form_10-q.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________


Commission file number 001-09148


 
THE BRINK’S COMPANY
  
 
(Exact name of registrant as specified in its charter)
  


 
Virginia
  
54-1317776
  
 
(State or other jurisdiction of
  
(I.R.S. Employer
  
 
incorporation or organization)
  
Identification No.)
  


1801 Bayberry Court, Richmond, Virginia 23226-8100
(Address of principal executive offices) (Zip Code)

(804) 289-9600
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  x No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  x  No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):  Large Accelerated Filer  x  Accelerated Filer  ¨  Non-Accelerated Filer  ¨  Smaller Reporting Company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨  No  x

As of April 21, 2014, 48,435,731 shares of $1 par value common stock were outstanding.
 

 
 
1
 

Part I - Financial Information
Item 1.  Financial Statements

THE BRINK’S COMPANY
and subsidiaries
 
Consolidated Balance Sheets
(Unaudited)

 
 
 
 
 
 
March 31,
 
December 31,
 
 
(In millions)
 
2014 
 
2013 
 
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
 201.5 
 
 255.5 
 
 
 
Accounts receivable, net
 
 562.4 
 
 622.2 
 
 
 
Prepaid expenses and other
 
 150.7 
 
 153.0 
 
 
 
Deferred income taxes
 
 64.4 
 
 72.0 
 
 
 
 
Total current assets
 
 979.0 
 
 1,102.7 
 
 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
 736.9 
 
 758.7 
 
 
Goodwill
 
 241.2 
 
 240.2 
 
 
Other intangibles
 
 45.5 
 
 46.3 
 
 
Deferred income taxes
 
 245.4 
 
 251.7 
 
 
Other
 
 101.4 
 
 98.4 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
 2,349.4 
 
 2,498.0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Short-term borrowings
$
 59.3 
 
 80.9 
 
 
 
Current maturities of long-term debt
 
 35.2 
 
 24.6 
 
 
 
Accounts payable
 
 167.0 
 
 185.6 
 
 
 
Accrued liabilities
 
 476.5 
 
 507.5 
 
 
 
 
Total current liabilities
 
 738.0 
 
 798.6 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
 386.4 
 
 330.5 
 
 
Accrued pension costs
 
 195.5 
 
 214.8 
 
 
Retirement benefits other than pensions
 
 184.7 
 
 186.0 
 
 
Deferred income taxes
 
 15.1 
 
 18.0 
 
 
Other
 
 134.0 
 
 170.6 
 
 
 
 
Total liabilities
 
 1,653.7 
 
 1,718.5 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent liabilities (notes 3, 4 and 11)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
The Brink’s Company (“Brink’s”) shareholders:
 
 
 
 
 
 
 
 
Common stock
 
 48.4 
 
 48.4 
 
 
 
 
Capital in excess of par value
 
 572.2 
 
 566.4 
 
 
 
 
Retained earnings
 
 633.0 
 
 696.4 
 
 
 
 
Accumulated other comprehensive loss
 
 (613.8)
 
 (617.3)
 
 
 
 
 
Brink’s shareholders
 
 639.8 
 
 693.9 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noncontrolling interests
 
 55.9 
 
 85.6 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total equity
 
 695.7 
 
 779.5 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities and equity
$
 2,349.4 
 
 2,498.0 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 

 
2
 

THE BRINK’S COMPANY
and subsidiaries
 
Consolidated Statements of Income (Loss)
(Unaudited)

 
 
 
 
 
Three Months
 
 
 
 
 
 
Ended March 31,
 
 
(In millions, except for per share amounts)
 
2014 
 
2013 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
 991.6 
 
 950.5 
 
 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
Cost of revenues
 
 795.6 
 
 792.6 
 
 
Selling, general and administrative expenses
 
 145.4 
 
 131.9 
 
 
 
Total costs and expenses
 
 941.0 
 
 924.5 
 
 
Other operating income (expense)
 
 (123.1)
 
 (8.7)
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit (loss)
 
 (72.5)
 
 17.3 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 (5.8)
 
 (5.9)
 
 
Interest and other income (expense)
 
 (0.3)
 
 0.6 
 
 
 
Income (loss) from continuing operations before tax
 
 (78.6)
 
 12.0 
 
 
Provision (benefit) for income taxes
 
 9.0 
 
 5.4 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
 (87.6)
 
 6.6 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from discontinued operations, net of tax
 
 (0.1)
 
 (19.5)
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
 (87.7)
 
 (12.9)
 
 
 
 
Less net income (loss) attributable to noncontrolling interests
 
 (29.2)
 
 3.7 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Brink’s
 
 (58.5)
 
 (16.6)
 
 
 
 
 
 
 
 
 
 
 
Amounts attributable to Brink’s
 
 
 
 
 
 
 
Continuing operations
 
 (58.4)
 
 2.9 
 
 
 
Discontinued operations
 
 (0.1)
 
 (19.5)
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Brink’s
$
 (58.5)
 
 (16.6)
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to Brink’s common shareholders(a):
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Continuing operations
$
 (1.19)
 
 0.06 
 
 
 
 
Discontinued operations
 
 - 
 
 (0.40)
 
