Brinks Co (BCO) 2003 Q2 法說會逐字稿

This is premiere conferencing. Please stand by. We're about to begin. Good day and welcome to the Brink's Company Second Quarter 2003 Financial Result Conference Call. Today's conference is being record. At this time, I would like to turn the conference over to the Director of Investor Relations, Mr. Scott Dudley. (ph) Please go ahead, sir.

Thank you. Good morning, everyone. Welcome to our second quarter 2003 conference call. With us today are Michael Dan, Chief Executive Officer, and Bob Ritter, Chief Financial Officer.

Before getting to their comments let me review some administrative items related to the call today. First, a reminder that today's press release is available or will be shortly on the company's website at Brinkscompany.com. The press release is also available via fax by calling 877-275-7488. Secondly, a replay of today's call will be available starting this afternoon through Friday August 8th. The replay telephone number in North America will be 888-203-1112 or outside of North America 719-457-0820. The confirmation number for the replay will be 462026. A replay of the webcast of this call will also be available on the Brink's Company website through Friday August 15th and now our Safe Harbor Statement.

This call including the question and answer session may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from projected results. Additional information regarding factors that could cause actual results to differ materially from the projected results is readily available in today's press release and in our filings with the Securities and Exchange Commission including our most recent SEC forms 10K and 10Q.

Information discussed on this call is represented as of today only and the Brink's Company assumes no obligation to update any forward-looking statements made. This call is the copyrighted work of the Brink's Company and may not be rebroadcast, sold or otherwise distributed without the expressed written permission of the Brink's Company. Turning now to the day's agenda, Michael Dan will begin with a general overview and summary operational comments for each of the major businesses. Following Michael's remarks, Bob Ritter will address various financial topics related to the second quarter results and performance for the remainder of the year. After this prepared remark, Michael will chair the Q&A session. Now let's get started with comments from Michael Dan.

Thanks, Scott. Let me also extend my welcome to those of you who have joined us today. I'll start with some general comments. At the end of the first quarter, we highlighted several strategic and operational priorities. We reported that we had begun the process of selling our natural gas and timber businesses and were evaluating the initial expressions of interest.

We said that we were in the process of addressing the cost structure in Brink's Europe to align resources with the market post our Euro distribution work. We also discussed our intent to explore alternatives in order to address the impact on BAX of the reduced domestic overnight freight volumes. I would like to update you on each of these priorities. Last week, we announced the signing of a definitive agreement to sell our natural gas and timber business for $119 million in cash. I'm pleased that we've been able to reach these agreements in a timely fashion and for values we believe are appropriate.

We expect the gas transaction to close during the third quarter and the timber sale to be completed in the fourth quarter. With our exit from the coal business late last year, we are substantially out of the natural resource businesses. We just have our gold interest and some coal assets remaining, they are relatively minor and we will divest these remaining assets in an orderly fashion. Importantly, these assets will enable us to make meaningful additional contributions to VEBA (ph). We have earmarked $50 million from the sale of the gas transaction and will consider further funding as appropriate. The contribution of the funds we have earmarked will bring the balance of the VEBA to approximately $100 million. Bob Ritter will have more to say on this during his remarks. With regards to Brink's Europe, management took the aggressive steps to reduce resources and strengthen local management particularly in France and Germany.

With these changes our operations are positioned for improved performance which is already started to be evident with our second quarter. At BAX, we have been examining our domestic overnight air operations, exploring ways to better align volumes with our fixed cost structure associated with our planes and hub. This has been a particularly difficult challenge as the industry is suffering from a deep and prolonged drop off in overnight airfreight. Clearly, a quick and simple solution to the problem is not at hand. We are continuing to analyze options for returning domestic operations at BAX to profitability.

One such step was launched on June 2nd, 2003 where BAX opened up its domestic transportation network to other airfreight forwarders under a new program called BAX Global 40. This new program is designed to attract wholesale business by offering airport to airport air and ground transportation services. Our objective is to develop another revenue stream through long-term relationships with frayed forwarders. The forwarding network will provide overnight, second day and service offerings using our dedicated fleet and hub in Toledo and our six regional hubs in Chicago, Los Angeles, Dallas, Newark, Atlanta and San Francisco. We are continuing to explore other opportunities to accomplish the goal of fixing BAX (ph) domestic system. Now turning to the second quarter results.

Overall I'm proud of our managers and business unit employees who continue to find ways to improve the efficiency and cost effectiveness in the midst of a very challenging economic condition. While also maintaining excellent safety, security and outstanding service levels to our customers. In our business, we must stay focused on managing what we can control. We obviously can't control the economy in the U.S. or elsewhere. We can, however, make the best of the markets in which we operate by maintaining discipline in all areas. Once again, our Brink's Home Security business in an excellent quarter, strong subscriber growth, excellent margins, and cash flow, and continued improvement in customer retention and service operations. Internationally, Brink's Incorporated posted improved results.

