Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

¨  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  ý 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  ý  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  ý  Accelerated Filer  ¨  Non-Accelerated Filer  ¨  Smaller Reporting Company  ¨ Emerging Growth Company  ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨  No  ý
As of April 24, 2017, 50,387,494 shares of $1 par value common stock were outstanding.

1


Part I - Financial Information
Item 1.  Financial Statements
THE BRINK’S COMPANY
and subsidiaries

Condensed Consolidated Balance Sheets
(Unaudited)
(In millions)
March 31, 2017
 
December 31, 2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
218.7

 
183.5

Restricted cash
70.2

 
55.5

Accounts receivable, net
544.7

 
501.1

Prepaid expenses and other
135.2

 
103.6

Total current assets
968.8

 
843.7

 
 
 
 
Property and equipment, net
556.5

 
531.0

Goodwill
194.9

 
186.2

Other intangibles
24.2

 
19.1

Deferred income taxes
328.8

 
327.9

Other
89.7

 
86.9

 
 
 
 
Total assets
$
2,162.9

 
1,994.8

 
 
 
 
LIABILITIES AND EQUITY
 

 
 

 
 
 
 
Current liabilities:
 

 
 

Short-term borrowings
$
156.4

 
162.8

Current maturities of long-term debt
33.7

 
32.8

Accounts payable
139.7

 
139.3

Accrued liabilities
386.8

 
385.7

Restricted cash held for customers
42.9

 
33.2

Total current liabilities
759.5

 
753.8

 
 
 
 
Long-term debt
338.3

 
247.6

Accrued pension costs
210.3

 
208.8

Retirement benefits other than pensions
285.3

 
286.1

Deferred income taxes
7.6

 
7.6

Other
140.7

 
136.1

Total liabilities
1,741.7

 
1,640.0

 
 
 
 
Contingent liabilities (notes 4 and 11)


 


 
 
 
 
Equity:
 

 
 

The Brink's Company ("Brink's") shareholders:
 

 
 

Common stock
50.4

 
50.0

Capital in excess of par value
614.5

 
618.1

Retained earnings
605.7

 
576.0

Accumulated other comprehensive loss
(873.8
)
 
(907.0
)
Brink’s shareholders
396.8

 
337.1

 
 
 
 
Noncontrolling interests
24.4

 
17.7

 
 
 
 
Total equity
421.2

 
354.8

 
 
 
 
Total liabilities and equity
$
2,162.9

 
1,994.8

See accompanying notes to condensed consolidated financial statements.

2


THE BRINK’S COMPANY
and subsidiaries
 
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months 
 Ended March 31,
(In millions, except for per share amounts)
2017
 
2016
 
 
 
 
Revenues
$
788.4

 
721.8

 
 
 
 
Costs and expenses:
 
 
 
Cost of revenues
610.3

 
588.9

Selling, general and administrative expenses
107.1

 
108.7

Total costs and expenses
717.4

 
697.6

Other operating income (expense)
(0.1
)
 
(0.7
)
 
 
 
 
Operating profit
70.9

 
23.5

 
 
 
 
Interest expense
(4.8
)
 
(4.9
)
Interest and other income (expense)
(11.2
)
 
(9.7
)
Income from continuing operations before tax
54.9

 
8.9

Provision for income taxes
14.4

 
9.4

 
 
 
 
Income (loss) from continuing operations
40.5

 
(0.5
)
 
 
 
 
Loss from discontinued operations, net of tax
—

 
—

 
 
 
 
Net income (loss)
40.5

 
(0.5
)
Less net income attributable to noncontrolling interests
5.8

 
2.6

 
 
 
 
Net income (loss) attributable to Brink’s
34.7

 
(3.1
)
 
 
 
 
Amounts attributable to Brink’s
 
 
 
Continuing operations
34.7

 
(3.1
)
Discontinued operations
—

 
—

 
 
 
 
Net income (loss) attributable to Brink’s
$
34.7

 
(3.1
)
 
 
 
 
Income (loss) per share attributable to Brink’s common shareholders(a):
 
 
 
Basic:
 
 
 
Continuing operations
$
0.69

 
(0.06
)
Discontinued operations
—

 
—

Net income (loss)
$
0.69

 
(0.06
)
 
 
 
 
Diluted:
 
 
 
Continuing operations
$
0.67

 
(0.06
)
Discontinued operations
—

 
—

Net income (loss)
$
0.67

 
(0.06
)
 
 
 
 
Weighted-average shares
 
 
 
Basic
50.5

 
49.5

Diluted
51.5

 
49.5

 
 
 
 
Cash dividends paid per common share
$
0.10

 
0.10

(a)   Amounts may not add due to rounding.
See accompanying notes to condensed consolidated financial statements.


3


THE BRINK’S COMPANY
and subsidiaries
 
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
 
Three Months 
 Ended March 31,
(In millions)
2017
 
2016
 
 
 
 
Net income (loss)
$
40.5

 
(0.5
)
 
 
 
 
Benefit plan adjustments:
 
 
 
Benefit plan experience gains
11.8

 
11.7

Benefit plan prior service cost
(0.5
)
 
(0.4
)
Total benefit plan adjustments
11.3

 
11.3

 
 
 
 
Foreign currency translation adjustments
27.2

 
17.8

Unrealized net gains on available-for-sale securities
0.2

 
0.2

Loss on cash flow hedges
—

 
(0.3
)
Other comprehensive income before tax
38.7

 
29.0

Provision for income taxes
4.4

 
3.8

 
 
 
 
Other comprehensive income
34.3

 
25.2

 
 
 
 
Comprehensive income
74.8

 
24.7

Less comprehensive income attributable to noncontrolling interests
6.9

 
3.4

 
 
 
 
Comprehensive income attributable to Brink's
$
67.9

 
21.3

See accompanying notes to condensed consolidated financial statements.


4


THE BRINK’S COMPANY
and subsidiaries
 
Condensed Consolidated Statements of Equity

Three Months ended March 31, 2017 and 2016
(Unaudited)

 
Attributable to Brink’s
 
 
 
 
(In millions)
Shares
 
Common
Stock
 
Capital
in Excess
of Par
Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Attributable
to
Noncontrolling
Interests
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2015
48.9

 
$
48.9

 
599.6

 
561.3

 
(891.9
)
 
12.7

 
330.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative effect of change in accounting principle(a)
 
 
 
 
 
 
0.2

 
 
 
 
 
0.2

Net income
—

 
—

 
—

 
(3.1
)
 
—

 
2.6

 
(0.5
)
Other comprehensive income
—

 
—

 
—

 
—

 
24.4

 
0.8

 
25.2

Dividends to:
 

 
 

 
 

 
 

 
 

 
 

 
 

Brink’s common shareholders ($0.10 per share)
—

 
—

 
—

 
(4.9
)
 
—

 
—

 
(4.9
)
Noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(0.2
)
 
(0.2
)
Share-based compensation:
 

 
 

 
 

 
 

 
 

 
 

 
 

Stock awards and options:
 

 
 

 
 

 
 

 
 

 
 

 
 

