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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 June 30, 2003
[ ] 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 1-9148
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)
Registrant's telephone number, including area code: (804) 289-9600
--------------
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
--- ---
As of August 1, 2003, 54,253,423 shares of $1 par value common stock were
outstanding.
1
Part I - Financial Information
------------------------------
The Brink's Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
June 30 December 31
2003 2002
- ----------------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 138.0 102.3
Accounts receivable, net 522.6 540.0
Prepaid expenses and other 83.8 58.4
Deferred income taxes 79.8 81.3
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 824.2 782.0
Property and equipment, net 893.6 871.2
Goodwill, net 235.0 227.9
Deferred income taxes 352.9 349.3
Other assets 250.7 229.5
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 2,556.4 2,459.9
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 92.1 41.8
Current maturities of long-term debt 15.8 13.3
Accounts payable 260.4 261.9
Accrued liabilities 450.4 476.3
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 818.7 793.3
Long-term debt 299.5 304.2
Accrued pension costs 135.5 122.6
Postretirement benefits other than pensions 469.7 471.7
Deferred revenue 128.4 127.0
Deferred income taxes 36.0 28.4
Other liabilities 247.8 231.5
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 2,135.6 2,078.7
Commitments and contingent liabilities (Note 6)
Shareholders' equity:
Common stock, par value $1 per share:
Authorized: 100.0 shares;
Issued and outstanding: 2003 and 2002 - 54.3 shares 54.3 54.3
Capital in excess of par value 377.2 383.0
Retained earnings 214.7 213.1
Accumulated other comprehensive loss (209.3) (236.2)
Employee benefits trust, at market value (16.1) (33.0)
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 420.8 381.2
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,556.4 2,459.9
======================================================================================================================
See accompanying notes to consolidated financial statements.
2
The Brink's Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
Three Months Six Months
Ended June 30 Ended June 30
2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Revenues $ 975.2 919.1 1,916.5 1,818.6
Expenses:
Operating expenses 839.9 768.0 1,656.8 1,525.4
Selling, general and administrative
expenses 126.3 117.7 252.1 226.6
- ----------------------------------------------------------------------------------------------------------------------
Total expenses 966.2 885.7 1,908.9 1,752.0
Other operating income, net 8.3 2.2 12.8 6.1
- ----------------------------------------------------------------------------------------------------------------------
Operating profit 17.3 35.6 20.4 72.7
Interest expense (6.8) (5.8) (13.0) (11.8)
Interest and other income (expense), net 4.2 - 6.0 (0.4)
Minority interest (1.8) (0.1) (2.6) (1.2)
- ----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 12.9 29.7 10.8 59.3
Provision for income taxes 4.9 10.6 4.1 21.1
- ----------------------------------------------------------------------------------------------------------------------
Income from continuing operations 8.0 19.1 6.7 38.2
Loss from discontinued operations,
net of tax (1.9) - (2.3) (11.0)
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 6.1 19.1 4.4 27.2
======================================================================================================================
Basic net income (loss) per
common share:
Continuing operations $ 0.15 0.36 0.13 0.73
Discontinued operations (0.04) - (0.05) (0.21)
- ----------------------------------------------------------------------------------------------------------------------
$ 0.11 0.36 0.08 0.52
- ----------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per
common share:
Continuing operations $ 0.15 0.36 0.13 0.73
Discontinued operations (0.04) - (0.05) (0.22)
- ----------------------------------------------------------------------------------------------------------------------
$ 0.11 0.36 0.08 0.51
======================================================================================================================
See accompanying notes to consolidated financial statements.
3
The Brink's Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Six Months
Ended June 30
2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 4.4 27.2
Adjustments to reconcile net income to net cash provided
by operating activities
Loss from discontinued operations, net of tax 2.3 11.0
Depreciation and amortization 84.7 74.4
Impairment charges from subscriber disconnects 16.1 15.4
Amortization of deferred revenue (12.2) (11.8)
Aircraft heavy maintenance expense 10.3 15.6
Deferred income taxes 3.2 5.5
Provision for uncollectible accounts receivable (2.9) 3.5
Other operating, net 6.8 12.0
Pension expense, net of contributions 13.2 7.1
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable 33.9 (54.2)
Prepaid and other current assets (22.3) (15.5)
Accounts payable and accrued liabilities (29.2) 30.4
Deferred subscriber acquisition costs (8.9) (8.4)
Deferred revenue from new subscribers 13.2 13.3
Other, net 2.6 3.8
Net cash used by discontinued operations - (42.3)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 115.2 87.0
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (98.7) (87.6)
Aircraft heavy maintenance expenditures (10.2) (13.9)
Proceeds from:
Disposal of property and equipment 3.4 2.6
Notes receivable and royalties related to sale of former coal operations 26.0 -
Contribution to Voluntary Employees' Beneficiary Association (32.0) -
Acquisition (4.5) -
Other, net (2.3) 1.0
Discontinued operations, net - (17.0)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (118.3) (114.9)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Long term debt:
Additions 40.4 74.5
Repayments (48.7) (64.3)
Short-term borrowings, net 44.1 27.6
Dividends (2.5) (2.8)
Other, net 0.1 0.9
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 33.4 35.9
- ----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 5.4 0.1
- ----------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 35.7 8.1
Cash and cash equivalents at beginning of period 102.3 86.7
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 138.0 94.8
======================================================================================================================
See accompanying notes to consolidated financial statements.
4
The Brink's Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of presentation and accounting changes
On May 2, 2003, the shareholders of The Pittston Company approved a
proposal to change the Company's name to The Brink's Company. The name
change became effective on May 5, 2003. Prior to May 5, 2003, The
Pittston Company traded on the New York Stock Exchange under the symbol
"PZB." On May 5, 2003, The Brink's Company began trading on the New
York Stock Exchange under the symbol "BCO." The Brink's Company and its
subsidiaries are referred to herein as the "Company."
The Company has three operating segments within its "Business and
Security Services" businesses: Brink's, Incorporated ("Brink's"),
Brink's Home Security, Inc. ("BHS") and BAX Global Inc. ("BAX Global").
The fourth operating segment is Other Operations, which consists of the
Company's gold, timber and natural gas operations. The Company also has
significant assets, including $50 million of assets held by a Voluntary
Employees' Beneficiary Association ("VEBA"), and liabilities associated
with its former coal operations and expects to have significant ongoing
expenses and cash outflows related to former coal operations.
During July 2003, the Company entered into definitive agreements to
sell its natural gas and timber businesses for combined cash proceeds
of approximately $119 million. The gas transaction closed on August 13,
2003 and the Company received approximately $81 million in cash. The
timber transaction is expected to close by the end of 2003. The timber
transaction is subject to various closing conditions. The Company
expects to reclassify the operating results of its natural gas and
timber businesses from continuing operations to discontinued operations
for all periods presented in its consolidated financial statements
beginning in the third quarter of 2003.
The Company's unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America ("GAAP") for interim financial reporting
and applicable quarterly reporting regulations of the Securities and
Exchange Commission. Accordingly, they 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. Certain prior period amounts have been
reclassified to conform to the current period's financial statement
presentation. Operating results for the interim periods of 2003 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2003. For further information, refer to the
Company's Annual Report on Form 10-K for the year ended December 31,
2002.
5
2. Earnings per share
Three Months Six Months
Ended June 30 Ended June 30
(In millions) 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Numerator:
Income from continuing operations $ 8.0 19.1 6.7 38.2
Preferred stock dividends - (0.2) - (0.3)
- ----------------------------------------------------------------------------------------------------------------------
Basic and diluted income from continuing
operations per share numerator $ 8.0 18.9 6.7 37.9
- ----------------------------------------------------------------------------------------------------------------------
Denominator:
Basic weighted average
common shares outstanding 53.0 52.0 52.8 51.9
Effect of dilutive stock options - 0.5 0.1 0.3
- ----------------------------------------------------------------------------------------------------------------------
Diluted weighted average
common shares outstanding 53.0 52.5 52.9 52.2
- ----------------------------------------------------------------------------------------------------------------------
Unallocated shares of Company common stock held by The Brink's Company
Employee Benefits Trust (the "Trust"), a grantor trust, are treated as
treasury shares for earnings per share purposes. Accordingly, such
shares are excluded from earnings per share calculations. As of June
30, 2003 and 2002, 1.1 million shares and 2.1 million shares,
respectively, were held by the Trust. The Company excludes the effect
of antidilutive securities from the computations of diluted earnings
per share. The equivalent weighted average shares of common stock that
were excluded in the three months ended June 30, 2003 and 2002 were 3.1
million shares and 1.1 million shares, respectively, and in the six
months ended June 30, 2003 and 2002 were 3.3 million shares and 1.2
million shares, respectively.