The real disappointing area in our second quarter performance resulted in the effect of the poor U.S. and European economies on BAX global. Turning now to Brink's Incorporate operating results. For the quarter, worldwide revenue increased to 4 %, driven by international revenue that benefited from the weak U.S. dollar. --- currency effects revenues were essentially flat. North American revenues were up modestly about 2 %, while international revenue rose 6 % for the quarter. Brink's operating profit rose 9 % over the second quarter of the previous year. North America operating profit declined $2.9 million with margins decreasing to 6 % from 7.7 % in the second quarter a year ago.

This was caused by higher pension, health care expense in the U.S. as well as some of the cost for the closure of our former headquarters office in ---- Connecticut. International operating profit rose 72 % over a week second quarter in 2002. In North America, cast logistics continued to show good growth, quite maintaining the solid revenue and profit levels from a year ago and --- product continues to add installations and increase profits. In the U.S., the demand for core armored car services namely cars in transit in the ATM continues to reflect the slow economic activity.

However, recent business wins in the armored car services, which should help the business in the traditionally stronger second half of the year. U.S. global services posted slightly lower revenues and profits reflecting the international and U.S. economic slowdowns. Overall, Brink's global service on a global basis returned solid profits with recovery in Europe. Canada continues to operate in a difficult environment. Revenue was gear up 19 % mainly to currency affects a weak U.S. dollar. Operative cost doubled of Europe as a poor second quarter 2002 reflecting the cost reductions from right sizing our operations that were involved in the Euro distribution work over a year ago.

Also reflects approximately $1 million in severance during the second quarter of this year. Our European operations have begun to return to more normal operation after the virtual halt we saw in quarter one related to the Middle East conflicts. Certain economies, however, are still struggling. Security performance in Europe was again strong in the quarter. We completed an acquisition in Belgium, increasing our market share to almost 40 % and increased ownership in our Switzerland operation to 100 %. In South America, it remains a very difficult environment. Economic, political, and security pressures remain on the business. We did see improve performance in Venezuela, which is encouraging.

Revenue of South America was down 18 % in the quarter reflecting mainly currency effects offset by some operating improvements. Despite the lower revenue, operating profit in margins improved during the quarter. Better security performance was a significant performance factor in the quarter for South America. Asia Pacific again showed improvement over the prior period, revenues up 7 %, mainly due to currency effects while operating profits improved by more than 30 %. Margin improvement was largely driven by global services in Hong Kong and Australia. We also had a good pickup in the global services in the Asia Pacific region as a result of the Diamond jewelry business following the --- with the Middle East conflicts.

Strong cash flow for Brink's during the quarter. Regarding the outlook for Brink's Inc., we expect the usual seasonal pattern of a stronger second half in 2003. North America should see continued growth in cast logistics and --- continued to pursue opportunities to build on a strong base in the ATM. But traditional ground operations may face challenges from a still soft U.S. economy. We also expect about $4 million of further costs associated with the closing of --- headquarters and consolidation of activities in Dallas, Texas and Richmond, Virginia. In Europe, expect the benefits of the cost reductions and organizational realignments in the first half to continue in the second half. As I said, I am encouraged by the better results in Latin America because it indicates that a region may be recovering somewhat.

We are cautiously optimistic the trend will hold for remainder of the year. However, the only one situation remains difficult with possible further political unrest in this quarter. Asia Pacific, while a smaller part of our business, continued to perform well. Now moving on to Brink's Home Security, Brink's Home Security was a bright spot again. Turning in another good quarter of expanding economic value of the business and producing strong cash flows. New installation volume growth was nearly 10 %, revenue was up to 9 % for the quarter. Customer retention, which is the key to success in our business, improved again. Our already low disconnect rate improved to 7.2 % from 7.5 % in the last year's second quarter.

The rate is higher than we reported in quarter one, keep in mind that is normal for the rate to go up over the summer months, which is when most moves occur. Strong customer retention is driven by service levels and our level of service quality remained high. The growth and subscriber based improved service operations enabled Brink's Home Security to achieve record-operating profit of nearly $18 million in the second quarter. Representing year over year growth of 13 %. As of today, we have closed to 800,000 subscribers. Monthly recurring revenue increased to $22.2 million from $21.6 million at the end of the first quarter. All in all, a fine quarter for Brink's Home Security and their employees. As to the outlook there, we will continue to manage the business in the same way we have, focused on balancing new installation volume and profit growth and managing the installation investment while maintaining the highest levels of service quality.

We will continue to build subscribers through our expanding relationships with major national homebuilders and as a result the business and recurring cash flows should grow nicely and continue to add economic value and substantial cash flow. Now moving to BAX global. Worldwide revenue grew 7 % in the quarter with higher international revenues partially offset by lower revenues in the Americas. On the international side, the Asia Pacific region was again the growth driver with revenue increase of 20 %. Although Europe also showed higher revenues, this was entirely related to currency exchange rates. Actual revenues fell due to poor economic conditions over there in a very competitive pricing. In the Americas, revenue was down 3 % reflecting lower volumes and a shift from overnight to deferred products.