Compensation expense
—

 
—

 
2.8

 
—

 
—

 
—

 
2.8

Consideration from exercise of stock options
—

 
—

 
0.1

 
—

 
—

 
—

 
0.1

Other share-based benefit transactions
0.3

 
0.3

 
(3.5
)
 
0.1

 
—

 
—

 
(3.1
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2016
49.2

 
$
49.2

 
599.0

 
553.6

 
(867.5
)
 
15.9

 
350.2


 
Attributable to Brink’s
 
 
 
 
(In millions)
Shares
 
Common
Stock
 
Capital
in Excess
of Par
Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Attributable
to
Noncontrolling
Interests
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2016
50.0

 
$
50.0

 
618.1

 
576.0

 
(907.0
)
 
17.7

 
354.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
—

 
—

 
—

 
34.7

 
—

 
5.8

 
40.5

Other comprehensive income
—

 
—

 
—

 
—

 
33.2

 
1.1

 
34.3

Dividends to:
 

 
 

 
 

 
 

 
 

 
 

 
 

Brink’s common shareholders ($0.10 per share)
—

 
—

 
—

 
(5.0
)
 
—

 
—

 
(5.0
)
Noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(0.2
)
 
(0.2
)
Share-based compensation:
 

 
 

 
 

 
 

 
 

 
 

 
 

Stock awards and options:
 

 
 

 
 

 
 

 
 

 
 

 
 

Compensation expense
—

 
—

 
4.5

 
—

 
—

 
—

 
4.5

Consideration from exercise of stock options
—

 
—

 
0.7

 
—

 
—

 
—

 
0.7

Other share-based benefit transactions
0.4

 
0.4

 
(8.8
)
 
—

 
—

 
—

 
(8.4
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2017
50.4

 
$
50.4

 
614.5

 
605.7

 
(873.8
)
 
24.4

 
421.2



(a)
We elected to early adopt the provisions of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, in the fourth quarter of 2016 resulting in a cumulative effect adjustment to Retained Earnings for previously unrecognized excess tax benefits. See Note 1 for further discussion of the impacts of this standard.

See accompanying notes to condensed consolidated financial statements
 

5


THE BRINK’S COMPANY
and subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months 
 Ended March 31,
(In millions)
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income (loss)
$
40.5

 
(0.5
)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
 
 
 
Depreciation and amortization
33.9

 
32.2

Share-based compensation expense
4.5

 
2.8

Deferred income taxes
(2.1
)
 
—

Gains and losses:
 
 
 
Property and other assets
(0.2
)
 
—

Business acquisitions and dispositions
(0.8
)
 
(0.1
)
Impairment losses
0.4

 
0.5

Retirement benefit funding (more) less than expense:
 
 
 
Pension
5.2

 
3.2

Other than pension
3.3

 
3.2

Remeasurement losses due to Venezuela currency devaluation
0.3

 
2.8

Other operating
2.5

 
(0.6
)
Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable and income taxes receivable
(37.8
)
 
(24.2
)
Accounts payable, income taxes payable and accrued liabilities
(12.6
)
 
(27.5
)
Customer obligations
4.2

 
(18.5
)
Prepaid and other current assets
(14.4
)
 
(13.3
)
Other
—

 
2.2

Net cash provided (used) by operating activities
26.9

 
(37.8
)
Cash flows from investing activities:
 

 
 

Capital expenditures
(27.8
)
 
(20.8
)
Acquisitions
(14.2
)
 
—

Dispositions
1.1

 
—

Marketable securities:
 
 
 
Purchases
(9.3
)
 
(5.8
)
Sales
0.4

 
2.3

Cash proceeds from sale of property and equipment
0.6

 
0.2

Net cash used by investing activities
(49.2
)
 
(24.1
)
Cash flows from financing activities:
 

 
 

Borrowings (repayments) of debt:
 

 
 

Short-term borrowings
(11.3
)
 
20.5

Long-term revolving credit facilities:
 
 
 
Borrowings
231.5

 
187.6

Repayments
(141.5
)
 
(136.8
)
Other long-term debt:
 

 
 

Borrowings
—

 
1.6

Repayments
(14.6
)
 
(16.0
)
Dividends to:
 

 
 

Shareholders of Brink’s
(5.0
)
 
(4.9
)
Noncontrolling interests in subsidiaries
(0.2
)
 
(0.2
)
Proceeds from exercise of stock options
0.7

 
0.1

Minimum tax withholdings associated with share-based compensation
(8.8
)
 
(4.2
)
Other
0.5

 
0.8

Net cash provided by financing activities
51.3

 
48.5

Effect of exchange rate changes on cash
6.2

 
1.9

Cash and cash equivalents:
 

 
 

Increase (decrease)
35.2

 
(11.5
)
Balance at beginning of period
183.5

 
198.3

Balance at end of period
$
218.7

 
186.8


See accompanying notes to condensed consolidated financial statements

6


THE BRINK’S COMPANY
and subsidiaries

Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1 - Basis of presentation
 
Effective February 2017, The Brink’s Company (along with its subsidiaries, “Brink’s” or “we”) implemented changes to its organizational and management structure. As a result of these changes, we now have three operating segments:
•
North America
•
South America
•
Rest of World

Our unaudited interim condensed 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 condensed 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 condensed 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, 2016.

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 condensed 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 and deferred tax assets.

Consolidation
The method of accounting applied to investments in businesses, whether consolidated, equity or cost, involves an evaluation of all significant terms of the investments that explicitly grant or suggest evidence of control or influence over the operations of the investee. The condensed consolidated financial statements include our controlled subsidiaries.  Control is determined based on ownership rights or, when applicable, based on whether we are considered to be the primary beneficiary of a variable interest entity.  For controlled subsidiaries that are not wholly-owned, the noncontrolling interests are included in net income and in total equity.

Investments in businesses that we do not control, but for which we have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method and our proportionate share of income or loss is recorded in other operating income (expense).  Investments in businesses for which we do not have the ability to exercise significant influence over operating and financial policies are accounted for under the cost method or, if applicable, as available-for-sale securities.  All intercompany accounts and transactions have been eliminated in consolidation.

Foreign Currency Translation
Our condensed 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 an officially reported 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 (loss).

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, and has required that currency exchanges be made at official rates established by the government instead of allowing open markets to determine

7


currency rates.  Different official rates existed for different industries and purposes and the government does not approve all requests to convert bolivars to other currencies.

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. Consequently, we have occasionally purchased more expensive, bolivar-denominated supplies and fixed assets. There is a risk that official currency exchange mechanisms will be discontinued or will not be accessible when needed in the future, which may prevent us from repatriating dividends or obtaining dollars to operate our Venezuelan operations.

