net
2006
$
30.3
161.1
159.6
742.2
230.8
98.5
368.0
1,790.5
(808.6)
$ 981.9
2005
27.1
125.2
146.0
652.5
209.3
80.4
340.1
1,580.6
(713.2)
867.4
Amortization of capitalized software costs included in continuing operations was $13.8 million in 2006, $13.3
million in 2005 and $10.6 million in 2004.
Note 7 - Acquisitions
The Company has acquired security operations in numerous countries over the last three years. These operations
have all been included in the Company’s Brink’s operating segment.
(In millions)
Greece
Other
2004
Acquisition completed
in the quarter ended
March 31, 2004
Luxembourg, Scotland and Ireland
Hungary, Poland and the Czech Republic (a)
Other
March 31, 2005
June 30, 2005
2005
Mauritius
Other
2006
(a) Czech Republic was sold in January 2007.
June 30, 2006
Purchase price
$
$
$
$
$
$
11.9
2.9
14.8
41.9
10.7
0.6
53.2
10.7
3.7
14.4
These acquisitions have been accounted for as business combinations. Under the purchase method of accounting,
assets acquired and liabilities assumed from these operations are recorded at fair value on the date of acquisition.
The consolidated statements of operations include the results of operations for an acquired entity from the date of
acquisition. The results of the acquired operations were not material to the Company’s consolidated statements of
operation for the periods presented.
Purchase prices for 2006 acquisitions have been preliminarily allocated based on estimates of fair value of assets
acquired and liabilities assumed. The final valuation of net assets is expected to be completed as soon as possible,
but not later than one year from the acquisition date.
105
The Brink’s Company 2006 Annual Report
Note 8 –Goodwill and Other Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2006 and 2005 are as follows:
(In millions)
Brink’s
BAX Global
$
December 31, 2004
Acquisitions
Adjustments (a)
Foreign currency exchange
Reclassification to assets held for sale
December 31, 2005
Acquisitions
Adjustments (a)
Foreign currency exchange
92.1
22.8
(1.1)
(10.0)
-
103.8
9.5
(0.4)
11.1
December 31, 2006
$
124.0
167.5
-
-
(2.3)
(165.2)
-
-
-
-
-
Total
259.6
22.8
(1.1)
(12.3)
(165.2)
103.8
9.5
(0.4)
11.1
124.0
(a) Purchase accounting adjustment occurring in the year following the acquisition and adjustments to valuation allowances for deferred tax
assets.
Other Intangible Assets
(In millions)
Finite-lived intangible assets
Accumulated amortization
Intangible assets, net
December 31,
2006
$ 33.2
(9.3)
$ 23.9
2005
21.6
(5.0)
16.6
The Company’s intangible assets are included in other assets on the balance sheet (see note 9) and consist
primarily of customer lists and covenants not to compete.
The Brink’s Company 2006 Annual Report
106
Note 9 - Other Assets
(In millions)
Deferred subscriber acquisition costs
Intangible assets, net (see note 8)
Investment in unconsolidated entities:
Cost method
Equity method
Marketable securities
Long-term receivables
Other
Other assets
Note 10 - Accrued Liabilities
(In millions)
Payroll and other employee liabilities
Taxes, except income taxes
Deferred revenue
Workers’ compensation and other claims
Postretirement benefits other than pensions (see notes 1 and 4)
Withdrawal obligation for coal related multi-employer pension plan (see note 4)
Other
Accrued liabilities
Note 11 - Other Liabilities
(In millions)
Workers’ compensation and other claims
Minority interest
Other
Other liabilities
December 31,
2006
$ 78.8
23.9
23.4
15.2
24.8
13.5
9.5
$ 189.1
2005
72.1
16.6
23.4
15.7
12.8
15.9
10.5
167.0
December 31,
2006
$ 129.7
78.1
34.5
25.8
12.2
-
105.8
$ 386.1
2005
103.2
77.6
30.0
31.9
56.4
30.5
110.2
439.8
December 31,
2006
$ 62.4
51.8
86.1
$ 200.3
2005
61.9
41.5
74.0
177.4
107
The Brink’s Company 2006 Annual Report
Note 12 - Long-Term Debt
(In millions)
Bank credit facilities:
Revolving Facility, primarily denominated in U.S. dollars (year-end
weighted average interest rate of 5.05% in 2006 and 3.75% in 2005)
Other non-U.S. dollar denominated facilities (year-end weighted average
interest rate of 7.97% in 2006 and 8.29% in 2005)
Senior Notes:
Series A, 7.84%, due 2006-2007 (a)
Series B, 8.02%, due 2008 (a)
Series C, 7.17%, due 2006-2008 (a)
Other:
Capital leases (average rates: 5.96% in 2006 and 5.55% in 2005)
Dominion Terminal Associates 6.00% bonds, due 2033
Total long-term debt
Current maturities of long-term debt:
Bank credit facilities
Senior Notes (a)
Capital leases
Total current maturities of long-term debt
December 31,
2006
2005
$ 52.1
19.6
71.7
-
-
-
-
21.9
43.2
136.8
2.4
-
8.1
10.5
123.6
19.8
143.4
36.7
20.0
20.0
76.7
24.1
43.2
287.4
2.9
25.0
7.6
35.5
251.9
Total long-term debt excluding current maturities
$ 126.3
(a) Prepaid in 2006.
The Company entered into a new unsecured $400 million revolving bank credit facility with a syndicate of banks in
the third quarter of 2006. The new facility replaces a $400 million revolving credit facility that was scheduled to
mature in 2009. The new facility’s interest rate is based on LIBOR plus a margin, prime rate, or competitive bid.
The facility allows the Company to borrow (or otherwise satisfy credit needs) on a revolving basis over a five-year
term ending in August 2011. As of December 31, 2006, $347.9 million was available under the revolving credit
facility. The new and prior facility are referred to as the “Revolving Facility” herein. The margin on LIBOR
borrowings, which can range from 0.140% to 0.575% depending on the Company’s credit rating, was 0.27% at
December 31, 2006. When borrowings and letters of credit under the Revolving Facility are in excess of $200
million, the applicable interest rate is increased by 0.1% or 0.125%. The Company also pays an annual facility fee
on the Revolving Facility based on the Company's credit rating. The facility fee, which can range from 0.060% to
0.175%, was 0.08% as of December 31, 2006.
The Company has an unsecured $150 million credit facility with a bank to provide letters of credit and other
borrowing capacity over a five-year term ending in December 2009 (the “Letter of Credit Facility”). As of
December 31, 2006, $8.7 million was available for use under this revolving credit facility. The Revolving Facility
and the multi-currency revolving credit facilities described below are also used for the issuance of letters of credit
and bank guarantees.