On the positive side, our BAX saver product continues to grow nicely and supply chain management activity is very strong. ATI continues to provide excellent service. BAX posted a worldwide operating loss of $2.5 million in the quarter compared to a profit of $3.2 million a year ago. Continued strong performance in Asia Pacific was offset by the effect of the economic conditions with significantly worse performance in the Americas and a weak performance in Europe. European operations continue to suffer from both volume and margin erosion. Higher transportation costs and operating expenses were the principle factors. European markets and economic conditions remain weak. Asia Pacific operating profits grew only 4 % in the quarter reflecting good strong performance in China, Australia, Hong Kong and Korea, offset by declines in Malaysia and Singapore as manufacturing activity continues to shift. It is also reflective of transportation pricing pressures due to the SARS problem we experienced. In addition, startup expenses on some new business we won affected the results of the quarter.

In America, volumes in the overnight system continue to mask the efforts on back saver and especially strong growth on supply chain side. As far as the outlook for BAX, while Asia Pacific had a better performance in the quarter, we would like to see the transportation markets return to normalcy to improve the cost of margins which we expect. Also, we would like to see some signs of the economic improvement in the Atlantic region and more volume in the US domestic system. We expect continue growth for our new forwarding products. BAX management will continue to aggressively pursue new business while striving to increase profitability control costs in this difficult economic environment.

The U.S. and European economies continue to be a concern for this business as we look forward. We don't see any clear signs of progress yet. But as we saw with BAX results in the second half of last year, increases in volume should have a favorable impact on the bottom-line and we look forward to further growth and supply chain management in our BAX saver products. In summary, I'll wrap it all up by saying, we have accomplished additional milestones in our strategy, our focus turns to another greater degree on further improving and growing our three core businesses. Overall, it was a pretty good quarter given the economic headwinds we faced domestically and abroad. I am pleased with the record performance in the Brink's Home Security and expect this business will continue to generate strong economic returns and cash flows.

Brink's had a mixed performance. Better results in Latin America and Europe, continued strong results in Asia Pacific with lower U.S. results. We'll maintain our focus on efficiency, service and safety and aggressively pursue new business while maintaining our pricing discipline. At BAX global, the performance is highly dependent on economic conditions and higher volumes especially in the North American system. We'll be aggressively seeking to improve capacity utilization and normal volume increases in the second half of the year, BAX should return to profitable operations. Our forward product is expanding nicely and will be help in the third and especially the fourth quarter. I am pleased that we have agreements to sell the gas and timber business, enabling us to commit substantial additional funds to our VEBA. Overall, our company is cash flow positive. Now some additional information on our financial position, here is Bob Ritter.

Thanks, Michael. Let me begin with a few comments about the second quarter's performance and some thoughts about the third quarter and the balance of the year. At Brink's with the dollar weaker in Europe, but stronger in South America, foreign currency effects increase revenues year over year by roughly $15 million. However, as a result of the distribution of country operating profit performance between Europe and South America, there was almost no -- 42% impact on operating profit. Without the roughly $2 million in severance and consolidation charges in the quarter, Brink's would have reported an 18 percent improvement this quarter over the second quarter last year.

As we look ahead, costs of realignment actions in Europe are expected to be winding down, the recently concluded quarter had just under $1 million. But in the U.S., in keeping with the new accounting standard for restructuring costs, we have only recorded about $1 million of the anticipated $5 million in closure costs associated with the consolidation of the U.S. operations. We expect to see an additional $2.5 million or so flow through in the third quarter and the balance in the fourth quarter.

Brink's Home Security had another good quarter as disconnect rates go, but just a reminder, history tells us that the third quarter has the highest disconnect rate each year due to continuing household moves. The rates should then come down from a seasonal high as the moving season ends and we head into the fourth quarter. BAX global revenue picture in the second quarter reflected an increase in about $20 million due to changes in exchange rates. Absent, exchange effects revenue was off in Europe and the base business in the US and up in Asia and in supply chain management here in the United States.

Last year's second half showed a nice jump in revenue and operating profits in international with an assists from the Westcoast port situation. As a result, we don't expect as large and increase in performance this year from the first half of the year to the second. Although, we have significantly reduced fixed costs within BAX global's U.S. system, there is still substantial leverage there. For the pace of the economy is an important factor in estimating profitability going forward. As Michael said earlier, we haven't seen any concrete signs of improvement yet. Looking down the statement of operations, other income this quarter included the previously discussed $2.6 million pretax gain on the amortization of the royalty stream we received in last year's coal sale. As you look to the third quarter, remember that last year, we received a $5.9 million payment under the air transportation system safety and stabilization act and it won't be repeated this year.

This benefit was recorded below operating profit line. Now let me cover the accounting impact of the anticipated sale of our natural resource businesses. We expect to reclassify the results of these operations as discontinued operations beginning in the third quarter. The effect of this will be to remove the historical operating performance of gas and timber operations from continuing operations for all periods reported and move it to discontinued operations. This means that the results of gas and timber will be removed from continuing operations for all of 2003 and 2002 in our next quarter's report and in the annual filings for all earlier years, too.