The Company accounts for its stock-based compensation plans using the
intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, since options are granted with an
exercise price equal to the market price of the stock on the date of
grant, the Company has not recognized any compensation expense related
to its stock option plans.
6
Had compensation costs for the Company's stock-based compensation plans
been determined based on the fair value of awards at the grant dates
consistent with the optional recognition provision of SFAS No. 123,
"Accounting for Stock Based Compensation," net income per share would
have been the pro forma amounts indicated below:
Three Months Six Months
(In millions, except Ended June 30 Ended June 30
per share amounts) 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net income:
As reported $ 6.1 19.1 4.4 27.2
Less: stock-based compensation
expense determined under fair value
method, net of related tax effects (1.2) (0.9) (2.3) (1.6)
- ----------------------------------------------------------------------------------------------------------------------
Pro forma $ 4.9 18.2 2.1 25.6
- ----------------------------------------------------------------------------------------------------------------------
Net income per common share:
Basic, as reported $ 0.11 0.36 0.08 0.52
Basic, pro forma 0.09 0.35 0.04 0.49
Diluted, as reported 0.11 0.36 0.08 0.51
Diluted, pro forma 0.09 0.34 0.04 0.48
- ----------------------------------------------------------------------------------------------------------------------
3. Supplemental cash flow information
Six Months
Ended June 30
(In millions) 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Cash paid for:
Interest $ 11.6 11.1
Income taxes, net of refunds 13.3 3.0
- ----------------------------------------------------------------------------------------------------------------------
Depreciation of property and equipment $ 80.9 71.3
Amortization of BHS deferred subscriber acquisition costs 3.8 3.1
- ----------------------------------------------------------------------------------------------------------------------
Total depreciation and amortization $ 84.7 74.4
- ----------------------------------------------------------------------------------------------------------------------
4. Comprehensive income
Three Months Six Months
Ended June 30 Ended June 30
(In millions) 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 6.1 19.1 4.4 27.2
Other comprehensive income (loss),
net of reclasses and taxes:
Foreign currency translation
adjustments 17.8 14.6 22.2 10.0
Deferred benefit (expense) on
cash flow hedges 1.5 (0.1) 4.6 (0.6)
Unrealized gains (losses) on
marketable securities 0.1 - 0.1 (0.1)
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 25.5 33.6 31.3 36.5
- ----------------------------------------------------------------------------------------------------------------------
7
5. Former coal operations
During the fourth quarter of 2002, the Company completed its planned
exit of the coal business by selling or shutting down its remaining
coal operations. Accordingly, in the first quarter of 2003, the Company
began recognizing certain expenses related to its former coal
operations as a part of continuing operations. Prior to 2003, these
expenses were classified as part of the Company's loss from
discontinued operations. Expenses included in continuing operations in
the second quarter and first half of 2003 related to the Company's
former coal operations were as follows:
Three Months Six Months
Ended June 30 Ended June 30
(In millions) 2003 2003
- ----------------------------------------------------------------------------------------------------------------------
Former coal operations:
Company-sponsored postretirement
benefits other than pensions $ 12.5 24.7
Black lung 1.4 2.9
Pension (0.4) (0.3)
Administrative, legal and other expenses, net 1.7 3.8
Idle and closed mine expense and other income 2.0 3.4
- ----------------------------------------------------------------------------------------------------------------------
$ 17.2 34.5
- ----------------------------------------------------------------------------------------------------------------------
6. Contingencies
The Company is defending various potentially significant civil suits.
Although the Company is defending these cases vigorously and believes
that its defenses have merit, it is possible that one or more of these
suits ultimately may be decided in favor of the plaintiffs. If so, the
Company expects that the ultimate amount of unaccrued losses could
range from $0 to $40 million.
The Company is continuing to market the residual assets of its former
coal operations, and expects purchasers to assume a portion of the
Company's coal equipment operating leases and advance minimum royalty
obligations. Advance royalty payments relate to the right to access and
mine coal properties. These advance royalty payments are recoverable
against future production by purchasers of the residual coal assets. At
June 30, 2003, the present value of the Company's obligations that are
expected to be assumed by purchasers was approximately $8 million. To
the extent that obligations are not assumed by purchasers as expected,
the Company's liabilities associated with advance minimum royalty
obligations could potentially increase. In August 2003, the Company
entered into a letter of intent with respect to the sale of much of its
remaining West Virginia coal assets. Consummation of any such
transaction would be subject to the satisfaction of significant
conditions including, without limitation, the negotiation and execution
of a definitive purchase agreement.
The Company will continue to record adjustments to coal-related
contingent assets and liabilities within discontinued operations.
At June 30, 2003, the liability recorded for the Company's UMWA
Combined Benefit Fund obligations under the Coal Industry Retiree
Health Benefit Act of 1992 was $169.9 million, reflecting payments made
since the end of 2002. This liability will be adjusted as new
historical data is received and assumptions used to estimate the
liability change. The Company normally revises its estimated liability
in the fourth quarter each year when it receives the annual actuarial
evaluation.
The Company participates in the United Mine Workers of America ("UMWA")
1950 and 1974 pension plans at defined contribution rates, but expects
to ultimately withdraw from these plans. At December 31, 2002, the
Company's estimated withdrawal liabilities were $35.0 million. In the
second quarter of 2003, the Company increased the estimated withdrawal
liabilities by $3.0 million to $38.0 million and recorded a charge in
discontinued operations of $1.9 million (after-tax). This change in
estimate reflects updated data received from third parties during the
quarter. The Company's estimate of the obligation is based on several
factors, including funding status and benefit levels of the plans and
the date the Company is determined to have completely withdrawn from
the plans. Since these factors may change over time, the ultimate
withdrawal obligation, if any, could change materially.
8
The Company has also recorded estimated liabilities for other
contingent liabilities, including those for expected settlement of
workers' compensation claims and certain reclamation obligations.
Annual actuarial and engineering valuations of these liabilities are
typically completed in the fourth quarter each year.
In 1999, the U.S. District Court of the Eastern District of Virginia
entered a final judgment in favor of certain of the Company's
subsidiaries, ruling that the Federal Black Lung Excise Tax ("FBLET")
is unconstitutional as applied to export coal sales. Through June 30,
2003, the Company has received refunds, including interest, of $27.2
million, including $2.8 million in 2003 of previously accrued amounts.
The Company continues to pursue the refund of other FBLET payments. Due
to uncertainty as to the ultimate receipt of additional amounts, if
any, which could amount to as much as $18 million (before income
taxes), as well as the timing of any additional FBLET refunds, the
Company has not currently recorded receivables for such additional
FBLET refunds.
7. Costs associated with exit activities
In 2003, management initiated a plan to close Brink's, Incorporated
corporate headquarters in Darien, Connecticut and relocate employees to
either Brink's, Incorporated U.S. headquarters in Coppell, Texas or The
Brink's Company headquarters in Richmond, Virginia. As a result,
approximately $5 million of severance and other costs are expected to
be incurred in the U.S. during 2003, of which $0.9 million was
recognized as a component of selling, general and administrative costs
in the second quarter of 2003. The following summarizes the liability
and activity for such costs:
One-time Contract
(In millions) Termination Benefits Termination Costs Other Total
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002 $ - - - -
Expense 0.7 - 0.2 0.9
Payments - - (0.2) (0.2)
- ----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2003 $ 0.7 - - 0.7
- ----------------------------------------------------------------------------------------------------------------------
Total expense expected to be incurred $ 1.8 1.1 2.1 5.0
- ----------------------------------------------------------------------------------------------------------------------
In addition approximately $3.0 million of severance was expensed and
paid in the six months ended June 30, 2003, associated with European
work force reductions at Brink's, Incorporated.
8. Subsequent events
During July 2003, the Company entered into definitive agreements to
sell its natural gas and timber businesses for combined cash proceeds
of approximately $119 million. The natural gas transaction closed on
August 13, 2003 and the Company received approximately $81 million in
cash. The timber transaction is expected to close by the end of 2003.
The timber transaction is subject to various closing conditions. The
Company expects to reclassify the operating results of its natural gas
and timber businesses from continuing operations to discontinued
operations for all periods presented in its consolidated financial
statements beginning in the third quarter of 2003.
9
The assets expected to be transferred in the sale of the natural gas
and timber businesses are included in the Company's consolidated
balance sheet as of June 30, 2003 and are as follows:
(In millions) Natural gas Timber
- ----------------------------------------------------------------------------------------------------------------------
Current assets $ - 2.5
Property and equipment, net 22.1 2.3
- ----------------------------------------------------------------------------------------------------------------------
Net book value to be transferred $ 22.1 4.8
- ----------------------------------------------------------------------------------------------------------------------
The following table shows selected financial information for the
Company's natural gas and timber businesses for the second quarter and
first six months of 2003 and 2002.