The Brink’s Company 2006 Annual Report
108
The Company has three unsecured multi-currency revolving bank credit facilities totaling $96.2 million in
available credit at December 31, 2006, of which $48.2 million was unused. When rates are favorable, the Company
also borrows from other banks under short-term uncommitted agreements. Various foreign subsidiaries maintain
other secured and unsecured lines of credit and overdraft facilities with a number of banks. Amounts borrowed
under these agreements are included in short-term borrowings.
The Company made scheduled payments of $18.3 million in January 2006 related to its Senior Notes. On March 31,
2006, the Company prepaid in full the outstanding $58.4 million balance of its Senior Notes and made a make-
whole payment of $1.6 million. The Senior Notes were cancelled upon prepayment. In addition, the Company
significantly reduced other debt during 2006.
Minimum repayments of long-term debt are as follows:
(In millions)
2007
2008
2009
2010
2011
Later years
Total
Capital
Leases
8.1
5.3
4.1
2.3
1.0
1.1
21.9
$
$
Other long-
term debt
2.4
12.9
1.0
0.9
53.0
44.7
114.9
Total
10.5
18.2
5.1
3.2
54.0
45.8
136.8
109
The Brink’s Company 2006 Annual Report
Capital Leases
Property under capital leases are included in property and equipment as follows:
(In millions)
Asset class:
Buildings
Vehicles
Machinery and equipment
Less: accumulated amortization
Total
December 31,
2006
2005
$
$
16.2
47.8
5.2
69.2
41.2
28.0
28.3
54.5
15.2
98.0
56.4
41.6
The Company’s Brink’s and BHS subsidiaries have guaranteed the Revolving Facility and the Letter of Credit
Facility. The Revolving Facility, the Letter of Credit Facility and the multi-currency revolving bank credit facilities
contain various financial and other covenants. The financial covenants, among other things, limit the Company’s
total indebtedness, limit asset sales, limit the use of proceeds on asset sales, and provide for minimum coverage of
interest costs. The credit agreements do not provide for the acceleration of payments should the Company's credit
rating be reduced. If the Company were not to comply with the terms of its various loan agreements, the repayment
terms could be accelerated and the commitment could be withdrawn. An acceleration of the repayment terms
under one agreement could trigger the acceleration of the repayment terms under the other loan agreements. The
Company was in compliance with all financial covenants at December 31, 2006.
The Company has guaranteed $43.2 million of bonds issued by the Peninsula Ports Authority of Virginia. The
guarantee originated as part of the Company’s former interest in Dominion Terminal Associates, a deep water coal
terminal. The Company continues to pay interest on and guarantee payment of the $43.2 million principal amount
and ultimately will have to pay for the retirement of the bonds in accordance with the terms of the guarantee. The
bonds bear a fixed interest rate of 6.0% and mature in 2033. The bonds may mature prior to 2033 upon the
occurrence of specified events such as the determination that the bonds are taxable or the failure of the Company to
abide by the terms of its guarantee.
At December 31, 2006, the Company had undrawn unsecured letters of credit and guarantees totaling $169.9
million, including $141.3 million issued under the Letter of Credit Facility, and $20.6 million issued under the
multi-currency revolving bank credit facilities. These letters of credit primarily support the Company’s
obligations under various self-insurance programs and credit facilities.
The Brink’s Company 2006 Annual Report
110
Note 13 – Accounts Receivable
(In millions)
Trade
Other
Estimated uncollectible amounts
Accounts receivable, net
Note 14 –Operating Leases
December 31,
2006
$ 432.6
48.4
481.0
(11.6)
$ 469.4
2005
372.0
58.4
430.4
(11.3)
419.1
The Company leases facilities, vehicles, computers and other equipment under long-term operating and capital
leases with varying terms. Most of the operating leases contain renewal and/or purchase options. The Company
expects that in the normal course of business, the majority of operating leases will be renewed or replaced by other
leases.
As of December 31, 2006, future minimum lease payments under noncancellable operating leases with initial or
remaining lease terms in excess of one year are included below.
(In millions)
Facilities
Vehicles
Other
2007
2008
2009
2010
2011
Later years
$
41.2
33.8
25.7
18.8
12.9
48.0
$
180.4
31.7
26.1
18.5
12.2
8.6
11.4
108.5
4.3
3.4
2.4
1.2
0.6
0.6
12.5
Total
77.2
63.3
46.6
32.2
22.1
60.0
301.4
The table above includes lease payments for the initial accounting lease term and all renewal periods for most
vehicles under operating leases used in Brink’s and BHS’ U.S. operations. If the Company were to not renew these
leases, it would be subject to a residual value guarantee. The Company’s maximum residual value guarantee was
$62.5 million at December 31, 2006. If the Company continues to renew the leases and pays all of the lease
payments for the vehicles that have been included in the above table (which aggregate lease payments decline over
four to eight years), this residual value guarantee will reduce to zero at the end of the final renewal period. In
addition, the Company has $4.9 million of maximum guaranteed residuals on another operating lease.
Net rent expense included in continuing operations amounted to $89.2 million in 2006, $84.3 million in 2005 and
$74.4 million in 2004.
111
The Brink’s Company 2006 Annual Report
Note 15 - Share-Based Compensation Plans
The Company has stock incentive plans to encourage employees and nonemployee directors to remain with the
Company and to more closely align their interests with those of the Company’s shareholders.
Stock Option Plans
In May 2005, the shareholders of the Company approved the 2005 Equity Incentive Plan (the “2005 Plan”) as the
successor plan to the 1988 Stock Option Plan (the “1988 Plan”). As a result, options will no longer be granted
under the 1988 Plan. The 2005 Plan permits grants of options and also allows for grants of restricted stock and
restricted stock units as well as performance units and other share-based awards. No share-based awards other
than stock options have been granted under the 2005 Plan. The Company also has a Non-Employee Directors’
Stock Option Plan (the “Directors’ Plan”).
Options are granted at a price not less than the average quoted market price on the date of grant. All grants to
employees in the last three years under the 2005 Plan and the 1988 Plan have a maximum term of six years and
generally either vest over three years from the date of grant or vest 100% at the end of the third year. Options
granted under the 2005 Plan and the 1988 Plan generally provide for continued vesting if the participant were to
elect retirement under one of the Company’s pension plans. Directors’ Plan options are granted with a maximum
term of ten years and vest in full at the end of six months. There are 4.1 million shares underlying options that are
authorized, but not yet granted. The Company uses shares from the Employee Benefits Trust for stock option
exercises. Although it has not expressed any intent to do so, the Company has the right to amend, suspend, or
terminate the 1988 Plan or 2005 Plan at any time by action of the Company's board of directors. If a change in
control were to occur (as defined in the plan documents), certain options may become immediately vested.
