Brinks Co (BCO) 2005 Q1 法說會逐字稿

Good morning. My name is Charlene, and I will be your conference facilitator. At this time, I would like to welcome everyone to The Brink’s Company first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a Q&A period. (OPERATOR INSTRUCTIONS).

I will now turn the call over to Mr. Scott Dudley, Director of Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone. Appreciate you joining us for our first quarter 2005 earnings conference call. I’m joined today by Michael Dan, our CEO, and Bob Ritter, our CFO. They will both have some comments about the quarter and then we’ll open up the call for your questions.

Before that, a couple of quick details about the call. Our press release is available on The Brink’s Company website at brinkscompany.com. You can also get it via fax by calling 877-275-7488. There will be a replay of today’s call starting this afternoon, running through Friday, May 20th. The replay number in North America will be 800-642-1687, or for those dialing outside North America, 706-645-9291. The conference ID for the replay is 5671400. A replay of today’s webcast will also be available on our website at brinkscompany.com.

And now let me read our safe harbor statement. This call, including the Q&A 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 SEC, including our most recent Form 10-K. The information discussed on this call is representative as of today only, and The Brink’s Company assumes no obligation to update any forward-looking statements made. This call is a 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.

With that, let me turn the call over to Michael Dan.

Thanks, Scott. Let me also extend my welcome to those of you who have joined us today. This morning, we reported improved operating results with solid increases in revenue and profit. Earnings per share for the first quarter, which is typically the weakest quarter, were down year-over-year, reflecting 2 non-operating factors. First, last year’s results included a one-time pre-tax gain of $4.4 million and the allocation of the VIBA. And second, this year’s tax rate was unusually high, as we recorded about $2.8 million of valuation allowances.

The Brink’s Company’s revenues for the quarter were up 12 percent to $1.2 billion, and operating profit came in at $36.8 million, up about 9 percent from last year. Brink’s, Inc., Brink’s Home Security, and BAX Global all posted double-digit revenue increases and improved cash flow.

Brink’s Home Security continued its strong performance and BAX started the year with an improved first quarter. However, operating performance for Brink’s, Inc. declined, as European performance did not match a quarter a year ago.

Earnings from continuing operations for The Brink’s Company were $15.8 million, or 28 cents per share, down from $17.2 million, or 32 cents per share, for the previous period. Net income per share was 24 cents, down from 47 cents a year ago. Last year, we had a sizable gain on the sale of a timber operation in the 2004 quarter.

I’ll now comment on each of the business units starting with Brink, Inc. Brink’s revenue increased about 11 percent, driven by international operations. This top-line growth reflects mainly higher volumes and a 3-percentage point benefit from foreign currency exchange. International revenues rose 16 percent for the quarter while North American revenue was up modestly. Brink’s operating profit came in at $30 million, representing a margin of 6 percent. Excluding 2002, which benefited from the work related to the introduction of the Euro, our first quarter 2005 margin at Brink’s was about the same the average has been since 2000.

Now looking at international operations. South America, operating profit was up 16 percent, and margins were strong, reflecting revenue growth of 15 percent on higher volumes. The primary driver was, again, Venezuela, our largest operation in the region, as market conditions remained favorable.

In Europe, revenues were up 18 percent, or 13 percent excluding the currency effects. This strong revenue growth primarily reflects our acquisitions in Greece, Luxembourg, Scotland, and Ireland, as well as volume growth in France, Brink’s largest European operation. Global Services also experienced higher volumes and helped boost revenues. However, the operating profit in Europe was down by more than one-third, compared to the prior year, due to lower volumes and revenues, especially in the Netherlands and Belgium. This is mostly caused by loss of some large contracts.

In Asia-Pacific, revenues were flat and operating profit was down slightly compared with year-ago levels, but operating margins remained the strongest among our 4 geographical regions.

In North America, operating profit was flat versus a year ago, and a 3 percent revenue growth in the U.S. and Canada, which included the modest benefit of foreign exchange on Canadian revenues. Profit was impacted by higher employee benefit costs, which were expected, as noted in our 10-K.

Regarding the outlook for Brink’s, Inc., overall, we should be able to grow our revenues and improve operating margins in comparison to the first quarter. We believe our target margin range of 7 to 8 percent is still reasonable for the full-year 2005. We expect there will be some drag in the second quarter from restructuring and severance costs, but this will pave the way for the better second half performance.