Three Months Six Months
Ended June 30 Ended June 30
(In millions) 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Natural Gas
Operating profit $ 5.9 2.0 8.8 4.3
Income before taxes 5.9 2.0 8.8 4.3
Net income 3.5 1.3 5.9 2.9
- ----------------------------------------------------------------------------------------------------------------------
Timber
Operating profit (loss) $ - (0.1) 0.2 (0.4)
Income (loss) before taxes - (0.1) 0.2 (0.4)
Net income (loss) - (0.1) 0.1 (0.3)
- ----------------------------------------------------------------------------------------------------------------------
10
The Brink's Company and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Summary
On May 2, 2003, the shareholders of The Pittston Company approved a proposal to
change the Company's name to The Brink's Company. The name change became
effective on May 5, 2003. Prior to May 5, 2003, The Pittston Company traded on
the New York Stock Exchange under the symbol "PZB." On May 5, 2003, The Brink's
Company began trading on the New York Stock Exchange under the symbol "BCO."
The Brink's Company and its subsidiaries are referred to herein as the
"Company."
The Company has three operating segments within its "Business and Security
Services" businesses: Brink's, Incorporated ("Brink's"), Brink's Home Security,
Inc. ("BHS"), and BAX Global Inc. ("BAX Global").
The major services offered by Brink's include armored car transportation,
automated teller machine ("ATM") servicing, currency and deposit processing,
coin sorting and wrapping, arranging the secure air transportation of valuables
("Global Services") and the deploying and servicing of safes and safe control
devices, including its patented CompuSafe(R) service. BHS is primarily engaged
in the business of marketing, selling, installing, monitoring and servicing
electronic security systems in owner-occupied, single-family residences. BAX
Global provides transportation and supply chain management services on a global
basis, specializing in the heavy freight market for business-to-business
shipping.
The Company's fourth operating segment is Other Operations, which consists of
the Company's gold, timber and natural gas operations. During July 2003, the
Company entered into definitive agreements to sell its natural gas and timber
businesses for combined cash proceeds of approximately $119 million. The natural
gas transaction closed on August 13, 2003 and the Company received approximately
$81 million in cash. The timber transaction is expected to close by the end of
2003. The timber transaction is subject to various closing conditions. The
Company expects to reclassify the operating results of its natural gas and
timber businesses from continuing operations to discontinued operations for all
periods presented in its consolidated financial statements beginning in the
third quarter of 2003.
The Company also has significant assets, including $50 million of assets held by
a Voluntary Employees' Beneficiary Association ("VEBA"), and liabilities
associated with its former coal operations and expects to have significant
ongoing expenses and cash outflows related to former coal operations.
The Company's income from continuing operations was $8.0 million and $6.7
million in the second quarter and first half of 2003, respectively, as compared
to $19.1 million and $38.2 million in the comparable 2002 periods. Income from
continuing operations (after-tax) was lower in the second quarter and first six
months of 2003 principally due to $17.2 million and $34.5 million, respectively,
of pretax expenses associated with the former coal operations, which were
recorded within continuing operations beginning in 2003, partially offset by
improved results at BHS and Other Operations. For the first six months of 2002,
Brink's operating profit reflected the effects of special euro currency-related
distribution projects.
11
RESULTS OF OPERATIONS
Consolidated
Three Months Six Months
Ended June 30 % Ended June 30 %
(Dollars in millions) 2003 2002 Change 2003 2002 Change
- ----------------------------------------------------------------------------------------------------------------------
Revenues:
Brink's $ 410.7 394.4 4 $ 802.1 801.1 -
BHS 76.5 70.2 9 150.4 137.4 9
BAX Global 473.4 444.1 7 937.0 859.7 9
- ----------------------------------------------------------------------------------------------------------------------
Business and Security
Services 960.6 908.7 6 1,889.5 1,798.2 5
Other Operations 14.6 10.4 40 27.0 20.4 32
- ----------------------------------------------------------------------------------------------------------------------
Revenues $ 975.2 919.1 6 $ 1,916.5 1,818.6 5
- ----------------------------------------------------------------------------------------------------------------------
Operating profit (loss):
Brink's $ 21.5 19.8 9 $ 34.6 51.5 (33)
BHS 17.7 15.6 13 34.4 30.8 12
BAX Global (2.5) 3.2 NM (8.0) (3.5) NM
- ----------------------------------------------------------------------------------------------------------------------
Business and Security
Services 36.7 38.6 (5) 61.0 78.8 (23)
Other Operations 4.1 2.1 95 7.4 4.5 64
Former coal operations (17.2) - NM (34.5) - NM
- ----------------------------------------------------------------------------------------------------------------------
General corporate expense (6.3) (5.1) (24) (13.5) (10.6) (27)
- ----------------------------------------------------------------------------------------------------------------------
Operating profit $ 17.3 35.6 (51) $ 20.4 72.7 (72)
- ----------------------------------------------------------------------------------------------------------------------
Brink's, Incorporated
Three Months Six Months
Ended June 30 % Ended June 30 %
(Dollars in millions) 2003 2002 Change 2003 2002 Change
- ----------------------------------------------------------------------------------------------------------------------
Revenues:
North America (a) $ 175.8 172.8 2 $ 351.6 341.1 3
International 234.9 221.6 6 450.5 460.0 (2)
- ----------------------------------------------------------------------------------------------------------------------
Revenues $ 410.7 394.4 4 $ 802.1 801.1 -
- ----------------------------------------------------------------------------------------------------------------------
Operating profit:
North America (a) $ 10.5 13.4 (22) $ 21.3 24.1 (12)
International 11.0 6.4 72 13.3 27.4 (51)
- ----------------------------------------------------------------------------------------------------------------------
Segment operating profit $ 21.5 19.8 9 $ 34.6 51.5 (33)
- ----------------------------------------------------------------------------------------------------------------------
Operating margin: (%) (%) (%) (%)
North America (a) 6.0 7.8 6.1 7.1
International 4.7 2.9 3.0 6.0
Total 5.2 5.0 4.3 6.4
- ----------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 17.4 15.4 13 $ 33.0 29.8 11
Capital expenditures 18.5 18.7 (1) 34.9 33.5 4
- ----------------------------------------------------------------------------------------------------------------------
(a) Includes U.S. and Canada.
12
Brink's revenues were $410.7 million in the second quarter, a 4% increase over
the same quarter last year. Revenues of $802.1 million in the first half of 2003
were slightly above the same period last year. Operating profit in the second
quarter increased 9% over the same quarter last year while operating profit for
the first half of 2003 was 33% lower than the same period last year. The
improved results for the quarter reflected higher operating profits in Europe,
South America and Asia Pacific, offset by lower North American results. The
lower results in the first half of the year were primarily related to first
quarter International operations, which in 2002 were positively impacted by
special euro-related processing and transportation work, and negatively impacted
in 2003 by the effects of weak economies in Europe and South America.
Revenue
North American revenues in the second quarter and first half of 2003 were 2% and
3% higher, respectively, than in the same periods of 2002, including the effects
of a stronger Canadian dollar, which increased revenues by $1.9 million in the
second quarter and $2.9 million in the first half of 2003. In addition to the
favorable effects of foreign currency translation, North America had higher
revenues from U.S. Cash Logistics (Brink's coin and currency processing
operation) partially offset by lower revenues from U.S. Global Services (Brink's
secure air transportation service).
Compared with the 2002 periods, International revenues increased 6% in the
second quarter of 2003, but were 2% lower in the first half of 2003. The
increase in second quarter International revenues included the benefit of $12.7
million relating to changes in currency exchange rates, reflecting the positive
effect of the stronger euro relative to the U.S. dollar which more than offset
the effect of the decline of currency values in South America. The decrease in
International revenues for the first half of 2003 was primarily due to the
effect of the decline of currency values in South America which more than offset
higher revenues on a local currency basis. European revenues in the first half
of 2003 were higher due to the stronger euro (relative to the U.S. dollar) which
more than offset lower revenues on a local currency basis. In the first quarter
of 2002, revenues in Europe benefited from the transportation and processing
work associated with the issuance of the euro and the return of the legacy
currencies of the countries adopting the euro.
Operating Profit
North American operating profits were 22% and 12% lower in the second quarter
and first half of 2003, respectively, versus the 2002 periods primarily due to
increased employee benefit expenses, including higher expense from the Company's
primary U.S. pension plan and higher health care costs for active employees. The
higher benefit expenses offset the improved performance in the U.S. Cash
Logistics business for the three and six months ended June 30, 2003. Operating
results in North America for the full year 2003 as compared to 2002 are expected
to be adversely affected by approximately $5 million due to higher expense
associated with the Company's primary U.S. pension plan resulting from the
effects of unfavorable returns on plan assets over the last three years and a
lower discount rate used to determine projected benefit obligations.
