2005 Financial Review

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

OPERATIONS

The Brink’s Company

Executive Overview

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 offers services globally including armored car transportation, automated teller machine (“ATM”) replenishment and servicing, currency and deposit processing including its “Cash Logistics” operations, coin sorting and wrapping, arranging the secure air transportation of valuables (“Global Services”), the deploying and servicing of safes and safe control devices, including its patented CompuSafe® service and transporting, sorting and destroying sensitive information (“Secure Data Solutions”).
  • Brink’s Home Security, Inc. (“BHS”)
    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, and protecting 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 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:

  • Growth in revenues and earnings
  • Generation of cash flow
  • Creation of value through solid returns on capital

These and similar measures are critical components of the Company’s incentive compensation programs and performance evaluations.

The Company sold BAX Global Inc. (“BAX Global”), a wholly owned freight transportation subsidiary, in January 2006 for $1.1 billion in cash. Net after-tax proceeds are expected to approximate $1.0 billion. The Company immediately contributed $225 million of the proceeds to a Voluntary Employees’ Beneficiary Association Trust (“VEBA”) designated to pay retiree medical obligations of former coal operations and paid down $46 million of short-term debt. The Company expects to use the remaining after-tax proceeds to:

  • repay up to approximately $140 million of debt,
  • repurchase between $400 million and $600 million of the Company’s common stock, subject to approval of the Company’s Board of Directors, and
  • support future growth and other activities of the Company.

The Company initially retained ownership of Air Transport International, LLC (“ATI”), BAX Global’s former airline subsidiary, pending receipt of required regulatory approvals. Regulatory approval was obtained and ATI was sold on February 28, 2006.

BAX Global’s results of operations, including ATI, have been reported as discontinued operations for all years reported. 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 expects to pay $23 million for retained tax liabilities over the next two or three years.

The Company previously sold its natural resource businesses and has retained significant liabilities associated with former coal operations. Since these liabilities are expected to 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 and reconcile a Company-defined measure of these retained obligations, “Legacy Value,” to corresponding measures under U.S. generally accepted accounting principles (“GAAP”). The second section discusses critical estimates used and provides a sensitivity analysis for these estimates.