 
 
 
Net income (loss)
$
 (1.20)
 
 (0.34)
 
 
 
 
 
 
 
 
 
 
 
 
Diluted:
 
 
 
 
 
 
 
 
Continuing operations
$
 (1.19)
 
 0.06 
 
 
 
 
Discontinued operations
 
 - 
 
 (0.40)
 
 
 
 
Net income (loss)
$
 (1.20)
 
 (0.34)
 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares
 
 
 
 
 
 
 
Basic
 
 48.9 
 
 48.6 
 
 
 
Diluted
 
 48.9 
 
 48.9 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends paid per common share
$
 0.10 
 
 0.10 
 
 
 
 
 
 
 
 
 
 
 
(a)
 Amounts may not add due to rounding.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 

 
3
 

THE BRINK’S COMPANY
and subsidiaries
 
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)

 
 
 
 
 
 
Three Months
 
 
 
 
 
 
 
Ended March 31,
 
 
(In millions)
 
2014 
 
2013 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
 (87.7)
 
 (12.9)
 
 
 
 
 
 
 
 
 
 
 
 
Benefit plan adjustments:
 
 
 
 
 
 
 
Benefit plan experience gains
 
 10.5 
 
 17.8 
 
 
 
Benefit plan prior service cost (credit)
 
 (0.4)
 
 1.0 
 
 
 
Total benefit plan adjustments
 
 10.1 
 
 18.8 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 (4.2)
 
 (6.7)
 
 
Gains (losses) on cash flow hedges
 
 0.6 
 
 (0.4)
 
 
 
 
Other comprehensive income before tax
 
 6.5 
 
 11.7 
 
 
Provision (benefit) for income taxes
 
 3.7 
 
 6.5 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income
 
 2.8 
 
 5.2 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
 
 (84.9)
 
 (7.7)
 
 
 
 
 
Less comprehensive income (loss) attributable to noncontrolling interests
 
 (29.9)
 
 3.1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss) attributable to Brink's
$
 (55.0)
 
 (10.8)
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 
 
 

 
4
 

THE BRINK’S COMPANY
and subsidiaries
 
Consolidated Statement of Equity

Three Months ended March 31, 2014
(Unaudited)

 
 
 
 
 
Attributable to Brink’s
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital
 
 
 
Accumulated
 
Attributable
 
 
 
 
 
 
 
 
 
 
 
 
in Excess
 
 
 
Other
 
to
 
 
 
 
 
 
 
 
 
 
Common
 
of Par
 
Retained
 
Comprehensive
 
Noncontrolling
 
 
 
 
(In millions)
Shares
 
Stock
 
Value
 
Earnings
 
Loss
 
Interests
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2013
 48.4 
$ 
 48.4 
 
 566.4 
 
 696.4 
 
 (617.3)
 
 85.6 
 
 779.5 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 - 
 
 - 
 
 - 
 
 (58.5)
 
 - 
 
 (29.2)
 
 (87.7)
 
 
Other comprehensive income (loss)
 - 
 
 - 
 
 - 
 
 - 
 
 3.5 
 
 (0.7)
 
 2.8 
 
 
Dividends to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brink’s common shareholders ($0.10 per share)
 - 
 
 - 
 
 - 
 
 (4.8)
 
 - 
 
 - 
 
 (4.8)
 
 
 
Noncontrolling interests
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 (0.1)
 
 (0.1)
 
 
Share-based compensation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock options and awards:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Compensation expense
 - 
 
 - 
 
 5.9 
 
 - 
 
 - 
 
 - 
 
 5.9 
 
 
 
Other share-based benefit programs
 - 
 
 - 
 
 (0.1)
 
 (0.1)
 
 - 
 
 - 
 
 (0.2)
 
 
Capital contributions from noncontrolling interest
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 0.3 
 
 0.3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2014
 48.4 
$ 
 48.4 
 
 572.2 
 
 633.0 
 
 (613.8)
 
 55.9 
 
 695.7 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements
 

 
5
 

THE BRINK’S COMPANY
and subsidiaries
 
Consolidated Statements of Cash Flows
(Unaudited)

 
 
 
 
 
 
Three Months
 
 
 
 
 
 
 
Ended March 31,
 
 
(In millions)
 
2014 
 
2013 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
Net income (loss)
$
 (87.7)
 
 (12.9)
 
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
Loss from discontinued operations, net of tax
 
 0.1 
 
 19.5 
 
 
 
Depreciation and amortization
 
 43.6 
 
 42.1 
 
 
 
Share-based compensation expense
 
 5.9 
 
 0.8 
 
 
 
Deferred income taxes
 
 (15.8)
 
 (12.8)
 
 
 
Gains and losses:
 
 
 
 
 
 
 
 
Sales of available-for-sale securities
 
 (0.1)
 
 (0.2)
 
 
 
 
Sales of property and other assets
 
 (0.3)
 
 (0.3)
 
 
 
Retirement benefit funding (more) less than expense:
 
 
 
 
 
 
 
 
Pension
 
 (0.2)
 
 8.5 
 
 
 
 
Other than pension
 
 1.8 
 
 3.2 
 
 
 