To put this into perspective, we have reported operating earnings from gas and timber operations of about $9 million in the first six months of this year versus 3.9 million last year. In the third and fourth quarters last year, we reported operating earnings for those two operations of about $2.1 million a quarter. Since many of the assets involved were purchased many years ago and have a low book value, we will also post a sizeable gain on the sale of these operations.

Further, depending on the ultimate disposition of the proceeds and how they are invested for those proceeds used to fund the VEBA or the pension trust, we will begin to see higher levels of investment income and/or lower that -- 36% interest expense in the latter part of this year and that will be picking up steam next year. Now before I provide you with our usual debt and cash flow information, I would like to briefly comment on the VEBA. As Michael mentioned, we expect to close the anticipated natural gas transaction this quarter and will then add another $50 million to the VEBA trust, this will double the size of the VEBA to $100 million dollars.

We remain resolved to further contribute to the VEBA on a prudent basis after taking into account taxes, capital and growth needs and changes in liability amounts. Now just a brief note related to our U.S. tax position. In preparing our 2002 tax returns, indications are that we will be able to carry back the losses incurred in 2002. As I mentioned last quarter, this would free us up to benefit from the tax deductibility of the VEBA to offset US tax full income on a go forward basis beginning with this year.

With a $32 million contribution in April combined with the expected $50 million contribution to be made after the expected closing of the natural gas transaction. We will have covered a substantial portion of the taxable gain from the natural resource sales. Finally, I would like to make a few comments about the company's cash flow and debt position. Depreciation and amortization for the second quarter amounted to just under $45 million. We currently expect the full year 2003's depreciation and amortization from continuing operations to be in the range of $160 to $170 million, divided among Brink's Home Security at 50 million or so, Brink's at $65 to $70 million and BAX global in the $45 to $50 million dollar range.

The natural resource operations have record around $4 million through June and will have a small amount of further depreciation prior to closing. Just a reminder for those of you who calculate cash flow indicators please note the noncash Brink's Home Security related revenues and expense reflected in the other financial information table in today's release. As far capital expenditure spending came in at a little over $50 million for the recent quarter. Cap-ex on continuing operations should be up slightly for the full year as our current projections range from $200 to 210 million versus over $193 million we spent last year. We expect Brink's Home Security to take the largest share at $90 to 100 million as we continue to build a subscriber base and value of the business.

Brink's investment should run in the $75 to 85 million range and BAX should run roughly at about $30 million. We have also spent about $5 million on natural resource projects so far this year. There will be some additional spending to help keep the operations running smoothly until closing, but the new spending shouldn't be dramatic. As for finances we ended the quarter with outstanding debt of approximately $405 million. Combining this with roughly $135 million in cash, the company's net debt was approximately $270 million. This compare ways net debt figure of just above 255 at year end 2002. Receivable sold in the asset securitization facility were $61 million at June 30, down from the $72 million for December 2002. In summary, financings net of cash were roughly $330 million at the end of the June, about the same level as at the end of the March and down slightly from the year end level. Erica, that's all have I for now. We are ready for questions.

Thank you. The question and answer session will be conducting electronically. If anyone in our phone audience has a question, please signal by pressing * one on your touchtone telephone. If you're on a speaker phone, please be sure your mute signal is turned off to allow your signals to reach our equipment. We'll pause for just a moment to assemble our roster. Jeff Kessler with Lehman Brothers has our first question.

Ok, thank you, and bear with me, please. I do have several questions here. First, getting down to what is going to happen with Brink's in the second half of the year. You've talked about a couple of things are going to happen. You'll get a little more savings relative to your severance costs that you've been taking on, but you also have some new revenues coming in from either percentages that you've bought in new companies or taking over a small company like in Belgium to take on essentially all that company. Are we looking for the combination of perhaps better cost controls because of lower severance costs plus some new revenues in the second half? Are we going to see perhaps a little better performance in the second quarter than we did in the first half because of these new revenues? I grant you that the second quarter was better than our estimate and that is encouraging.

Well, Jeffrey, we always have a better second half than first half at Brink's.

But I'm talking about relative to what you had modeled before, you've got some new revenues coming in.

Yeah, the Belgium acquisition is probably $20 million on annualized basis. This is an example, and Switzerland is probably three or four million dollars, so it is not that material of amount, which is proceeding with our strategy of growing and expanding our business when it's opportunistic for us to do it and it makes sense. We expect further improvement in Europe, Latin America still remains a question mark, particularly Venezuela with the possible elections coming up in August We see Asia Pacific continuing to motor forward. So I would expect that normal seasonal uptake cutting across that little bit is what's going to happen with the overall economy or any other shot that comes to it.

Okay, take it that Latin America was driven mainly by improvements in Argentina and Brazil and perhaps Columbia.