Remeasurement rates during 2017 and 2016.  In the first quarter of 2016, the Venezuelan government replaced the SIMADI exchange mechanism with the DICOM exchange mechanism and announced that it would allow the DICOM exchange mechanism rate to float freely. At March 31, 2016, the DICOM rate was approximately 273 bolivars to the dollar. Since then, the rate has declined 62% to close at approximately 710 bolivars to the dollar at March 31, 2017. We have received only minimal U.S. dollars through this exchange mechanism. In the first three months of 2017, we recognized a $0.3 million pretax remeasurement loss.  The after-tax effect of this loss attributable to noncontrolling interest was $0.1 million. In the first three months of 2016, we recognized a $2.8 million pretax remeasurement loss. However, the after-tax effect of this loss attributable to noncontrolling interest was income of $0.5 million.

Items related to our Venezuelan operations are as follows:

•
Our investment in our Venezuelan operations on an equity-method basis was $28.5 million at March 31, 2017 and $19.2 million at December 31, 2016.
•
Our Venezuelan operations had net payables to other Brink's affiliates of $7.5 million at March 31, 2017 and $6.1 million at December 31, 2016.
•
Our Venezuelan operations had net non-monetary assets of $20.6 million at March 31, 2017 and $17.6 million at December 31, 2016.
•
Our bolivar-denominated net monetary net assets were $12.9 million (including $15.0 million of cash and cash equivalents) at March 31, 2017 and $1.4 million (including $6.8 million of cash and cash equivalents) at December 31, 2016.
•
Accumulated other comprehensive losses attributable to Brink’s shareholders related to our Venezuelan operations were $114.4 million at March 31, 2017 and $114.7 million at December 31, 2016.

Argentina
The economy in Argentina has had significant inflation in recent years. As of March 31, 2017, Argentina was not designated as a highly inflationary economy for accounting purposes. We will continue to monitor developments in Argentina at each reporting date to determine whether we should consolidate Brink's Argentina results using our accounting policy for subsidiaries operating in highly inflationary economies. We use the official exchange rate to translate the Brink's Argentina balance sheet and income statement. At March 31, 2017, the official exchange rate was approximately 15.4 Argentine pesos to the U.S. dollar. At March 31, 2017, we had cash and short term investments denominated in Argentine pesos of $25.4 million.

Ireland
Due to management's decision in the first quarter of 2016 to exit the Republic of Ireland, the prospective impacts of shutting down this operation were included in items not allocated to segments and were excluded from the operating segments effective March 1, 2016. Beginning May 1, 2016, due to management's decision to also exit Northern Ireland, the results of shutting down these operations were treated similarly to the Republic of Ireland. International shipments to and from Ireland will continue to be provided through Brink’s Global Services ("BGS").

New Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue From Contracts with Customers, a new standard related to revenue recognition, which requires an entity to recognize an amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The new standard will replace most of the existing revenue recognition standards in U.S. GAAP. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of this new standard to January 1, 2018. Subsequently, the FASB has continued to refine the standard and has issued several amendments. We have not yet completed our final review of the impact of this guidance but we believe that the most likely effects will be related to variable consideration and capitalization of costs to obtain contracts. We are also continuing to review potential disclosures and our method of adoption in order to complete our evaluation. Based on our preliminary assessment, we do not expect a material impact on our financial reporting.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will require the recognition of assets and liabilities by lessees for certain leases classified as operating leases under current accounting guidance. The new standard also requires expanded disclosures regarding leasing activities. ASU 2016-02 will be effective January 1, 2019 and we are assessing the potential impact of the standard on financial reporting.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies how certain features related to share-based payments are accounted for and presented in the financial statements. We elected to early adopt this ASU in the fourth quarter of 2016 and, per the requirements of the pronouncement, we applied the amendments to the beginning of 2016. Under ASU 2016-09, accounting changes adopted using the modified retrospective method must be calculated as of the beginning of 2016 and reported as a cumulative-effect adjustment. As a result, we recognized a $0.2 million cumulative-effect adjustment to January 1, 2016

8


retained earnings for previously unrecognized excess tax benefits. We have elected to continue our previous accounting policy of estimating forfeitures and, therefore, we did not recognize any cumulative-effect adjustment related to forfeitures. ASU 2016-09 requires that accounting changes adopted using the prospective method should be reported in the applicable interim periods of 2016. We did not have any material changes to previously reported interim financial information in 2016 as it relates to the recognition of excess tax benefits in the statement of operations or the classification of excess tax benefits in the statement of cash flows. In the first three months of 2017, the accounting under this ASU resulted in the recognition of $4.6 million in excess tax benefits.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, which requires entities to include restricted cash and restricted cash equivalent balances with cash and cash equivalent balances in the statement of cash flows. ASU 2016-18 will be effective January 1, 2018 and will impact the presentation of our statement of cash flows.

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires an entity to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. We elected to early adopt this ASU in the first quarter of 2017 using the retrospective transition method for the periods presented. As a result, the condensed consolidated statements of operations have been updated to reflect this guidance.

The adoption of this ASU resulted in a change in certain previously reported amounts in the first quarter of 2016 condensed consolidated statement of operations. Cost of revenues decreased $8.1 million, selling, general and administrative expenses decreased $1.6 million and operating profit as well as interest and other income (expense) increased $9.7 million compared to previously reported first quarter 2016 amounts. The early adoption of this ASU had no impact on the previously reported loss from continuing operations or net loss for the prior year quarter.

9


Note 2 - Segment information

The Brink’s Company offers transportation and logistics management services for cash and valuables throughout the world.  These services 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
◦
Currency and coin counting and sorting; deposit preparation and reconciliations; other cash management services
◦
Safe and safe control device installation and servicing (including our patented CompuSafe® service)
◦
Check and cash processing services for banking customers (“Virtual Vault Services”)
◦
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 and Brink’s Money™ general purpose reloadable prepaid cards and payroll cards in the U.S.
•
Guarding Services – protection of airports, offices, and certain other locations in Europe and Brazil with or without electronic surveillance, access control, fire prevention and highly trained patrolling personnel

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 to each operating segment based on operating profit or loss, excluding income and expenses not allocated to segments.

During the first quarter of 2017, we implemented changes to our organizational and management structure that resulted in changes to our operating segments for financial reporting purposes. Through the fiscal year ended December 31, 2016, our business was reported in nine operating segments: U.S., France, Mexico, Brazil, Canada, Latin America, EMEA, Asia and Payment Services. Changes in our management reporting structure during the first quarter of 2017 required us to conduct an assessment in accordance with ASC Topic 280, Segment Reporting, to determine our operating segments.

As a result of this assessment, we now have the following operating segments:
•
North America
•
South America
•
Rest of World (ROW).

Prior period information has been revised to reflect our new segment structure.