Loss on Venezuela currency devaluation
 
 121.9 
 
 13.4 
 
 
 
Other operating
 
 1.7 
 
 (1.1)
 
 
 
Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
 
 
 
 
 
Accounts receivable
 
 (39.4)
 
 (36.1)
 
 
 
 
Accounts payable, income taxes payable and accrued liabilities
 
 6.4 
 
 (15.8)
 
 
 
 
Customer obligations
 
 6.4 
 
 16.8 
 
 
 
 
Prepaid and other current assets
 
 (14.2)
 
 (8.5)
 
 
 
 
Other
 
 (0.5)
 
 (5.8)
 
 
 
Discontinued operations
 
 1.0 
 
 (7.5)
 
 
 
 
Net cash provided by operating activities
 
 30.6 
 
 3.3 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
Capital expenditures
 
 (24.3)
 
 (33.4)
 
 
Acquisitions
 
 - 
 
 (19.0)
 
 
Sale of available-for-sale securities
 
 0.2 
 
 9.3 
 
 
Cash proceeds from sale of property, equipment and investments
 
 0.4 
 
 0.3 
 
 
Other
 
 (0.2)
 
 (0.2)
 
 
Discontinued operations
 
 (4.7)
 
 (2.3)
 
 
 
 
Net cash used by investing activities
 
 (28.6)
 
 (45.3)
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
Borrowings (repayments) of debt:
 
 
 
 
 
 
 
Short-term debt
 
 (13.9)
 
 43.0 
 
 
 
Long-term revolving credit facilities
 
 70.0 
 
 82.0 
 
 
 
Repayments of long-term debt
 
 
 
 
 
 
 
 
Borrowings
 
 1.2 
 
 - 
 
 
 
 
Repayments
 
 (11.9)
 
 (7.4)
 
 
Acquisition of noncontrolling interests in subsidiaries
 
 - 
 
 (18.5)
 
 
Payment of acquisition-related obligation
 
 - 
 
 (8.1)
 
 
Dividends to:
 
 
 
 
 
 
 
Shareholders of Brink’s
 
 (4.8)
 
 (4.8)
 
 
 
Noncontrolling interests in subsidiaries
 
 (0.1)
 
 (0.2)
 
 
Proceeds from exercise of stock options
 
 - 
 
 0.2 
 
 
Minimum tax withholdings associated with share-based compensation
 
 (0.1)
 
 (1.6)
 
 
Other
 
 (0.2)
 
 - 
 
 
Discontinued operations
 
 - 
 
 0.9 
 
 
 
 
Net cash provided by financing activities
 
 40.2 
 
 85.5 
 
 
Effect of exchange rate changes on cash
 
 (96.2)
 
 (10.4)
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
Increase (decrease)
 
 (54.0)
 
 33.1 
 
 
 
Balance at beginning of period
 
 255.5 
 
 201.7 
 
 
 
 
Balance at end of period
$
 201.5 
 
 234.8 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements
 

 
6
 

THE BRINK’S COMPANY
and subsidiaries
 
Notes to Consolidated Financial Statements
(Unaudited)

Note 1 – Basis of presentation

The Brink’s Company (along with its subsidiaries, “Brink’s” or “we”) has four geographic operating segments:
·  
Latin America
·  
Europe, Middle East, and Africa (“EMEA”)
·  
North America (U.S. and Canada)
·  
Asia Pacific

Our unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and applicable quarterly reporting regulations of the Securities and Exchange Commission (the “SEC”).  Accordingly, the unaudited consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.  These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes in our Annual Report on Form 10-K for the year ended December 31, 2013.

We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements. Actual results could differ materially from these estimates.  The most significant estimates are related to goodwill and other long-lived assets, pension and other retirement benefit obligations, legal contingencies, foreign currency translation and deferred tax assets.

The consolidated financial statements include all of the assets, liabilities, revenues, expenses and cash flows of Brink’s and all entities in which Brink’s has a controlling voting interest.  Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation.

Foreign Currency Translation
Our consolidated financial statements are reported in U.S. dollars.  Our foreign subsidiaries maintain their records primarily in the currency of the country in which they operate.

The method of translating local currency financial information into U.S. dollars depends on whether the economy in which our foreign subsidiary operates has been designated as highly inflationary or not.  Economies with a three-year cumulative inflation rate of more than 100% are considered highly inflationary.

Assets and liabilities of foreign subsidiaries in non-highly inflationary economies are translated into U.S. dollars using rates of exchange at the balance sheet date.  Translation adjustments are recorded in other comprehensive income (loss).  Revenues and expenses are translated at rates of exchange in effect during the year.  Transaction gains and losses are recorded in net income.

Foreign subsidiaries that operate in highly inflationary countries use the U.S. dollar as their functional currency.  Local-currency monetary assets and liabilities are remeasured into U.S. dollars using rates of exchange as of each balance sheet date, with remeasurement adjustments and other transaction gains and losses recognized in earnings.  Non-monetary assets and liabilities do not fluctuate with changes in local currency exchange rates to the dollar.

Venezuela
The economy in Venezuela has had significant inflation in the last several years.  We consolidate our Venezuelan results using our accounting policy for subsidiaries operating in highly inflationary economies.