In North America, our value-added Cash Logistics, CompuSave Services, should maintain their solid growth while traditional cash and transit and ATM services, which make up the bulk of our business, will improve with better market conditions in Canada and the U.S. despite competitive pressures. As we noted last quarter, operating profit in 2005 will be impacted by higher employee benefit expense, including an increase in pension costs of about $6 million in the United States.

Internationally, we plan to continue looking for opportunities to add to our presence and penetration, particularly in Europe. In February, we completed the acquisitions in Luxembourg and the U.K. Last Friday, we acquired security operations in Eastern Europe that expands our cash-handling and processing services into Hungary, Poland, and the Czech Republic, an area that we have wanted to expand into.

But in Europe, we also have work to do in several countries – France, the Netherlands, Belgium, Germany, and the U.K. – to ensure that we are fully capturing our top-line growth opportunities and translating them into solid operating profit performance. We have a lot of integration work to do relating to these acquisitions.

South America, conditions are stable at the moment and we don’t see anything on the immediate horizon to change that. Asia-Pacific stands to show growth over the course of the year, driven by strength in Global Services.

Now, turning to Brink’s Home Security. They had yet another record quarter, operationally and financially. New installation volumes grew 15 percent. Our customer retention, already very strong, further improved year-over-year, with a disconnect rate declining to 5.8 percent, the lowest level since 1995 and a notable improvement from the 6.4 percent in last year’s first quarter.

Subscriber growth was 11 percent year-over-year, and we ended the first quarter with about 947,000 subscribers. At this rate of growth, we expect to reach 1 million subscribers in the fall of this year. The continued strong growth in customers validates our multi-channel approach to subscriber acquisition, including our branches, our effective dealer network, and our growing Home Technologies Division, which provides pre-wiring for new home builders. Thanks to strong subscriber additions, revenues grew 12 percent, operating profit increased 16 percent to a record 22.5 million in the first quarter. Monthly recurring revenue grew to $27 million at the end of March, and cash flow was once again strong. Overall, another great performance from Brink’s Home Security.

The outlook for Brink’s remains bright. The market potential for monitor security is excellent. As we’ve noted on several occasions, the market penetration for home alarms is still less than 25 percent. As we have all seen, single-family home construction has been robust over the past decade. In fact, in 2004, there were 1.7 million new homes built in the U.S. Brink’s Home Security has been successful in capturing business through the effective mass marketing and subscriber selection, proven customer acquisition channels, and best-in-class customer care and monitoring.

Last month, we announced the selection of Knoxville, Tennessee as the site for our second monitoring center, which will provide capacity for future growth and enhance our reliability and backup capabilities. We expect Brink’s Home Security to continue to post good growth in subscribers, revenues, earnings, and cash flow. We are actively building our capabilities and presence in the commercial market, which is an additional growth opportunity for us in the future.

Now, moving to BAX Global. BAX posted another quarter of improved year-over-year performance in its 6th profitable quarter in a row. Strong performance in March helped overcome a rather slow start in January and February. In the quarter, revenues were up 12 percent, or about 10 percent if you exclude the currency effects. The improved top-line performance reflects growth in Asia-Pacific and higher U.S. freight volumes, as well as higher fuel surcharges. BAX posted operating profit of $8 million in the first quarter, up substantially from the $3 million a year ago. This positive performance reflects strong results in Asia-Pacific as well as modestly better returns in Europe. BAX’s supply chain management activities posted growth in revenues and profits. As you know, we are focused on increasing the size of this part of our business where profit potential is higher.

Now, looking first at the Americas. Revenue increased 11 percent on 5 percent volume growth in domestic freight and U.S. export activity. Our domestic freight operations posted a 7 percent increase in revenue, led by the wholesale freight forwarder service, which saw volumes revenue more than double compared to the first quarter of 2004.

We saw a mixed performance for expedited services, however. While our guaranteed overnight product posted a 20 percent revenue increase, this was more than offset by lower revenues for the standard overnight service. Customers appeared to shift towards lower-priced deferred products, as evidenced by an 11 percent increase in our BAXSaver product.

Along with higher revenues from intra-America shipping, U.S. export revenues also grew more than 10 percent. Despite these higher revenues, however, the Americas posted an operating loss of $3.4 million, reflecting the shift away from the higher-priced overnight shipments. As you know, this is very typical for the first quarter. Service levels, however, remain very, very strong, and ATI performed well throughout the quarter.