The following table summarizes our revenues and operating profit for each of our reportable segments:
 
Revenues
 
Operating Profit
 
Three Months Ended March 31,
 
Three Months Ended March 31,
(In millions)
2017
 
2016
 
2017
 
2016
Reportable Segments:
 
 
 
 
 
 
 
North America
$
304.6

 
292.7

 
$
10.2

 
3.7

South America
202.2

 
157.0

 
38.7

 
23.7

Rest of World
233.5

 
239.2

 
25.3

 
18.4

Total reportable segments
740.3

 
688.9

 
74.2

 
45.8

 
 
 
 
 
 
 
 
Reconciling Items:
 
 
 
 
 
 
 
Corporate expenses:
 
 
 
 
 
 
 
General, administrative and other expenses
—

 
—

 
(19.2
)
 
(17.6
)
Foreign currency transaction gains (losses)
—

 
—

 
(1.2
)
 
1.3

Reconciliation of segment policies to GAAP
—

 
—

 
(0.9
)
 
3.2

Other items not allocated to segments:
 
 
 
 
 
 
 
Venezuela operations
48.1

 
32.1

 
21.1

 
2.7

Reorganization and Restructuring
—

 
—

 
(4.1
)
 
(6.0
)
Acquisitions and dispositions
—

 
0.8

 
1.0

 
(5.9
)
Total
$
788.4

 
721.8

 
$
70.9

 
23.5

See "Other Items Not Allocated to Segment" on pages 27–28 for explanations of each of the other items not allocated to segments.

10


 
Three Months Ended
March 31,
(In millions)
2017
 
2016
 
 
 
 
Capital Expenditures by Business Segment
 
 
 
North America
$
13.2

 
10.3

South America
5.0

 
2.6

Rest of World
4.8

 
5.9

Total reportable segments
23.0

 
18.8

Corporate items
4.3

 
1.8

Venezuela
0.5

 
0.2

Total
$
27.8

 
20.8

 
 
 
 
Depreciation and Amortization by Business Segment
 
 
 
Depreciation and amortization of property and equipment:
 
 
 
North America
$
16.7

 
16.5

South America
5.2

 
4.4

Rest of World
7.3

 
7.5

Total reportable segments
29.2

 
28.4

Corporate items
2.8

 
2.8

Venezuela
0.4

 
0.1

Reorganization and Restructuring
0.9

 
—

Depreciation and amortization of property and equipment
33.3

 
31.3

 
 
 
 
Amortization of intangible assets:
 
 
 
South America
0.5

 
0.5

Rest of World
0.1

 
0.4

Amortization of intangible assets
0.6

 
0.9

Total
$
33.9

 
32.2



March 31,
 
December 31,
(In millions)
2017
 
2016
 
 
 
 
Assets held by Segment
 
 
 
North America
$
705.4

 
629.4

South America
398.2

 
371.4

Rest of World
660.1

 
621.8

Total reportable segments
1,763.7

 
1,622.6

Corporate items
325.0

 
321.3

Venezuela
74.2

 
50.9

Total
$
2,162.9

 
1,994.8



11


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)
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
—

 
—

 
2.9

 
2.8

 
2.9

 
2.8

Interest cost on projected benefit obligation
8.8

 
9.2

 
4.8

 
3.4

 
13.6

 
12.6

Return on assets – expected
(13.3
)
 
(13.7
)
 
(2.4
)
 
(2.3
)
 
(15.7
)
 
(16.0
)
Amortization of losses
6.3

 
6.1

 
1.3

 
1.2

 
7.6

 
7.3

Amortization of prior service cost
—

 
—

 
0.2

 
—

 
0.2

 
—

Settlement loss
—

 
—

 
0.3

 
0.8

 
0.3

 
0.8

Net periodic pension cost
$
1.8

 
1.6

 
7.1

 
5.9

 
8.9

 
7.5

We did not make cash contributions to the primary U.S. pension plan in 2016 or the first three months of 2017.  Based on current assumptions, as described in our Annual Report on Form 10-K for the year ended December 31, 2016, we do not expect to make any additional contributions to the primary U.S. pension plan until 2021.

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 United Mine Workers of America 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)
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest cost on accumulated postretirement benefit obligations
$
4.4

 
4.6

 
0.7

 
0.6

 
5.1

 
5.2

Return on assets – expected
(4.2
)
 
(4.4
)
 
—

 
—

 
(4.2
)
 
(4.4
)
Amortization of losses
4.4

 
4.3

 
0.9

 
0.5

 
5.3

 
4.8

Amortization of prior service (credit) cost
(1.1
)
 
(1.1
)
 
0.5

 
0.5

 
(0.6
)
 
(0.6
)
Net periodic postretirement cost
$
3.5

 
3.4

 
2.1

 
1.6

 
5.6

 
5.0

The components of net periodic pension cost and net periodic postretirement cost other than the service cost component are included in interest and other income (expense) in the condensed consolidated statements of operations.


12


Note 4 - Income taxes

Three Months Ended March 31,
 
2017
 
2016
Continuing operations
 
 
 
Provision for income taxes (in millions)
$
14.4

 
9.4

Effective tax rate
26.2
%
 
105.6
%

2017 Compared to U.S. Statutory Rate
The effective income tax rate on continuing operations in the first three months of 2017 was less than the 35% U.S. statutory tax rate primarily due to the significant tax benefits related to the distribution of share-based payments partially offset by the impact of Venezuela’s earnings and related tax expense.
Excluding those items, our effective tax rate on continuing operations in the first three months of 2017 is 37%.  The rate is higher than 35% primarily due to the seasonality of book losses for which no tax benefit can be recorded, nondeductible expenses in Mexico, taxes on cross border payments and the characterization of a French business tax as an income tax, partially offset by the geographical mix of earnings and a French income tax credit.

2016 Compared to U.S. Statutory Rate
The effective income tax rate on continuing operations in the first three months of 2016 was greater than the 35% U.S. statutory tax rate primarily due to the significant costs related to the winding down of operations in the Republic of Ireland, for which no tax benefit can be recorded, and the nondeductible expenses resulting from the currency devaluation in Venezuela.

Excluding those items, our effective tax rate on continuing operations in the first three months is 54%. The rate was higher than 35% primarily due to the seasonality of book losses for which no tax benefit can be recorded, nondeductible expenses in Mexico, taxes on undistributed earnings and the characterization of a French business tax as an income tax, partially offset by the geographical mix of earnings and a French income tax credit.
 

13


Note 5 - Accumulated other comprehensive income (loss)

Other comprehensive income (loss), including the amounts reclassified from accumulated other comprehensive loss into earnings, was as follows:
 
Amounts Arising During
the Current Period
 
Amounts Reclassified to
Net Income (Loss)
 
 
(In millions)
Pretax
 
Income
Tax
 
Pretax
 
Income
Tax
 
Total Other
Comprehensive
Income (Loss)
Three months ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts attributable to Brink's:
 
 
 
 
 
 
 
 
 
Benefit plan adjustments
$
(1.5
)
 
0.2

 
12.6

 
(4.5
)
 
6.8

Foreign currency translation adjustments
26.3

 
—

 
—

 
—

 
26.3

Unrealized gains (losses) on available-for-sale securities
0.2

 
(0.1
)
 
—

 
—

 
0.1

Gains (losses) on cash flow hedges
(0.2
)
 
—

 
0.2

 
—

 
—

 
24.8

 
0.1

 
12.8

 
(4.5
)
 
33.2

 
 
 
 
 
 
 
 
 
 
Amounts attributable to noncontrolling interests:
 

 
 

 
 

 
 

 
 

