2005 Financial Review

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

RESULTS OF OPERATIONS

Overview of Results


	Years Ended December 31,				% change
(In millions)		2005	2004	2003	2005	2004
Income (loss) from:
Continuing operations	$	42.3	71.5	37.9	(41)	89
Discontinued operations		105.5	50.0	(8.5)	111	NM
Cumulative effect of change in accounting principle		(5.4)	-	-	NM	-
Net income	$	142.4	121.5	29.4	17	200+

The income (loss) items in the above table are reported after tax.

Continuing Operations

2005

Income from continuing operations was lower in 2005 compared to 2004 as a result of a lower operating profit and a higher-than-normal 2005 effective tax rate. Operating profit declined in 2005 versus 2004 as lower operating profit at Brink’s was partially offset by higher operating profit at BHS. Brink’s operating profit decreased due primarily to higher operating costs including restructuring charges in several European countries, U.S. pension costs and increased safety and security costs. BHS operating profit increased due to growth in revenues resulting primarily from increases in the number of subscribers. The effective tax rate was higher than normal in 2005, as a result of the recording of valuation allowances against tax assets in certain countries and a higher level of losses in countries for which the Company does not record tax benefit from such losses.

2004

Income from continuing operations in 2004 was higher than in 2003 primarily due to a $40.1 million increase in operating profit as a result of improvements in Brink’s and BHS and lower expenses of $23.6 million related to former coal operations. In addition, the return to a more-normal effective tax rate in 2004 contributed to the improved results. The 2003 tax rate was higher due primarily to recording valuation allowances related to deferred tax assets for foreign tax jurisdictions. Offsetting these factors was an increase in 2004 corporate expenses of $14.9 million partially due to costs related to internal controls documentation and testing mandated by section 404 of the Sarbanes-Oxley Act of 2002. Costs related to incentive compensation were also higher in 2004 than in 2003. The Company recorded a one-time $4.4 million pretax gain within other income (expense), net during 2004 upon conversion of the Company’s VEBA from a general corporate asset to one specifically restricted to pay certain coal-related postretirement liabilities. In addition, 2003 included a one-time $10.4 million pretax gain on the sale of an equity interest in a natural resource business.

Business Segments

Brink’s operating profit in 2005 was lower than 2004, but 2004 operating profit was higher than 2003. BHS reported improved operating profit in both 2005 and 2004 over prior-year periods.

Brink’s. Revenues in 2005 increased from 2004 primarily as a result of acquisitions and growth in existing operations. Exchange rate fluctuations had little impact on revenues in 2005, however, revenues in 2004 benefited from the effects of the weaker U.S. dollar in 2004 compared to 2003. Operating profits were lower in 2005 compared to 2004, largely due to higher costs in Europe, increased restructuring and severance costs in various European countries, higher U.S. pension costs and higher safety and security costs.

BHS. BHS reported 13% growth in revenues in 2005 and 11% in 2004. BHS experienced strong growth in operating profit in 2005 (8%) and 2004 (13%) resulting primarily from subscriber growth and improved efficiency from the providing of recurring services to a larger subscriber base. The average number of subscribers increased 11% in 2005 over 2004 and 10% in 2004 over 2003. Growth in operating profit in 2005 over 2004 was not as strong as the prior year primarily as a result of higher costs related to the home technology business.

Former Operations

Expenses related to former operations in 2005 were $6.7 million lower than 2004 primarily as a result of gains from the sale of substantially all of the Company’s remaining mining interests in Kentucky and the recognition of a gain on previously sold West Virginia coal assets due to the transfer of liabilities to the buyer.

Expenses related to former operations were $23.6 million lower in 2004 compared to 2003. The decrease in 2004 was due to:

recording a benefit from enactment of the Medicare reform bill in December 2003,
recording the benefit from projected investment income from the Company’s VEBA trust after the restriction of the VEBA to pay certain retiree medical benefit obligations, and
a reduction in coal-related administration and other expenses as the related operations wound down.

In 2003, the Company recorded a $10.4 million pretax gain on the sale of shares in an Australian gold and nickel exploration and mining company.

Income Taxes

The Company’s effective tax rate on income from continuing operations was 54% in 2005, 36% in 2004 and 49% in 2003. The effective tax rate varied from statutory rates in these periods primarily due to changes in valuation allowances for deferred tax assets and the resolution of contingent tax matters. The effective tax rate in 2005 was unusually high due to $10.0 million in new valuation allowances, a higher amount of pretax losses being incurred in countries for which the Company does not recognize a tax benefit from losses, and the recording of $3 million in additional tax on the repatriation of $49 million in dividends under the American Jobs Creation Act. Valuation allowance increases in 2005 primarily related to three international operations. Valuation allowance increases of $2.1 million were recorded in 2004 for deferred tax assets. 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.

The Company currently estimates its 2006 effective tax rate will approximate 39% to 41%. The actual 2006 tax rate could be materially different from the Company’s estimate.

Discontinued Operations

In November 2005, the Company’s Board of Directors approved the sale of BAX Global. Accordingly, BAX Global’s results of operations have been reported as a component of income (loss) from discontinued operations for all periods presented. On January 31, 2006, the Company sold BAX Global for $1.1 billion in cash resulting in an approximate $600 million pretax gain. This figure will be revised in later quarters to reflect post-closing adjustments.

Income (loss) from discontinued operations also includes operating results of the Company’s former natural resource businesses through the date of sale and gains and losses from the sale including:

Coal business – recognized additional pretax gains of $5.0 million in late 2004 under sales agreements from prior years.
Gold business – sold in early 2004 for a pretax loss of $0.9 million. Pretax impairment losses of $1.7 million were recognized in 2003.
Timber business – sold a small portion in December 2003 and completed the sale in early 2004 for a $25.5 million pretax gain ($4.8 million recognized in 2003 and $20.7 million in 2004).
Natural gas business – sold in August 2003 for a $56.2 million pretax gain.

The Company has accrued for significant contingencies related to benefits for former coal employees. Revisions to estimated amounts related to these contingent liabilities, including those related to obligations under the Coal Industry Retiree Health Benefit Act of 1992 (“the Health Benefit Act”) and multi-employer pension plan withdrawal liabilities, are recorded in discontinued operations and have been significant in each of the last three years.

Cumulative Effect of a Change in Accounting Principle

In December 2005, the Company adopted the Financial Accounting Standard Board (“FASB”) Interpretation 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”). As a result, the Company recorded the cumulative effect of a change in accounting principle of $5.4 million, net of tax, for conditional asset retirement obligations primarily associated with leased facilities. See note 1 to the consolidated financial statements.