Since 2003, the Venezuelan government has controlled the exchange of local currency into other currencies, including the U.S. dollar.  The Venezuelan government requires that currency exchanges be made at official rates or through auctions controlled by the government.  Different exchange processes exist for different industries and purposes.  The government does not approve all requests to convert bolivars to other currencies.

 
7
 

The government devalued the official rate for essential services in February 2013 from 5.3 to 6.3 bolivars to the dollar.  Late in 2013, the government added another official exchange process, known as SICAD, for travel and certain other purposes, made available at government discretion.  The published rate for this process in the first quarter of 2014 ranged from 10.7 to 11.8 bolivars to the U.S. dollar.  Since the end of the first quarter of 2013, we have been unable to obtain dollars using either of these processes and we do not expect to be able to obtain dollars using these processes in the foreseeable future. 

On March 24, 2014, the government initiated another exchange mechanism known as SICAD II.  Conversions under this mechanism are also subject to specific eligibility requirements.  Transactions have been reported to be in a range of 50 to 52 bolivars to the dollar.  We exchanged 15.6 million bolivars for $300,000 (exchange rate of 52) through the SICAD II mechanism in March 2014.  We do not know whether we will be able to access dollars under this new process on a consistent basis in the future.

As a result of the restrictions on currency exchange, we have in the past been unable to obtain sufficient U.S. dollars to purchase certain imported supplies and fixed assets to fully operate our business in Venezuela.  As a result, we have occasionally purchased more expensive, bolivar-denominated supplies and fixed assets.  We currently believe that we will be able to access dollars for our needs under the current SICAD II process, although there is a risk that this process will be discontinued or not accessible when needed in the future, which may prevent us from obtaining dollars to operate our Venezuelan operations.

Remeasurement rates during 2013.  Through January 31, 2013, we used an official rate of 5.3 bolivars to the dollar to remeasure our bolivar-denominated monetary assets and liabilities into U.S. dollars and to translate our revenue and expenses.  After the devaluation in February 2013, we began to use the 6.3 official exchange rate to remeasure bolivar denominated monetary assets and liabilities and to translate our revenue and expenses.  We recognized a $13.4 million net remeasurement loss in the first quarter of 2013 when we changed from the 5.3 to 6.3 exchange rate.  The after-tax effect of these losses attributable to noncontrolling interests were $4.7 million in the first quarter of 2013.

Remeasurement rates during 2014.  Through March 23, 2014, we used the official rate of 6.3 bolivars to the dollar to remeasure our bolivar denominated monetary assets and liabilities into U.S. dollars and to translate our revenue and expenses.  Effective March 24, 2014, we began to use the exchange rate published for the SICAD II process to remeasure bolivar denominated monetary assets and liabilities and to translate our revenue and expenses.  We recognized a $121.9 million net remeasurement loss in the first quarter of 2014 when we changed from the official rate of 6.3 to SICAD II exchange rate, which averaged 51 in the 7 days ending March 31, 2014, and was 50 at March 31, 2014.  The after-tax effect of these losses attributable to noncontrolling interests were $39.7 million in the first quarter of 2014.

Brink’s Venezuela accounted for $131.3 million or 13% of total Brink’s revenues and represented a significant component of total segment operating profit in the three months ended March 31, 2014.

Because we began remeasuring our Venezuelan results effective March 24, 2014, using the SICAD II rate:
·  
We do not expect Brink’s Venezuela to be a significant component of Brink’s consolidated revenue or operating profit in the last nine months of 2014.
·  
Our investment in our Venezuelan operations on an equity-method basis declined from $125.3 million at December 31, 2013, to $66.6 million at March 31, 2014.
·  
Our bolivar-denominated net monetary assets declined from $120.4 million (including $93.8 million of cash and cash equivalents) at December 31, 2013, to $23.5 million (including $13.8 million of cash and cash equivalents) at March 31, 2014.


 
8
 

Note 2 – Segment information

We identify our operating segments based on how our chief operating decision maker (“CODM”) allocates resources, assesses performance and makes decisions.  Our CODM is our President, and Chief Executive Officer.  Our CODM evaluates performance and allocates resources based on operating profit or loss for the geographic components of Brink’s, excluding non-segment expenses.

We have four geographic operating segments: Latin America; Europe, Middle East and Africa (“EMEA”); North America and Asia Pacific.  These four operating segments are also our reportable segments.

We currently serve customers in more than 100 countries, including 43 countries where we operate subsidiaries.