As discussed in note 1, the Company adopted SFAS 123(R) on January 1, 2006. The effect of adopting SFAS 123(R)
on the consolidated statements of operations for the year ended December 31, 2006, is as follows:
(In millions, except per share amounts)
Selling, general and administrative expense
Income from continuing operations before income taxes and minority interest
Provision for income taxes
Income from continuing operations
Income from discontinued operations, net of taxes of $1.9 (a)
Net income
Net income per common share:
Basic
Diluted
Year Ended
December 31, 2006
$
11.1
(11.1)
(3.9)
(7.2)
(4.7)
$
(11.9)
$
(0.24)
(0.24)
(a)
In conjunction with the sale of BAX Global in the first quarter of 2006, 328,247 options held by BAX Global employees were modified to
become immediately vested. This modification resulted in additional pretax compensation expense of $6.6 million ($4.7 million after
tax) and is included in the calculation of the gain on sale of BAX Global. The weighted-average exercise price of these options was $25.67.
All of the accelerated options have been exercised.
The Brink’s Company 2006 Annual Report
112
The following table illustrates the pro forma effect on net income and earnings per share if the fair value based
method under SFAS 123 had been applied in 2005 and 2004:
Years Ended December 31,
(In millions, except per share amounts)
Net income:
As reported
Less: share-based compensation expense determined
under fair-value method, net of related tax effects
Pro forma
Net income per share:
Basic, as reported
Basic, pro forma
Diluted, as reported
Diluted, pro forma
2005
$
142.4
(4.1)
$
138.3
$
$
2.53
2.46
2.50
2.43
2004
121.5
(3.6)
117.9
2.23
2.16
2.20
2.13
The fair value of each stock option grant is estimated at the time of grant using the Black-Scholes option-pricing
model. If a different option-pricing model had been used, results may have been different.
The fair value of options that vest entirely at the end of a fixed period, generally three years, is estimated using a
single option approach and generally amortized on a straight-line basis over the vesting period. The fair value of
options that vest ratably over three years is estimated using a multiple-option approach and generally amortized on
a straight-line basis over each separate vesting period. Upon adoption of SFAS 123(R), compensation cost related
to new stock option grants that continue to vest upon retirement is recognized over the period from the grant date
to the retirement-eligible date. If the Company had applied this provision prior to the adoption of SFAS 123(R),
compensation cost would have been $1.8 million lower in 2006. An 8% forfeiture rate has been used to estimate
the number of options for which vesting is not expected to occur.
113
The Brink’s Company 2006 Annual Report
The fair value of options granted during the three years ended December 31, 2006, was calculated using the
following estimated weighted average assumptions.
Options Granted
Years Ended December 31,
2005
2004
2006
Number of shares underlying options, in thousands
Weighted-average exercise price per share
610
$ 55.11
699
35.95
937
31.88
Assumptions used to estimate fair value:
Expected dividend yield:
Weighted-average
Range
Expected volatility:
Weighted-average
Range
Risk-free interest rate:
Weighted-average
Range
Expected term in years:
Weighted-average
Range
0.5%
0.4% -0.5%
0.4%
0.4%-0.5%
0.5%
0.5%
32%
30%-36%
34%
33%-34%
32%
31%-32%
5.0%
4.6%-5.2%
3.8%
3.8%-4.4%
3.3%
1.8%-3.7%
4.3
2.7-7.0
4.1
3.0-7.0
3.8
2.4-4.5
Weighted-average fair value estimates at grant date:
In millions
Fair value per share
$
$
11.0
18.04
7.8
11.21
8.3
8.84
The expected dividend yield was calculated by annualizing the cash dividend declared by the Company for the most
recent period equal to the expected term and dividing that result by the closing stock price on the date of
declaration. Dividends are not paid on options.
The expected volatility was estimated after reviewing the historical volatility of the Company’s stock using daily
close prices.
The risk-free interest rate was based on yields on U.S. Treasury debt at the time of the grant or modification.
The expected term of the options was based on the Company’s historical option exercise data, option expiration
and post-vesting cancellation behavior.
The intrinsic value of a stock option is the difference between the market price of the shares underlying the option
and exercise price of the option. The total intrinsic value of options exercised was $20.5 million in 2006, $33.1
million in 2005, and $16.5 million in 2004.
As of December 31, 2006, $5.5 million of total unrecognized compensation cost related to previously granted stock
options is expected to be recognized over a weighted-average period of 1.4 years.
The Brink’s Company 2006 Annual Report
114
In 2006, the Company recognized compensation expense related to all options held by employees of BAX Global
that were modified to accelerate vesting provisions. The fair value of options accelerated during 2006 was
calculated using the following estimated weighted-average assumptions.
Options Modified
Number of shares underlying options, in thousands
Weighted-average exercise price per share
Assumptions used to estimate fair value:
Expected dividend yield:
Weighted average
Range
Expected volatility:
Weighted-average
Range
Risk-free interest rate:
Weighted-average
Range
Expected term in years:
Weighted-average
Range
Year Ended
December 31,
2006
328
25.67
$
0.3%
0.2% - 0.3%
29.1%
25.7 - 32.1%
4.1%
3.7 - 4.7%
0.5
0.3 - 0.7
Weighted-average fair value estimates at modification date:
In millions
Fair value per share
$
$
6.6
20.11
115
The Brink’s Company 2006 Annual Report
The table below summarizes the activity in all plans for options of the Company’s common stock for 2006, 2005
and 2004.
Shares
(in thousands)
Weighted- Average
Exercise Price Per Share
Weighed-Average
Remaining Contractual
Term (in years)
Aggregate
Intrinsic
Value
(in millions)
Outstanding at December 31, 2003
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2004
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2005
Granted
Exercised
Forfeited or expired
3,956
937
(1,262)
(362)
3,269
699
(1,498)
(131)
2,339
610
(750)
(69)
$
21.14
31.88
19.63
35.18
23.24
35.95
21.06
26.62
28.25
55.11
24.82
39.90
Outstanding at December 31, 2006
2,130
$
36.77
4.2
$ 57.8
Of the above, as of December 31, 2006:
Exercisable
Expected to vest in future periods (a)
935
1,152
$
$
26.31
44.86
3.2
5.0
$ 35.2
$ 22.0
(a)
The number of options expected to vest takes into account an estimate of expected forfeitures.