Benefit plan adjustments
—

 
—

 
0.2

 
—

 
0.2

Foreign currency translation adjustments
0.9

 
—

 
—

 
—

 
0.9

 
0.9

 
—

 
0.2

 
—

 
1.1

 
 
 
 
 
 
 
 
 
 
Total
 

 
 

 
 

 
 

 
 

Benefit plan adjustments(a)
(1.5
)
 
0.2

 
12.8

 
(4.5
)
 
7.0

Foreign currency translation adjustments
27.2

 
—

 
—

 
—

 
27.2

Unrealized gains (losses) on available-for-sale securities(b)
0.2

 
(0.1
)
 
—

 
—

 
0.1

Gains (losses) on cash flow hedges(c)
(0.2
)
 
—

 
0.2

 
—

 
—

 
$
25.7

 
0.1

 
13.0

 
(4.5
)
 
34.3

 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2016
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
Amounts attributable to Brink's:
 

 
 

 
 

 
 

 
 

Benefit plan adjustments
$
(1.1
)
 
0.3

 
12.3

 
(4.2
)
 
7.3

Foreign currency translation adjustments
17.1

 
—

 
—

 
—

 
17.1

Unrealized gains on available-for-sale securities
0.2

 
—

 
—

 
—

 
0.2

Gains (losses) on cash flow hedges
(1.0
)
 
0.1

 
0.7

 
—

 
(0.2
)
 
15.2

 
0.4

 
13.0

 
(4.2
)
 
24.4

 
 
 
 
 
 
 
 
 
 
Amounts attributable to noncontrolling interests:
 

 
 

 
 

 
 

 
 

Benefit plan adjustments
—

 
—

 
0.1

 
—

 
0.1

Foreign currency translation adjustments
0.7

 
—

 
—

 
—

 
0.7

 
0.7

 
—

 
0.1

 
—

 
0.8

 
 
 
 
 
 
 
 
 
 
Total
 

 
 

 
 

 
 

 
 

Benefit plan adjustments(a)
(1.1
)
 
0.3

 
12.4

 
(4.2
)
 
7.4

Foreign currency translation adjustments
17.8

 
—

 
—

 
—

 
17.8

Unrealized losses on available-for-sale securities(b)
0.2

 
—

 
—

 
—

 
0.2

Gains (losses) on cash flow hedges(c)
(1.0
)
 
0.1

 
0.7

 
—

 
(0.2
)
 
$
15.9

 
0.4

 
13.1

 
(4.2
)
 
25.2


(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 cost, interest cost, expected return on assets, and settlement losses.  Due to the adoption of ASU 2017-07 (see Note 1), total service cost is allocated between cost of revenues and selling, general and administrative expenses on a plan-by-plan basis and the remaining net periodic retirement benefit cost items are allocated to interest and other income (expense):
 
Three Months Ended March 31,
(In millions)
2017
 
2016
Total net periodic retirement benefit cost included in:
 
 
 
Cost of revenues
$
2.3

 
2.3

Selling, general and administrative expenses
0.6

 
0.5

Interest and other income (expense)
11.6

 
9.7



14


(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) ($0.2 million of losses in the three months ended March 31, 2017 and $0.6 million of losses in the three months ended March 31, 2016)
•
interest and other income (expense) (no gains or losses in the three months ended March 31, 2017 and $0.1 million of losses in the three months ended March 31, 2016).

The changes in accumulated other comprehensive loss attributable to Brink’s are as follows:
(In millions)
Benefit Plan Adjustments
 
Foreign Currency Translation Adjustments
 
Unrealized Gains (Losses) on Available-for-Sale Securities
 
Gains (Losses) on Cash Flow Hedges
 
Total
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2016
$
(559.6
)
 
(349.1
)
 
1.0

 
0.7

 
(907.0
)
Other comprehensive income (loss) before reclassifications
(1.3
)
 
26.3

 
0.1

 
(0.2
)
 
24.9

Amounts reclassified from accumulated other comprehensive loss
8.1

 
—

 
—

 
0.2

 
8.3

Other comprehensive income (loss) attributable to Brink's
6.8

 
26.3

 
0.1

 
—

 
33.2

Balance as of March 31, 2017
$
(552.8
)
 
(322.8
)
 
1.1

 
0.7

 
(873.8
)



15


Note 6 - Fair value of financial instruments

Investments in Trading Securities and Available-for-sale Securities
We have investments in mutual funds designated as trading securities and 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 market prices categorized as a Level 1 valuation.

Fixed-Rate Debt
The fair value and carrying value of our fixed-rate debt are as follows:
(In millions)
March 31, 2017
 
December 31, 2016
 
 
 
 
Unsecured notes issued in a private placement
 
 
 
Carrying value
$
78.6

 
85.7

Fair value
79.9

 
88.2


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.

Forward and Swap Contracts
We have outstanding foreign currency forward and swap contracts to hedge transactional risks associated with foreign currencies.  At March 31, 2017, the notional value of our shorter term outstanding foreign currency forward and swap contracts was $28.6 million, with average maturities of approximately one month.  These shorter term foreign currency forward and swap contracts primarily offset exposures in the British pound and the euro and are not designated as hedges for accounting purposes. At March 31, 2017, the fair value of these shorter term foreign currency contracts was not significant.

In 2013, we entered into a longer term cross-currency swap to hedge against the change in value of a long-term intercompany loan denominated in Brazilian real.  This longer term contract is designated as a cash flow hedge for accounting purposes. At March 31, 2017, the notional value of this contract was $6.3 million with a remaining weighted-average maturity of 0.5 years.  At March 31, 2017, the fair value of this longer term swap contract was an asset of $2.3 million, which is included in prepaid expenses and other on the condensed consolidated balance sheet.

In the first quarter of 2016, we entered into two interest rate swaps with a total notional value of $40 million with a remaining weighted-average maturity of 2.0 years. These swaps were entered into to hedge cash flow risk associated with changes in variable interest rates and are designated as cash flow hedges for accounting purposes. At March 31, 2017, the fair value of these interest rates swaps was a net asset of $0.9 million, which is included in other assets on the condensed consolidated balance sheet.

The fair values of these forward and swap contracts are determined using Level 2 valuation techniques and are based on the present value of net future cash payments and receipts. 

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

There were no transfers in or out of any of the levels of the valuation hierarchy in the first three months of 2017.



16


Note 7 - Share-based compensation plans

We have share-based compensation plans to attract and retain employees and nonemployee directors and to more closely align their interests with those of our shareholders.

We have granted share-based awards to employees under the 2005 Equity Incentive Plan ("2005 Plan") and the 2013 Equity Incentive Plan ("2013 Plan").  These plans 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 Plan effective February 2013.  No further grants of awards will be made under the 2005 Plan.

We have granted deferred stock units to directors through the Non-Employee Directors’ Equity Plan.  Share-based awards were granted to directors and remain outstanding under the Non-Employee Directors’ Stock Option Plan and the Directors’ Stock Accumulation Plan, both of which have expired.

Outstanding awards at March 31, 2017, include performance share units, market share units, restricted stock units, deferred stock units, performance-based stock options, time-based stock options and certain awards that will be settled in cash.

