2005 Financial Review

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 – Employee and Retiree Benefits

The employee benefit plans and other liabilities described below cover eligible employees and retirees. The measurement date for all plans is December 31.

Pension Plans

The Company has noncontributory defined benefit pension plans covering substantially all U.S. non-union employees who meet vesting and other minimum requirements. The Company also has other contributory and noncontributory defined benefit plans for eligible non-U.S. employees. Benefits under most of the plans are based on salary (including commissions, bonuses, overtime and premium pay) and years of service. The Company’s policy is to fund at least the minimum actuarially determined amounts required by applicable regulations.

In October 2005, the Company announced that benefit levels for its U.S. defined benefit pension plans would be frozen, effective December 31, 2005. As a result, participants in the U.S. defined benefit pension plans 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 the terms of the plans.

The Company has retained the obligations and assets related to the participation of BAX Global’s employees in the Company’s U.S. pension plans. Pension obligations and assets of BAX Global’s non-U.S. subsidiaries have been assumed by the purchaser and these accrued and prepaid amounts have been reclassified as assets and liabilities held for sale. Pension expenses for BAX Global employees for the years presented have been included in discontinued operations. After January 31, 2006, the date of sale, pension expense related to participation by BAX Global employees in U.S. pension plans will be included in continuing operations.

In June 2003, the Company amended the benefit formula for its U.S. pension plan which resulted in a $4.1 million reduction in service cost in 2003 from what it would have otherwise been. This change had no effect on benefits earned for service prior to June 2003.

The weighted-average assumptions used in determining the net pension cost and benefit obligations for the Company’s pension plans were as follows:

	U.S. Plans				Non-U.S. Plans
	2005	2004	2003		2005	2004	2003
Discount rate:
Pension cost	5.75%	6.25%	6.75%		5.32%	5.55%	5.86%
Benefit obligation at year end	5.50%	5.75%	6.25%		4.75%	5.32%	5.55%
Expected long-term rate of return on assets -
Pension cost	8.75%	8.75%	8.75%		6.04%	6.37%	6.74%
Average rate of increase in salaries (a):
Pension cost	5.03%	5.03%	5.04%		3.21%	3.09%	3.40%
Benefit obligation at year end	N/A (b)	5.03%	5.03%		3.06%	3.21%	3.09%

(a)

Salary scale assumptions are determined through historical experience and vary by age and industry.

(b)

Not applicable at December 31, 2005 because the U.S. plan benefits were frozen and pension benefit payments will be based on salaries earned through December 31, 2005.

The RP-2000 Combined Healthy Blue Collar mortality table was used to estimate the expected lives of participants in the U.S. pension plans at December 31, 2005. The 1983 Group Annuity Mortality table was used to estimate the expected lives of participants in the U.S. pension plans at December 31, 2004 and 2003. Expected lives of participants in non-U.S. pension plans were estimated using mortality tables in the country of operation.

The net pension cost for the Company’s pension plans is as follows:

(In millions)	U.S. Plans					Non-U.S. Plans					Total
Years Ended December 31,		2005	2004	2003			2005	2004	2003			2005	2004	2003
Service cost	$	28.2	23.5	23.0		$	10.1	8.7	7.6		$	38.3	32.2	30.6
Interest cost on PBO		43.8	40.8	38.6			10.6	9.4	7.8			54.4	50.2	46.4
Return on assets - expected		(49.9)	(49.5)	(49.1)			(10.0)	(8.8)	(7.4)			(59.9)	(58.3)	(56.5)
Amortization of losses		22.9	14.4	7.4			3.3	3.1	3.1			26.2	17.5	10.5
Curtailment loss		0.2	-	-			-	-	-			0.2	-	-
Net pension cost	$	45.2	29.2	19.9		$	14.0	12.4	11.1		$	59.2	41.6	31.0
Included in:
Continuing operations	$	33.3	21.4	14.5		$	9.8	8.1	6.8		$	43.1	29.5	21.3
Discontinued operations		11.9	7.8	5.4			4.2	4.3	4.3			16.1	12.1	9.7
Net pension cost	$	45.2	29.2	19.9		$	14.0	12.4	11.1		$	59.2	41.6	31.0