In 2003, management initiated a plan to close Brink's corporate headquarters in
Darien, Connecticut and relocate employees to either Brink's U.S. headquarters
in Coppell, Texas, or The Brink's Company headquarters in Richmond, Virginia. As
a result, approximately $5 million of severance and other costs are expected to
be incurred in the U.S. during 2003, of which $0.9 million was recognized in the
second quarter of 2003.
International operating profits in the second quarter of 2003 were $4.6 million
higher than in the same quarter last year due to improved results in Europe,
South America and Asia Pacific. International operating profits in the first
half of 2003 were $14.1 million lower than for the same period last year due to
substantially lower first quarter operating profits in Europe and, to a lesser
extent, South America, partially offset by an increase in operating profit in
Asia Pacific.
13
Europe's improved year over year operating performance in the second quarter of
2003 reflects improvements in a number of countries, the benefits of cost
reductions (particularly in France and Germany), improved money processing and
ATM results in the Netherlands as well as higher translated results due to
stronger European currencies. Europe's operating profit for the first half of
2003 was significantly below the same period last year primarily due to the
absence of the euro work performed in the first quarter of 2002, a weak European
economy, the effects of the conflict in the Middle East and approximately $3
million in severance expense associated with European workforce reductions.
European operating results for the remainder of 2003 are expected to benefit
from management changes and workforce reductions made to align resources to meet
business needs. European operating performance in 2002 was positively impacted
by stronger volumes primarily due to transportation and processing work
associated with the issuance of the euro and the return of legacy currencies.
In South America, operating profit in the second quarter of 2003 was higher than
in the same quarter last year reflecting better performance in Venezuela. Labor
costs in Venezuela as a percentage of revenue were reduced in the 2003 quarter
from the high levels recorded last year. South America's operating profit in the
first half of 2003 was lower than the same period last year primarily due to
lower operating performance in Brazil and Venezuela as a result of the
continuing difficult economic and operating conditions in the region. These
difficult conditions are expected to continue in 2003. The effect of the decline
of the currency values in South America also reduced operating profits in both
the second quarter and first half of 2003.
Asia Pacific operating profits in the second quarter and first half of 2003 were
higher than for the same periods last year primarily due to improved results in
Australia and Hong Kong.
Brink's Home Security
Three Months Six Months
Ended June 30 % Ended June 30 %
(Dollars in millions) 2003 2002 Change 2003 2002 Change
- ----------------------------------------------------------------------------------------------------------------------
Revenues $ 76.5 70.2 9 $ 150.4 137.4 9
- ----------------------------------------------------------------------------------------------------------------------
Operating profit:
Recurring services (a) $ 31.4 27.7 13 $ 61.7 54.6 13
Investment in new subscribers (b) (13.7) (12.1) 13 (27.3) (23.8) 15
- ----------------------------------------------------------------------------------------------------------------------
Segment operating profit $ 17.7 15.6 13 $ 34.4 30.8 12
- ----------------------------------------------------------------------------------------------------------------------
Operating margin 23.1% 22.2% 22.9% 22.4%
Monthly Recurring Revenues (c) $ 22.2 20.1 10
- ----------------------------------------------------------------------------------------------------------------------
Depreciation and amortization (d) $ 11.8 10.5 12 $ 23.4 20.7 13
Impairment charges from
subscriber disconnects 8.6 8.1 6 16.1 15.4 5
Amortization of deferred revenue (e) (6.4) (6.1) 5 (12.2) (11.8) 3
Deferred subscriber acquisition costs
(current year payments) (4.6) (4.3) 7 (8.9) (8.4) 6
Deferred revenue from new subscribers
(current year receipts) 6.7 6.6 2 13.2 13.3 (1)
Capital expenditures 22.9 20.6 11 46.0 40.7 13
- ----------------------------------------------------------------------------------------------------------------------
(a) Reflects operating profit generated from the existing subscriber base plus
the amortization of deferred revenues, less the amortization of deferred
subscriber acquisition costs (primarily direct selling expenses).
(b) Primarily marketing and selling expenses, net of the deferral of direct
selling expenses, incurred in the acquisition of new subscribers.
14
(c) Calculated based on the number of subscribers at period end multiplied by
the average fee per subscriber received in the last month of the period for
contracted monitoring and maintenance services. The amortization of
deferred revenues is excluded. See "Reconciliation of Non-GAAP Measures."
(d) Includes amortization of deferred subscriber acquisition costs of $2.0
million and $1.6 million for the second quarters of 2003 and 2002,
respectively, and $3.8 million and $3.1 million for the first half of 2003
and 2002, respectively.
(e) Includes amortization of deferred revenue related to active subscriber
accounts as well as acceleration of amortization of deferred revenue
related to subscriber disconnects.
Revenue
The increase in BHS revenues for the second quarter and first half of 2003
versus the comparable 2002 periods was primarily due to an 8% larger average
subscriber base as well as 2.5% higher average monitoring rates in each period.
These factors also contributed to a 10% increase in Monthly Recurring Revenues
for June 2003 as compared to June 2002.
Operating Profit
Segment operating profit for the second quarter and first half of 2003 increased
$2.1 million and $3.6 million, respectively, from the same periods of 2002 as
higher profit from recurring services was partially offset by an increased
investment in new subscribers. Higher profit from recurring services in each
period was due to increased revenues and improved service margins, partially
offset by higher costs associated with supporting a larger subscriber base.
Subscriber Information
Three Months Six Months
Ended June 30 % Ended June 30 %
(Subscriber data in thousands) 2003 2002 Change 2003 2002 Change
- --------------------------------------------------------------------------------------------------------------
Number of subscribers:
Beginning of period 781.5 726.5 766.7 713.5
Installations 28.3 25.8 10 55.7 50.9 9
Disconnects (14.2) (13.7) 4 (26.8) (25.8) 4
- --------------------------------------------------------------------------------------------------------------
End of period 795.6 738.6 8 795.6 738.6 8
- --------------------------------------------------------------------------------------------------------------
Average number of subscribers 788.3 732.6 8 781.1 726.1 8
Annualized disconnect rate 7.2% 7.5% 6.9% 7.1%
- --------------------------------------------------------------------------------------------------------------
Installations for the second quarter and first half of 2003 increased
approximately 10% and 9%, respectively, as compared to the same periods of 2002
primarily as a result of growth in new distribution channels. BHS believes its
2003 annualized disconnect rates of 7.2% for the quarter and 6.9% year-to-date
improved over the comparable periods of 2002 largely due to the effect of having
improved its subscriber selection and retention processes in recent years and
its high quality customer service. Disconnect rates are typically higher in the
second and third quarters of the year because of an increase in residential
moves during summer months.
15
Reconciliation of Non-GAAP Measures
Six Months
Ended June 30
(In millions) 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
June:
Monthly Recurring Revenues ("MRR") $ 22.2 20.1
Amounts excluded from MRR:
Amortization of deferred revenue 2.2 2.0
Other revenues (a) 1.4 1.9
- ----------------------------------------------------------------------------------------------------------------------
Revenues on a GAAP basis $ 25.8 24.0
- ----------------------------------------------------------------------------------------------------------------------
Revenues on a GAAP basis:
June $ 25.8 24.0
January - May 124.6 113.4
- ----------------------------------------------------------------------------------------------------------------------
January - June $ 150.4 137.4
- ----------------------------------------------------------------------------------------------------------------------
(a) Revenues that are not pursuant to monthly contractual billings.
The Company believes the presentation of MRR is useful to investors because the
measure is widely used in the industry to assess the amount of recurring
revenues a home security business produces.