Compensation Expense
Compensation expense is measured using the fair-value-based method.  For employee and director awards considered equity grants, compensation expense is recognized from the award or grant date to the earlier of the retirement-eligible date or the vesting date.

In February 2016, the Compensation and Benefits Committee of the Board of Directors modified the terms of performance share units originally awarded or granted in 2013, 2014 and 2015 to reflect the impact of removing Venezuela operations from the Company’s segment results beginning in 2015. For each of the affected performance share units, consolidated results for 2015 and each subsequent year within the respective performance period was or will be adjusted to reflect Venezuela results at the amount originally projected in the applicable performance target. No incremental compensation cost associated with the modification has been recognized as the modified goal is expected to be more difficult to achieve and, in accordance with FASB ASC Topic 718, Compensation - Stock Compensation, we continue to recognize expense as calculated using the original performance goal.

Compensation expenses are classified as selling, general and administrative expenses in the condensed consolidated statements of operations. Compensation expenses for the share-based awards were as follows:
 
Compensation Expense
 
Three Months Ended March 31,
(in millions)
2017
 
2016
 
 
 
 
Performance Share Units
$
2.6

 
1.3

Market Share Units
0.1

 
0.2

Restricted Stock Units
1.2

 
1.1

Deferred Stock Units
0.2

 
0.2

Stock Options
0.4

 
—

Share-based payment expense
4.5

 
2.8

Income tax benefit
(1.6
)
 
(1.0
)
Share-based payment expense, net of tax
$
2.9

 
1.8

Performance-Based Stock Options
In 2017 and 2016, we granted performance-based stock options that have a service condition as well as a market condition. In addition, some of the awards granted in 2016 contain a non-financial performance condition. We measure the fair value of these performance-based options at the grant date using a Monte Carlo simulation model.

The following table summarizes performance-based stock option activity during the first three months of 2017: 
 
Shares
(in thousands)
 
Weighted-Average Grant-Date Fair Value
Outstanding balance as of December 31, 2016
580.9

 
$
6.01

Granted
298.9

 
11.97

Forfeited
—

 
—

Exercised
—

 
—

Outstanding balance as of March 31, 2017
879.8

 
$
8.04


17


Restricted Stock Units (“RSUs”)
We granted RSUs that contain only a service condition. We measure the fair value of RSUs based on the price of Brink’s stock at the grant date, adjusted for a discount for dividends not received or accrued during the vesting period.

The following table summarizes RSU activity during the first three months of 2017: 
 
Shares
(in thousands)
 
Weighted-Average Grant-Date Fair Value
Nonvested balance as of December 31, 2016
296.5

 
$
27.84

Granted
91.7

 
51.96

Forfeited
(10.8
)
 
27.31

Vested
(88.6
)
 
27.47

Nonvested balance as of March 31, 2017
288.8

 
$
35.63

Performance Share Units ("PSUs”)
Prior to 2016, we granted PSUs that contained a performance condition, a market condition and a service condition. In 2017 and 2016, we granted Internal Metric PSUs ("IM PSUs") and Total Shareholder Return PSUs ("TSR PSUs").

IM PSUs contain a performance condition as well as a service condition. We measure the fair value of these PSUs based on the price of Brink’s stock at the grant date, adjusted for a discount for dividends not received or accrued during the vesting period. For the IM PSUs granted in 2017, the performance period is from January 1, 2017 to December 31, 2019.

TSR PSUs contain a market condition as well as a service condition. We measure the fair value of PSUs containing a market condition at the grant date using a Monte Carlo simulation model.  For the TSR PSUs granted in 2017, the performance period is from January 1, 2017 to December 31, 2019.

The following table summarizes all PSU activity during the first three months of 2017:
 
Shares
(in thousands)
 
Weighted-Average Grant-Date Fair Value
Nonvested balance as of December 31, 2016
603.2

 
$
28.02

Granted
214.1

 
53.66

Forfeited
(12.1
)
 
27.53

Vested(a)
(134.3
)
 
24.39

Nonvested balance as of March 31, 2017
670.9

 
$
36.94

(a)
The vested PSUs presented are based on the target amount of the award. In accordance with the terms of the underlying award agreements or plan provisions, the actual shares earned and distributed for the performance period ended December 31, 2016 were 252.0.
Market Share Units ("MSUs”)
Prior to 2016, we granted MSUs that contain a market condition as well as a service condition. We measure the fair value of MSUs using a Monte Carlo simulation model.

The following table summarizes all MSU activity during the first three months of 2017: 
 
Shares
(in thousands)
 
Weighted-Average Grant-Date Fair Value
Nonvested balance as of December 31, 2016
141.7

 
$
27.02

Granted
—

 
—

Forfeited
—

 
—

Vested(a)
(67.5
)
 
23.34

Nonvested balance as of March 31, 2017
74.2

 
$
30.37

(a)
The vested MSUs presented are based on the target amount of the award. In accordance with the terms of the underlying award agreements or plan provisions, the actual shares earned and distributed for the performance period ended December 31, 2016 were 81.8. No additional compensation expense was required to be recognized for the additional shares distributed, as the market condition was included in the $23.34 grant date fair value.
Deferred Stock Units ("DSUs")
We granted DSUs to our independent directors. We measure the fair value of DSUs at the grant date, based on the price of Brink's stock.

In 2016 and 2015, our independent directors received grants of DSUs that vest and will be paid out in shares of Brink's stock on the first anniversary of the grant date, provided that the director has not elected to defer the distribution of shares until a later date. DSUs are forfeited if a director leaves before the vesting date. However, in connection with the retirement of two directors in January 2016, our board of

18


directors waived the one-year vesting provision for those DSUs granted in 2015. The impact of this modification was recorded in the first quarter of 2016 and was not significant. DSUs granted prior to 2015, in general, will be paid out in shares of stock following separation from service.

The following table summarizes all DSU activity during the first three months of 2017:
 
Shares
(in thousands)
 
Weighted-Average Grant-Date Fair Value
Nonvested balance as of December 31, 2016
29.7

 
$
29.41

Granted
—

 
—

Forfeited
(3.7
)
 
29.35

Vested
—

 
—

Nonvested balance as of March 31, 2017
26.0

 
$
29.42



Note 8 - Shares used to calculate earnings per share
 
Three Months 
 Ended March 31,
(In millions)
2017
 
2016
 
 
 
 
Weighted-average shares:
 
 
 
Basic(a)
50.5

 
49.5

Effect of dilutive stock awards and options
1.0

 
—

Diluted
51.5

 
49.5

 
 
 
 
Antidilutive stock awards and options excluded from denominator
—

 
1.4


(a)
We have deferred compensation plans for directors and certain of our employees.  For participants electing to defer compensation into common stock units, amounts owed to participants will be paid out in shares of Brink's common stock.  Each unit represents one share of common stock.  The number of shares used to calculate basic earnings per share includes the weighted-average units credited to employees and directors under the deferred compensation plans.  Accordingly, included in basic shares are 0.4 million in the three months ended March 31, 2017, and 0.5 million in the three months ended March 31, 2016.