 

Reconciliations of the projected benefit obligation (“PBO”), plan assets, funded status and net pension assets at December 31, 2005 and 2004 for all of the Company’s pension plans are as follows:

(In millions)	U.S. Plans				Non-U.S. Plans			Total
Years Ended December 31,		2005	2004		2005	2004		2005	2004
PBO at beginning of year	$	762.4	672.9		210.7	172.4		973.1	845.3
Service cost		28.2	23.5		10.1	8.7		38.3	32.2
Interest cost		43.8	40.8		10.6	9.4		54.4	50.2
Plan participant contributions		-	-		3.1	2.7		3.1	2.7
Acquisitions					4.1			4.1
Benefits paid		(26.8)	(25.3)		(5.7)	(5.9)		(32.5)	(31.2)
Actuarial loss		66.7	50.5		17.3	7.8		84.0	58.3
Curtailment gain		(110.0)	-		(0.6)	-		(110.6)	-
Foreign currency exchange		-	-		(17.2)	15.6		(17.2)	15.6
PBO at end of year	$	764.3	762.4		232.4	210.7		996.7	973.1
Fair value of plan assets at beginning of year	$	595.1	541.9		158.1	135.5		753.2	677.4
Return on assets – actual		51.2	67.1		16.9	7.4		68.1	74.5
Acquisitions		-	-		2.6	-		2.6	-
Plan participant contributions		-	-		3.1	2.7		3.1	2.7
Employer contributions		0.5	11.4		8.2	6.7		8.7	18.1
Benefits paid		(26.8)	(25.3)		(5.7)	(5.9)		(32.5)	(31.2)
Foreign currency exchange		-	-		(12.0)	11.7		(12.0)	11.7
Fair value of plan assets at end of year	$	620.0	595.1		171.2	158.1		791.2	753.2
Funded status	$	(144.3)	(167.3)		(61.2)	(52.6)		(205.5)	(219.9)
Unrecognized experience loss		185.8	253.3		64.3	57.3		250.1	310.6
Unrecognized prior service cost		-	0.2		0.8	1.0		0.8	1.2
Net prepaid pension assets	$	41.5	86.2		3.9	5.7		45.4	91.9
Included in:
Prepaid pension assets	$	-	-		-	14.1		-	14.1
Accrued pension cost:
Current, included in accrued liabilities		(0.6)	(0.4)		(5.2)	(7.6)		(5.8)	(8.0)
Noncurrent		(143.7)	(80.8)		(26.3)	(36.2)		(170.0)	(117.0)
Liabilities held for sale		-	-		(14.9)	-		(14.9)	-
Accumulated other comprehensive loss		185.8	167.4		50.3	35.4		236.1	202.8
Net prepaid pension assets	$	41.5	86.2		3.9	5.7		45.4	91.9

 

The unrecognized experience loss decreased in 2005 as a result of a curtailment gain, primarily as a result of freezing the U.S. plan, partially offset by lower discount rate assumptions and longer projected lives. The Company’s unrecognized experience loss increased in 2004 primarily due to lower discount rate assumptions (which increased the accumulated benefit obligation (“ABO”) and PBO) partially offset by higher-than-expected returns on plan assets. Actuarial losses are largely deferred with a portion of these losses being amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits under the plans.

Information comparing plan assets to plan obligations as of December 31, 2005 and 2004 are aggregated below. The ABO differs from the PBO in that the ABO is the obligation earned through the date noted. The PBO includes assumptions about future compensation levels for non-U.S. plans.