More of Venezuela. And economies there are starting to pick up a little bit, and we have been very, very good on the security and safety side down there which has helped us. But it's still a difficult and dangerous place to operate. It's just that we finally we've seen the bottom out and come back up, hopefully we have one quarter that will continue. But it is such an unstable environment it's hard to predict, Jeff.

Okay ,you still had a fair amount of idle and closed mine expense in the quarter. Is that going to get lower over time or should we flat line that expense going forward in our modeling?

Jeff, this is Bob Ritter. I would respond to that. Yes, you're right, there is a fair amount of that, and that is typically that's why we broke that out separately for the quarter results so you could see it identified that way. We found that will go away overtime as we continue to sell the sites associated with this and transfer those so that will start to work its way down. We're not sure yet when that's going to occur. So for the time being on a modeling standpoint, I would basically dial that in on a quarter by quarter basis, but that will start to go down and each quarter we'll tell you how it's work off.

Okay, has will been any progress that you've noted from a legislative point of view in getting funds from the VEBA or any other external funds that related to, that relate to tax advantage investments into your P&L getting net income from the VEBA to offset some of the legacy costs that you have?

Jeff, again, it's Bob. The VEBA that we have is already tax qualified trust under 501 C 9. So any contribution we make into it a obviously a tax advantage, and we will have tax benefits associated with earnings in it. From an accounting standpoint, we are in the process of wrapping up our final reviews which are fairly complicated. They involve tax and legal and operational issues associated with how the VEBA operates and we would expect to conclude that during this quarter. Assuming we come out with an answer that we're all comfortable with, probably beginning in either the fourth quarter or very early next year, we will be able to assign the VEBA directly to the obligations themselves and then the earnings associated with the VEBA will move up into operating income.

Right, so this is a work in progress? It's something that we at least should -- that we at least should count on something happening by the fourth quarter first part (ph) next year?

Yes.

Finally, the acquisitions -- well, let me just go into the breakdown of the actual $119 million in cash. Can you---Are you able to break it out between what you got from -- what you received from the gas properties and what you received from the timber properties?

Jeff, this is Bob again. As soon as we close the gas transaction, obviously, that is a significant transaction we will come forward and disclose that. But in the interim, we prefer to are it stand as it is.

Okay, very good. Thank you very much.

We'll take our next question from Jerome Lawton (ph) from MelBrook Capital.

Yeah, actually, I am sorry, I missed Jeff's question on the splitting of the proceeds between timber and natural gas and so on. If that was it, could you repeat it, please.

Michael Dan- We will break that out once we have a closing of the natural gas transaction, but in the interim, we're going to prefer to have it stand the way it is.

Thank you. The Brink's improvement in the quarter, can you discuss a little bit more in detail qualitatively what you did there and elaborate on what's in the press release in Europe?

Well, we spent quite a bit of time the first half of this year realigning our resources and some management changes we made last year that are just starting to be beneficial. There was also some costs, severance costs etc that ran through more heavily in the first quarter, less heavily in the second quarter that they reflected in our operating results. Of course, don't forget the middle east conflict brought our global services business to almost a screeching standstill in Europe. There was no travel or tourism going on. It severely affected our business and those have returned back to normal levels. So, I think Europe is well on its way to mending. And we'll be able to see some of the opportunities and the costs that were incurred in the first half of the year in the second.

Okay. Thanks very much. I appreciate it.

Thank you, Jerome.

We'll take our next question from David Campbell (ph) from Thompson Davis and company.

Hi, good morning, everybody. I missed the first ten minutes and read the press release, the previous guidance for the year was irrelevant given the sale and the natural gas and timber, so forth. Is that correct, you're not giving us any suggestions as to what profits might be because of this sales or are there other factors as well?

What we tried to point out, --- this is Bob Ritter, what we tried to point out in the press release is that because of the accounting change we have to record with discontinued operations, that and quantification of the costs at Brink's made the prior guidance that we had given you irrelevant. But over and above that, we have concerns about where, where the economy is going and what the effect that will have on BAX global in particular. If the economy recovers nicely, then obviously that would have a real benefit to us and that's what we're looking forward to, but we certainly don't have an idea as to where the economy is going to go. So if anything we would do would be a complete guess.

But, but, but the bottom line is, from continuing operations, without the --- the profits of the gas and timber operations will not be made up by more or less interest expense. So the bottom line is the $1.10 or 20 estimate was probably too high at this point?

Well, as Bob Ritter said, you have to go, we discontinued ops when we closed these transactions, David.

--- continuing operations.

Yeah, but David, we're not giving guidance. We got out of the guidance game. We reset, where we were because coming out of discontinue ops, we wanted to make sure that everybody had the opportunity to reset, you know, what ongoing operating performance was. We reset that at the beginning of the year, but we're not in the guidance business here. I'm sorry you missed the first ten minutes of the call, but we talked very specifically about where each of the business units were and what the challenges were and what the opportunities were.

I can listen to the replay.

Thanks, David.

Thank you very much.