19


Note 9 - Loss from discontinued operations

 
Three Months 
 Ended March 31,
(In millions)
2017
 
2016
Adjustments to contingencies of former operations(a):
 

 
 

Other
$
(0.1
)
 
—

Income (loss) from discontinued operations before income taxes
(0.1
)
 
—

Provision (benefit) for income taxes
(0.1
)
 
—

Income (loss) from discontinued operations, net of tax
$
—

 
—


(a)
Primarily related to former businesses previously exited.

Divestitures not classified as discontinued operations:
•
We shut down our Irish domestic operations in September 2016. In the first quarter of 2016, these operations generated revenues of $3.6 million and losses from operations before tax of $7.9 million.
•
We sold our German guarding operations in October 2016. Revenues and income (loss) from operations before tax were not significant for this business in the first quarter of 2016.

Note 10 - Supplemental cash flow information
 
Three Months 
 Ended March 31,
(In millions)
2017
 
2016
Cash paid for:
 
 
 
Interest
$
5.8

 
5.6

Income taxes, net
17.9

 
14.4


Non-cash Investing and Financing Activities
We acquired $14.8 million in armored vehicles under capital lease arrangements in the first three months of 2017 compared to $3.9 million in armored vehicles and other equipment acquired under capital lease arrangements in the first three months of 2016.

Cash Supply Chain Services
In France, we offer services to certain of our customers where we manage some or all of their cash supply chains. Providing this service requires our French subsidiary to take temporary title to the cash received from the management of our customers' cash supply chains until the cash is returned to the customers. As part of this service offering, we have entered into lending arrangements with some of our customers. Cash borrowed under these lending arrangements is used in the process of managing these customers' cash supply chains. The cash for which we have temporary title and the cash borrowed under these customer lending arrangements is restricted and cannot be used for any other purpose other than to service our customers who participate in this service offering.

At March 31, 2017, we held $70.2 million of restricted cash ($24.0 million represented short-term borrowings, $42.9 million represented restricted cash held for customers, and $3.3 million represented deposit liabilities). At December 31, 2016, we held $55.5 million of restricted cash ($22.3 million represented short-term borrowings and $33.2 million represented restricted cash held for customers).

20


Note 11 - Contingent matters

During the fourth quarter of 2015, we became aware of an investigation initiated by COFECE (the Mexican antitrust agency) related to potential anti-competitive practices among competitors in the cash logistics industry in Mexico (the industry in which Brink’s Mexican subsidiary, SERPAPROSA, is active). Because no legal proceedings have been initiated against SERPAPROSA, we cannot estimate the probability of loss or any range of estimate of possible loss at this time. It is possible that SERPAPROSA could become the subject of legal or administrative claims or proceedings, however, that could result in a loss that could be material to the Company’s results in a future period.

On March 21, 2016, The Bruce McDonald Holding Company, et al., filed a lawsuit in Circuit Court of Logan County, West Virginia against Addington, Inc. (“Addington”) and The Brink’s Company related to an Agreement of Lease dated September 19, 1978, between the Plaintiffs and Addington. Plaintiffs seek declaratory judgment and unspecified damages related to allegations that Addington failed to mine coal on the property leased from the Plaintiffs and failed to pay correct minimum royalties to the Plaintiffs. The Company denies the allegations asserted by the Plaintiffs, is vigorously defending itself in this matter, and has filed a counterclaim against the Plaintiffs related to Plaintiffs’ failure to consent to the assignment and subleasing the leasehold to others. Due to numerous uncertain and unresolved factors presented in this case, it is not possible to estimate a range of loss at this time and, accordingly, no accrual has been recorded in the Company’s financial statements.

In addition, we are involved in various other lawsuits and claims in the ordinary course of business. We are not able to estimate the loss or range of losses for some of these matters. We have recorded accruals for losses that are considered probable and reasonably estimable. Except as otherwise noted, we do not believe that the ultimate disposition of any of the lawsuits currently pending against the Company should have a material adverse effect on our liquidity, financial position or results of operations.


21


Note 12 - Reorganization and Restructuring

2016 Reorganization and Restructuring
In the fourth quarter of 2016, management implemented restructuring actions across our global business operations and our corporate functions. As a result of these actions, we recognized $18.1 million in related 2016 costs. We recognized an additional $2.8 million in the first three months of 2017 related to this restructuring for additional asset-related adjustments and severance costs. Severance actions are expected to reduce our global workforce by 800 to 900 positions. We expect that the 2016 restructuring will result in $8 to $12 million in 2017 cost savings. We expect to incur additional costs between $15 and $20 million in future periods, primarily severance costs.

The following table summarizes the costs incurred, payments and utilization, and foreign currency exchange effects of the 2016 Reorganization and Restructuring:
(In millions)
Asset Related Adjustments
 
Severance Costs
 
Lease Terminations
 
Total
 
 
 
 
 
 
 
 
Balance as of January 1, 2017
$
—

 
7.0

 
0.6

 
7.6

Expense (benefit)
1.0

 
1.8

 
—

 
2.8

Payments and utilization
(1.0
)
 
(4.5
)
 
0.2

 
(5.3
)
Balance as of March 31, 2017
$
—

 
4.3

 
0.8

 
5.1


Executive Leadership and Board of Directors Restructuring
In the fourth quarter of 2015, we recognized $1.8 million in costs related to the restructuring of executive leadership and the Board of Directors, which was announced in January 2016. We also recognized an additional $3.2 million in charges, primarily severance costs, in the first quarter of 2016.

2015 Reorganization and Restructuring
Brink's initiated a global restructuring of its business in the third quarter of 2015. We recognized $11.6 million in related 2015 costs related to employee severance, contract terminations, and property impairment. We recognized an additional $2.8 million in the first quarter of 2016 related to this restructuring for additional severance costs and contract terminations. The 2015 Reorganization and Restructuring reduced the global workforce by approximately 1,100 positions and resulted in approximately $20 million in 2016 savings. The actions under this program were substantially completed by the end of 2016, with cumulative pretax charges of approximately $18 million.

Note 13 - Subsequent Events

In April 2017, we acquired 100% of the capital stock of Muitofacil Holding Ltda., a Brazil-based holding company, and its subsidiary, Muitofacil Arrecadacao e Recebimento Ltda. (together "Pag Facil"). Pag Facil offers bank correspondent services, bill payment processing and mobile phone top-up services in Brazil and is expected to supplement our existing Brazilian payment services businesses. Annual revenues for Pag Facil in 2016 were approximately $30 million.



22


THE BRINK’S COMPANY
and subsidiaries

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Brink’s Company offers transportation and logistics management services for cash and valuables throughout the world.  These services 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
◦
Currency and coin counting and sorting; deposit preparation and reconciliations; other cash management services
◦
Safe and safe control device installation and servicing (including our patented CompuSafe® service)
◦
Check and cash processing services for banking customers (“Virtual Vault Services”)
◦
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 and Brink’s Money™ general purpose reloadable prepaid cards and payroll cards in the U.S.
•
Guarding Services – protection of airports, offices, and certain other locations in Europe and Brazil with or without electronic surveillance, access control, fire prevention and highly trained patrolling personnel

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 to each operating segment based on operating profit or loss, excluding income and expenses not allocated to segments.

