Management’s Discussion and Analysis

Operations Results of Operations Liquidity and Capital Resources Market Risk Exposures Application of Critical Accounting Pronouncements Recent Accounting Pronouncements Forward-Looking Information

Overview Consolidated Review Brink’s, Incorporated Brink’s Home Security BAX Global Corporate Expense - The Brink’s Company Retained Liabilities and Assets of Former Natural Resource Operations Other Operating Income, Net Nonoperating Income and Expense Income Taxes Foreign Operations

Retained Liabilities and Assets of Former Natural Resource Operations

Overview

In 2002, the Company exited the coal business by selling or shutting down its remaining coal operations. In 2003, the Company sold most of its other natural resource businesses, including

• its natural gas business,
• a portion of its timber business,
• an equity interest in a gold business, and
• substantially all of its remaining coal properties.

The Company sold the remainder of its timber and gold businesses in the first quarter of 2004.

The Company has significant liabilities related to its former coal business. Expenses and payments related to these liabilities are expected to decline over time.

Legacy Liabilities and Assets

The Company refers to various assets and liabilities related to the former coal operations as its “legacy” assets and liabilities. Some of the Company’s legacy assets and liabilities are not fully recorded on the balance sheet because certain losses have been deferred in accordance with GAAP. In addition under GAAP, some of these liabilities are discounted to reflect a present value, while others have not been discounted. To facilitate an understanding of the total estimated present value of these liabilities as of December 31, 2003, the following table presents a Company-defined amount, “Legacy Value”, for the Company’s legacy assets and liabilities. The Legacy Value excludes GAAP deferred loss adjustments and discounts to a present value those liabilities with extended payment dates that are not recorded at present value under GAAP. PLEASE NOTE THAT THIS IS NOT A GAAP PRESENTATION AND THIS TABLE SHOULD ONLY BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS. The Legacy Values are considered non-GAAP measures, and the table below reconciles each Legacy Value to its GAAP counterpart. The estimated Legacy Value and GAAP amounts are as of December 31, 2003. These estimated amounts will be adjusted annually to reflect actual experience, annual actuarial revaluations and periodic revaluations of reclamation liabilities. The amounts are based on a variety of estimates, including actuarial assumptions, as described below in the Application of Critical Accounting Policies and in the notes to the consolidated financial statements. Actual amounts could differ materially from the estimated amounts.