Ed Brey (ph) with Sterling Capital has our next question.

Good morning.

Hi, Ed.

Let's see, three questions, the first one, your remaining gold operation I know are very small, but what is the carrying value of those operations or the book value?

It's a relatively an immaterial amount. The reason that we haven't disclosed the carrying value of that is that it is immaterial to the company as a whole and we have no idea when--- what the timing might be in our efforts to divest that.

To our next question, just on the BAX global and domestic strategy that I guess open up the network to freight forwarders, I guess some curious why that was an all of the part of the strategy that would be one question. Secondly, what sort of, what kind of revenue potential is that? I don't know that industry all that well, but how much in external revenues do you think you can get overtime ?.

Well, we don't know for sure. First of all, it was not part of our strategy, because we were trying to leverage the proprietary nature of our network, but obviously it's just impossible for us to cover the cost there is in this economy or any other economy, quite frankly. We have 15 years of experience in that now. So we've decided to do that, which is very similar to what some other integrated carriers have done. The difference we have we guarantee the space once it's booked, which nobody else will do by the way. So we have launched this, we started with a handful of customers in June, we've added some more in July. We're going to double the number that are allowed to come into the system. In August and it is growing nicely. And we would hope that it will be a material impact on the company and you'll start hopefully to see those benefits a little bit in the third, mostly in the fourth and going into next year.

And just a related question, when I look at the revenues and then the pounds, and I'm trying to scale this economic weakness, in reasonable economic times is, what, historically did you do in pounds carried? And you know, I guess, how much leverage is there in both pricing and pounds in a reasonable economy? What is the jump or the magnitude in those two numbers?

This is Bob Ritter. It's difficult to give you a meaningful number on that one because over the last couple of years, as you know, we have downsized the fleet dramatically so the amount that we were able to carry back when the economy was good was obviously a lot higher than we currently have the capacity for. So we can go back and get those numbers and we have them prepared, but the comparison on them is going to be very difficult to read anything into.

Well, how about just asking it on a utilization, what's your capacity utilization today?

We have plenty of leverage in the system on the domestic network and of course the international network is a variable so it doesn't matter.

Okay and the last question, I don't know if you can share it or not, but in selling the natural gas and timber properties, I guess, was there a need to indemnify those two properties from any of the other parent liabilities? Did you offer an indemnification?

Yes,

So that's sort of available on a small basis, I guess, I wonder, as you fund the VEBA to a greater degree that indemnification could potentially be more valuable on a bigger transaction?

That's correct.

Thanks so much.

We'll move to Ben Alexander (ph) with Alexander Capital.

Good morning.

Hi, Ben.

How are you?

Good.

I wanted to know if could you please give a little bit more detail regarding Brink's and South America in terms of more specific, better feel for how different countries did they? And if you're seeing any more signs of recovery in that area?

I think things have stabilized in Chile in Columbia, Brazil and Argentina are still pretty volatile and of course, Venezuela, which had a stronger quarter, is still very vulnerable to social and political unrest. You know, I don't how else to expand upon that, but that's where we find ourselves.

And on BAX, if you look at I don't know what kind of data you get exactly, but are you seeing any signs at all of the economy improving? Because I guess some ...

I was just visiting with BAX management in Toledo and a comment that was given to me and I've checked out was maybe a little interesting is that July's volumes are always down anywhere from 8 to 10 % over June quarter closing month. We're almost through month here and those volumes have been higher in July than June. That's never happened since we've been in the airplane business flying this freight. So there could be some hope. We've also been helped of course by our forwarder product there.

Very good.

Thank you.

Thank you.

And next we'll take a question from Michael Hoffman with Freedman billings Ramsey.

Hi, Mike.

Hi, Michael.

How you doing? Great quarter by the way. Just so I understand, the press release that I have on page 8 has this table that you guys give out that shows the revenues by segment and most of it is into the operating profits and you break it into the business and security services total and we have other, former coal, etc. Going forward into the second half what does that former coal number look like in the second half? This might be about the Bob Ritter question

Michael Dan You're talking about the operating profit side, the 17.2 million.

What are we doing with that in the second half?

We actually have another table a little bit further back, I realize you probably haven't had enough time to go through this in any detail, but if you go back to just before, I guess it's the second to last page of the press release, we have another table that breaks out the components of that 17.2.

Right.

Right now, basically what you're going to see there is if you take the benefit related, which are the first three, that's the company which sponsored post retirement benefit, --- and pension, those are fairly flat throughout the year, so those will be running about that level. Admin, legal and other expenses, as we have begun to work down and sell off assets and so forth, that will slowly start to come down as the year progresses. And then the idle and closed mine expense, that one is difficult to forecast exactly when that will start to come back down because that's going to require the sale and transfer of some of the sites that we have. So for purposes of a projection, I would leave it sort of the way it is for right now, but realize that overtime that will be working its way down.

Okay and then if I go back to its first table again, the other operations number, the 4.1, what are we doing with that in the second half?