(In millions)	ABO Greater Than Plan Assets				Plan Assets Greater Than ABO			Total
December 31,		2005	2004		2005	2004		2005 (a)	2004
PBO	$	994.5	919.7		2.2	53.4		996.7	973.1
ABO		978.1	824.5		1.1	47.5		979.2	872.0
Fair value of plan assets		789.2	703.5		2.0	49.7		791.2	753.2

(a)

Includes BAX Global’s non-U.S. pension plans with PBO of $60.8 million, ABO of $56.5 million and fair value of plan assets of $41.8 million at December 31, 2005.

The Company’s weighted-average asset allocations at December 31, 2005 and 2004 by asset category is as follows:

(In millions, except percentages)	U.S. Plans				Non-U.S. Plans
December 31,		2005	2004		2005	2004
Equity securities		72%	72%		57%	54%
Debt securities		28%	27%		41%	43%
Other		-	1%		2%	3%
Total		100%	100%		100%	100%
Plan assets at fair value	$	620.0	595.1		171.2	158.1
Actual return on assets during year	$	51.2	67.1		16.9	7.4

 

Assets of U.S. pension plans are invested primarily using actively managed accounts with asset allocation targets of 70% equities, which include a broad array of market capitalization sizes and investment styles, and 30% fixed income securities. The Company’s policy does not permit certain investments, including investments in The Brink’s Company common stock, unless part of a commingled fund. Fixed-income investments must have an investment grade rating at the time of purchase. The plan rebalances its assets on a quarterly basis if actual allocations of assets are outside predetermined ranges. Among other factors, the performance of asset groups and investment managers will affect the long-term rate of return.

The Company selects the expected long-term rate of return assumption for its U.S. pension plan using advice from its investment advisor and its actuary considering the plan’s asset allocation targets and expected overall investment manager performance and a review of its most recent ten-year historical average compounded rate of return.

Based on December 31, 2005 data, assumptions and funding regulations, the Company does not currently plan to make a contribution to the primary U.S. plan in 2006. There are limits to the amount of benefits which can be paid to participants from a U.S. qualified pension plan. The Company maintains a nonqualified U.S. plan to pay benefits for those eligible current and former employees in the U.S. whose benefits exceed the regulatory limits.

Assets of non-U.S. plans are invested primarily using actively managed accounts with weighted-average asset allocation targets of 54% equities, 44% fixed income securities and 2% other, primarily cash. The Company selects the expected long-term rates of return for its non-U.S. pension plans using advice from its investment advisors and its actuary considering plan asset allocation targets and expected overall investment manager performance.

The Company expects to contribute approximately $0.6 million to its U.S. pension plans and $5.2 million to its non-U.S. pension plans in 2006.

The Company’s projected benefit payments at December 31, 2005 for each of the next five years and the aggregate five years thereafter are as follows:

(In millions)	U.S. Plans			Non-U.S. Plans (a)		Total
2006	$	28.8		3.8		32.6
2007		30.2		4.3		34.5
2008		31.5		5.1		36.6
2009		32.9		5.4		38.3
2010		34.3		6.3		40.6
2011 through 2015		198.0		36.8		234.8
Total	$	355.7		61.7		417.4

(a)

Excludes payments for BAX Global’s non-U.S. plans.

Termination Benefits

During 2005, one of the Company’s Brink’s European subsidiaries resized its operations and accrued $6.1 million in termination benefits. This event was accounted for under SFAS 88, “Employer’s Accounting for Settlement and Curtailment of Defined Benefit Pension Plans and for Termination Benefits.”