The primary services of the reportable segments include:
·  
Cash-in-Transit (“CIT”) Services – armored vehicle transportation of valuables
·  
ATM Services – replenishing and maintaining customers’ automated teller machines; providing network infrastructure services
·  
Global Services – secure international transportation of valuables
·  
Cash Management Services
o  
Currency and coin counting and sorting; deposit preparation and reconciliations; other cash management services
o  
Safe and safe control device installation and servicing (including our patented CompuSafe® service)
o  
Check and cash processing services for banking customers (“Virtual Vault Services”)
o  
Check imaging services for banking customers
·  
Payment Services – bill payment and processing services on behalf of utility companies and other billers at any of our Brink’s or Brink’s operated payment locations in Latin America; Brink’s Money™ prepaid payroll cards; Brink’s Checkout e-commerce online payment services
·  
Security and Guarding Services – protection of airports, offices, and certain other locations in Europe with or without electronic surveillance, access control, fire prevention and highly trained patrolling personnel

 
 
 
 
 
 
 
 
 
 
 
 
Three Months
 
 
 
 
 
 
Ended March 31,
 
 
(In millions)
 
2014 
 
2013 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Latin America
$
 438.4 
 
 412.9 
 
 
 
EMEA
 
 298.0 
 
 277.8 
 
 
 
North America
 
 220.1 
 
 223.2 
 
 
 
Asia Pacific
 
 35.1 
 
 36.6 
 
 
 
 
Revenues
$
 991.6 
 
 950.5 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months
 
 
 
 
 
 
Ended March 31,
 
 
(In millions)
 
2014 
 
2013 
 
 
 
 
 
 
 
 
 
 
 
Operating profit (loss):
 
 
 
 
 
 
 
Latin America
$
 (74.8)
 
 23.4 
 
 
 
EMEA
 
 14.8 
 
 8.6 
 
 
 
North America
 
 1.1 
 
 (2.0)
 
 
 
Asia Pacific
 
 4.4 
 
 4.3 
 
 
 
 
Segment operating profit (loss)
 
 (54.5)
 
 34.3 
 
 
 
Non-segment
 
 (18.0)
 
 (17.0)
 
 
 
 
Operating profit (loss)
$
 (72.5)
 
 17.3 
 
 
 
 
 
 
 
 
 
 

 
9
 

Note 3 – Retirement benefits

Pension plans
We have various defined-benefit pension plans covering eligible current and former employees.  Benefits under most plans are based on salary and years of service.

The components of net periodic pension cost for our pension plans were as follows:

 
 
 
U.S. Plans
 
Non-U.S. Plans
 
Total
 
 
(In millions)
 
2014 
 
2013 
 
2014 
 
2013 
 
2014 
 
2013 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
 - 
 
 - 
 
 3.5 
 
 3.6 
 
 3.5 
 
 3.6 
 
 
Interest cost on projected benefit obligation
 
 11.4 
 
 10.6 
 
 5.8 
 
 4.8 
 
 17.2 
 
 15.4 
 
 
Return on assets – expected
 
 (15.4)
 
 (14.2)
 
 (3.8)
 
 (3.2)
 
 (19.2)
 
 (17.4)
 
 
Amortization of losses
 
 7.2 
 
 11.3 
 
 0.5 
 
 1.6 
 
 7.7 
 
 12.9 
 
 
Amortization of prior service cost
 
 - 
 
 - 
 
 0.2 
 
 0.6 
 
 0.2 
 
 0.6 
 
 
Settlement loss
 
 - 
 
 - 
 
 0.7 
 
 0.3 
 
 0.7 
 
 0.3 
 
 
Net periodic pension cost
$
 3.2 
 
 7.7 
 
 6.9 
 
 7.7 
 
 10.1 
 
 15.4 
 

In the first three months of 2014, we made a $3.4 million cash contribution to our primary U.S. pension plan.  We are required to contribute an additional $22.5 million to the primary U.S. pension plan during the remainder of 2014, which we intend to fund using cash.

Retirement benefits other than pensions
We provide retirement healthcare benefits for eligible current and former U.S., Canadian, and Brazilian employees.  Retirement benefits related to our former U.S. coal operation include medical benefits provided by the Pittston Coal Group Companies Employee Benefit Plan for UMWA Represented Employees (the “UMWA plans”) as well as costs related to Black Lung obligations.

The components of net periodic postretirement cost related to retirement benefits other than pensions were as follows:

 
 
 
UMWA Plans
 
Black Lung and Other Plans
 
Total
 
 
(In millions)
 
2014 
 
2013 
 
2014 
 
2013 
 
2014 
 
2013 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
 - 
 
 - 
 
 - 
 
 0.1 
 
 - 
 
 0.1 
 
 
Interest cost on accumulated postretirement benefit obligations
 
 4.8 
 
 5.0 
 
 0.6 
 
 0.5 
 
 5.4 
 
 5.5 
 
 
Return on assets – expected
 
 (5.6)
 
 (5.2)
 
 - 
 
 - 
 
 (5.6)
 
 (5.2)
 
 
Amortization of losses
 
 3.7 
 
 5.0 
 
 0.2 
 
 0.1 
 
 3.9 
 
 5.1 
 
 
Amortization of prior service (credit) cost
 
 (1.1)
 
 - 
 
 0.4 
 
 0.4 
 
 (0.7)
 
 0.4 
 
 
Net periodic postretirement cost
$
 1.8 
 
 4.8 
 
 1.2 
 
 1.1 
 
 3.0 
 
 5.9 
 

 
10
 

Note 4 – Income taxes

 
 
 
Three Months
 
 
 
 
 
Ended March 31,
 
 
 
 
 
2014 
 
 
2013 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
 
 
 
 
 
 
 
Provision for income taxes (in millions)
$
 9.0 
 
 
 5.4 
 
 
 
Effective tax rate
 
 (11.5)
% 
 
 45.0 
% 
 

2014 Compared to U.S. Statutory Rate
The effective income tax rate on continuing operations in the first quarter of 2014 was negative and less than the 35% U.S. statutory tax rate primarily due to the significant remeasurement charge resulting from the currency devaluation in Venezuela in the first quarter.  This remeasurement charge caused our first quarter before tax earnings to be negative and is largely nondeductible for tax purposes.  Excluding the aforementioned Venezuela remeasurement charge and associated tax implications, our effective tax rate on continuing operations in the first quarter is 37%.