On the international side, revenues grew nearly 15 percent. Currency effects accounted for about 4 percentage points of this increase. The Asia-Pacific region was, again, the growth driver, with a revenue increase of 19 percent due to the strong increase in air exports and the robust supply chain management activity. We were pleased to see this improvement in operating margin as well. Although European revenues grew almost 7 percent, about a third of the increase was operationally driven. The majority was due to currency exchange rates.

International operating profit grew significantly to $14 million from about $9 million in the prior quarter last year, mainly due to strong results in Asia-Pacific and some better performance in Europe. Overall, a positive start for the year for BAX.

As far as the outlook for BAX, we believe the Asia-Pacific will remain a strong market for exports, supply chain services, a market in which we are very well-positioned. We also believe that Europe, the U.K. in particular, have a brighter outlook in 2005, and BAX will be working to enhance sales efforts to gain its share in an improving market.

As you know, the first quarter is usually the weakest for BAX. And although first profit improved, we are not yet satisfied with the margin performance. We look for that to improve over the year through our own efforts and strong economies.

In summary, Brink’s, Inc. will pursue growth in its traditional armor car operations while expanding value-added solutions, like cash processing, valuables logistics, where growth and margin potential is higher. For BAX Global, the focus will be on further improving the utilization of our integrated domestic freight transportation network while increasing the relative size and scope of our supply chain management businesses around the world. At the same time, we’ll continue to reduce the asset intensity of our business, which will support our goal for BAX during its cost to capital.

BAX is strong in Asia and we’ll work to build on this success and favorable customer relationships we’ve enjoyed in this large and expanding market. We believe the economies in the U.S. and Europe will get better. We are not certain about the degree or pace of that improvement. We expect Brink’s Home Security to continue to build on its excellent operational and financial success with growth for revenues, profits, and new subscribers, sustaining in 2005 at the rate of 10 percent. Overall, The Brink’s Company’s growth, performance, and financial position continue to improve.

Now, for some additional comments on our finances and results, here’s Bob Ritter.

Thanks, Michael. As usual, I’ll make a few comments about the businesses and our costs and expenses to help you with forecasting. Then I’ll finish up with information on our financial position and cash flow considerations.

I would first like to emphasize a couple of points that Michael made about the quarter. Last year’s EPS from continuing operations of 32 cents included a one-time $4.4 million pre-tax gain, as we assigned the VIBA [ph] to cover post retirement medical benefits. On an after-tax basis, you can see that that was pretty significant. In addition, this year, our tax rate is pretty high for the quarter at 46 percent. We recorded some non-cash valuation allowances on some European tax benefits. And since our full-year expectation is for a 38 percent rate, you can see that this, too, was a factor. All in all, operating profits were up about 9 percent year-over-year. This is part of the reason why Michael told you he expects to see a pretty good year.

Looking at the second quarter, we expect good performance at Brink’s Home Security and BAX Global. I want to remind you of what Michael said about Brink’s. Margins for the quarter just ended were 6 percent, about the average we’ve seen for the last 5 years, excluding the year of the Euro conversion. However, we expect that we’ll incur some restructuring and severance costs in this year’s second quarter. But this should help make for a stronger second half.

The acquisitions we have completed should ratchet up Brink’s revenues by approximately $100 million or more on an annualized basis. The effective tax rate for the full-year 2004 came in at about 39 percent. I now expect 2005’s effective rate to, again, be about the same or maybe a little lower at potentially 38 percent.

Finally, I would like to make a few comments about the Company’s cash flow and debt position. I’ll start with deprecation and amortization. The quarter’s depreciation and amortization hit $45.4 million, in total, divided among Brink’s at $21 million, Brink’s Home Security at $14 million, and BAX Global at $10 million.

Looking ahead for the full-year of 2005, we’re still expecting Brink’s to be around $90 million. Brink’s Home security should be in the $55 to $60 million range, and BAX about $40 to $45 million or so. In total, the Company should see about $185 to $195 million depreciation and amortization this year.

As for CapEx, spending also came in heavier than normal for our first quarter of $92 million, with each business up sizably over last year. But we expect it to slow into more normal patterns for the balance of this year. But we still see the year’s total spending to be just about where we said it would be. In total, spending for Brink’s Home Security in 2005 should be in the $155 to $165 million range, up slightly from previous estimates based on their view of subscriber growth. At Brink’s, we expect spending to hit $85 to $90 million for the current year. BAX Global should run from $40 to $50 million. All in all, spending in 2005 for The Brink’s Company is currently expected to run about $285 to $295 million.