There were 0.8 million shares of exercisable options with a weighted-average exercise price of $22.77 per share at
December 31, 2005, and 1.5 million shares of exercisable options with a weighted-average exercise price of $20.68
per share at December 31, 2004.
Employee Stock Purchase Plan
The 1994 Employee Stock Purchase Plan (the “ESPP”), was a noncompensatory plan that allowed eligible
employees to buy the Company’s common stock at below market value, subject to plan limitations on the amount an
employee could purchase annually. The ESPP was terminated in June 2005. Under the ESPP, the Company sold
approximately 0.1 million shares of common stock to employees in both 2005 and 2004.
The Brink’s Company 2006 Annual Report
116
Note 16 - Capital Stock
At December 31, 2006, the Company had 100 million shares of common stock authorized and 48.5 million shares
issued and outstanding.
Repurchase Program
As further discussed below, during 2006 the Company purchased and retired approximately 12.2 million shares of
its common stock for $630.9 million. The shares purchased and retired approximated 21% of the number of
shares outstanding on December 31, 2005.
Dutch Auction
On March 8, 2006, the Company’s board of directors authorized a “Dutch auction” self-tender offer to purchase up
to 10 million shares of the Company’s common stock. Under certain circumstances up to an additional 2% of the
outstanding common stock was authorized to be purchased in the tender offer. The tender offer began on March 9,
2006, and expired on April 6, 2006, and was subject to the terms and conditions described in the offering
materials mailed to the Company’s shareholders and filed with the Securities and Exchange Commission. On April
11, 2006, the Company purchased 10,355,263 shares in the tender offer at $51.20 per share for a total of
approximately $530.2 million in cash. The Company incurred $0.7 million in costs associated with the purchase.
Other repurchases
Following the self-tender offer, the board authorized additional Company common stock purchases of up to $100
million from time to time as market conditions warranted and as covenants under existing agreements permitted.
The additional stock purchase program did not require any specific number of shares be purchased. Under the
program, the Company used $100 million to purchase 1,823,118 shares of common stock between May 22 and
October 5, 2006, at an average price of $54.85 per share. The Company has no remaining authority under the
program.
Employee Benefits Trust
The Employee Benefits Trust holds shares of the Company’s common stock to fund obligations under
compensation and employee benefit programs that provide for the issuance of stock. The Company issued 2.0
million shares in 2006, 2.1 million shares in 2005 and 2.5 million shares in 2004 of common stock to the
Employee Benefits Trust. Prior to 2006, shares held by the Employee Benefits Trust that have not been allocated to
employees are accounted for at fair value as a reduction of shareholders’ equity similar to treasury stock. Under
SFAS 123(R), the Company no longer separately reports the Employee Benefits Trust in its consolidated statement
of shareholders’ equity and consolidated balance sheet; it is now offset with capital in excess of par value. Shares of
common stock will be voted by the trustee in the same proportion as those voted by the Company’s employees
participating in the Company’s 401(k) plan.
Preferred Stock
At December 31, 2006, the Company has the authority to issue up to 2.0 million shares of preferred stock, par value
$10 per share.
117
The Brink’s Company 2006 Annual Report
Series A Preferred Stock Rights Agreement
Under the Amended and Restated Rights Agreement dated as of September 2003, holders of common stock have
rights to purchase a new Series A Participating Cumulative Preferred Stock (the “Series A Preferred Stock”) of the
Company at the rate of one right for each share of common stock. Each right, if and when it becomes exercisable,
will entitle the holder to purchase one-thousandth of a share of Series A Preferred Stock at a purchase price of
$60.00, subject to adjustment.
Each fractional share of Series A Preferred Stock will be entitled to participate in dividends and to vote on an
equivalent basis with one whole share of common stock. Each right will not be exercisable until after a third party
acquires more than 15% of the total voting rights of all outstanding common stock or on specific dates as may be
designated by the Board after commencement of a tender offer or exchange offer by a third party for more than 15%
of the total voting rights of all outstanding common stock.
If after the rights become exercisable, the Company is acquired in a merger or other business combination, each
right will entitle the holder to purchase, for the purchase price, common stock of the surviving or acquiring
company having a market value of twice the purchase price. In the event a third party acquires more than 15% of all
outstanding common stock, the rights will entitle each holder to purchase, at the purchase price, that number of
fractional shares of Series A Preferred Stock equivalent to the number of shares of common stock which at the time
of the triggering event would have a market value of twice the purchase price. As an alternative to the purchase
described in the previous sentence, the board may elect to exchange the rights for other forms of consideration,
including that number of shares of common stock obtained by dividing the purchase price by the market price of
the common stock at the time of the exchange or for cash equal to the purchase price. The rights may be redeemed
by the Company at a price of $0.01 per right and expire on September 25, 2007.
The Brink’s Company 2006 Annual Report
118
Note 17 – Discontinued Operations
(In millions)
Gain (loss) on sale of
BAX Global
Timber
Gold
Coal
Results from operations
BAX Global (a)
Timber
Gold
$
Adjustments to contingent liabilities of former operations
Health Benefit Act liabilities (see note 4)
Withdrawal liabilities (see note 4)
Litigation settlement gain
Reclamation liabilities
Workers’ compensation liabilities
Other
Income from discontinued operations before income taxes
Income tax (expense) benefit
586.7
-
-
-
7.0
-
-
148.3
9.9
-
0.6
(0.4)
(0.8)
751.3
(267.4)
2006
Years Ended December 31,
2005
2004
-
20.7
(0.9)
5.0
49.5
(0.5)
(1.2)
3.2
15.4
-
(0.1)
(4.9)
(3.3)
82.9
(32.9)
50.0
(2.8)
-
-
-
86.8
-
-
2.3
6.1
15.1
(6.2)
0.4
0.1
101.8
3.7
105.5
Income from discontinued operations
$
483.9
(a) Revenues of BAX Global were $230.0 million in 2006, $2,899.4 million in 2005 and $2,440.6 million in 2004. In accordance with SFAS
144, Accounting for the Impairment or Disposal of Long-Lived Assets, BAX Global ceased depreciating and amortizing long-lived assets
after November 2005, the date BAX Global was classified as held for sale. Had BAX Global not ceased depreciation and amortization, its
pretax income would have been $3.3 million lower in 2006 and $4.9 million lower in 2005.
BAX Global
On January 31, 2006, the Company sold BAX Global, a wholly owned freight transportation subsidiary, for
approximately $1 billion in cash, resulting in a pretax gain of approximately $587 million ($375 million after tax).