During the first quarter of 2017, we implemented changes to our organizational and management structure that resulted in changes to our operating segments for financial reporting purposes. Through the fiscal year ended December 31, 2016, our business was reported in nine operating segments: U.S., France, Mexico, Brazil, Canada, Latin America, EMEA, Asia and Payment Services. Changes in our management reporting structure during the first quarter of 2017 required us to conduct an assessment in accordance with ASC Topic 280, Segment Reporting, to determine our operating segments.

As a result of this assessment, we now have the following operating segments:
•
North America
•
South America
•
Rest of World (ROW).

Prior period information has been revised to reflect our new segment structure.




23


RESULTS OF OPERATIONS

Consolidated Review

GAAP and Non-GAAP Financial Measures
We provide an analysis of our operations below on both a generally accepted accounting principles (“GAAP”) and non-GAAP basis.  The purpose of the non-GAAP information is to report our operating profit, income from continuing operations and earnings per share without certain income and expense items that do not reflect the ordinary earnings of our operations.  The non-GAAP financial measures are intended to provide information to assist comparability and estimates of future performance.  The non-GAAP adjustments used to reconcile our GAAP results are described on pages 27–28 and are reconciled to comparable GAAP measures on pages 33–34.

Definition of Organic Growth
Organic growth represents the change in revenues or operating profit between the current and prior period, excluding the effect of acquisitions and dispositions, changes in currency exchange rates (as described on page 26) and the accounting effects of reporting Venezuela under highly inflationary accounting.
 
Three Months 
 Ended March 31,
 
%
(In millions, except for per share amounts)
2017
 
2016
 
Change
GAAP
 
 
 
 
 
Revenues
$
788.4

 
721.8

 
9

Cost of revenues
610.3

 
588.9

 
4

Selling, general and administrative expenses
107.1

 
108.7

 
(1
)
Operating profit
70.9

 
23.5

 
fav

Income (loss) from continuing operations(a)
34.7

 
(3.1
)
 
fav

Diluted EPS from continuing operations(a)
$
0.67

 
(0.06
)
 
fav

 
 
 
 
 
 
Non-GAAP(b)
 
 
 
 
 
Non-GAAP revenues
$
740.3

 
688.9

 
7

Non-GAAP operating profit
52.9

 
32.7

 
62

Non-GAAP income from continuing operations(a)
29.2

 
15.4

 
90

Non-GAAP diluted EPS from continuing operations(a)
$
0.57

 
0.31

 
84


(a)
Amounts reported in this table are attributable to the shareholders of Brink’s and exclude earnings related to noncontrolling interests.
(b)
Non-GAAP results are reconciled to the applicable GAAP results on pages 33–34.


GAAP Basis
Analysis of Consolidated Results: First Quarter 2017 versus First Quarter 2016
Consolidated Revenues  Revenues increased $66.6 million as organic growth in Venezuela ($126.6 million), South America ($26.1 million), North America ($19.0 million), and Rest of World ($4.8 million) was partially offset by unfavorable changes in currency exchange rates ($103.9 million) and the impact of acquisitions and dispositions ($6.0 million). A significant portion of the reduction in revenues from currency exchange rates relates to the strengthening of the U.S. dollar against the Venezuela bolivar ($110.6 million).  Revenues increased 24% on an organic basis due mainly to higher average selling prices in Venezuela and Argentina (including the effects of inflation) and organic revenue growth in the U.S., primarily from the sale of onsite cash recyclers. See above for our definition of “organic.”

Consolidated Costs and Expenses  Cost of revenues increased 4% to $610.3 million due to inflation-based increases on labor and other operational costs as well as higher equipment costs from recycler sales. Selling, general and administrative costs decreased 1% to $107.1 million.

Consolidated Operating Profit Operating profit increased $47.4 million due mainly to:
•
organic increases in Venezuela ($64.8 million), South America ($14.8 million), North America ($6.9 million), and Rest of World ($6.0 million) and
•
the exit of operations in Ireland ($7.5 million)
partially offset by:
•
unfavorable changes in currency exchange rates ($50.2 million), including the effects of Venezuela devaluations and
•
higher corporate expenses ($5.7 million on an organic basis)

Consolidated Income from Continuing Operations Attributable to Brink’s and Related Per Share Amounts  Income from continuing operations attributable to Brink’s shareholders in 2017 increased $37.8 million to $34.7 million primarily due to the operating profit increase mentioned above, partially offset by higher income tax expense ($5.0 million) and higher income attributable to noncontrolling interests ($3.2 million). Earnings per share from continuing operations was $0.67, up from negative $0.06 in 2016.


24


Non-GAAP Basis
Analysis of Consolidated Results: First Quarter 2017 versus First Quarter 2016
Non-GAAP Consolidated Revenues  Non-GAAP revenues increased $51.4 million primarily due to organic growth in South America ($26.1 million), North America ($19.0 million), and Rest of World ($4.8 million), as well as favorable changes in currency exchange rates ($6.7 million). The increase was partially offset by the unfavorable impact of acquisitions and dispositions ($5.2 million). The favorable currency impact was driven by the Brazilian real which was slightly offset by the unfavorable impact of the Argentine peso and Mexican peso. Non-GAAP revenues increased 7% on an organic basis due mainly to higher average selling prices in Argentina (including the effects of inflation) and organic revenue growth in the U.S., primarily from the sale of onsite cash recyclers. See page 24 for our definition of “organic.”

Non-GAAP Consolidated Operating Profit Non-GAAP operating profit increased $20.2 million due mainly to:
•
organic increases in South America ($14.8 million), North America ($6.9 million), and Rest of World ($6.0 million)
partially offset by:
•
higher corporate expenses ($5.7 million on an organic basis) and
•
unfavorable impact of changes in currency exchange rates ($3.1 million).

Non-GAAP Consolidated Income from Continuing Operations Attributable to Brink’s and Related Per Share Amounts  Non-GAAP income from continuing operations attributable to Brink’s shareholders in 2017 increased $13.8 million to $29.2 million primarily due to the non-GAAP operating profit increase mentioned above, partially offset by the corresponding higher non-GAAP income tax expense ($6.8 million). Non-GAAP earnings per share from continuing operations was $0.57, up from $0.31 in 2016.

25


Revenues and Operating Profit by Segment: First Quarter 2017 versus First Quarter 2016
 
 
 
Organic
 
Acquisitions /
 
 
 
 
 
% Change
 (In millions)
1Q'16
 
Change
 
Dispositions(a)
 
Currency(b)
 
1Q'17
 
Total
 
Organic
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
North America
$
292.7

 
19.0

 
0.7

 
(7.8
)
 
304.6

 
4

 
6
South America
157.0

 
26.1

 
—

 
19.1

 
202.2

 
29

 
17
Rest of World
239.2

 
4.8