(a) The Legacy Value table includes the Company’s significant long-term coal-related assets and liabilities. Other shorter-term coal-related assets and liabilities have been excluded from the total amount of the Legacy Value table.
(b) Legacy liabilities above exclude the Company’s estimated withdrawal obligations of $52 million from coal-related multi-employer pension plans. It is likely that a withdrawal will be deemed to have occurred within the next two to three years. The timing and actual amount to be paid, if any, will be based on the funded status of the plans as of the beginning of the plan year in which a withdrawal has been deemed to have occurred.
(c) Company-sponsored retiree medical liabilities are accounted for in accordance with SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” Generally, SFAS No. 106 requires a liability be recorded for the present value of future obligations. Under the provisions of SFAS No. 106, actuarial gains and losses are deferred. Actuarial gains and losses occur when actual events differ from assumptions (e.g. when the actual health care inflation rate differs from the assumed inflation rate) or changes are made to assumptions used to estimate the liability, including assumptions as to the discount rate used to compute the present value (6.25% at December 31, 2003), expected health care inflation rates, expected life expectancy rates, asset returns and the effect of the Medicare subsidy. Actuarial gains and losses are not immediately recognized in earnings because SFAS No. 106 requires employers to defer these gains and losses and then amortize these gains and losses into earnings in future periods if the total unrecognized net gains and losses exceed 10% of the accumulated postretirement benefit obligation. As a result, the Company’s balance sheet does not reflect these liabilities at the full present value of the ultimate projected obligations at the end of the year. The Legacy Value in the table reflects the Company’s liability had the Company’s total projected obligations been fully accrued at the end of the year. The Company discloses the projected amount of its obligation before the required deferral of unrecognized gains and losses as “accumulated plan benefit obligation” in note 4 to the consolidated financial statements.
(d) Health Benefit Act liabilities are accounted for in accordance with EITF No. 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. As discussed in note 4 to the consolidated financial statements, the Company uses various assumptions to estimate its liability to The United Mine Workers of America Combined Fund (the “Combined Fund”) for future annual premiums, including the number of assigned and unassigned beneficiaries in future periods, medical inflation, and the amount of funding of the Combined Fund to be provided from the Abandoned Mine Reclamation Fund in future periods. The estimated annual payments are expected to be paid out over the next seventy or more years. To determine its Legacy Value, the Company’s actuaries discounted the estimated future cash flows to a present value amount using a discount rate of 6.25%. The Company’s estimates of annual payments may change materially due to changes in future assumptions. Statutory changes to the 1992 law under which benefits are paid also could materially affect the Company’s estimate of its liability in the future. The estimation of the Legacy Value should not be considered a precise estimate because of the many variables that have been used to determine the estimate, including the discount rate and the amount of expected annual cash flows. There are many factors that may change and cause the amount recorded in the balance sheet to not be representative of the amount the Company may actually pay.
(e) Actuarial gains and losses resulting from changes in estimates of the Company’s black lung obligations are deferred and amortized into earnings in future periods. As a result, the Company’s balance sheet does not report these liabilities as if the Company’s projected obligation had been fully accrued at the end of the year. The Legacy Value in the table reflects the Company’s projected obligations had it been fully accrued at the end of the year. Of the Company’s $63.0 million of present value of self-insured black lung benefit obligations at December 31, 2003, approximately $43.7 million had been recognized on the balance sheet, with the difference relating to deferred unrecognized actuarial losses (see note 4 to the consolidated financial statements).
(f) The VEBA has been designated in the first quarter of 2004 to pay future benefits of the Company-sponsored medical plans.
(g) Other assets are primarily related to a tax receivable from Virginia related to the former production of coal; the projected balance represents the discounted value of receipts over the next six years. These credits will have minimal effect on earnings over the time of collection. The Company expects to receive approximately $5 million per year for 2004 through 2006; $3 million in 2007 and $1 million each in 2008 and 2009.
(h) The Company has not yet taken deductions in its tax returns for most of the accrued legacy liabilities, and has recorded a deferred tax asset for this future benefit since tax laws generally do not permit a deduction until payment is made to cover the benefits or into the VEBA. The $90.7 million reconciling item represents the expected tax benefit in the Company-sponsored retiree medical and black lung obligations which have been deferred in accordance with the provisions of SFAS No. 106. The $32.0 million reconciling item represents the associated decrease to the deferred tax asset if the Health Benefit Act liability were recorded on a discounted basis.

Under the Health Benefit Act, the Company and various subsidiaries are jointly and severally liable for approximately $432 million, at Legacy Value, of postretirement medical (before any benefit from the Medicare subsidy) and Health Benefit Act obligations in the above table.

Projected Payments and Expenses of Retained Coal Liabilities and Administrative Costs

The following tables include the actual cash payments and expense (continuing operations only) related to the CompanyÕs former coal liabilities for 2003 and those projected for the next five years.

The projected payments and expenses are estimated based on assumptions that are usually adjusted annually; the actual amount of payments and expense in future periods may be materially different than amounts presented. The amounts paid or expensed in the future will be dependent on many factors, including inflation in health care and other costs, the ultimate impact of the recently enacted Medicare reform bill, discount rates, the market value of pension plan assets, the level of contributions to and the performance of the VEBA, the number of participants in various benefit programs, and the amount of administrative costs needed to manage the retained liabilities.