Most of that is going to come out. Because almost all of that is essentially gas and timber. And when we go to discontinue operations this quarter, all of that will be removed from continuing operations and that will show up down in discontinued operations.

Okay. And then lastly, back to Michael your comments about the second half is always stronger, so if we looked at the relative relationship of the 36.7 to the 960 million in revenues, that relationship is going to look better in the second half. It's about 10.2 % margin and that's what you're trying to tell us is that that 36.7 will get bigger faster than the 960 will grow.

That's correct.

And lastly on this buck 10 to a buck 30, I guess I'm a little confused. If everything were equal, you kept everything, you own all the business still, you didn't sell anything, where would the guidance be in the context of that buck 10 to buck 30?

Well, as Michael said, we're not going to be framed in a press release thing go to the lower end so if everything was still in this I am assuming we are going to the middle so are we going to the middle or the upper end ?. In the press release the way we worded that was to tell you that's what the guidance had been at the end of last quarter. We did the guidance at the beginning of the year and last quarter purely because of the issue of coming off discontinue operations in coal and how important it was to try and make sure that we got the street calibrated thinking along the lines that we were. We traditionally do not give guidance. What we're saying in today's release is that with the change in accounting, with the quantification of the costs that we at Brink's for severance and restructuring this year, in addition with the questions we have about the relative strength or lack of strength in the U.S. and European economies that we have discontinued it. Okay. Just for something to chew on, you all can think about, I mean, all the earnings estimates that are out there in this company are well below that buck 10 to a buck 30 so I'm trying to put that in context as to what you think is going to happen in the second half might be an interesting follow along conversation.

Okay.

Anything further Mr. Hoffman?

That's it, thanks.

Well take our next question from David Harrowit (ph) from David J Green and Companies.

Hi, guys. Notwithstanding the confusion on some of the numbers here, it's nice to see you guys making pretty good operating progress across the board. With respect to BAX, can you speak a little bit about other strategic alternatives that you might be investigating other than this freight forwarding operation?

We have two or three that we're dealing with, David, but it's just not appropriate until we actually are at the point where we're ready to disclose those activities. As we said at the end of the call last quarter example is the forwarder, which we have launched, have tested, it was all sort of systems issues. We have a couple others that we're working diligently on. They don't come about, but as soon as there's something that's got some meat on the bone we'll announce it.

Fair enough.

Thank you.

Thank you.

And Jeff Kessler has---- a follow-up question.

Thank you. Just a couple of quick questions follow-ups. Bob, you know, as you know, I've been a little bit picky ---- about your pension experience last year and I know these are only annual number you can't give me anything but can you give me some assurance that your pension experience so far and that experience has been is better this year so far than it has been last year.

Yes, we're heavily invested basically 70/30 between equities and bonds, so clearly our investment experience has been much better this year than we've seen over the last couple of years and we're encouraged by that.

Two other questions both related to your ancillary businesses. Mike, could you speak a little bit about, number one, breaking out how large your ancillary business if you, however you choose to define them in Brink's or relative to the traditional CIT business and how they are doing? You mentioned them briefly in the first part, but now, given that there must be about 50 % of your revenue base here right now, it's probably important to get into them, which once are doing better than the others. Finally, if you can just give me some idea, I realize they're apples and oranges we're comparing here. The second is ancillary business what we'll call your forwarding product in BAX, what are the margins on that business relative to the basic overnight business?

Well, first of all, the Brink's business you're correct, is probably about a 50/50 split between what we call our core businesses and our auxiliary businesses. We do comment on each one of them in my earlier remarks, what was happening with global services and coin, --- safe and cast logistics which are performing very, very nice. What's a little bit flat is the ATM and CIT. I would tell you that's pretty much a U.S.-based comment. In Europe, the currency logistics side of the business is a little bit slower in the first half of the year with the problems in Europe and Middle East conflict and the economy there. Where ATM seems to be doing a little bit better in Europe than it is here.

So I would assume then, if you're saying, you take a look at your U.S. business, overall, with, which was not really the driver this time around, clearly your ancillary businesses in the U.S. were doing very well relative to a, we'll call it just a very modest CIT business in the U.S.

That's correct. That's correct. As far as BAX goes, I would tell you that the service we're offering in this forwarder product is an airport to airport service, Jeff, which is different than our normal door-to-door service that we play and so the yields are less than our door-to-door yields, but they're still very, very attractive for us, especially with the capacity utilization we have available.

Okay.

Okay?

Okay, great. Thank you.

Thank you.

Gary Steiner (ph) with England Asset Management (ph) has our next question.

I have a number of follow-up questions. Let's just start first in terms of Brink's in Europe, is the work there basically done and now it's just a matter of sitting back and waiting for some of the benefits of the actions you took in the first half of the year to come to fruition in the second half or is there a lot more work there to do?

