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  • Financial Highlights
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  • Consolidated Financial Statements
  • Notes to Consolidated Financial Statements
  • Selected Financial Data
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Notes to Consolidated Financial Statements

Note 1 – Summary of Significant Account Policies Note 2 – Segment Information Note 3 – Earnings Per Share Note 4 – Employee and Retiree Benefits Note 5 – Investments held by VEBA Trust Note 6 – Former Natural Resource Operations Note 7 – Costs Associated With Exit Activities Note 8 – Property and Equipment Note 9 – Impairment of Long-Lived Assets Note 10 – Other Assets Note 11 – Accrued Liabilities Note 12 – Other Liabilities Note 13 – Long-Term Debt Note 14 – Accounts Receivable and Asset Securitization Note 15 – Operating Leases Note 16 – Share-Based Compensation Plans Note 17 – Capital Stock Note 18 – Income Taxes Note 19 – Supplemental Cash Flow Information Note 20 – Other Operating Income, Net Note 21 – Other Nonoperating Income (Expense), Net Note 22 – Risk Management Note 23 – Other Commitments and Contingencies Note 24 – Selected Quarterly Financial Data (unaudited)

Note 23 – Other Commitments and Contingencies

Purchase Obligations

At December 31, 2004, the Company had noncancelable commitments for $18.5 million of computer processing and consulting services and $20.8 million for other agreements.

Value-added taxes and customs duties

One of the Company’s non-U.S. Brink’s, Incorporated business units has not paid foreign customs duties and value-added taxes with respect to the importation of certain goods and services. The Company has been advised that there could be civil and criminal penalties asserted for the non-payment of these custom duties and value-added taxes. The business unit has commenced discussions with the appropriate governmental authorities in the affected jurisdiction regarding this matter. To date no penalties have been asserted.

As a result of its investigation, the Company recorded charges in 2004 of $1.1 million to operating profit and $0.7 million to interest expense. A summary of the impact of this situation on earnings is provided below.

(In millions)	Year Ended December 31, 2004
Penalties on unpaid value-added taxes	$	0.4
Duties		0.7
Amount charged to operating expenses		1.1
Interest expense on unpaid value-added taxes and customs duties		0.7
	$	1.8

The Company evaluates many factors to determine whether it should recognize or disclose a loss contingency, including the probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. The Company believes that the range of probable penalties related to unpaid value-added taxes is between $0.4 million and $3 million and that no amount within that range is a better estimate than any other amount within the range. Accordingly, the Company has accrued $0.4 million for these penalties.

The Company has concluded that a loss related to penalties on unpaid customs duties is not probable. The Company believes that the range of reasonably possible losses related to customs duties penalties is between $0 and approximately $35 million. The Company believes that the assertion of these penalties would be excessive and would vigorously defend against any such assertion.

The Company intends 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. These penalties could be asserted at any time. Although the Company has accrued $0.7 million of interest on the unpaid value-added taxes and customs duties, the Company does not expect to be assessed interest charges in connection with any penalties that may be asserted.

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 reasonably 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.

Former Coal Operations

At December 31, 2004, the Company had obligations of $23.4 million ($13.0 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 required that the Company pay royalties to lessors based on production of coal or minimum amounts if coal is not produced. In 2002, the last year the Company produced coal, the Company’s former coal operations recorded $6.6 million of expense related to royalty payments under these contracts.

Future advance minimum royalty payments due under the mineral lease agreements at December 31, 2004 were as follows:

(In millions)	Advanced Minimum Royalty Payments Due
2005	$	0.7
2006		2.5
2007		1.6
2008		1.6
2009		1.1
Later years		15.9
	$	23.4

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 certain of the Company’s subsidiaries, 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, including $2.8 million received in 2003. The Company continues to pursue the refund of other FBLET payments. Due to uncertainty as to the ultimate receipt of additional amounts, if any, which could amount to as much as $15 million (before income taxes), the Company has not recorded receivables for additional FBLET refunds.

Income Tax

The Company has entered into discussions with a tax authority which, if concluded favorably, could result in a one-time benefit of up to $27 million. The benefit, if any, would not result in any current cash receipts but would add to the Company’s tax credit carryforwards.

Surety Bonds

The Company is required by various state and federal laws to provide security with regard to its obligations to pay workers’ compensation, to reclaim lands used for mining by the Company’s former coal operations and to satisfy other obligations. As of December 31, 2004, the Company had outstanding surety bonds with third parties totaling approximately $110 million that it has arranged in order to satisfy the various security requirements. Most of these bonds provide financial security for previously recorded liabilities. Because some of the Company’s reclamation obligations have been assumed by purchasers of the Company’s former coal operations, $6.8 million of the Company’s surety bonds are expected to be replaced by purchasers’ surety bonds after the state mining permits are transferred. 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.

During November 2004, the Company entered into a new Letter of Credit Facility, described in note 13 above. The Company intends to use letters of credit under the new facility to satisfy much of its security requirements, and expects the amount of outstanding surety bonds will decline in the future. At December 31, 2004, $106.7 million of letters of credit had been issued under the facility with available credit of $43.3 million.

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.

Environmental Remediation

The Company has agreed to pay a portion of the remediation costs arising from hydrocarbon contamination at a formerly owned petroleum terminal facility (“Tankport”) in Jersey City, New Jersey, which was sold in 1983. The Company is in the process of completing remediation of the site under an approved plan. In 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, the Company recognized a $5.3 million pretax gain in discontinued operations. The Company estimates its portion of the remaining clean-up and operational and maintenance costs to be $2.6 million.

In connection with the remediation of Tankport, the Company acquired a noncontrolling interest in an adjacent residential development. The Company has no cost basis in the investment and has not recorded any income distributions to date, but may receive income in the future.