The Company has either retained or indemnified the purchaser for some pre-sale liabilities including those for
income taxes and for existing litigation as discussed in note 22. The resolution of these matters is expected to take
several years.
BAX Global’s results of operations have been reported as discontinued operations for all periods presented.
Interest expense included in discontinued operations was $0.2 million in 2006, $2.0 million in 2005 and $2.1
million in 2004. Interest expense recorded in discontinued operations includes only interest on third-party
borrowings made directly by BAX Global. The Company has not allocated other consolidated interest expense to
discontinued operations. Discounts and other fees of BAX Global’s accounts receivable securitization program
were $2.7 million in 2005 and $1.7 million in 2004.
119
The Brink’s Company 2006 Annual Report
Assets and liabilities for BAX Global at December 31, 2005, were classified as held for sale. The assets and
liabilities that are held for sale were as follows:
(In millions)
ASSETS
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses and other current assets
Property and equipment, net
Goodwill
Deferred income taxes and other
Assets held for sale
LIABILITIES
Short-term borrowings and current maturities of long-term debt
Accounts payable and accrued liabilities
Long-term debt
Accrued pension costs and postretirement benefits
Deferred income taxes and other
Liabilities held for sale
December 31,
2005
$
$
$
$
78.6
497.9
26.5
145.9
165.2
62.4
976.5
7.1
436.4
1.9
23.2
22.8
491.4
Former Natural Resource Operations
The Company sold the remaining portion of its timber business in 2004 for $33.7 million. After deducting the
book value of related assets and the payment of $6.2 million to purchase equipment formerly leased, the Company
recognized a $20.7 million pretax gain.
In February 2005, the Company received additional cash proceeds from the previous sale of its coal business in
Virginia; the related pretax gain of $5 million was recorded in 2004.
In 2004, the Company sold its gold operations for approximately $1.1 million in cash plus the assumption of
liabilities and recognized a $0.9 million loss.
Adjustments to Contingent Assets and Liabilities of Former Operations
Ongoing expenses related to former operations, including expenses related to Company-sponsored postretirement
benefit obligations, black lung obligations, pension obligations and expenditures for legal fees and other
administrative activities, are classified within continuing operations. Adjustments to contingent assets and
liabilities related to former operations, including those related to reclamation matters, worker’s compensation
claims, multi-employer pension plan withdrawal liabilities, the Health Benefit Act liabilities and remaining legal
contingencies are reported within discontinued operations.
The Brink’s Company 2006 Annual Report
120
Federal Black Lung Excise Tax
In 1999, the U.S. District Court of the Eastern District of Virginia entered a final judgment in favor of the Company,
ruling that the Federal Black Lung Excise Tax (“FBLET”) is unconstitutional as applied to export coal sales. In
December 2005, the Company reached a final settlement agreement related to all remaining claims for FBLET
refunds and recorded a pretax gain of $15.1 million.
Other
The Company recorded $6.2 million in 2005, to reflect an increase in the estimated cost of reclamation at its
former coal mines. The estimate of the cost of reclamation may change in the future.
In 2004, the Company recognized expense of $4.9 million to reflect an increase in the expected settlement of coal-
related workers’ compensation claims. In 2004, the Company settled legal and other contingencies related to its
former coal operations and recognized additional expense of $3.3 million.
Income taxes
Discontinued operations includes the tax provision or benefit associated with the Company’s BAX Global and other
former businesses, and the resolution of associated contingent tax matters.
The effective tax rate on discontinued operations in 2006 approximated the 35% U.S. statutory tax rate.
The effective tax rate in 2005 was lower than the U.S. statutory tax rate primarily as a result of an income tax benefit
of $27.4 million recorded upon the resolution of income tax matters with the Internal Revenue Service related to
the former natural resource business. In addition, the Company recognized a $7.0 million net deferred tax benefit
for the excess of the tax basis over the carrying value of the Company’s investment in BAX Global as a result of its
decision to sell BAX Global’s stock.
The effective tax rate in 2004 was higher than the U.S. statutory tax rate due to state income tax expense.
Note 18 - Supplemental Cash Flow Information
(In millions)
Cash paid for:
Interest
Income taxes, net (a)
Other noncash financing activities – settlement of employee
benefits with Company common shares
Years Ended December 31,
2005
2004
2006
$
12.3
118.7
$
4.2
23.9
70.4
20.2
19.3
34.4
16.3
(a) Without the gain on sale of BAX Global and the related use of proceeds, cash paid for income taxes in 2006 would have been approximately
$75.0 million.
Beginning on January 1, 2006, the Company made matching contributions related to its 401(k) plan in cash rather
than in the Company’s common stock.
The Company’s sales of natural resource assets in 2004 included $14.8 million of noncash proceeds, primarily the
assumption of liabilities by the purchaser.
121
The Brink’s Company 2006 Annual Report
Note 19- Other Operating Income, Net
(In millions)
Share in earnings of equity affiliates
Royalty income
Gains on sale of operating assets and mineral rights, net
Foreign currency transaction losses, net
Impairment losses
Penalties on unpaid value-added taxes
Other
Total
Years Ended December 31,
2005
2004
2006
$
3.3
1.8
0.4
(1.0)
(1.5)
-
2.9
$
5.9
3.4
2.0
9.6
(3.1)
(1.3)
-
4.4
15.0
1.0
1.6
5.7
(0.2)
(0.3)
(0.4)
3.7
11.1
Gains on sale of operating assets and mineral rights, net in 2005 included $5.8 million related to a 2003 West
Virginia coal asset sale due to the formal transfer of liabilities in 2005 to the buyer. In addition, a $3.1 million gain
on the sale of residual assets and mineral rights related to former mining operations in Kentucky was recognized in
2005.
Gains on sale of operating assets and mineral rights, net in 2004 included $5.7 million related to the disposal of
residual assets of the Company’s former coal operations.