BAX Global
Three Months Six Months
Ended June 30 % Ended June 30 %
(Dollars in millions) 2003 2002 Change 2003 2002 Change
- ----------------------------------------------------------------------------------------------------------------------
Revenues:
Americas $ 233.6 241.3 (3) $ 470.2 473.3 (1)
International 258.4 220.4 17 502.7 419.4 20
Eliminations/other (18.6) (17.6) (6) (35.9) (33.0) (9)
- ----------------------------------------------------------------------------------------------------------------------
Revenues $ 473.4 444.1 7 $ 937.0 859.7 9
- ----------------------------------------------------------------------------------------------------------------------
Operating profit (loss):
Americas $ (10.6) (3.8) NM $ (20.3) (14.3) (42)
International 8.3 9.6 (14) 15.4 16.1 (4)
Other (0.2) (2.6) 92 (3.1) (5.3) 42
- ----------------------------------------------------------------------------------------------------------------------
Segment operating profit (loss) $ (2.5) 3.2 NM $ (8.0) (3.5) NM
- ----------------------------------------------------------------------------------------------------------------------
Operating Margin: (%) (%) (%) (%)
North America (4.5) (1.6) (4.3) (3.0)
International 3.2 4.4 3.1 3.8
Total (0.5) 0.7 (0.9) (0.4)
- ----------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 11.9 10.7 11 $ 24.1 21.5 12
Capital expenditures 7.2 5.2 38 13.0 9.8 33
- ----------------------------------------------------------------------------------------------------------------------
Intra-U.S. revenue $ 107.1 115.7 (7) $ 218.0 224.4 (3)
Worldwide expedited freight
services:
Revenues $ 353.7 343.2 3 $ 707.7 663.6 7
Weight in pounds 375.9 371.8 1 750.3 720.5 4
- ----------------------------------------------------------------------------------------------------------------------
16
BAX Global's revenues increased 7% and 9% in the second quarter and first half
of 2003, respectively, as compared to the same periods of 2002 primarily due to
increased air export volumes and supply chain management activity in Asia
Pacific as well as the positive effect of changes in foreign currency exchange
rates in the Atlantic region. BAX Global's operating results decreased $5.7
million and $4.5 million in the second quarter and first half of 2003,
respectively, as compared to the 2002 periods.
Revenue
Americas revenues decreased 3% and 1% for the second quarter and first half of
2003, respectively, as compared to the same periods of 2002. A decrease in
volumes for higher-yielding overnight and second day airfreight more than offset
an increase in volumes for freight with deferred delivery. U.S. air export
revenues reflect the benefit of a portion of the surcharges charged by airlines
being passed to customers during the second quarter of 2003. Excluding these
surcharges, U.S. air export revenue per pound for the 2003 periods declined as
compared to the same periods of 2002. Growth in the U.S. supply chain management
business increased revenues in the first six months of 2003 as compared to the
same period of 2002 due to additional market share as well as increased activity
for existing customers.
International revenues for the second quarter and first six months of 2003
increased $38.0 million and $83.3 million, respectively, including approximately
$21 million in the second quarter and $40 million in the first six months due to
the strengthening of various currencies relative to the U.S. dollar, primarily
in Europe. In addition, revenues benefited from an increase in air export
volumes to the U.S. from Asia Pacific and growth in supply chain management
operations in Asia Pacific, including the effects of an expansion of operations
in China during the first six months of 2003 as well as increased activity from
existing customers. The positive effect of changes in currency exchange rates in
the Atlantic region more than offset the impact of a decline in volumes in the
region. Reduced demand and competitive market pressures in the Atlantic region
continue with the weak European economy, the effects of which are expected to
continue into at least the third quarter of 2003.
Operating profit (loss)
Operating results in the Americas declined $6.8 million and $6.0 million in the
second quarter and first six months of 2003, as compared to the same periods of
2002, primarily reflecting the weak U.S. economy and volume reductions in the
higher yielding overnight products. Operating results include higher expense
from the Company's primary U.S. pension plan as well as higher health care costs
in the 2003 periods. As compared to the same periods of 2002, heavy maintenance
expense was lower in the first quarter and second quarter of 2003 by $2.7
million and $2.6 million, respectively, primarily due to adjustments made in
conjunction with the renegotiation of certain return provisions of its aircraft
lease agreements and the completion of a study of the lease agreements. The
Company expects heavy maintenance expenses to return to more-normal levels
beginning in the third quarter.
International operating profit for the second quarter and first half of 2003 as
compared to the 2002 periods decreased $1.3 million and $0.7 million
respectively. Lower results in the Atlantic region for the second quarter and
first six months of 2003 were due to a reduction in air import volumes and
pricing pressures, reflecting the continuing weak European economy. Revenues in
Asia Pacific increased 20% for the second quarter of 2003 and operating profit
in the region increased 4% on higher air export volumes and improved supply
chain management operations. For the first half of 2003, Asia Pacific operating
profit increased 23% as compared to the same period of 2002, primarily due to an
increase in logistics activity and higher air export volumes.
Other operating loss decreased $2.4 million in the quarter and $2.2 million in
the first half of 2003 versus the prior year periods partially due to foreign
currency exchange gains.
Other Operations
The Company's gold operations had net sales of $5.3 million during the second
quarter of 2003 and $10.7 million in the first half of 2003 increasing 43% and
41%, respectively, from the 2002 periods primarily as a result of higher sales
volumes associated with the additional production at its new joint venture
operation in Coolgardie, Western Australia. Operating loss was $1.8 million in
the second quarter of 2003 and $1.6 million in the first half of 2003 versus a
profit of $0.2 million and $0.6 million, respectively, in the 2002 periods. The
decrease in operating results reflects higher costs per ounce sold.
17
In April 2003, MPI Mines Ltd. ("MPI"), a publicly traded equity affiliate in
which the Company has a minority interest, issued an additional 25.0 million
shares in a secondary offering in which the Company did not participate. The
Company's interest in MPI after the offering is 23.3%. The Company has agreed to
not sell its MPI shares prior to the end of 2003. The previously announced
negotiations regarding a sale of its gold joint ventures to MPI have been
discontinued.
Net sales from the Company's natural gas operations for the second quarter and
first half of 2003 were $3.8 million and $5.7 million, respectively, as compared
to $1.7 million and $3.2 million for the same periods of 2002 primarily due to
higher natural gas prices. Operating profit for the natural gas operations,
including royalty income, increased by $3.9 million to $5.9 million in the
second quarter and by $4.5 million to $8.8 million in the first half of 2003, as
compared to the 2002 periods.
Revenues from the Company's timber operations are primarily from the sale of
wood chips, logs and lumber. Net sales from the Company's timber business of
$5.5 million in the second quarter and $10.6 million in the first half of 2003
reflected increases of 10% in both periods, over the comparable 2002 periods,
primarily due to an increase in the selling prices of lumber and wood chips,
partially offset by a decrease in the volume of logs sold. Break-even results in
the second quarter and operating profit of $0.2 million in the first half of
2003 reflected improvements over the 2002 periods due to an increase in prices.
During July 2003, the Company entered into definitive agreements to sell its
natural gas and timber businesses for combined cash proceeds of approximately
$119 million. The natural gas transaction closed on August 13, 2003 and the
Company received approximately $81 million in cash. The timber transaction is
expected to close by the end of 2003. The timber transaction is subject to
various closing conditions. The Company expects to reclassify the operating
results of its natural gas and timber businesses from continuing operations to
discontinued operations for all periods presented in its consolidated financial
statements beginning in the third quarter of 2003.
Former coal operations / Discontinued operations
The Company concluded its plan to sell or shut down its coal mining operations
in December 2002. Accordingly, in the first quarter of 2003, the Company began
recognizing certain expenses related to its former coal operations as part of
the Company's continuing operations. Prior to 2003, these expenses were
classified as part of the Company's loss from discontinued operations. Expenses
included in continuing operations in the second quarter and first half of 2003
related to the Company's former coal operations were as follows:
Three Months Six Months
Ended June 30 Ended June 30
(In millions) 2003 2003
- ----------------------------------------------------------------------------------------------------------------------
Former coal operations:
Company-sponsored postretirement
benefits other than pensions $ 12.5 24.7
Black lung 1.4 2.9
Pension (0.4) (0.3)
Administrative, legal and other expenses, net 1.7 3.8
Idle and closed mine expense and other income 2.0 3.4
- ----------------------------------------------------------------------------------------------------------------------
$ 17.2 34.5
- ----------------------------------------------------------------------------------------------------------------------
Administrative, legal and other expenses, net, are expected to decline during
2003 as administrative functions are reduced and residual assets sold. Expenses
related to residual assets include property taxes, insurance and lease payments.
The Company has a Voluntary Employees' Beneficiary Association ("VEBA") with
approximately $50 million of assets at June 30, 2003 available to pay for
certain of the Company's benefit obligations related to former coal employees.
The Company expects to make an additional contribution of $50 million to the
VEBA using a portion of the proceeds received from the sale of the natural gas
operations.
18
In addition to the above, the Company will continue to record adjustments to
coal-related contingent assets and liabilities within discontinued operations.
In the second quarter of 2003, the Company recorded a charge in discontinued
operations of $1.9 million (after-tax) related to a change in estimated
withdrawal liabilities for coal-related multi-employer pension plans. See
"Liquidity and Capital Resources--Contingencies."
