2005 Financial Review

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

RESULTS OF OPERATIONS

Primary U.S. Pension Plan

The Company maintains a noncontributory defined benefit pension plan covering substantially all non-union employees in the U.S. who meet vesting and other requirements. In October 2005, the Company announced that benefit levels for the primary U.S. defined benefit pension plan would be frozen effective December 31, 2005. As a result, participants in the plan will cease to earn additional benefits after 2005, although participants who have not met requirements for vesting will continue to accrue vesting service in accordance with terms of the plans. Using actuarial assumptions as of December 31, 2005, this plan had an accumulated benefit obligation (“ABO”) of approximately $746 million. The ABO is an estimate of the benefits earned through December 31, 2005. Since the plan is frozen and no additional benefits will accrue, the Projected Benefit Obligation (“PBO”) is now the same as the ABO.

The ABO represents the net present value of expected future cash flows discounted to December 31, 2005 at 5.50%. The Company selects a discount rate for its pension liability after reviewing published long-term yield information for a small number of high-quality fixed-income securities (Moody’s AA bond yields). The Company, with the aid of its advisors, also calculates an average yield for a broader range of long-term high-quality securities with maturities in line with expected benefit payments. As market interest rates fluctuate, the net present value of the Company’s obligation will change. The impact of a one percentage point (100 basis points) change in the discount rate used at December 31, 2005 would have been as follows:

At December 31, 2005, the fair value of the plan’s assets approximated $620 million. The Company uses a long-term rate of return assumption to determine annual income from plan assets. This expected income reduces plan expense. The Company’s expected long-term rate of return in 2006 is 8.75%. If the Company were to use a different long-term rate of return assumption it would affect annual pension expense.

The historical and projected benefit payments and expense for the U.S. plan are set out in the table below. The projected benefit payments and expense reflect assumptions used in the valuation at year-end 2005. These assumptions are reviewed annually, and it is likely that they will change in future years.

As can be noted from reviewing the above tables, changes in discount rates significantly affect the amount of expense recorded. The level of expense increased over the last several years largely due to a reduction in the discount rate assumption used as a result of decreasing market interest rates. Also contributing to the increase in expense has been the poor performance of investment markets from 2000 to 2002, although this has been moderated by the performance from 2003 to 2005. The above expense amounts were charged to the business segments in approximately the following proportions: Brink’s - 45%, BHS – 15%; Corporate, BAX Global and former operations – 40%.

The amount of cash the Company may have to contribute in the future for the Company’s primary U.S. pension plan is determined using a different set of assumptions than is used for financial accounting purposes.

Based on December 31, 2005 data, assumptions and funding regulations, the Company expects to make up to a
$1 million contribution to the plan for the 2006 plan year. Under existing regulations and using the same assumptions for 2006 activity, a contribution of approximately $54 million could be required for the 2007 plan year but the actual payment could be delayed until as late as September 2008. Up to $31 million could be required for the 2008 plan year.  

The above estimated contributions are likely to change. Congress and the Executive Branch of the federal government are expected to evaluate changes to pension funding requirements. As part of this evaluation they may adopt changes to the definition of the discount rate to be used for funding purposes and to the amount of time required to fund the full liability. Any changes to the discount rate used for funding through an extension of the current relief are expected to reduce required contributions. In addition, actual investment returns and interest rates are likely to differ from those assumed at December 31, 2005. Voluntary contributions have the effect of reducing and potentially delaying later required contributions. The Company has made voluntary contributions aggregating $31 million over the last three years.

The pension plan’s benefits will be paid out over an extended period of time. Accordingly, the Company takes a long-term approach to funding levels and contribution policies. Historically, long-term returns on assets invested have significantly exceeded the discount rate for pension liabilities so it is expected that a portion of the future liability will be funded by investment returns. As a result, the Company’s funding target over the medium-term is to cover only a portion of the ABO, essentially the obligations already earned as of a given measurement date. Under this approach, the plan was 83% funded at December 31, 2005.