Multi-employer Pension Plans

The Company contributes to multi-employer pension plans in a few of its non-U.S. subsidiaries. Multi-employer pension expense (excluding changes to the withdrawal liability discussed below) have been classified in continuing and discontinued operations as follows:

	Years Ended December 31,
(In millions)		2005	2004	2003
Multi-employer Expense
Continuing operations	$	2.9	3.4	2.5
Discontinued operations		0.3	0.3	0.3
	$	3.2	3.7	2.8

 

The Company withdrew from the UMWA 1950 and 1974 pension plans in June 2005 as the last employees working under UMWA labor agreements left the Company. In addition, during 2005 the UMWA reduced the estimate of the unfunded status of the plans and, accordingly, the Company reduced its estimated $36.6 million withdrawal liability by $6.1 million to $30.5 million. As a result of the withdrawal from these coal-related plans, the Company is obligated to pay the plans $30.5 million, which represents the Company’s portion of the unfunded status of the plans as of June 30, 2004, as determined by the plan agreements and by law.

Savings Plans

The Company sponsors various defined contribution plans to assist eligible employees provide for retirement. Employee contributions to the primary U.S. 401(k) plan in the first half of 2003 were matched at rates of between 50% to 100% on up to 5% of compensation (subject to limitations). In June 2003, the Company modified the match provision of the primary U.S. 401(k) plan and employee contributions were matched at 75% over the last half of 2003 and all of 2004 and 2005. In October 2005, the Company announced that beginning January 1, 2006, the matching contribution will increase from 75% to 125%. The Company’s contribution expense is as follows:

(In millions)	U.S. 401(k)					Other Plans					Total
Years Ended December 31,		2005	2004	2003			2005	2004	2003			2005	2004	2003
Continuing operations	$	6.5	7.3	8.2		$	2.6	2.1	1.9		$	9.1	9.4	10.1
Discontinued operations		3.6	3.6	3.3			4.3	3.7	3.1			7.9	7.3	6.4
	$	10.1	10.9	11.5		$	6.9	5.8	5.0		$	17.0	16.7	16.5

 

Postretirement Benefits Other Than Pensions

Summary

The Company has various postretirement benefits other than pensions. The related liability amounts recorded on the balance sheets for the last two years are detailed below.

	December 31,
(In millions)		2005	2004
Company-sponsored plans	$	156.8	157.1
Health Benefit Act		174.9	185.5
Black Lung		39.5	41.5
	$	371.2	384.1
Included in:
Current, included in accrued liabilities	$	56.4	52.9
Liabilities held for sale		10.0	-
Noncurrent		304.8	331.2
	$	371.2	384.1

 

Company-Sponsored Plans

The Company provides postretirement health care benefits (the “Company-sponsored plans”) for eligible active and retired employees in the U.S. and Canada of the Company’s current and former businesses, including eligible participants of the former coal operations (the “coal-related” plans). The U.S. postretirement obligations related to BAX Global were assumed by the purchaser in January 2006. At December 31, 2005, $10.0 million was classified as a component of liabilities held for sale for these plans. BAX Global’s postretirement expenses have been included in discontinued operations. The components of net periodic postretirement costs related to Company-sponsored plans were as follows:

(In millions)	Coal-related plans					Other plans					Total
Years Ended December 31,		2005	2004	2003			2005	2004	2003			2005	2004	2003
Service cost	$	-	-	-		$	1.0	1.0	0.9		$	1.0	1.0	0.9
Interest cost on accumulated postretirement benefit obligations (“APBO”)		33.9	32.2	34.7			1.5	1.6	1.5			35.4	33.8	36.2
Return on assets – expected		(15.1)	(9.2)	-			-	-	-			(15.1)	(9.2)	-
Amortization of losses		15.7	13.5	14.3			0.3	0.3	0.1			16.0	13.8	14.4
Net periodic postretirement costs	$	34.5	36.5	49.0		$	2.8	2.9	2.5		$	37.3	39.4	51.5
Included in:
Continuing operations	$	34.5	36.5	49.0		$	1.3	1.5	1.3		$	35.8	38.0	50.3
Discontinued operations		-	-	-			1.5	1.4	1.2			1.5	1.4	1.2
Net periodic postretirement costs	$	34.5	36.5	49.0		$	2.8	2.9	2.5		$	37.3	39.4	51.5