As for financings, we ended the quarter up significantly with outstanding debt of about $280 million. Combining this with roughly $135 million in cash, the Company’s net debt was about $145 million at the end of March, up almost $70 million from last year-end’s figure. Receivables sold in the asset securitization facility were only $25 million at December 31st, but up to $63 million by the end of March. In summary, financings, net of cash, were just over $205 million at the end of March, up from the $100 million level at year-end. The major factors in this growth were the $40 million in acquisitions we made and the higher levels of CapEx.

As we said during our last teleconference, in 2005, we expect to once again generate solid cash flow. As we demonstrated during the first quarter, we will be putting this to work growing our businesses and positioning them for the future through prudent capital investments and acquisitions.

Charlene, that’s all I have for now. We’re ready for questions.

(OPERATOR INSTRUCTIONS). Jeff Kessler, Lehman Brothers

First question is with regard to some of the one-time gains from last year in the first quarter, so we can get a better comp against this year. I just want to make one quick comment, Mike, about 2 years ago, I screamed at you guys for getting a 4 percent margin, maybe it was less, in Brink’s. I know that some people are disappointed, but the margin bounces up and down in this business and the questions I have don’t have to do with the margin because the margin was acceptable in the quarter, even though it might not have been quite as high as we expected. There was a $4.4 million gain with regard to the VIBA, but there was also a $2.8 million tax valuation allowance gain in the first quarter of last year. Am I right in hearing that?

Jeff, you’re right about the first part. We did have, in 2004, we had a $4.4 million gain. We had pickup when we assigned the VIBA from being a Company asset to an asset, only paying those post-retirement medicals. At that point, we were required by GAAP to record the previously unrecognized investment gains that we had in the VIBA. So that was a one-time event and you saw the effect in last year below the line.

Last year, we had a couple of adjustments, not adjustments, but we had a couple of things that made our tax rate about 40.5 percent.

Right.

Primarily, state taxes and so forth running through there and a couple of other minor issues. But this year, we had a $2.8 million valuation allowance, which was a negative. It actually increased the reported taxes that we had for the quarter.

Okay. So that’s where the big difference in the tax rate came for this year.

Yes, sir.

Okay. On Brink’s itself and the operations, Mike, in the past, you have complained about competition, particularly when it comes to North America, particularly up in Canada. Having just spoken to a couple of -– sat down with a couple of private security companies, I’m a little bit concerned that it isn’t just Dunbar but a whole slew of folks, including Loomis, which is not run by Jim Matley [ph] anymore, who had the same vision as you, may get a little bit pricey here. I’m just a little bit worried that if this first quarter becomes a trend that you are going to be fighting pricing and walking away from business throughout the course of the year. Because, clearly, it sounds like Securitas is trying to get more aggressive in trying to get business, even as they sell you businesses. And that’s one of the -- that’s my third question is describe the businesses that you bought from them. So one question I have for you is are you worried about pricing in the alarm business for this year with regard to some of the prospects that you’ve been talking about in terms of the growth and your optimism on growth? And number two, can you describe the type of businesses that you bought from Securitas in Eastern Europe?

Okay. Jeff, there are about 10 questions there.

Well, I tried to make it -- I tried to get it down to 2. The first was just a statement.

All right. Let me give you some comments and try to give you some perspective from my thought process here.

Because I know you know something about the armored car business.

The armored car business in North America is pretty competitive. It has been in Canada for the last 2 or 3 years. Although I do see that starting to ease. There has been some consolidation going on, which we have not participated in. I think that will help the competitive situation there. But more importantly, we had walked away from quite a bit of bank business up in Canada a few years ago and we’ve had some success last year and I think we have some great opportunities this year to have that trend start to reverse itself because those 2 and 3-year contracts now are coming up for renewal and the service quality levels are not to the level of satisfaction of the marketplace. So I am bullish on where Canada is going to go in the second part of this year and going into next year.