Corporate expenses
Corporate expenses were $1.2 million and $2.9 million higher during the second
quarter and first half of 2003, respectively, as compared to the same periods of
2002 primarily due to higher benefit-related expenses. Corporate expenses for
the last six months of 2003 are expected to include additional costs resulting
from the implementation of Section 404 of the Sarbanes-Oxley Act of 2002.
Foreign operations
The Company operates in more than 100 countries, each with a local currency
other than the U.S. dollar. Because the financial results of the Company are
reported in U.S. dollars, its results are affected by changes in the value of
the various foreign currencies in relation to the U.S. dollar. Changes in
exchange rates may also affect transactions which are denominated in currencies
other than the functional currency. The diversity of foreign operations helps to
mitigate a portion of the impact that foreign currency fluctuations in any one
country may have on the Company's consolidated results. The Company, from time
to time, uses foreign currency forward contracts to hedge transactional risks
associated with foreign currencies. Translation adjustments of net monetary
assets and liabilities denominated in the local currency relating to operations
in countries with highly inflationary economies are included in net income,
along with all transaction gains or losses for the period.
Brink's Venezuelan subsidiary was considered to be operating in a highly
inflationary economy during 2002. However, Venezuela was no longer treated as
having a highly inflationary economy effective January 1, 2003. It is possible
that the economy in Venezuela may be considered highly inflationary again at
some time in the future.
The Company is also subject to other risks customarily associated with doing
business in foreign countries, including labor and economic conditions,
political instability, controls on repatriation of earnings and capital,
nationalization, expropriation and other forms of restrictive action by local
governments. The future effects, if any, of such risks on the Company cannot be
predicted.
Selling, general and administrative expenses
Selling, general and administrative expenses is a component of each segment's
previously discussed operating profit. The $8.6 million and $25.5 million
increase in selling, general and administrative expenses for the second quarter
and first half of 2003, respectively, as compared to the same periods of 2002
was primarily due to higher benefit-related costs, the negative effect of the
strengthening of certain currencies relative to the U.S. dollar, primarily in
Europe, and the inclusion in 2003 of administrative costs related to former coal
operations.
Other operating income, net
Other operating income, net, which is a component of each operating segment's
previously discussed operating profit, includes the Company's share of net
earnings or losses of unconsolidated affiliates, royalty income and gains and
losses from foreign currency exchange. Other operating income, net for the
second quarter and first half of 2003 was $8.3 million and $12.8 million,
respectively, compared to $2.2 million and $6.1 million in the comparable
periods of 2002. The increase in other operating income for the three and six
month periods of 2003 is primarily attributable to foreign currency exchange and
an increase in natural gas royalty income.
19
Interest expense
Interest expense increased $1.0 million and $1.2 million in the second quarter
and first half of 2003, respectively, as compared to the same periods of 2002
primarily due to the inclusion of interest expense related to Dominion Terminal
Associates ("DTA") in the 2003 periods. In conjunction with the disposal of its
coal operations, the Company transferred its interest in the operations of DTA,
a coal terminal in Newport News, Virginia, but retained contingent obligations
of related debt. Since the Company no longer has an interest in DTA, its related
$43.2 million guarantee of underlying debt was reclassified to long-term debt
from noncurrent liabilities at December 31, 2002. In prior periods, the cost
associated with the bonds was included in discontinued operations. In addition,
2003 interest expense was higher due to the accretion of interest related to
former coal operations' retained leases and minimum royalty agreements.
Interest and other income (expense), net
Interest and other income (expense), net for the second quarter and first half
of 2003 increased $4.2 million and $6.4 million, respectively, over the same
2002 periods. The increase is primarily attributable to a $2.6 million
second-quarter 2003 gain related to a $19.8 million prepayment of the notes and
royalties receivable collected as part of the consideration in the sale of its
former Virginia coal operations as well as to foreign currency transaction
gains.
Income taxes
The effective tax rate for continuing operations for the first six months of
2003 was 37.5% compared to 35.5% in the same period of 2002. The provision for
income taxes exceeded the 35% statutory federal income tax rate in each of the
2003 and 2002 periods presented primarily due to state income taxes, partially
offset by lower taxes on certain foreign earnings. The Company's effective tax
rate may change from period to period due to changes in the expected
geographical mix of earnings and other factors.
20
LIQUIDITY AND CAPITAL RESOURCES
Summary of cash flow information:
The amount of cash used by the Company, before financing activities, decreased
$24.8 million in the first six months of 2003 compared to the first six months
of 2002, primarily due to higher cash provided by operating activities.
Six Months
Ended June 30
(In millions) 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Before changes in operating assets and liabilities $ 125.9 159.9
Changes in assets and liabilities, including working capital (10.7) (30.6)
Discontinued operations - (42.3)
- ----------------------------------------------------------------------------------------------------------------------
Operating activities 115.2 87.0
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital and aircraft heavy maintenance expenditures (108.9) (101.5)
Notes receivable and royalties related to sale of former coal operations 26.0 -
Contribution to Voluntary Employees' Beneficiary Association (32.0) -
Other (3.4) 3.6
Discontinued operations - (17.0)
- ----------------------------------------------------------------------------------------------------------------------
Investing activities (118.3) (114.9)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows before financing activities $ (3.1) (27.9)
======================================================================================================================
Operating activities
Cash provided by operating activities was $28.2 million higher in the first half
of 2003 compared to the same period in 2002 primarily due to a decrease in cash
used by former coal operations and a decrease in the amount of cash used for
working capital needs, partially offset by lower operating profit provided by
the Company's Business and Security Services subsidiaries.
Costs associated with the former coal operations were classified as discontinued
operations in the 2002 statements of cash flows but are included in continuing
operations in 2003. Cash used by the Company's former coal operations was $15.5
million lower in the first six months of 2003 compared to 2002 largely due to
the performance of the Company's mining operations in the face of difficult
industry conditions during 2002. Cash flows from operating activities in both
2002 and 2003 included cash outflows associated with retained coal-related
liabilities.
Cash used for working capital needs improved in 2003 primarily as a result of
lower accounts receivable balances at Brink's operations in France in 2003 due
to improved collections. In addition, BAX Global's accounts receivable balances
in North America at June 2003 are lower as a result of lower revenue and
improved collections.
Through BAX Funding Corporation ("BAX Funding"), a wholly owned consolidated
special-purpose subsidiary, BAX Global converts a majority of its U.S.
receivables into cash by selling an undivided interest in a pool of the
receivables to a third party. This lowers the Company's costs and reduces the
amount that the Company needs to borrow under its credit lines for working
capital. Since U.S. receivables are seasonally higher at the year end, the net
amounts sold as of the end of June 2003 and 2002 decreased by $14 million and $8
million, respectively.
Based on its preliminary planning, the Company expects to make a voluntary
contribution to its primary U.S. pension plan during 2003.
21
Investing activities
Cash used by investing activities in the first six months of 2003 increased
slightly compared to 2002 on higher capital expenditures and a contribution to
the Company's VEBA (described below), offset by the absence of mine development
costs incurred by the Company's former coal operations in 2002 and the
collection of amounts related to the sale of the Company's former Virginia coal
operations.
Capital expenditures for the first half of 2003 of $98.7 million were $11.1
million higher than for the same period in 2002 primarily due to an increase in
subscriber installations at BHS as well as an increase in spending on
information technology projects at BAX Global.
Six Months
Ended June 30
2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Capital expenditures:
Brink's $ 34.9 33.5
Brink's Home Security 46.0 40.7
BAX Global 13.0 9.8
- ----------------------------------------------------------------------------------------------------------------------
Business and Security Services 93.9 84.0
Other Operations 4.7 3.6
General corporate 0.1 -
- ----------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 98.7 87.6
- ----------------------------------------------------------------------------------------------------------------------
Aircraft heavy maintenance expenditures decreased $3.7 million during the first
six months of 2003 to $10.2 million as compared to the same period of 2002 due
to fewer engine overhauls in 2003, and the negotiation of more favorable return
lease conditions and the timing of maintenance. The Company expects to spend
between $25 million and $30 million on aircraft heavy maintenance in 2003.
Capital expenditures in 2003 are currently expected to range from $200 million
to $210 million. Expected capital expenditures for 2003 reflect an increase in
customer installations at BHS and information technology spending at Brink's and
BAX Global.
As noted earlier, in April 2003 the Company received $19.8 million in cash
associated with the prepayment of notes receivable and royalty obligations
arising from the sale of its former Virginia coal operations. The Company also
received $6.2 million in the first quarter of 2003 related to the collection of
short-term note receivables received in connection with the sale of its former
Virginia coal operations.
In August 2003, the Company received approximately $81 million in conjunction
with the sale of its natural gas business.
