Management’s Discussion and Analysis
MD&A Quicklinks
- Results of Operations
- Retained Liabilities and Assets of Former Natural Resource Operations
- Executive Overview
- Legacy Liabilities and Assets
- Projected Payments and Expenses of Retained Coal Liabilities and Administrative Costs
- Company-Sponsored Retiree Medical Benefits Obligations and VEBA
- Health Benefit Act Obligations
- Black Lung Obligations
- Withdrawal Liabilities
- Discontinued Operations
- Sale of Other Natural Resources Assets
- Liquidity and Capital Resources
Liquidity and Capital Resources
Capitalization
The Company uses a combination of debt, off-balance sheet instruments and equity to capitalize its operations. As of December 31, 2004, debt as a percentage of capitalization (total debt and shareholders’ equity) was 27% compared to 36% at December 31, 2003. The reduction resulted from a combination of $178 million of higher equity and $30 million of lower debt. Equity increased in 2004 primarily as a result of net income ($121.5 million). The issuance of shares related to employee benefit plans also was a factor in the increase.
Summary of Debt, Equity and Other Liquidity Information
| Amount available under credit facilities |
Outstanding Balance |
||||||||
|---|---|---|---|---|---|---|---|---|---|
| December 31, | December 31, | $ | |||||||
| (In millions) | 2004 | 2004 | 2003 | change (b) | |||||
| Debt: | |||||||||
| Short-term debt: | |||||||||
| Multi-currency revolving facility and other committed facilities (a) | $ | 37 | $ | 27.5 | 35.8 | $ | (8.3) | ||
| Long-term debt: | |||||||||
| Revolving Facility | 382 | 18.4 | 30.9 | (12.5) | |||||
| Letter of Credit Facility | 43 | - | - | - | |||||
| Senior Notes | 95.0 | 95.0 | - | ||||||
| Dominion Terminal | |||||||||
| Associates (“DTA”) bonds | 43.2 | 43.2 | - | ||||||
| Other | 60.1 | 69.6 | (9.5) | ||||||
| Debt | $ | 462 | $ | 244.2 | 274.5 | $ | (30.3) | ||
| Shareholders’ equity | $ | 674.0 | 495.6 | $ | 178.4 | ||||
| Other Liquidity Information: | |||||||||
| Cash and cash equivalents | $ | 169.0 | 128.7 | $ | 40.3 | ||||
| Amount sold under accounts receivable securitization facility | 25.0 | 77.0 | (52.0) | ||||||
| Net Debt (c) | 75.2 | 145.8 | (70.6) | ||||||
| Net Financings (c) | 100.2 | 222.8 | (122.6) | ||||||
- (a)
- The Company also had $111.0 million in available credit under uncommitted cash facilities at December 31, 2004.
- (b)
- In addition to cash borrowings and repayments, the change in the debt balance also includes changes in currency exchange rates and borrowings under new capital leases.
- (c)
- These 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. See reconciliation below.
Reconciliation of Net Debt and Net Financings to GAAP Measures
| December 31, | ||||||
|---|---|---|---|---|---|---|
| (In millions) | 2004 | 2003 | 2002 | 2001 | 2000 | |
| Short-term debt | $ | 27.5 | 35.8 | 41.8 | 27.8 | 51.0 |
| Long-term debt | 216.7 | 238.7 | 317.5 | 270.1 | 345.8 | |
| DTA bonds | - | - | - | 43.2 | 43.2 | |
| Debt | 244.2 | 274.5 | 359.3 | 341.1 | 440.0 | |
| Less cash and cash equivalents | (169.0) | (128.7) | (102.3) | (86.7) | (97.8) | |
| Net Debt | 75.2 | 145.8 | 257.0 | 254.4 | 342.2 | |
| Amounts sold under accounts receivable | ||||||
| securitization facility | 25.0 | 77.0 | 72.0 | 69.0 | 85.0 | |
| Net Financings | $ | 100.2 | 222.8 | 329.0 | 323.4 | 427.2 |
The Company believes the presentation of Net Debt and Net Financings are useful measures of the Company’s financial leverage.
Debt
During October 2004, the Company entered into a new unsecured $400 million revolving bank credit facility with a syndicate of banks to replace the existing $350 million facility which was due to expire in 2005. The new facility allows the Company to borrow (or otherwise satisfy credit needs) on a revolving basis over a five-year term ending in October 2009. Both the old and new facility are referred to herein as the “Revolving Facility.” At December 31, 2004, $381.6 million was available under the Revolving Facility.
During November 2004, the Company also entered into 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”). The costs of such letters of credit are expected to be approximately the same as borrowings under its $400 million facility discussed above. The Company intends to use the Letter of Credit Facility to replace surety bonds and other letters of credit needed to support its activities. As of December 31, 2004, $106.7 million was utilized 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 with a total of $105 million in available credit at December 31, 2004, of which $37.0 million was available. 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.
At December 31, 2004, the Company had $95.0 million of Senior Notes outstanding that are scheduled to be repaid in 2005 through 2008, including $18.3 million which was paid as scheduled in January 2005. Interest on each series of the Senior Notes is payable semiannually, and the Company has the option to prepay all or a portion of the Notes prior to maturity with a prepayment penalty. The Senior Notes are unsecured.
The Company’s Brink’s, BHS, and BAX Global subsidiaries have guaranteed the Revolving Facility, the Letter of Credit Facility and the Senior Notes. The Revolving Facility, the Letter of Credit Facility, the agreement under which the Senior Notes were issued and the multi-currency revolving bank credit facilities each contain various financial and other covenants. The financial covenants, among other things, limit the Company’s total indebtedness, provide for minimum coverage of interest costs, and require the Company to maintain a minimum level of net worth. If the Company were not to comply with the terms of its various loan agreements, the repayment terms could be accelerated. 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, 2004.
In 2003, at the Company’s request, the Peninsula Ports Authority of Virginia issued a new series of bonds to replace the previous bonds related to Dominion Terminal Associates, a deep water coal terminal in which the Company no longer has an interest.
The Company continues to pay interest on and guarantee payment of the $43.2 million principal of the new bonds and ultimately will have to pay for the retirement of the new bonds in accordance with the terms of the guarantee. The new bonds bear a fixed interest rate of 6.0% (versus a fixed interest rate of 7.375% for the previous bonds) and mature in 2033. The new bonds may mature prior to 2033 upon the occurrence of certain 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.
Equity
At December 31, 2004, the Company had 100 million shares of common stock authorized and 56.7 million shares issued and outstanding. Of the outstanding shares at December 31, 2004, 1.1 million shares were held by The Brink’s Company Employee Benefit Trust and have been accounted for in a manner similar to treasury stock for earnings per share purposes. The Company has the authority to issue up to 2.0 million shares of preferred stock, par value $10 per share.
The Company has the authority to repurchase up to 1.0 million shares of common stock with an aggregate purchase price limitation of $19.1 million. The Company made no repurchases under this program during 2004.