Note 20 – Interest and Other Nonoperating Income (Expense), Net
(In millions)
Interest income
Dividend income from real estate investment
Gains on sales of marketable securities
Senior Notes prepayment make-whole amount
Other, net
Total
Years Ended December 31,
2006
2005
$
13.9
5.1
1.0
(1.6)
(1.5)
$
16.9
4.7
4.1
0.2
-
0.3
9.3
2004
3.8
-
4.3
-
(0.2)
7.9
The Brink’s Company 2006 Annual Report
122
Note 21 - Risk Management
The Company has risk management policies designed to minimize the impact on earnings and cash flows from
fluctuations in interest rates, commodity prices and foreign exchange rates. The Company utilizes derivative and
non-derivative financial instruments in order to manage these risks. The Company does not use derivative
financial instruments for purposes other than hedging underlying commercial or financial exposures of the
Company. The risk that counterparties to these derivative financial instruments may be unable to perform is
minimized by limiting the counterparties to major financial institutions with investment grade credit ratings. The
Company does not expect to incur a loss from the failure of any counterparty to perform under the agreements. In
addition, depending on market conditions, the Company has been able to adjust its pricing through the use of
surcharges to partially offset large increases in the cost of commodities.
Derivative Financial Instruments
At December 31, 2006, the fair value liability of the Company’s outstanding foreign currency forward contracts was
not significant. At December 31, 2005, the Company had net fair value liabilities of $0.1 million associated with
BAX Global’s foreign currency forward contacts. The outstanding derivative financial instruments associated with
BAX Global were assumed by the purchaser of BAX Global in January 2006.
Non-Derivative Financial Instruments
Non-derivative financial instruments, which potentially subject the Company to concentrations of credit risk,
consist principally of cash and cash equivalents and trade receivables. The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the
short-term nature of these instruments.
The fair value of the Company’s floating-rate short-term and long-term debt approximates the carrying amount.
The fair value of the Company’s significant fixed rate long-term debt is described below. Fair value is estimated by
discounting the future cash flows using rates for similar debt instruments at the valuation date.
December 31,
2006
2005
Fair
Value
52.5
-
$
Carrying
Values
43.2
-
Fair
Value
48.8
79.5
Carrying
Values
43.2
76.7
(In millions)
DTA bonds
Senior Notes (a)
(a) Prepaid in 2006.
123
The Brink’s Company 2006 Annual Report
Note 22 - Other Commitments and Contingencies
Surety Bonds and Letters of Credit
The Company is required by various state and federal laws to provide security with regard to its obligations to pay
workers’ compensation, reclaim lands used for mining by the Company’s former coal operations and satisfy other
obligations. As of December 31, 2006, the Company had outstanding surety bonds with third parties totaling
approximately $45.2 million that it has arranged in order to satisfy various security requirements. Most of these
bonds provide financial security for obligations which have already been recorded as liabilities. Surety bonds are
typically renewable on a yearly basis; however, there can be no assurance the bonds will be renewed or that
premiums in the future will not increase.
If the remaining surety bonds are not renewed, the Company believes that it has adequate available borrowing
capacity under its Letter of Credit Facility and its Revolving Facility to provide letters of credit or other collateral to
secure its obligations.
The Company has issued letters of credit of $141.3 million under its $150 million Letter of Credit Facility,
described in “Debt” above. At December 31, 2006, all of these issued letters of credit were used to secure the
Company’s obligations.
Former Coal Operations
At December 31, 2006, the Company had obligations of $8.5 million (at net present value) under mineral lease
agreements that give it the right to access and mine coal properties in exchange for required minimum annual
payments. These agreements require that the Company pay royalties to lessors based on production of coal or
minimum amounts if coal is not produced.
BAX Global’s Litigation
BAX Global is defending a claim related to the apparent diversion by a third party of goods being transported for a
customer. Although BAX Global is defending this claim vigorously and believes that its defenses have merit, it is
possible that this claim ultimately may be decided in favor of the claimant. If so, the Company expects that the
ultimate amount of reasonably possible unaccrued losses could range from $0 to $10 million. The Company has
contractually indemnified the purchaser of BAX Global for this contingency.
BAX Global’s Taxes
The Company has retained all pre-closing tax assets and liabilities related to BAX Global, except deferred income
taxes. The Company has $9.4 million accrued for these net tax liabilities at December 31, 2006.
The Brink’s Company 2006 Annual Report
124
Value-added taxes (“VAT”) and customs duties
During 2004, the Company determined that one of its non-U.S. Brink’s business units had not paid customs duties
and VAT with respect to the importation of certain goods and services. The Company was advised that civil and
criminal penalties could be asserted for the non-payment of these customs duties and VAT. Although no penalties
have been asserted to date, they could be asserted at any time. The business unit has provided the appropriate
government authorities with an accounting of unpaid customs duties and VAT and has made payments covering its
calculated unpaid VAT. As a result of its investigation, the Company accrued charges of $1.1 million to operating
profit and recorded estimated interest expense of $0.7 million related to this matter during 2004. The Company
believes that the range of reasonably possible losses is between $0.4 million and $3.0 million for potential
penalties on unpaid VAT and has accrued $0.4 million. The Company believes that the range of possible losses for
unpaid customs duties and associated penalties, none of which has been accrued, is between $0 and $35 million.
The Company believes that the assertion of the penalties on unpaid customs duties would be excessive and would
vigorously defend against any such assertion. The Company does not expect to be assessed interest charges in
connection with any penalties that may be asserted. The Company continues to diligently pursue the timely
resolution of this matter and, accordingly, the Company’s estimate of the potential losses could change materially
in future periods. The assertion of potential penalties may be material to the Company’s financial position and
results of operations.
Gain Contingency - Insurance claims
The Company filed insurance claims of $2.4 million in 2006 (which were collected in early 2007) and anticipates
filing additional insurance claims of $2.6 million to $3.9 million in 2007 related to property damage and business
interruption insurance coverage for losses sustained by Brink’s and BHS from Hurricane Katrina. As of December
31, 2006, the Company has recorded a receivable of $1.8 million covering property damage, of which approximately
$1 million related to the $2.4 million claim collected in the first quarter of 2007. Because the Company’s property
damage insurance coverage provides for replacement value, the Company expects to record proceeds in excess of
realized losses when the claims are ultimately settled. In addition, payment for lost revenues under business
interruption coverage will be recognized as operating income when the claims are settled. As a result, the
Company expects to recognize gains of between $3 million and $5 million in 2007 for amounts collected in excess
of previously recorded receivables.
Purchase Obligations
At December 31, 2006, the Company had noncancelable commitments for $53.0 million in equipment purchases,
and information technology and other services.
