2005 Financial Review

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

RESULTS OF OPERATIONS

Income Taxes


	Income tax expense (benefit)				Effective tax rate
Years Ended December 31,		2005	2004	2003	2005	2004	2003
	(in millions)				(in percentages)
Continuing operations	$	49.5	40.6	36.4	53.9%	36.2%	49.0%
Discontinued operations		(3.7)	32.9	27.3	(3.6)%	39.7%	145.2%

Overview

The Company’s effective tax rate has varied in the past three years from the statutory U.S. federal rate due to various factors, including:

changes in circumstances resulting in the need for valuation allowances,
the amount of pretax losses in jurisdictions with existing valuation allowances,
other changes in the geographical mix of earnings,
timing of benefit recognition for uncertain tax positions,
state income taxes,
repatriation of earnings in 2005, and
the initial recognition of a net deferred tax benefit recorded as a result of its decision to sell the stock of BAX Global.

The Company establishes or reverses valuation allowances for deferred tax assets depending on all available information including historical and expected future operating performance of its subsidiaries. Changes in judgment about the future realization of deferred tax assets can result in significant adjustments to the valuation allowances. Based on the Company’s historical and future expected taxable earnings, management believes it is more likely than not that the Company will realize the benefit of the deferred tax assets, net of valuation allowances.

The Company currently believes its effective income tax rate in 2006 will be approximately 39% to 41%, excluding the potential effects of changes in judgments as to the realizability of deferred tax assets and the status of contingent tax matters. The Company expects to use a substantial amount of its U.S. tax credit carryforwards in 2006 to offset tax amounts owed related to the sale of BAX Global.

Continuing Operations

2005

The effective income tax rate on continuing operations in 2005 was higher than the 35% U.S. statutory tax rate primarily as a result of new valuation allowances in various countries in South America and Europe, the effects of losses in tax jurisdictions for which the Company does not record a tax benefit for such losses and $3 million of tax expense related to the repatriation of non-U.S. earnings. This was partially offset by the favorable resolution of contingent state income tax matters. The Company repatriated cash of $49 million from Brink’s entities in 2005 under the repatriation provision of the American Jobs Creation Act of 2004. The Company expects to pay additional income tax of $3 million related to the 2005 repatriation, which amount was recognized as tax expense in 2005.

2004

The effective income tax rate on continuing operations in 2004 was higher than the U.S. statutory tax rate primarily as a result of state income taxes and the recording of income tax expense of $2.1 million for net valuation allowance adjustments.

2003

The effective income tax rate on continuing operations in 2003 was higher than the U.S. statutory tax rate primarily due to recording income tax expense of $15.5 million for net valuation allowance adjustments for a portion of Brink’s foreign deferred tax assets.

Adjustments to income tax expense

The Company has recorded adjustments in each of the last three years based on an ongoing analysis of its U.S. and non-U.S. current and deferred income tax asset and liability accounts. The Company has included in income from continuing operations the effect of these adjustments because they did not aggregate to a material amount in any individual year. The income tax benefit related to these adjustments was $0.9 million in 2005, $0.3 million in 2004 and $5.8 million in 2003.

Discontinued Operations

Discontinued operations includes the tax provision or benefit associated with the Company’s BAX Global and former natural resource businesses, including the resolution of associated contingent tax matters.

The effective tax rate in 2005 was lower than the 35% U.S. statutory tax rate primarily as a result of an income tax benefit of $27.4 million recorded upon the resolution of income tax matters with the Internal Revenue Service related to the former natural resource business. In addition, the Company recognized a $7.0 million deferred tax benefit in 2005 for the excess of the tax basis over the carrying value of the Company’s investment in BAX Global as a result of the Company’s decision to sell BAX Global’s stock.

The effective tax rate in 2004 was higher than the U.S. statutory tax rate due to state income tax expense. The effective tax rate in 2003 was higher than the U.S. statutory rate due to state deferred tax valuation allowances related to BAX Global and additional accruals made in 2003 for tax contingencies related to the natural resource business.

Other

As of December 31, 2005, the Company has not recorded U.S. federal deferred income taxes on approximately $145 million of undistributed earnings of foreign subsidiaries and equity affiliates. It is expected that these earnings will be permanently reinvested in operations outside the U.S. It is not practical to compute the estimated deferred tax liability on these earnings.