 

Reconciliations of the APBO and funded status to the accrued other postretirement benefit cost (the amount recorded on the balance sheet) for Company-sponsored plans at December 31, 2005 and 2004 are as follows:

(In millions)	Coal-related plans				Other plans				Total
Years Ended December 31,		2005	2004			2005	2004			2005	2004
APBO at beginning of year	$	617.7	526.2		$	30.2	26.8		$	647.9	553.0
Service cost		-	-			1.0	1.0			1.0	1.0
Interest cost		33.9	32.2			1.5	1.6			35.4	33.8
Plan amendments		-	-			(2.1)	-			(2.1)	-
Benefits paid		(35.6)	(35.0)			(2.0)	(2.3)			(37.6)	(37.3)
Actuarial (gain) loss, net		17.0	96.3			(2.8)	3.1			14.2	99.4
Foreign currency exchange		-	-			0.2	-			0.2	-
Other		-	(2.0)			-	-			-	(2.0)
APBO at end of year	$	633.0	617.7		$	26.0	30.2		$	659.0	647.9
Fair value of plan assets at beginning of year	$	172.4	-		$	-	-		$	172.4	-
Employer contributions:
Restriction of VEBA at January 1, 2004 (see note 1)		-	105.2			-	-			-	105.2
Payments to beneficiaries		35.6	35.0			2.0	2.3			37.6	37.3
Payments to VEBA		-	50.0			-	-			-	50.0
Return on assets – actual		12.9	17.2			-	-			12.9	17.2
Benefits paid		(35.6)	(35.0)			(2.0)	(2.3)			(37.6)	(37.3)
Fair value of plan assets at end of year	$	185.3	172.4		$	-	-		$	185.3	172.4
Funded status	$	(447.7)	(445.3)		$	(26.0)	(30.2)		$	(473.7)	(475.5)
Unrecognized experience loss		318.1	314.6			0.3	3.1			318.4	317.7
Unrecognized prior service cost (credit)		-	-			(1.5)	0.7			(1.5)	0.7
Accrued other postretirement benefit cost at end of year	$	(129.6)	(130.7)		$	(27.2)	(26.4)		$	(156.8)	(157.1)

 

The APBO for each of the plans was determined using the unit credit method and an assumed discount rate as follows:

Company-sponsored plans	2005	2004	2003
Weighted-average discount rate:
Postretirement cost	5.75%	6.25%	6.75%
Benefit obligation at year end	5.50%	5.75%	6.25%
Expected long-term rate of return on assets – postretirement cost	8.75%	8.75%	N/A

 

For Company-sponsored coal-related plans, the assumed health care cost trend rate used to compute the 2005 APBO was 10% for 2006, declining ratably to 5% in 2011 and thereafter (in 2004: 10% for 2005 declining ratably to 5% in 2010 and thereafter). Other plans in the U.S. provide for fixed-dollar value coverage for eligible participants and, accordingly, are not adjusted for inflation.

The RP-2000 Combined Healthy Blue Collar mortality table is primarily used to estimate expected lives of participants at December 31, 2005. The 1983 Group Annuity Mortality table was used to estimate expected lives of participants at December 31, 2004 and 2003.

The table below shows the estimated effects of a one percentage point change in the assumed health care cost trend rates for each future year.

	Effect of Change in Assumed Health Care Trend Rates
(In millions)	Increase 1%			Decrease 1%
Higher (lower):
Service and interest cost in 2005	$	3.9		(3.3)
APBO at December 31, 2005		76.8		(64.6)

 

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law. The Act introduced a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare prescription drug benefits. Because of the broadness of coverage provided under the Company’s plan, the Company believes that the plan benefits are at least actuarially equivalent to the Medicare benefits. The Company reflected the estimated effect of the new legislation in 2003 as a $45.7 million reduction to the actuarial loss, as permitted by FSP 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” The estimated value of the projected federal subsidy assumes no changes in participation rates and assumes that the subsidy is received in the year after claims are paid. The estimated reduction in per capita claim costs for participants over 65 years old was 12%.