Cash Payments

(a) The Company has $105 million of assets in its VEBA that are to be used to fund future payments of the Company’s retiree medical plans. The Company may elect at any time to use either these assets or its funds from operations to pay for its retiree medical plans. Estimated payments in the table have not been reduced to reflect the use of assets held by the VEBA since there are no plans to do so within the five years projected.
(b) This table excludes the Company’s estimated withdrawal obligations of $52 million from coal-related multi-employer pension plans. The timing and the actual amount to be paid, if any, will be based on the funded status of the plans as of the beginning of the plan year that a withdrawal is deemed to have occurred. It is likely that a withdrawal will be deemed to have occurred within the next two to three years.

Expenses in Continuing Operations

(a) Beginning in 2004, the Company will account for the VEBA as a plan asset of Company-sponsored medical plans in accordance with SFAS No. 106.

Following are comments covering the more significant and unusual legacy obligations and assets in the above tables. For additional information on these obligations and assets, please see notes 4 and 5 to the consolidated financial statements. Each of these obligations and assets are affected by estimates and judgments. More information on this is available at “Application of Critical Accounting Policies” later in this Management’s Discussion and Analysis.

Company-Sponsored Retiree Medical Benefits

The Company provides postretirement health care and life insurance 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.

The Legacy Value, which equals the accumulated postretirement benefit obligation, at December 31, 2003 increased to $526 million from the $518 million estimated at December 31, 2002. Most of this increase was due to the reduction in the discount rate of 50 basis points to 6.25%. This was largely offset by the estimated impact of the recently enacted Medicare reform legislation. Based on the expected use of the 28% subsidy on pharmaceuticals provided by this legislation, the Company estimated that the net present value of its obligations has been reduced by $46 million.

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 will be partially offset by reductions in the number of participants through mortality.

Net expense levels are expected to decline in 2004 from 2003 primarily due to the impact of the funding of the VEBA and accounting for the VEBA as a plan asset under SFAS No. 106 beginning in 2004, and the positive effect on pretax earnings, estimated at approximately $6 million per year, of the benefit from the Medicare legislation.

Health Benefit Act Obligations

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. 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 certain of its subsidiaries (collectively, the “Brink’s Companies”), are 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 provides that assigned companies, including the Brink’s Companies, are required to fund, pro rata according to the total number of assigned beneficiaries, a portion of the health benefits for unassigned beneficiaries if 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 Reclamation Fund (the “AML Fund”) or other government sources.

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 to the Combined Fund over approximately 70 years. The Company’s estimated annual premium is generally equal to the total number of beneficiaries (including assigned beneficiaries and an allocated percentage of the total unassigned beneficiaries) at October 1, the beginning of the plan year, multiplied by the premium per beneficiary for that year. The Company expects to pay annual premiums over the next 70 or more years, but it expects these annual premiums to gradually decline over time as the number of beneficiaries decreases.

The estimated liability at December 31, 2003 assumes that almost all of the costs for unassigned beneficiaries for the plan year ending September 30, 2004 will continue to be paid with transfers of cash from the AML Fund and other government sources. Transfers to the Combined Fund from the AML Fund beyond this date are not sufficiently assured and the Company’s current estimate of its obligations assumes that no future transfers will be made by the AML Fund. The Company’s estimate of its probable liability for premiums for unassigned beneficiaries could materially decrease in future periods depending on the availability of future funding by the AML Fund or other sources. Moreover, the Company’s estimate of its liability for unassigned beneficiaries could change materially in the future if other responsible coal operators become insolvent. This liability could also change materially if the percentage of unassigned beneficiaries that are allocated to the Company changes due to relative mortality rates of the Company’s assigned beneficiaries compared to the total assigned beneficiaries.

The Company’s actuaries have prepared an estimate of the net present value of the total expected future payments. The Company believes that this information is valuable to investors and creditors to understand the significance of a series of payments to be made over an extended period of time (over 70 or more years).