Jam I would tell you there's always a lot of work to do in the service business, it never stops. I'm not happy with where we are in the UK and Germany specifically and there's still a lot of activity there. We've had some realignments, management changes there. We have to digest these acquisitions that we did in Belgium which will be an important initiative for management in the second half of the year. I would tell that you I'm pretty pleased where we find ourselves in France which is a big driver of all of Europe due to the size of the other organization. And economy there seems to be picking up and of course it's vacation season in France now, so people are on holiday. That's actually good for our business. But I would expect that the heavy lifting is done. But there's still some work to be done and management is focused on accomplishing those goals.

Do you see overall for Brink's across the different geographies, once Latin America finally does began to see some economic improvement and margins will recover at some point back to the levels that they used to be at, which I believe, were north of 8%?

Yes, I do believe that is the operating performance where Brink's should be at and you know, these difficult economic times we've lived with, especially Latin America, those margins tend to be higher. We expect those to come back to normal levels when things normalize there.

Okay. A couple of other things, in terms BAX, your closest competitor in that business has also experienced, obviously, very disappointing results. A couple of questions related to this. I mean, one is, they've recently expressed their frustration with the business and sort of indicated that over the next few months, they are also going to take some aggressive actions in that business. I think one of the things that they've explored is either sharing their hub or combining with somebody else. In terms of the actions that you're looking at, is one of those actions that you guys can just combine your businesses and you know take out capacity that way?

No, I don't talk to the competitors, so I really don't know what's in their head or what they're doing. I'm worried about what we can do and what type of services and value added products that we can run through the system. We are accepting other forwarders freight through our hub system. We haven't turned anybody away, if other people are interested in doing that, we would obviously look at that to utilize the capacity that we have.

Okay. I mean does it make you wonder given that the economy doesn't seem to be getting a lot worse in the last few months, but yet, the business is deteriorated both for you guys with the exception of July as well as for your closest competitor, does that make you wonder whether the secular shift of this deferred product is a little more intense and happening faster and that's sort of, you know, the value equation of that is reducing the value of your existing infrastructure in that business and you know the business won't come back at some future point?

That is a concern. Except I will tell you for almost 60 days, with the advent of our forwarder product, we are more than pleased what we've been able to accomplish with our great service levels that we're providing in the organization. It's attracted some forwarders who understand the service equation and are willing to pay the rate that we require to be on our network. And we're providing almost flawless service for them and we expect that product to grow and that could change that dynamic.

Okay. And then could you just talk generally at BHS, which is the crown July here, gets very little attention, in terms of, are you seeing material benefits from, I guess, to the larger players in the business, maybe being less active in terms of acquiring subscribers, particularly, thinking about ADT and protection one?

There could be some benefit just because of a focus, the Brink's Home Security management team and group and business process and strategy is clearly well defined. The execution there is very, very strong. And seems to improve. Anything that management chooses to focus on and it has continued to demonstrate as a first class management effort and maybe some of the competitors because of the other issues that you referred to have lost some of that focus. But at the end of the day, we know where we're going, who we want to be our customers and what service levels are and we're just executing day end, month end quarter end and we'll continue to do so.

Okay. Great. Maybe just one final more of a comment than a question. I guess you're getting out of the business of giving guidance and you sort of went through, you know, sort of why you're doing that. I guess I would just offer up a different perspective as a pretty meaningful shareholder. It's pretty hard to keep track of all of the different activities that you guys are involved in. And I think particularly at a time like this where you're selling some stuff and the numbers are in flux, any guidance or thoughts that you can provide, I know you did a lot of that by segment, but it's still very hard to aggregate it all, so any thoughts that you guys have on what all that means to the bottom lib is real little helpful to the investment community. Michael Dan: I note your comments, it's a very, very complicated company, and we're simplifying it as fast as we can as you know and at the same time have increased our disclosures to help that process as much as we can. But your comments are understood and appreciated.

Great. Thank you. Michael Dan: Thank you.

We will take our next question from Brad Evans (ph) with High Rock Capital (ph). Brad Evans: Good morning.

Hi, Brad.

Just curious if you could maybe, Bob could speak to maybe, just think about as we close his, what we should think about for net leverage at the end of the year? Michael Dan: You mean for is the company as a whole? Yes, sir. Michael Dan: That's going to be a decision that we're actually not going to reach until very late in the year. Because as we've already told you, we're going to put 50 million of the amount that we pick up from the gas sale will go into the VEBA. We're probably going to make a contribution of some sort during the next quarter or so associated with our pension plan. And then the balance of it will go probably towards debt reduction until we figure out what our tax position looks like and frankly, we won't have a real clear picture on that until late in the year. Probably around the time where the closing of the other transaction, the timber transaction takes place. So, in the interim, we'll be looking at all of those factors and but also looking at the business needs and the potential growth prospects of the company and we'll make that decision later on. Okay. Very good. Thank you. Michael Dan: Thank you.

That's all this time we have for questions. I'll turn the conference back over to our speakers. Michael Dan: Thank you, everyone for joining us and for your interest in the Brink's Company, look forward to talking with you soon. Thank you. That does conclude today's conference. Thank you for your participation. You may now disconnect.