The Company has established a Voluntary Employees' Beneficiary Association
("VEBA") which is intended to tax efficiently fund certain benefit obligations
for retired coal miners and their dependents. As of June 30, 2003, the balance
in the VEBA was approximately $50 million and was included in other noncurrent
assets. In April 2003, the Company contributed $32 million to the VEBA and
expects to make an additional contribution of approximately $50 million using a
portion of the proceeds received from the sale of the natural gas operations.
22
Business segment cash flows
The Company's cash flows before financing activities for each of the operating
segments are presented below:
Six Months
Ended June 30
(In millions) 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Cash flows before financing activities:
Brink's $ 10.5 10.6
BHS 21.4 24.2
BAX Global (4.6) (3.5)
Corporate, other operations and former coal operations (30.4) 0.1
Discontinued operations - (59.3)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows before financing activities $ (3.1) (27.9)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows before financing activities at Brink's decreased slightly as the
effect of lower operating profit in 2003 was largely offset by a year-over-year
improvement in the amount of cash used for working capital needs. Higher working
capital needs in 2002 were primarily driven by larger accounts receivable
balances in France.
The $2.8 million decrease in BHS' cash flows before financing activities is
primarily due to an increase in capital expenditures reflecting the growth in
installations, partially offset by higher operating results.
Cash flows before financing activities at BAX Global decreased $1.1 million
reflecting lower operating results in 2003. A decrease in the cash used to cover
working capital needs included the effects of lower receivables in the 2003
period, reflecting lower revenue and improved collections in North America and
higher accounts payable.
The decrease in cash flows for Corporate, other operations and former coal
operations for the six months ended June 30, 2003 reflected the Company's $32.0
million contribution to the VEBA in April 2003, $26.8 million of cash spent in
2003 associated with retained liabilities of the former coal operations,
partially offset by $26.0 million of cash received related to notes receivables
and royalty obligations received as consideration in the December 2002 sale of
its Virginia coal operations.
Discontinued operations' cash flow before financing activities for the 2002
period reflected an operating loss resulting from weak coal market conditions
and mine development spending.
Financing activities
Net cash flows provided by financing activities were $33.4 million for 2003
compared with $35.9 million in 2002. The Company's cash provided by financing
activities typically comes from short-term borrowings or from net borrowings
under the Company's revolving bank credit facility, discussed below. The Company
also borrowed an additional $20 million in the second quarter of 2002 under
longer-term issuances of Senior Notes.
The Company has an unsecured $350 million credit agreement with a syndicate of
banks under which it may borrow on a revolving basis over a three-year term
ending September 2005. Approximately $164 million was available for borrowing
under this facility on June 30, 2003. At June 30, 2003, Net Debt (short-term
debt plus the current and noncurrent portion of long-term debt ("Total Debt"),
less cash) was $269.4 million compared to $257.0 million at December 31, 2002.
Financings, Net of Cash (which equals Net Debt plus receivables sold in the
asset securitization facility) were $331 million at June 30, 2003, a slight
increase from the $329 million at December 31, 2002. The Company believes the
presentation of Net Debt and Financings, Net of Cash, are useful measures of the
Company's financial leverage.
23
The Company has three unsecured multi-currency revolving bank credit facilities
with a total of $110 million in available credit, of which approximately $35.2
million was available at June 30, 2003 for additional borrowing. Various foreign
subsidiaries maintain other secured and unsecured lines of credit and overdraft
facilities with a number of banks. Amounts outstanding under these agreements
are included in short-term borrowings. In June 2003, the Company completed the
renegotiation of a $30 million multi-currency facility (included in the $110
million noted above).
The U.S. bank credit agreement, the agreements under which the Senior Notes were
issued and the multi-currency revolving bank credit facilities each contain
various financial and other covenants. These financial covenants limit the
Company's total indebtedness, provide for minimum coverage of interest costs,
and require the Company to maintain a minimum level of net worth. A failure to
comply with the terms of one of these loan agreements could result in the
acceleration of the repayment terms in that agreement as well as in the
Company's other agreements. At June 30, 2003, the Company was in compliance with
all financial covenants contained in the above-mentioned agreements and
facilities.
The Company believes it has adequate sources of liquidity to meet its near-term
requirements.
At June 30, 2003, the Company had the remaining authority to purchase up to 1.0
million shares of the Company's common stock under a share repurchase program
authorized by the Board of Directors (the "Board") with an aggregate purchase
price of $19.1 million. No purchases were made in the first half of 2003.
During each of the first half of 2003 and 2002, the Company paid cash dividends
of $2.5 million on the Company's common stock. The Company paid $0.3 million of
dividends on its preferred stock in the first six months of 2002. The preferred
stock was redeemed in the third quarter of 2002. Future dividends, if any, on
the Company's common stock are dependent on the earnings, financial condition,
cash flow and business requirements of the Company, as determined by the Board.
On July 11, 2003, the Board declared a regular quarterly dividend of $0.025 per
share on the Company's common stock.
Contingencies
The Company is defending various potentially significant civil suits. Although
the Company is defending these cases vigorously and believes that its defenses
have merit, it is possible that one or more of these suits ultimately may be
decided in favor of the plaintiffs. If so, the Company expects that the ultimate
amount of unaccrued losses could range from $0 to $40 million.
The Company is continuing to market the residual assets of its former coal
operations, and expects purchasers to assume a portion of the Company's coal
equipment operating leases and advance minimum royalty obligations. Advance
royalty payments relate to the right to access and mine coal properties. These
advance royalty payments are recoverable against future production by purchasers
of the residual coal assets. At June 30, 2003, the present value of the
Company's obligations that are expected to be assumed by purchasers was
approximately $8 million. To the extent that obligations are not assumed by
purchasers as expected, the Company's liabilities associated with advance
minimum royalty obligations could potentially increase. In August 2003, the
Company entered into a letter of intent with respect to the sale of much of its
remaining West Virginia coal assets. Consummation of any such transaction would
be subject to the satisfaction of significant conditions including, without
limitation, the negotiation and execution of a definitive purchase agreement.
The Company will continue to record adjustments to coal-related contingent
assets and liabilities within discontinued operations.
At June 30, 2003, the liability recorded for the Company's UMWA Combined Benefit
Fund obligations under the Coal Industry Retiree Health Benefit Act of 1992 was
$169.9 million, reflecting payments made since the end of 2002. This liability
will be adjusted as new historical data is received and assumptions used to
estimate the liability change. The Company normally revises its estimated
liability in the fourth quarter each year when it receives the annual actuarial
evaluation.
24
The Company participates in the United Mine Workers of America ("UMWA") 1950 and
1974 pension plans at defined contribution rates, but expects to ultimately
withdraw from these plans. At December 31, 2002, the Company's estimated
withdrawal liabilities were $35.0 million. In the second quarter of 2003, the
Company increased the estimated withdrawal liabilities by $3.0 million to $38.0
million and recorded a charge in discontinued operations of $1.9 million
(after-tax). This change in estimate reflects updated data received from third
parties during the quarter. The Company's estimate of the obligation is based on
several factors, including funding status and benefit levels of the plans and
the date the Company is determined to have completely withdrawn from the plans.
Since these factors may change over time, the ultimate withdrawal obligation, if
any, could change materially.
The Company has also recorded estimated liabilities for other contingent
liabilities, including those for expected settlement of workers' compensation
claims and certain reclamation obligations. Annual actuarial and engineering
valuations of these liabilities are typically completed in the fourth quarter
each year.
In 1999, the U.S. District Court of the Eastern District of Virginia entered a
final judgment in favor of certain of the Company's subsidiaries, ruling that
the Federal Black Lung Excise Tax ("FBLET") is unconstitutional as applied to
export coal sales. Through June 30, 2003, the Company has received refunds,
including interest, of $27.2 million, including $2.8 million in 2003 of
previously accrued amounts. The Company continues to pursue the refund of other
FBLET payments. Due to uncertainty as to the ultimate receipt of additional
amounts, if any, which could amount to as much as $18 million (before income
taxes), as well as the timing of any additional FBLET refunds, the Company has
not currently recorded receivables for such additional FBLET refunds.
Market risks and hedging and derivative activities
The Company has activities in more than 100 countries and a number of different
industries. These operations expose the Company to a variety of market risks,
including the effects of changes in foreign currency exchange rates and interest
rates. In addition, the Company consumes and sells certain commodities in its
businesses, exposing it to the effects of changes in the prices of such
commodities. These financial and commodity exposures are monitored and managed
by the Company as an integral part of its overall risk management program. The
diversity of foreign operations helps to mitigate a portion of the impact that
foreign currency rate fluctuations in any one country may have on the Company's
consolidated results. The Company's risk management program considers this
favorable diversification effect as it measures the Company's exposure to
financial markets and as appropriate, seeks to reduce the potentially adverse
effects that the volatility of certain markets may have on its operating
results. The Company has not had any material change in its market risk
exposures since December 31, 2002.