The Legacy Value of the Company’s Health Benefit Act obligations increased from approximately $90 million at December 31, 2002 to approximately $106 million at December 31, 2003. The primary reasons for the increase are the reduction in the discount rate used by 50 basis points and an increase in the assumed share of future payments to be made for unassigned beneficiaries. The Company’s assumed share of future payments for unassigned beneficiaries increased due to the release in bankruptcy during 2003 of two significant assigned operators from their liabilities and an increase in the Company’s expectations for its historical share of the unassigned pool based on court rulings and regulatory decisions in 2003.

At December 31, 2003 the Company’s obligations associated with unassigned beneficiaries are valued at $66 million on an undiscounted (GAAP) basis and $35 million on a net present value basis. These values are included within the GAAP amount total of $198 million and the Legacy Value total of $106 million, respectively.

Projected payments related to the Health Benefit Act are projected to rise in 2004 and 2005 to reflect the current assumption that the previous sources of funding for the unassigned pool will not continue. If future funding of all of the unassigned benefits becomes available through the AML Fund or other sources, projections for 2005 and later years may be reduced by up to $4 million per year.

No expense is reflected in continuing operations for Health Benefit Act obligations. Any changes to expected future obligations determined during annual reevaluations are recorded as expenses or benefits within discontinued operations.

Black Lung Obligations

The Company makes payments to former miners who have been determined to have pneumoconiosis (black lung). 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. The difference between the amounts on the balance sheet and the full net present value of expected payments is being amortized into expense over the average remaining life expectancy of all participants (approximately 10 years).

The Legacy Value, which equals the accumulated projected benefit obligation, of the black lung obligations increased to $63 million in 2003 from $60 million in 2002 largely due to the effect of reducing the discount rate by 50 basis points to 6.25% as of December 31, 2003.

Future cash payments are expected to gradually decline over time as the number of participants declines through mortality. Future expense levels are also expected to decline as the remaining value of obligations declines over time.

Withdrawal Liabilities

The Company participates in the United Mine Workers of America (“UMWA”) 1950 and 1974 pension plans, but expects to ultimately withdraw from these plans. Upon withdrawal from these coal-related plans, the Company must pay the plans a portion of the underfunded status of the plans, as determined by the plan agreements and by law. In 2001, the Company recorded estimated withdrawal liabilities for the multi-employer pension plans of $8.2 million associated with its planned exit from the coal business. In 2002, the Company increased the estimated liabilities by $26.8 million to $35.0 million and in 2003, the Company increased the estimated liabilities by $17.0 million to $52.0 million.

The estimated liabilities increased in each of the last two years because the unfunded liability of the multi-employer plans increased as of the end of the last two plan years. The actual withdrawal liability, if any, is subject to several factors, including the funded status of the plans as of annual measurement dates (June 30 each year) and the date that the Company is determined to have completely withdrawn from the plans. Accordingly, the ultimate obligation could change materially.

The Company expects that within the next three years, it is likely that its obligations will become fixed. The Company’s ultimate liability will be based on the plans’ funded status at the time of deemed withdrawal and the ultimate liability could be higher or lower than the value recorded at December 31, 2003. The Company may have the option to pay the withdrawal liability in a lump sum or over two years with interest charges.

VEBA

The Company has established a VEBA 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 are not subject to federal income tax. Distributions from the VEBA to pay designated benefits or to reimburse the Company for designated benefit payments are nontaxable. The Company can determine the timing and size of any payment from the VEBA to cover expenses of eligible participants.

In the first quarter of 2004, the Company restricted the ability of the VEBA so that it will be used to pay only benefits related to the Company’s postretirement medical plan. Accordingly, under SFAS No. 106, earnings in the VEBA will be deemed to be offset against the related expense beginning in 2004.

The Company intends to increase the size of the assets within the VEBA over time until the level of assets become a significant percentage of the value of the postretirement medical plan liability. The increase is expected to come from investment returns and contributions.

