Brink's Company 2006 Annual Report

Home To Our Shareholders Brink's Incorportated Brink's Home Security 2006 Financial Review

Financial Highlights Management's Discussion and Analysis of Financial Condition and Results of Operations Operations Results of Operations Overview of Results Consolidated Review Brink's, Incorporated Brink's Home Security, Inc. Corporate Expense-The Brink's Company Former Operations Retained Liabilities and Assets of Former Operations Primary U.S. Pension Plan Discontinued Operations Other Operating Income, Net Nonoperating Income and Expense Income Taxes Minority Interest Foreign Operations Liquidity and Capital Resources Overview Summary of Cash Flow Information Operating Activities Investing Activities Business Segment Cash Flows Financing Activities Capitalization Off Balance Sheet Arrangements Contractual Obligations Other Potential Use of Credit Contingent Matters Market Risk Exposures Critical Accounting Policies Deferred Tax Asset Valuation Allowance Goodwill and Property and Equipment Valuations Employee and Retiree Benefit Obligations Recent Accounting Pronouncements Forward-Looking Information Management's Report on Internal Control Over Financial Reporting Reports of Independent Registered Public Accounting Firm Consolidated Financial Statements Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Note 1 - Summary of Significant Accounting Policies Note 2 - Segment Information Note 3 - Earnings Per Share Note 4 - Employee and Retiree Benefits Note 5 - Income Taxes Note 6 - Property and Equipment Note 7 - Acquisitions Note 8 - Goodwill and Other Intangible Assets Note 9 - Other Assets Note 10 - Accrued Liabilities Note 11 - Other Liabilities Note 12 - Long-Term Debt Note 13 - Accounts Receivable Note 14 - Operating Leases Note 15 - Share-Based Compensation Plans Note 16 - Capital Stock Note 17 - Discontinued Operations Note 18 - Supplemental Cash Flow Information Note 19 - Other Operating Income, Net Note 20 - Interest and Other Nonoperating Income (Expense), Net Note 21 - Risk Management » Note 22 - Other Commitments and Contingencies Note 23 - Selected Quarterly Financial Data (unaudited) Selected Financial Data Board of Directors and Senior Management Corporate Information		Note 22 - Other Commitments and Contingencies Surety Bonds and Letters of Credit The Company is required by various state and federal laws to provide security with regard to its obligations to pay workers' compensation, reclaim lands used for mining by the Company's former coal operations and satisfy other obligations. As of December 31, 2006, the Company had outstanding surety bonds with third parties totaling approximately $45.2 million that it has arranged in order to satisfy various security requirements. Most of these bonds provide financial security for obligations which have already been recorded as liabilities. Surety bonds are typically renewable on a yearly basis; however, there can be no assurance the bonds will be renewed or that premiums in the future will not increase. If the remaining surety bonds are not renewed, the Company believes that it has adequate available borrowing capacity under its Letter of Credit Facility and its Revolving Facility to provide letters of credit or other collateral to secure its obligations. The Company has issued letters of credit of $141.3 million under its $150 million Letter of Credit Facility, described in "Debt" above. At December 31, 2006, all of these issued letters of credit were used to secure the Company's obligations. Former Coal Operations At December 31, 2006, the Company had obligations of $8.5 million (at net present value) under mineral lease agreements that give it the right to access and mine coal properties in exchange for required minimum annual payments. These agreements require that the Company pay royalties to lessors based on production of coal or minimum amounts if coal is not produced. BAX Global's Litigation BAX Global is defending a claim related to the apparent diversion by a third party of goods being transported for a customer. Although BAX Global is defending this claim vigorously and believes that its defenses have merit, it is possible that this claim ultimately may be decided in favor of the claimant. If so, the Company expects that the ultimate amount of reasonably possible unaccrued losses could range from $0 to $10 million. The Company has contractually indemnified the purchaser of BAX Global for this contingency. BAX Global's Taxes The Company has retained all pre-closing tax assets and liabilities related to BAX Global, except deferred income taxes. The Company has $9.4 million accrued for these net tax liabilities at December 31, 2006. Value-added taxes ("VAT") and customs duties During 2004, the Company determined that one of its non-U.S. Brink's business units had not paid customs duties and VAT with respect to the importation of certain goods and services. The Company was advised that civil and criminal penalties could be asserted for the non-payment of these customs duties and VAT. Although no penalties have been asserted to date, they could be asserted at any time. The business unit has provided the appropriate government authorities with an accounting of unpaid customs duties and VAT and has made payments covering its calculated unpaid VAT. As a result of its investigation, the Company accrued charges of $1.1 million to operating profit and recorded estimated interest expense of $0.7 million related to this matter during 2004. The Company believes that the range of reasonably possible losses is between $0.4 million and $3.0 million for potential penalties on unpaid VAT and has accrued $0.4 million. The Company believes that the range of possible losses for unpaid customs duties and associated penalties, none of which has been accrued, is between $0 and $35 million. The Company believes that the assertion of the penalties on unpaid customs duties would be excessive and would vigorously defend against any such assertion. The Company does not expect to be assessed interest charges in connection with any penalties that may be asserted. The Company continues to diligently pursue the timely resolution of this matter and, accordingly, the Company's estimate of the potential losses could change materially in future periods. The assertion of potential penalties may be material to the Company's financial position and results of operations. Gain Contingency - Insurance claims The Company filed insurance claims of $2.4 million in 2006 (which were collected in early 2007) and anticipates filing additional insurance claims of $2.6 million to $3.9 million in 2007 related to property damage and business interruption insurance coverage for losses sustained by Brink's and BHS from Hurricane Katrina. As of December 31, 2006, the Company has recorded a receivable of $1.8 million covering property damage, of which approximately $1 million related to the $2.4 million claim collected in the first quarter of 2007. Because the Company's property damage insurance coverage provides for replacement value, the Company expects to record proceeds in excess of realized losses when the claims are ultimately settled. In addition, payment for lost revenues under business interruption coverage will be recognized as operating income when the claims are settled. As a result, the Company expects to recognize gains of between $3 million and $5 million in 2007 for amounts collected in excess of previously recorded receivables. Purchase Obligations At December 31, 2006, the Company had noncancelable commitments for $53.0 million in equipment purchases, and information technology and other services.