The Act had no effect on 2003 expense. The Company’s net periodic postretirement costs were approximately $5.8 million lower in 2004 and $6.1 million lower in 2005 due to the Act as a result of lower amortization of losses. The estimated net present value of the subsidy, reflected as a reduction to the APBO, was approximately $62 million at December 31, 2005 and $59 million at December 31, 2004.

The coal-related plans had an actuarial loss in 2005 primarily related to the reduction in the discount rate and longer projected lives, partially offset by actuarial gains pursuant to enrollment verification death audit performed by the Company. The Company’s other plans had net actuarial gains in 2005 primarily due to expected reduced per capita claims as a result of an amendment of the Canadian Plan. The plans had net actuarial losses in 2004 due to a combination of the increase in expected medical inflation and the reduction in the discount rate.

In 2004, the Company restricted the use of the VEBA to be used to only pay benefits related to the Company’s coal-related postretirement medical plan. Accordingly, under SFAS 106, estimated returns on the VEBA assets were included in the determination of net periodic postretirement costs for 2005 and 2004.

The Company’s asset allocations at December 31, 2005 and 2004 by asset category are as follows:

	December 31,			December 31,
(In millions, except percentages)		2005			2004
Equity securities		71%			73%
Debt securities		28%			26%
Other		1%			1%
Total		100%			100%
Plan assets at fair value	$	185.3		$	172.4
Actual return on assets during year	$	12.9		$	17.2

 

Plan assets of the Company-sponsored postretirement medical plan held by the VEBA are invested primarily using actively managed accounts with asset allocation targets of 70% equities, which include a broad array of market capitalization sizes and investment styles, and 30% fixed income securities. The Company’s policy does not permit certain investments, including investments in The Brink’s Company common stock, unless part of a commingled fund. Fixed-income investments must have an investment grade rating at the time of purchase. The plan rebalances its assets on a quarterly basis if actual allocations of assets are outside predetermined ranges. Among other factors, the performance of asset groups and investment managers will affect the long-term rate of return.

The Company selects the expected long-term rate of return assumption after reviewing advice from its investment advisor and its actuary considering the plan’s asset allocation targets and expected overall investment manager performance and after reviewing the most recent ten-year historical average compounded rate of return for the primary U.S. pension plan which is invested similarly.

In January 2006, the Company contributed $225 million to the VEBA with a portion of the proceeds from the sale of BAX Global. The Company determines whether it will make other discretionary contributions on an annual basis, although it does not currently expect to make further contributions in the next several years if investment returns are adequate to pay future obligations.

The Company’s projected benefit payments at December 31, 2005 for each of the next five years and the aggregate five years thereafter are as follows:

	Before Medicare Subsidy				Medicare	Net Projected
(In millions)	Coal-related Plans		Other Plans (a)	Subtotal	Subsidy (b)	payments
2006	$	41.6	1.1	42.7	(2.0)	40.7
2007		44.9	1.1	46.0	(3.1)	42.9
2008		47.3	1.0	48.3	(3.4)	44.9
2009		49.8	1.0	50.8	(3.5)	47.3
2010		51.3	1.0	52.3	(3.7)	48.6
2011 through 2015		254.0	5.0	259.0	(20.6)	238.4
Total	$	488.9	10.2	499.1	(36.3)	462.8

(a)

The projected benefit payments do not include BAX Global’s projected benefit payments.

(b)

Only the coal-related plans are expected to meet the requirements to receive the Medicare subsidy.

Health Benefit Act Liabilities

Background

In October 1992, The Coal Industry Retiree Health Benefit Act of 1992 (the “Health Benefit Act”) was enacted as part of the Energy Policy Act of 1992. The Health Benefit Act established rules for the payment of future health care benefits for thousands of retired union mine workers and their dependents.