The Company has already allocated the VEBA’s assets among active investment managers of equities and fixed income securities. Approximately 70% of the trust assets are invested in equities, with 30% invested in fixed income securities. Because the VEBA is being invested in a similar fashion to the Company’s primary U.S. pension plan, the Company has adopted the same expected long-term rate of return of 8.75% per annum for 2004.

The Company expects to continue to make contributions to the VEBA after taking into consideration the Company’s cash, debt and tax position and growth needs. Contributions to the VEBA along with investment earnings amounted to about $18 million through December 31, 2002. The Company contributed $82 million to the VEBA in 2003 and the VEBA generated $5 million in investment returns, mostly in the fourth quarter of 2003, leaving a balance of $105 million at December 31, 2003. The Company has not finalized its plans for contributions, if any, in 2004 and beyond.

Discontinued Operations

Gain (loss) on Sale

During 2000, an $85.9 million estimated loss on the sale of the coal business was recorded, and during 2001 the estimated loss was increased by $15.9 million. A $13.2 million reversal of the previously estimated loss on sale was recorded during 2002 to reflect the amount of actual proceeds and values of assets and liabilities at the dates of sale. The assets disposed of in 2002 primarily consisted of operations including coal reserves, property, plant and equipment, the Company’s economic interest in Dominion Terminal Associates and inventory. Certain liabilities, primarily reclamation costs related to properties disposed of, were assumed by the purchasers.

In August 2003, the Company sold its natural gas business and received $81.2 million in cash and recognized a $56.2 million gain in discontinued operations.

In December 2003, the Company sold a portion of its timber business for $5.4 million in cash and recognized a $4.8 million pretax gain in discontinued operations. The Company received an additional $31.8 million from escrow in January 2004 for most of the remaining portion of its timber business. An additional $1.9 million of cash is being held in escrow until June 2004 pending the completion of certain remaining title work. The Company paid $6.2 million in January 2004 to settle operating leases for equipment purchased by the buyer. The Company expects to recognize approximately $19 million of additional pretax gains in the first quarter of 2004 and up to a $1.9 million pretax gain in the second quarter of 2004 in discontinued operations.

In February 2004, the Company sold its gold operations for approximately $1 million in cash and the assumption of liabilities.

Results from Operations

The operating results of the coal, natural gas, timber and gold operations have been reclassified to discontinued operations for all periods presented.

The results of operations of the former natural gas operations in the eight months prior to the 2003 sale improved over the full year of 2002 as a result of higher natural gas prices. The Company recognized impairment losses related to its gold business of $1.7 million in 2003 and $5.7 million in 2002.

The Company accounted for the disposition of its coal operations under Accounting Principles Bulletin No. 30, (“APB No. 30”) “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” Under APB No. 30, estimated losses of the coal operation expected to be incurred through the end of the disposal period were accrued at the measurement date of December 31, 2000. Accordingly, operating losses (including significant ongoing expenses related to Company-sponsored pension and postretirement benefit obligations and black lung obligations) were recognized within discontinued operations in different periods than they would have been recorded if coal were a continuing operation. Total recorded charges for Company-sponsored pension and postretirement benefit obligations and black lung obligations were approximately $2 million in 2002 and $53 million in 2001. The year 2001 (which included expenses expected to be incurred in 2002) included only one year of expenses. The amount in 2002 represents the difference between the estimated amount of expenses relating to 2002 that were accrued in 2001 and the amount actually incurred in 2002. Beginning in January of 2003 expenses related to Company-sponsored pension, postretirement and black lung obligations are recorded in continuing operations.

The Company accrued its original estimate of losses during the disposal period in 2000. The Company increased the estimated operating losses in 2001 by $22.2 million. The $22.2 million increase included the effect of extending the anticipated period of disposal through the end of 2002, including the accrual of $53 million of additional postretirement, pension, and black lung benefit expenses. Also included in the $22.2 million increase was a refund of $23.4 million (including interest) of Federal Black Lung Excise Tax (“FBLET”) received during 2001 and an accrual of $9.5 million for litigation settlements that were paid during early 2002.