Controls and procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, the
Company carried out an evaluation, with the participation of the Company's
management, including the Company's Chief Executive Officer and Vice President
and Chief Financial Officer, of the effectiveness of the Company's disclosure
controls and procedures (as defined under Rule 13a-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based
upon that evaluation, the Company's Chief Executive Officer and Vice President
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company required to be included in the Company's periodic SEC
filings.
There has been no change in the Company's internal control over financial
reporting during the quarter ended June 30, 2003, that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
25
Forward-looking information
Certain of the matters discussed herein, including statements regarding the sale
of the Company's timber business and the related reclassification of the
operating results to discontinued operations beginning with the third quarter
2003, the expectation of significant ongoing expenses and cash outflows related
to former coal operations, expected increases in pension expenses and the impact
of the increases on the operating results of the Company and its subsidiaries,
the timing and amount of costs associated with the closing of Brink's corporate
headquarters in Connecticut, the benefits to Brink's European operating results
during the remainder of 2003 of management changes and work force reductions,
economic and operating conditions in South America and their impact on Brink's
operating results, seasonal increases in BHS' disconnect rate, the continuing
effects of the weak U.S. and European economies on BAX Global's financial
condition, the anticipated decline of administrative, legal and other expenses,
net, associated with the former coal operations, the inclusion in corporate
expenses for the last half of 2003 of costs resulting from the implementation of
Section 404 of the Sarbanes-Oxley Act of 2002, changes in the value of foreign
currencies in relation to the U.S. dollar, the possibility that the Venezuelan
economy might be considered highly inflationary again, the expectation that the
Company will elect to make a voluntary contribution to its primary U.S. pension
plan during 2003, expenditures in 2003 for aircraft heavy maintenance and the
expected return of heavy maintenance expenses to more-normal levels, anticipated
capital expenditures in 2003, possible contributions to the VEBA using a portion
of the proceeds from the sale of the natural gas business, the adequacy of
sources of liquidity to meet the Company's near-term requirements, potential
losses arising out of civil suits, sales of residual assets of the former coal
business, including the potential sale of West Virginia assets, and the
assumption by purchasers of various obligations associated with those assets,
potential increases in royalty obligations if obligations are not assumed as
expected by purchasers of residual coal assets, the timing of and liability for
withdrawal from pension plans associated with the exit from the coal business,
expected adjustments to estimates of other contingent liabilities and the amount
and timing of additional FBLET refunds, if any, involve forward-looking
information which is subject to known and unknown risks, uncertainties and
contingencies with could cause actual results, performance or achievements to
differ materially from those which are anticipated.
Such risks, uncertainties and contingencies, many of which are beyond the
control of the Company, include, but are not limited to, the satisfaction of
conditions to closing in the agreements for the purchase of the timber business,
including the willingness of third parties to provide necessary consents and the
ability to obtain necessary insurance, the timing of the pass-through of costs
relating to the disposal of coal assets by third parties and governmental
authorities, actual retirement experience of coal employees, black lung claims
incidence, the number of dependents of coal employees for whom benefits are
provided, coal industry employee turnover rates, actual medical and legal costs
relating to benefits, changes in inflation rates (including the continued
volatility of medical inflation), fluctuations in interest rates, the ultimate
amount of pension expense, performance of the investments held by the pension
plan trust, staffing decisions relating to the closure of Brink's Connecticut
office, decisions by Brink's employees in Connecticut with respect to
relocation, ongoing contractual obligations relating to the Connecticut office,
costs associated with transitioning the Connecticut workforce to Texas and
Virginia, the ability of Brink's management to effectively address economic and
other pressures in Europe, the costs associated with Brink's European work force
reductions, government reforms and initiatives in South America, strategic
decisions by Brink's competitors with respect to their South American
operations, the number of BHS customers who move during the third quarter,
changes in the economies of the U.S. and Europe, the size and timing of rate and
cost increases, if any, at BAX Global, the timing of sales of the residual coal
assets, the ability of purchasers of those assets to assume various liabilities,
acceptance of replacement bonds by governmental authorities, costs associated
with reducing the administrative functions supporting the former coal
operations, the willingness of lessors to consent to lease assignments, the
amount of work performed in the second half of the year in connection with
Section 404 of the Sarbanes-Oxley Act, social, political or economic changes in
Venezuela, the funding level of the Company's primary U.S. pension plan trust,
changes in strategy or the allocation of resources, the need for significant
unanticipated aircraft heavy maintenance, the ability of the Company to
capitalize on tax advantages as a result of providing additional funding to the
VEBA, market performance, the Company's credit ratings, borrowing capacity under
the Company's U.S. credit facility, discovery of new facts relating to the civil
suits, the addition of claims or changes in damages sought by the adverse
parties, decisions by the courts, whether interim or final, during the course of
the suits, the negotiation and execution of a definitive agreement for the sale
of various assets associated with the Company's former coal business in West
Virginia and the satisfaction of any conditions to closing contained in any such
agreement, positions taken by various governmental entities with respect to the
claims for FBLET refunds, the sizing and timing of the Company's hedging
relationships, overall economic and business conditions, foreign currency
exchange rates, the impact of continuing initiatives to control costs and
increase profitability, pricing and other competitive industry factors, fuel
prices, new government regulations, legislative initiatives, including
initiatives with respect to medicare coverage of prescription drugs, judicial
decisions, variations in costs or expenses and the ability of counterparties to
perform.
26
Part II - Other Information
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
(a) The Registrant's annual meeting of shareholders was held on May 2, 2003.
(b) Not required.
(c) The following person was elected for a term expiring in 2004, by the
following vote:
For Withheld
---------- ---------
Michael L. Grimes 46,669,473 1,935,457
The following persons were elected for terms expiring in 2005, by the
following votes:
For Withheld
---------- ---------
Betty C. Alewine 47,382,851 1,222,079
Roger G. Ackerman 47,360,418 1,244,512
Carl S. Sloane 46,665,230 1,939,700
Ronald L. Turner 47,013,895 1,591,035
The selection of KPMG LLP as independent certified public accountants
to audit the accounts of the Registrant and its subsidiaries for the
year 2003 was approved by the following vote:
For Against Abstentions
--- ------- -----------
46,142,187 2,333,765 128,978
The amendment to the Company's Restated Articles of Incorporation to
change the Company name from "The Pittston Company" to "The Brink's
Company" was approved by the following vote:
For Against Abstentions
--- ------- -----------
48,042,188 284,911 277,831
Item 5. Other Information
- ------- -----------------
On August 13, 2003, the Company issued a press release regarding the completion
of the sale of the natural gas business. A copy of this release is being
furnished as Exhibit 99 to this Quarterly Report on Form 10-Q.
In August 2003, the Company entered into a letter of intent with respect to
the sale of much of its remaining West Virginia coal assets. Consummation of any
such transaction would be subject to the satisfaction of significant conditions
including, without limitation, the negotiation and execution of a definitive
purchase agreement.
27
Item 6. Exhibits and Reports on Form 8-K
- ------ -------------------------------
(a) Exhibits:
Exhibit
Number
-------
3(b) The Registrant's Bylaws, as amended through May 5, 2003.
31.1 Certification of Michael T. Dan, Chief Executive
Officer (Principal Executive Officer) of The Brink's
Company, pursuant to Rules 13a-14(a) and 15d-14(a)
promulgated under the Securities Exchange Act of
1934, as amended, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Robert T. Ritter, Vice President and Chief
Financial Officer (Principal Financial Officer) of The Brink's
Company, pursuant to Rules 13a-14(a) and 15d-14(a) promulgated
under the Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Michael T. Dan, Chief Executive Officer
(Principal Executive Officer) of The Brink's Company, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Robert T. Ritter, Vice President and Chief
Financial Officer (Principal Financial Officer) of The Brink's
Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99 Press release dated August 13, 2003, issued by The Brink's
Company regarding the consummation of the sale of the natural gas
business.
(b) Reports on Form 8-K:
(i) Report on Form 8-K filed on April 30, 2003, furnishing the
Registrant's earnings press release for the first quarter of 2003
pursuant to Item 12 of Form 8-K in accordance with SEC Release
Nos. 33-8216; 34-47583; and
(ii) Report on Form 8-K filed on May 5, 2003, announcing the change of
the Registrant's name to "The Brink's Company."
28
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE BRINK'S COMPANY
August 14, 2003 By: /s/ Robert T. Ritter
----------------------
Robert T. Ritter
(Vice President -
Chief Financial Officer)