2005 Financial Review

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

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 $13 million for related contingencies at December 31, 2005. 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 all contingent income tax liabilities and interest.

Former Operations

The Company has recorded estimated liabilities for contingent liabilities, 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 $9 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 $23.3 million accrued for these net tax liabilities at December 31, 2005.

Insurance claims

The Company expects to file insurance claims of $4.0 million to $6.5 million related to property damage and business interruption insurance coverage for losses sustained from Hurricane Katrina. As of December 31, 2005, the Company had recorded a receivable of $2.2 million for claims to be filed, which equals the amount of hurricane-related property losses recognized to date. 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. Claims for lost revenues under business interruption coverage will be recognized as operating income when the claims are settled.  

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 between $0 and $35 million for unpaid customs duties and associated penalties. 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.

BHS contingency for a component

BHS has been notified by one of its equipment suppliers that it is reviewing data associated with the reliability of a component. The supplier is examining currently available data and developing additional data in order to complete the review. The conclusions from the review could range from the confirmation of the reliability of the component to a requirement to replace the component. The Company does not currently believe that actions, if any, stemming from this review will have a material impact on the Company’s financial position. The Company expects to be reimbursed for costs, if any, that may be incurred in responding to the review. However, depending upon the timing and amounts of expenditures and reimbursements, there could be an impact on results of operations for individual quarters in 2006.