The Company recorded an additional $28.1 million of operating losses during 2002, primarily reflecting worse-than-expected price, volume and costs per ton of coal as a result of adverse coal market conditions during the year.

Adjustments to Contingent Liabilities of Former Operations

Health Benefit Act Liabilities. The Company has obligations under the Coal Industry Retiree Health Benefit Act of 1992 (the “Health Benefit Act”), as described in note 4 to the consolidated financial statements. The Company recorded additional charges of $31.3 million in 2003, $24.0 million in 2002 and $8.0 million in 2001 to reflect changes in the estimates of the undiscounted liability. This liability will be adjusted in future periods as assumptions change.

The $31.3 million charge in 2003 primarily related to the assumed increase in the number of unassigned beneficiaries allocated to the Company. The increased allocation was due to two factors. First, the Company increased its allocation percentage because of a change in the way the Company interprets the statute governing the allocation, based on findings of recent court cases. Second, other coal operations became insolvent during the period, which transferred their assigned beneficiaries to the unassigned pool and reduced the denominator (the total assigned pool) in the computation of the allocation percentage, increasing the Company’s allocation assumption.

The $24.0 million charge in 2002 primarily resulted from the Company’s being able to obtain and use Company-specific information regarding the age of the beneficiaries covered by the Health Benefit Act rather than using averages relating to the entire population of beneficiaries covered, slightly higher per-beneficiary health care premiums, and slightly lower mortality than was estimated at the end of 2001 for the plan year ended September 30, 2002.

The $8.0 million charge in 2001 was primarily the result of a higher number of assigned beneficiaries as of October 1, 2001 than was estimated at the end of 2000. The Combined Fund premium per beneficiary for the plan year beginning October 1, 2001 was essentially equal to that estimated at the end of 2000.

Withdrawal Liabilities. The Company participates in the UMWA 1950 and 1974 pension plans, but expects to ultimately withdraw from these plans. Upon withdrawal from the plans, the Company must pay the plans a portion of any underfunded liability of the plans, as determined by the plan agreements. In 2001, the Company recorded estimated withdrawal liabilities for coal-related multi-employer pension plans of $8.2 million associated with its planned exit from the coal business. In 2002, the Company increased the estimated liabilities by $26.8 million to $35.0 million and in 2003, the Company increased the estimated liabilities by $17.0 million to $52.0 million.

The Company’s estimate of the obligation in each year is based on the funded status of the multi-employer plans for the most recent measurement date. The increases in the Company’s estimated liability in 2002 and 2003 are due to increases in the UMWA plans’ unfunded liabilities. The actual withdrawal liability, if any, is subject to several factors, including funding and benefit levels of the plans as of annual measurement dates (June 30 each year) and the date that the Company is determined to have completely withdrawn from the plans. Accordingly, the ultimate obligation could change materially.

Other. In the fourth quarter of 2003, the Company and a third party reached an agreement that establishes the allocation of past costs related to the recovery of environmental costs, and as a result, recognized a $5.3 million pretax gain. The matter relates to the remediation of the Company’s formerly owned petroleum terminal facility in Jersey City, New Jersey.

Sale of Other Natural Resources Assets

In October 2003, the Company sold its 23.3% equity interest in MPI Mines Ltd., an Australian minerals exploration and development company with interests in gold and nickel, for $18.8 million in cash and recognized a $10.4 million pretax gain in continuing operations.

In November 2003, the Company sold substantially all of its remaining coal-related assets for $14 million in cash plus the assumption of reclamation and other liabilities for total proceeds of $28.8 million. A gain is expected to be recognized in 2004 as liabilities related to reclamation are formally transferred to the buyer.

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