Assigned Beneficiaries. The Health Benefit Act established a trust fund, The United Mine Workers of America Combined Benefit Fund (the “Combined Fund”), to which “signatory operators” and “related persons,” including The Brink’s Company and some of its subsidiaries and former subsidiaries (collectively, the “Brink’s Companies”), are jointly and severally liable to pay annual premiums for those beneficiaries directly assigned to a signatory operator and its related persons, on the basis set forth in the Health Benefit Act.

On an annual basis, the Brink’s Companies receive notices from the Social Security Administration (the “SSA”) with regard to the current number of assigned beneficiaries for which the Brink’s Companies are deemed responsible under the Health Benefit Act.

Unassigned Beneficiaries. In addition, the Health Benefit Act provides that assigned companies, including the Brink’s Companies, are required to fund, pro rata according to the total number of assigned beneficiaries, a portion of the health benefits for unassigned beneficiaries if these benefits are not funded from other designated sources. To date, almost all of the funding for unassigned beneficiaries has been provided from transfers from the Abandoned Mine Land Reclamation Fund (the “AML Fund”) or other government sources.

Information and Assumptions Used to Estimate Obligation

The Company’s liability for Health Benefit Act obligations is equal to the undiscounted estimated amount of future annual premiums the Company expects to pay to the Combined Fund. The Company’s estimated annual premium is equal to the total number of beneficiaries (including assigned beneficiaries and an allocated percentage of the total unassigned beneficiaries) at October 1, the beginning of the plan year, multiplied by the premium per beneficiary for that year. The Company expects to pay annual premiums over the next 60 to 70 years, but it expects these annual premiums to gradually decline over time as the number of beneficiaries decreases.

The estimated liability at December 31, 2005 assumes that almost all of the costs for unassigned beneficiaries for the plan year ending September 30, 2006 will continue to be paid with transfers of cash from the AML Fund and other government sources. Transfers to the Combined Fund from the AML Fund beyond this date are not sufficiently assured and the Company’s current estimate of its obligations assumes that no future transfers will be made by the AML Fund. The Company’s estimate of its probable contingent liability for premiums for unassigned beneficiaries could materially decrease in future periods depending on the availability of future funding from the AML Fund or other sources. Moreover, the Company’s estimate of its contingent liability for unassigned beneficiaries could increase materially in the future if other responsible coal operators become insolvent. This liability could also change materially if the percentage of unassigned beneficiaries that are allocated to the Company changes due to relative mortality rates of the Company’s assigned beneficiaries compared to the total assigned beneficiaries.

Information provided by the Combined Fund and assumptions made by the Company are as follows:

At the beginning of the plan year		2005	2004
Number of assigned beneficiaries for the Brink’s Companies		2,140	2,343
Total unassigned pool of beneficiaries		15,349	16,502
Percent of total unassigned pool allocated to the Brink’s Companies		10.0%	9.7%
Health benefit premium per beneficiary	$	3,228	3,099

 

According to the Health Benefit Act, the rate of inflation for per-beneficiary health care premiums cannot exceed the medical care component of the Consumer Price Index. At December 31, 2005 and 2004, annual inflation rates for per-beneficiary health care premiums were assumed to be 4.5% for all future years. The U.S. Life 79-81 mortality table has been used to estimate a gradual decline in the number of beneficiaries. The Company’s estimate assumes that there will be no additions to the Combined Fund unassigned beneficiary group as a result of future coal operator insolvencies.

Undiscounted Obligation for Health Benefit Act Liabilities

	December 31,
(In millions)		2005	2004
Combined Fund:
Assigned beneficiaries	$	103.7	112.4
Unassigned beneficiaries		64.7	66.1
Other		6.5	7.0
	$	174.9	185.5

 

Reconciliation of Health Benefit Act Liabilities

	Years Ended December 31,
(In millions)		2005	2004	2003
Beginning of the year	$	185.5	197.5	174.1
Actuarial (gain) loss, net (a)		(2.3)	(3.2)	31.3
Payments		(8.3)	(8.8)	(7.9)
End of the year	$	174.9	185.5	197.5

(a)

Included in income (loss) from discontinued operations.