2013 Compared to U.S. Statutory Rate
The effective income tax rate on continuing operations in the first quarter of 2013 was higher than the 35% U.S. statutory tax rate primarily due to a nondeductible remeasurement charge resulting from the effects of currency devaluation in Venezuela.

 
11
 

Note 5 – Accumulated other comprehensive income (loss)

Other comprehensive income (loss), including the amounts reclassified from accumulated other comprehensive income (loss) into earnings, was as follows:

 
 
 
 
Amounts Arising During
 
Amounts Reclassified to
 
 
 
 
 
 
 
 the Current Period
 
Net Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Other
 
 
 
 
 
 
 
Income
 
 
 
Income
 
Comprehensive
 
 
(In millions)
 
Pretax
 
Tax
 
Pretax
 
Tax
 
Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts attributable to Brink's:
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefit plan adjustments
$
 (1.7)
 
 0.3 
 
 11.7 
 
 (4.0)
 
 6.3 
 
 
 
Foreign currency translation adjustments
 
 (3.4)
 
 - 
 
 - 
 
 - 
 
 (3.4)
 
 
 
Unrealized gains (losses) on available-for-sale securities
 
 (0.1)
 
 - 
 
 0.1 
 
 - 
 
 - 
 
 
 
Gains (losses) on cash flow hedges
 
 (0.3)
 
 - 
 
 0.9 
 
 - 
 
 0.6 
 
 
 
 
 (5.5)
 
 0.3 
 
 12.7 
 
 (4.0)
 
 3.5 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts attributable to noncontrolling interests:
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefit plan adjustments
 
 - 
 
 - 
 
 0.1 
 
 - 
 
 0.1 
 
 
 
Foreign currency translation adjustments
 
 (0.8)
 
 - 
 
 - 
 
 - 
 
 (0.8)
 
 
 
 
 (0.8)
 
 - 
 
 0.1 
 
 - 
 
 (0.7)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefit plan adjustments(a)
 
 (1.7)
 
 0.3 
 
 11.8 
 
 (4.0)
 
 6.4 
 
 
 
Foreign currency translation adjustments
 
 (4.2)
 
 - 
 
 - 
 
 - 
 
 (4.2)
 
 
 
Unrealized gains (losses) on available-for-sale securities(b)
 
 (0.1)
 
 - 
 
 0.1 
 
 - 
 
 - 
 
 
 
Gains (losses) on cash flow hedges(c)
 
 (0.3)
 
 - 
 
 0.9 
 
 - 
 
 0.6 
 
 
 
$
 (6.3)
 
 0.3 
 
 12.8 
 
 (4.0)
 
 2.8 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts attributable to Brink's:
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefit plan adjustments
$
 (0.5)
 
 0.1 
 
 19.2 
 
 (6.7)
 
 12.1 
 
 
 
Foreign currency translation adjustments
 
 (5.9)
 
 - 
 
 (0.1)
 
 0.1 
 
 (5.9)
 
 
 
Unrealized gains (losses) on available-for-sale securities
 
 0.2 
 
 (0.1)
 
 (0.2)
 
 0.1 
 
 - 
 
 
 
Gains (losses) on cash flow hedges
 
 (0.2)
 
 - 
 
 (0.2)
 
 - 
 
 (0.4)
 
 
 
 
 (6.4)
 
 - 
 
 18.7 
 
 (6.5)
 
 5.8 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts attributable to noncontrolling interests:
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefit plan adjustments
 
 - 
 
 - 
 
 0.1 
 
 - 
 
 0.1 
 
 
 
Foreign currency translation adjustments
 
 (0.7)
 
 - 
 
 - 
 
 - 
 
 (0.7)
 
 
 
 
 (0.7)
 
 - 
 
 0.1 
 
 - 
 
 (0.6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefit plan adjustments(a)
 
 (0.5)
 
 0.1 
 
 19.3 
 
 (6.7)
 
 12.2 
 
 
 
Foreign currency translation adjustments(d)
 
 (6.6)
 
 - 
 
 (0.1)
 
 0.1 
 
 (6.6)
 
 
 
Unrealized gains (losses) on available-for-sale securities(b)
 
 0.2 
 
 (0.1)
 
 (0.2)
 
 0.1 
 
 - 
 
 
 
Gains (losses) on cash flow hedges(c)
 
 (0.2)
 
 - 
 
 (0.2)
 
 - 
 
 (0.4)
 
 
 
$
 (7.1)
 
 - 
 
 18.8 
 
 (6.5)
 
 5.2 
 

(a)  
The amortization of prior experience losses and prior service cost is part of total net periodic retirement benefit cost when reclassified to net income.  Net periodic retirement benefit cost also includes service costs, interest costs, expected returns on assets, and settlement costs.  The total pretax expense is allocated between cost of revenues and selling, general and administrative expenses on a plan-by-plan basis:

 
 
 
 
Three Months
 
 
 
 
 
Ended March 31.
 