125
The Brink’s Company 2006 Annual Report
Note 23 - Selected Quarterly Financial Data (unaudited)
(In millions, except per share amounts)
st
1
2006 Quarters
rd
2
3
nd
th
4
(a)
st
1
2005 Quarters
nd
2
3
rd
Revenues
Operating profit
Income (loss) from:
Continuing operations
Discontinued operations
Cumulative effect of change in
accounting principle
Net income
Net income (loss) per common share:
Basic:
Continuing operations
Discontinued operations
Cumulative effect of change in
accounting principle
Net income
Diluted:
Continuing operations
Discontinued operations
Cumulative effect of change in
accounting principle
Net income
Dividends declared per common share
Stock prices:
High
Low
$ 663.6
44.1
697.5
41.9
720.6
52.1
755.9
62.5
$ 601.1
29.0
633.5
18.3
651.3
44.0
$ 24.2
379.2
-
$ 403.4
$ 0.42
6.57
-
6.99
$
$ 0.42
6.50
-
6.92
$
21.2
9.5
-
30.7
0.43
0.19
-
0.62
0.42
0.19
-
0.62
24.8
1.7
-
26.5
0.53
0.04
-
0.57
0.53
0.04
-
0.56
33.1
93.5
-
126.6
0.72
2.02
$
$
$
10.5
3.1
-
13.6
0.19
0.05
-
2.74
-
$ 0.24
0.71
2.00
$
0.19
0.05
-
2.71
-
$ 0.24
2.2
13.1
-
15.3
0.04
0.23
-
0.27
0.04
0.23
-
0.27
23.4
42.4
-
65.8
0.41
0.76
-
1.17
0.41
0.74
-
1.15
th
4
(b)
663.1
24.1
6.2
46.9
(5.4)
47.7
0.11
0.82
(0.09)
0.84
0.11
0.81
(0.09)
0.83
$ 0.0250 0.0625 0.0625 0.0625
$ 0.0250 0.0250 0.0250 0.0250
$ 54.03
46.90
57.90
49.98
58.35
52.40
66.12
52.10
$ 39.70
33.43
37.36
29.73
41.50
35.50
49.17
37.85
(a) The Company’s results of operations in the fourth quarter of 2006 included a $149.4 million pretax benefit in discontinued operations
related to a reduction in the Company’s obligation under the Health Benefit Act. The Company recorded a reduction to expenses of
approximately $2.9 million in the fourth quarter in its Brink’s segment to reflect a revision to the estimate for the allowance for doubtful
accounts.
(b) The Company’s results of operations in the fourth quarter of 2005 includes an after-tax charge of $5.4 million to reflect the cumulative
effect of a change in accounting principle related to the adoption of FIN 47. During the fourth quarter of 2005, the Company reached a
final settlement agreement related to all claims for Federal Black Lung Excise Tax and recorded a pretax gain of $15.1 million in
discontinued operations. The Company received this refund in 2006. The Company’s results in the fourth quarter of 2005 included a
$3.0 million gain as liabilities related to reclamation were formally transferred to the buyer. During the fourth quarter of 2005 the
Company repatriated cash of $71.2 million, including $22.4 million related to BAX Global’s non-U.S. subsidiaries, under the provision of
the American Jobs Creation Act of 2004. The Company recorded additional income tax expense of $3.6 million in the fourth quarter of
2005, including $0.7 million included as a component of discontinued operations, related to the repatriation. During the fourth quarter
of 2005, the Company recognized a $7.0 million deferred tax benefit in discontinued operations as a result of changing its intention
regarding its investment in BAX Global.
At December 31, 2006, approximately $65 million of stockholders’ equity was not available for dividends to
shareholders due to limitations imposed by the Company’s Revolving Facility and other lending arrangements (see
note 12). Earnings per share amounts for each quarter are required to be computed independently. As a result,
their sum may not equal the annual earnings per share. The Company’s common stock trades on the New York
Stock Exchange as “BCO.” As of February 22, 2007, there were approximately 2,270 shareholders of record of
common stock.
The Brink’s Company 2006 Annual Report
126
THE BRINK’S COMPANY
and subsidiaries
SELECTED FINANCIAL DATA
Five Years in Review
(In millions, except per share amounts)
2006
2005
2004
2003
2002
Revenues and Income
Revenues
Income from continuing operations
Income (loss) from discontinued operations (a)
Cumulative effect of change in accounting principle (b)
Net income
$ 2,837.6
103.3
483.9
-
$ 587.2
2,549.0
42.3
105.5
(5.4)
142.4
2,277.5
71.5
50.0
-
121.5
1,999.4
37.9
(8.5)
-
29.4
1,862.3
57.6
(31.5)
-
26.1
Financial Position
Property and equipment, net
Total assets
Long-term debt, less current maturities
Shareholders’ equity
Per Common Share
$ 981.9
2,188.0
126.3
753.8
867.4
3,036.9
251.9
837.5
914.0
2,692.7
181.6
688.5
873.2
2,548.6
221.5
495.6
871.2
2,459.9
304.2
381.2
Basic, net income (loss):
Continuing operations
Discontinued operations (a)
Cumulative effect of change in accounting principle (b)
Net income
Diluted, net income (loss):
Continuing operations
Discontinued operations (a)
Cumulative effect of change in accounting principle (b)
Net income
$
$
$
$
2.07
9.69
-
11.75
2.05
9.59
-
11.64
0.75
1.88
(0.10)
2.53
0.74
1.85
(0.09)
2.50
Cash dividends
$ 0.2125
0.10
Weighted Average Common Shares Outstanding
1.31
0.92
-
2.23
1.29
0.91
-
2.20
0.10
0.71
(0.16)
-
0.55
0.71
(0.16)
-
0.55
1.08
(0.60)
-
0.48
1.08
(0.60)
-
0.48
0.10
0.10
Basic
Diluted
50.0
50.5
56.3
57.0
54.6
55.3
53.1
53.2
52.1
52.4
(a)
Income (loss) from discontinued operations reflects the operations and gains and losses on disposal of the Company’s former coal,
natural gas, timber, gold and BAX Global operations. Some of the expenses recorded within discontinued operations through 2002 are
continuing after the disposition of the coal business and are recorded within continuing operations in 2003 through 2006. Ongoing
expenses related to former operations primarily consist of postretirement and other employee benefits associated with Company-
sponsored plans and black lung obligations, and administrative and legal expenses to oversee residual assets and retained benefit
obligations. See notes 4 and 17. In accordance with APB 30, the Company included these expenses within discontinued operations for
periods prior to 2003. Beginning in 2003, expenses related to Company-sponsored pension and postretirement benefit obligations,
black lung obligations and related administrative costs are recorded as a component of continuing operations. The amount of expenses
related to postretirement and other employee benefits associated with the Company-sponsored plans and black lung obligations that were
charged to discontinued operations was $2 million for the year ended 2002. Adjustments to contingent liabilities are continuing to be
recorded within discontinued operations.