The $2.3 million actuarial gain in 2005 was primarily related to a one-year extension of funding by the AML of unassigned benefits and a lower-than-projected per-beneficiary health care premium rate, partially offset by a higher number of unassigned beneficiaries attributed to the Company.

The $3.2 million actuarial gain in 2004 is primarily related to a slight decrease in the number of beneficiaries assigned to the Company at October 1, 2004 compared to the amount estimated at the end of 2003. As a result, the estimate of assigned beneficiaries in future periods was also lower.

The $31.3 million charge in 2003 is primarily related to the assumed increase in the number of unassigned beneficiaries allocated to the Company. The increased allocation was due to two factors. First, the Company increased its allocation percentage because of a change in the way the Company interprets the statute governing the allocation, based on findings of court cases in 2003. Second, other coal operations became insolvent during the period and their assigned beneficiaries were transferred to the unassigned pool. These actions reduced the denominator (the total assigned pool) in the computation of the allocation percentage, increasing the Company’s allocation assumption, and increased the unassigned pool.

The Company currently estimates that its annual cash funding under the Health Benefit Act will be slightly higher in 2006, increase in 2007 to $11.7 million as a result of the assumption that premiums for unassigned beneficiaries will not be funded through transfers from the AML Fund. In subsequent years, payments are expected to decline as the number of beneficiaries decreases. The Company’s projected benefit payments at December 31, 2005 for each of the next five years and the aggregate five years thereafter are as follows:

(In millions)	Projected Payments
2006	$	8.5
2007		11.7
2008		11.1
2009		10.5
2010		9.8
2011 through 2015		40.3
Total	$	91.9

 

Pneumoconiosis (Black Lung) Obligations

The Company acts as self-insurer with respect to almost all black lung obligations. Provision is made for estimated benefits based on annual reports prepared by independent actuaries. Unrecognized losses, representing the excess of the present value of expected future benefits over existing accrued liabilities, are amortized over the average remaining life expectancy of participants (approximately 10 years). The components of net periodic postretirement benefit costs related to black lung obligations were as follows:

	Years Ended December 31,
(In millions)		2005	2004	2003
Interest cost on APBO	$	2.9	3.6	4.5
Amortization of losses		1.2	1.2	1.5
Net periodic postretirement costs	$	4.1	4.8	6.0

 

Reconciliations of the APBO and funded status to the accrued other postretirement benefit costs for black lung obligations at December 31, 2005 and 2004 are as follows:

	Years Ended December 31,
(In millions)		2005	2004
APBO at beginning of year	$	55.2	63.0
Interest costs		2.9	3.6
Benefits paid		(6.1)	(7.0)
Actuarial gain, net		(0.3)	(4.4)
APBO at end of year	$	51.7	55.2
Funded status	$	(51.7)	(55.2)
Unrecognized experience loss		12.2	13.7
Accrued other postretirement benefit cost at end of year	$	(39.5)	(41.5)

 

The 1983 Group Annuity Mortality table is used to estimate expected lives of participants. The following are the other key actuarial assumptions for the black lung obligations:

Black Lung Benefits	2005	2004
Discount rate:
Postretirement cost	5.75%	6.25%
Benefit obligation at year end	5.50%	5.75%
Medical cost inflation	8.00%	8.00%

 

The Company’s projected benefit payments for black lung benefits at December 31, 2005 for each of the next five years and the aggregate five years thereafter are as follows:

(In millions)	Projected Payments
2006	$	5.0
2007		4.8
2008		4.7
2009		4.5
2010		4.4
2011 through 2015		19.5
Total	$	42.9