 
(In millions)
 
2014 
 
2013 
 
 
 
 
 
 
 
 
 
 
 
 
Total net periodic retirement benefit cost included in:
 
 
 
 
 
 
 
 
Cost of revenues
$
 10.3 
 
 17.0 
 
 
 
 
Selling, general and administrative expenses
 
 2.8 
 
 4.3 
 
 

(b)  
Gains and losses on sales of available-for-sale securities are reclassified from accumulated other comprehensive loss to the income statement when the gains or losses are realized.  Pretax amounts are classified in the income statement as interest and other income (expense).
(c)  
Pretax gains and losses on cash flow hedges are classified in the income statement as:
·  
other operating income (expense) ($0.7 million losses in the three months ended March 31, 2014 and $0.4 million gains in the three months ended March 31, 2013)

 
12
 

·  
interest and other income (expense) ($0.2 million losses in the three months ended March 31, 2014 and $0.2 million losses in the three months ended March 31, 2013)
(d)  
Pretax foreign currency translation adjustments reclassified to the income statement in 2013 relate to the sale of operations in Poland.  The amounts are included in loss from discontinued operations in the income statement.

The changes in accumulated other comprehensive loss attributable to Brink’s are as follows:

 
 
 
 
Benefit Plan Adjustments
 
Foreign Currency Translation Adjustments
 
Unrealized Gains (Losses) on Available-for-Sale Securities
 
Gains (Losses) on Cash Flow Hedges
 
Total
 
 
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2013
$
 (478.0)
 
 (141.5)
 
 1.6 
 
 0.6 
 
 (617.3)
 
 
 
Other comprehensive income (loss) before reclassifications
 
 (1.4)
 
 (3.4)
 
 (0.1)
 
 (0.3)
 
 (5.2)
 
 
 
Amounts reclassified from accumulated other comprehensive loss
 
 7.7 
 
 - 
 
 0.1 
 
 0.9 
 
 8.7 
 
 
Other comprehensive income (loss) attributable to Brink's
 
 6.3 
 
 (3.4)
 
 - 
 
 0.6 
 
 3.5 
 
 
Balance as of March 31, 2014
$
 (471.7)
 
 (144.9)
 
 1.6 
 
 1.2 
 
 (613.8)
 

Note 6 – Fair value of financial instruments

Investments in Available-for-sale Securities
We have investments in mutual funds designated as available-for-sale securities that are carried at fair value in the financial statements.  For these investments, fair value was estimated based on quoted prices categorized as a Level 1 valuation.  Valuation levels were defined in our 2013 Form 10-K.

Fixed-Rate Debt
The fair value and carrying value of our fixed-rate debts are as follows:

 
 
 
March 31,
 
December 31,
 
 
(In millions)
 
2014 
 
2013 
 
 
 
 
 
 
 
 
 
 
DTA bonds
 
 
 
 
 
 
 
Carrying value
$
 43.2 
 
 43.2 
 
 
 
Fair value
 
 43.1 
 
 42.8 
 
 
 
 
 
 
 
 
 
 
Unsecured notes issued in a private placement
 
 
 
 
 
 
 
Carrying value
 
 100.0 
 
 100.0 
 
 
 
Fair value
 
 105.4 
 
 105.8 
 

The fair value estimate of our obligation related to the fixed-rate Dominion Terminal Associates (“DTA”) bonds is based on price information observed in a less-active market, which we have categorized as a Level 2 valuation.

The fair value estimate of our unsecured private-placement notes is based on the present value of future cash flows, discounted at rates for similar instruments at the respective measurement dates, which we have categorized as a Level 3 valuation.

There were no transfers in or out of any of the levels of the valuation hierarchy in the first three months of 2014.

Other Financial Instruments
Other financial instruments include cash and cash equivalents, short-term fixed rate deposits, accounts receivable, floating rate debt, accounts payable and accrued liabilities.  The financial statement carrying amounts of these items approximate the fair value.

We have outstanding foreign currency forward and swap contracts to hedge transactional risks associated with foreign currencies.  Our short term contracts have a weighted average maturity of approximately one month.  In 2013, we entered into a cross-currency swap to hedge against the change in value of a long-term intercompany loan denominated in a currency other than the lending subsidiary’s functional currency.  The fair values of these currency contracts, including the cross-currency swap, are determined using Level 2 valuation techniques and are based on the present value of net future cash payments and receipts.  Accordingly, the fair values will fluctuate based on changes in market interest rates and the respective foreign currency to U.S. dollar exchange rate.  The fair values of our outstanding short-term foreign currency contracts at March 31, 2014, were not significant.  At March 31, 2014, the fair value of the cross-currency swap was a net asset of $3.6 million.  There were no transfers in or out of any of the levels of the valuation hierarchy in the first three months of 2014.