(b) The Company’s 2005 results of operations includes a noncash after-tax charge of $5.4 million or $0.09 per diluted share to reflect the
cumulative effect of a change in accounting principle pursuant to the adoption of FIN 47.
127
The Brink’s Company 2006 Annual Report
THE BRINK’S COMPANY
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total returns for Brink’s Common Stock
outstanding since December 31, 2001, through December 31, 2006, the S&P MidCap 400 Index and the S&P
MidCap Diversified Commercial & Professional Services Index (formerly known as the S&P MidCap Diversified
Commercial Services Index).
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among The Brink’s Company, The S & P Midcap 400 Index
And S&P MidCap 400 Diversified Commercial & Professional Services Index
$350
$300
$250
$200
$150
$100
$50
$0
12/01
12/02
12/03
12/04
12/05
12/06
The Brink’s Company
S & P Midcap 400
S&P MidCap 400 Diversified Commercial & Professional Services
* $100 invested on 12/31/01 in stock or index-including reinvestment of dividends. Fiscal year ending December 31.
Copyright
www.researchdatagroup.com/S&P.htm
©
2007, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved.
SOURCE: RESEARCH DATA GROUP, INC.
Comparison of Five-Year Cumulative Total Return Among
Brink’s Common Stock, the S&P MidCap 400 Index and
the S&P MidCap Diversified Commercial & Professional Services Index (1)
Years Ended December 31,
The Brink's Company
S&P MidCap 400 Index
2001
$100
$100
2002
83.99
85.49
2003
103.42
2004
181.38
2005
2006
220.49
295.32
115.94
135.05
152.00
167.69
S&P MidCap Diversified
Commercial &
Professional Services
Index
Copyright © 2007, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All rights reserved.
112.06
86.28
$100
150.78
163.50
182.60
(1)
For the line designated as “The Brink’s Company” the graph depicts the cumulative return on $100 invested in The Brink’s Company’s
Common Stock. For the S&P MidCap 400 Index and the S&P MidCap Diversified Commercial & Professional Services Index, cumulative
returns are measured on an annual basis for the periods from December 31, 2001 through December 31, 2006, with the value of each
index set to $100 on December 31, 2001. Total return assumes reinvestment of dividends. The Company chose the S&P MidCap 400 Index
and the S&P MidCap Diversified Commercial & Professional Services Index because the Company is included in these indices, which
broadly measure the performance of mid-size companies in the United States market.
The Brink’s Company 2006 Annual Report
128
Security, integrity, reliability and performance —
these attributes are at the core of the Brink’s brand,
a globally respected symbol of value and trust.
A B O U T T H E C O M P A N Y
Established in 1859, Brink’s is a global leader in security-related
services. The company has approximately 52,000 employees and
operates in more than 50 countries.
Operating units:
• Brink’s, Incorporated is the world’s premier provider of secure
transportation and cash management services.
• Brink’s Home Security is one of the largest and most successful
residential alarm companies in North America.
The Brink’s Company common stock trades on the New York Stock
Exchange under the ticker symbol BCO.
C O N T E N T S
Financial Highlights .............................................................................1
To Our Shareholders ............................................................................2
Brink’s, Incorporated ...........................................................................4
Brink’s Home Security .........................................................................6
Board of Directors and Senior Management ....................................8
2006 Financial Review.........................................................................9
T H E B R I N K ’ S C O M P A N Y C O R P O R AT E I N F O R M AT I O N
Corporate Headquarters
The Brink’s Company
1801 Bayberry Court
P.O. Box 18100
Richmond, VA 23226-8100
Telephone: (804) 289-9600
Facsimile: (804) 289-9770
www.brinkscompany.com
Annual Meeting
The Annual Meeting of the shareholders of the company
is scheduled to be held at 1 p.m. (EDT) on May 4, 2007,
at The Ritz-Carlton New York, Central Park, 50 Central
Park South, New York, New York 10019.
Inquiries
Communications concerning stock transfer requirements,
lost certificates, dividends or change of address should
be addressed to the company’s transfer agent, American
Stock Transfer & Trust Company, at the address listed
below, or by calling (866) 673-8058.
Inquiries from investors and members of the media
should be directed to:
Edward A. Cunningham
Director – Investor Relations and
Corporate Communications
(804) 289-9708
ecunningham@brinkscompany.com
Auditors
KPMG LLP
Richmond, VA
Common Stock Transfer Agent and Registrar
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
(866) 673-8058
www.amstock.com
The Brink’s Company and its Subsidiaries are
Equal Opportunity Employers.
Investor Information
Copies of the 2006 Annual Report for the company;
press releases announcing quarterly results; the 2006
Form 10-K, including the financial statements and the
financial statement schedules thereto, filed with the
Securities and Exchange Commission; and any other
information filed with or furnished to the Securities
and Exchange Commission, are available free of
charge at www.brinkscompany.com, by calling toll free
(877) 275-7488, or by writing to the Investor Relations
Department at The Brink’s Company Corporate
Headquarters using the address provided. Our Chief
Executive Officer is required to make, and he has
made, an annual certification to the New York Stock
Exchange (NYSE) stating that he was not aware of any
violation by us of the corporate governance listing stan-
dards of the NYSE. Our Chief Executive Officer made
his annual certification to that effect to the NYSE as of
May 26, 2006. In addition, we have filed, as exhibits to
our Annual Report on Form 10-K, the certifications of
our principal executive officer and principal financial
officer required under sections 906 and 302 of the
Sarbanes-Oxley Act of 2002 to be filed with the
Securities and Exchange Commission regarding the
quality of our public disclosure.
Environmental Policy
The Brink’s Company is dedicated to compliance with
environmental laws and sound environmental practices.
The company has accordingly developed broad environ-
mental principles to govern its diverse operations. The
management of each business is required to adopt and
adhere to policies consistent with these broad principles
and to effectively address environmental concerns,
including those of particular application to the activities
of each business.
Management Objectives:
• Recognize environmental management as a high priority.
• Establish environmentally sound programs and practices
for conducting operations, taking into particular consid-
eration the efficient use of energy and the safe disposal
of residual wastes.
• Educate, train and motivate employees to conduct their
activities in an environmentally responsible manner.
• Contribute to the development of business and
governmental programs that enhance environmental
awareness and protection.
Corporate Headquarters
The Brink’s Company
1801 Bayberry Court
P.O. Box 18100
Richmond, VA 23226-8100
Telephone: (804) 289-9600
Fax: (804) 289-9770
Web: www.brinkscompany.com
Proven Performance. A Powerful Brand. A Bright Future.
The Brink’s Company
2006 Annual Report