 
13
 

Note 7 – Share-based compensation plans
 
We have share-based compensation plans to retain employees and non-employee directors and to more closely align their interests with those of our shareholders.

The 2005 Equity Incentive Plan (the “2005 Plan”) and the 2013 Equity Incentive Plan (the “2013 Plan”) permit grants of restricted stock, restricted stock units, performance stock, performance units, stock appreciation rights, stock options, as well as other share-based awards to eligible employees.  The 2013 Plan also permits cash awards to eligible employees.  The 2005 Plan was replaced by the 2013 Equity Incentive Plan effective in February 2013.  No further grants of awards will be made under the 2005 Plan.

Directors are eligible for share-based awards through the Non-Employee Directors’ Equity Plan (the “Directors’ Plan”).  To date, we have granted only deferred stock units under the Directors’ Plan.  There are also outstanding stock options granted to directors under a prior plan, the Non-Employee Directors’ Stock Option Plan (the “Prior Directors’ Plan”).

At March 31, 2014, outstanding awards under these plans include performance share units (“PSUs”), market share units (“MSUs”), restricted stock units (“RSUs”), deferred stock units (“DSUs”) and stock options.

Method and Assumptions Used to Estimate Fair Value
The fair value of RSUs and DSUs was measured at the date of grant based on the price of Brink’s common stock, adjusted for a discount on units that do not receive or accrue dividends.
 
The fair values of PSUs and MSUs granted were estimated using a Monte-Carlo simulation with the following estimated weighted-average assumptions:
 

 
Assumptions Used to Estimate Fair Value of 2014 Grants of PSUs and MSUs
 
 PSUs
 
MSUs
 
 
 
 
 
 
 
 
 
 
Number of target shares, in thousands
 
 186.8 
 
 82.9 
 
 
 
 
 
 
 
 
 
 
Assumptions used to estimate fair value
 
 
 
 
 
 
 
Beginning average price of Brink’s common stock(a)
$
 33.29 
 
 33.29 
 
 
 
Expected dividend yield for the TSR provision of PSU awards(b)
 
0%
 
n/a 
 
 
 
Expected dividend yield for PSUs and MSUs(c)
 
0%
 
0%
 
 
 
Expected volatility(d)
 
 38%
 
 38%
 
 
 
Risk-free interest rate
 
 0.7%
 
 0.7%
 
 
 
Expected term in years(e)
 
 2.9 
 
 2.9 
 
 
 
 
 
 
 
 
 
 
Weighted-average fair value estimates at grant date(f):
 
 
 
 
 
 
 
In millions
$
 5.7 
 
 2.6 
 
 
 
Fair value per share
$
 30.71 
 
 30.87 
 

(a)  
The beginning average price of Brink’s common stock was based on the 20-day trading average price from December 3, 2013 to December 31, 2013.
(b)  
The expected dividend yield for the TSR provision of the PSU awards assumes that dividends are reinvested.  The stock price projection assumes a 0% dividend yield, which is equivalent to reinvesting dividends over the performance period.
(c)  
The expected yield is 0% because neither the PSUs nor the MSUs are entitled to dividends during the performance period.
(d)  
The expected volatility was estimated after reviewing the historical volatility of our stock using daily close prices.
(e)  
The expected term of the awards was based on the performance measurement period ending December 31, 2016.
(f)  
For PSUs, the grant date fair value is based on the target level of the award.  Total compensation cost of the PSUs recognized is subject to adjustment based on the actual level of achievement of the underlying financial goal.

The following tables below summarize the activity in all plans for PSUs, MSUs, RSUs and DSUs.

Nonvested Share Activity - MSUs and PSUs
 
 
Number of shares
 
Weighted-Average
 
 
 
 
 
 
 
 
 
 
Grant-Date
 
 
(in thousands of shares, except for per share amounts)
PSUs
 
MSUs
 
Total
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2013
 199.3 
 
 
 96.2 
 
 
 295.5 
 
$ 
 26.28 
 
 
 
Granted
 186.8 
 
 
 82.9 
 
 
 269.7 
 
 
 30.76 
 
 
 
Cancelled awards
 (1.7)
 
 
 - 
 
 
 (1.7)
 
 
 26.22 
 
 
 
 
Balance as of March 31, 2014
 384.4 
 
 
 179.1 
 
 
 563.5 
 
$ 
 28.42 
 
 

 
14
 


Nonvested Share Activity - RSUs and DSUs
 
 
 
Number of shares
 
 
Weighted-Average
 
 
 
 
 
 
 
 
 
 
Grant-Date
 
 
(in thousands of shares, except for per share amounts)
RSUs
 
DSUs
 
Total
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2013
 396.4 
 
 
 19.2 
 
 
 415.6 
 
$ 
 24.68 
 
 
 
Granted
 128.7 
 
 
 - 
 
 
 128.7 
 
 
 30.20 
 
 
 
Cancelled awards
 (3.7)
 
 
 - 
 
 
 (3.7)
 
 
 24.63 
 
 
 
Vested
 (10.4)
 
 
 - 
 
 
 (10.4)
 
 
 30.48