In the United States, there is a very, very competitive atmosphere and it’s been going on in the last couple of years, which is reflected in our flat revenue growth in that marketplace. But we understand the business, we’re steering the course, and we walk away from business when it’s appropriate. It’s painful when we do, needless to say, but once again those things are cycles and we are starting to see that cycle start to reverse itself and we are starting now to see some revenue growth in North America and we have to steer the course on pricing. At the same time, we’ve been impacted by quite a large increase in our pension costs that we have disclosed before, which has affected our results a little bit. But we have recovered most of that cost. And I would say that through the balance of this year and into next year I think we’ll be able to handle those in an increasingly intelligent way and the marketplace will come back to the Brink’s way of thinking.

I would tell you in Europe it’s a little different situation. We’ve had some large revenue losses in Belgium, which is mostly volume related, just been structural changes in that market. And in the Netherlands, we lost our major contract. We’re going to have make adjustments for those and handle a restructuring in some of those countries, which takes a little longer time, and as you know, is much more expensive than it is in the North American, Latin American marketplaces.

Is this a question of you walking away from business because somebody is just bidding at a level that is going to just take -- I mean is this something that you have to worry about in Europe that you now have a competitor who has finally gotten their act together and is willing to underbid you on a lot of business?

Jeff, every market is different. And the particular ones that I was addressing, in the Netherlands, it was really a pricing dispute where somebody tried to enter the market at a dramatically lower rate and we walked away. And I will tell you that the competitor that did that did not get the work, but it drew down the pricing in the marketplace where somebody else found it attractive. It was a difficult situation for us, but I think we made the right strategic move and we’ll have to address the issues and go forward. One of the advantages of Brink’s is we’re in over 50 countries. We have these situations that tend to develop here and there, but we have enough other countries that come through and cover the shortfall, which is why our results are basically holding steady. And we’ve demonstrated that in the past and we’ll continue to demonstrate that in the future.

Of course, on the alarm side of the business, which I think was one of your questions, I don’t see any issues or any difficulties. We continue to execute our strategy. I’m very pleased with the performance. The disconnect rate was just great. Our business lines are growing in all 3 of our metrics. Customer growth, recurring revenue, and revenue growth profit is just right in the sweet spot. It will get tougher and tougher to make improvements, but, as you know, we return our cost to capital and those are the 2 business units that we’re investing our capital in, our shareholders’ funds.

Okay. One last question. And can I question you on the alarm side? You don’t have to grow the business at 12 percent, but are you finding that -- your CapEx expenditures and, I don’t know what your cost of generating -- your creation cost on the alarm side was because I haven’t had time to figure that out, but the key here is your CapEx was up significantly on the alarm side, your growth was higher than it has been in a while, do you have to grow, I know this sounds heretical to the investors on the phone, but do you have to grow the alarm business at 12 to 13 percent? Isn’t 9 and 10 percent better to optimize your cash flow?

Jeff, don’t be confused. The cash flow and CapEx of home security were affected by the acquisition of our headquarters in the Texas area, which we’ve [inaudible-multiple speakers] on a synthetic lease.

Okay. Oh, right, right, right. I see that in the footnotes there.

Right. And the second thing is is the business is operating so well and we’re growing so fast that there is that investment. But I will tell you that our investment in acquiring new accounts is holding steadily or improving over the last couple of years and we continue to have an efficient operation doing that. So, quite frankly, if I could grow it a little bit faster, if we had the financial wherewithal to do so, it’s the greatest VIBA we’ve got, and I’m very, very proud of what we’re doing.

Michael Hoffman, FBR

I have to ask the tough question. You got a letter from an investor group about 2 weeks ago, suggesting that you ought to sell BAX. Can you talk to us about what you are doing with regards to that request by your now largest shareholder?

Sure, Michael. As you know, we value all the views of our shareholders and we appreciation that, like us, MMI, who is our largest shareholder, and a very good shareholder by the way, recognize the excellence of our operations, our market positions, and the management group and how we’ve steered this investment through. And like any company, we have a number of challenges and opportunities and we have plans in place and we’re working to address those challenges and capture those opportunities. We’ve been very, very transparent to our shareholders what our strategies are and we’re continuing to pursue those.

We believe we’re on the right path and we’re taking the right steps to make sure we create that long-term value for our shareholders. That said, we’re always reviewing our businesses to see what makes the best sense to drive that value and we’ll continue to do so. We value that input. We’ve heard that input before. Come to think of it, I think you’ve outlined some of those concerns and some of those analytical approaches in the past and we will give serious consideration to all of these views. And that applies to the MMI letter. The normal process in our Company is to do so, and we will do so, in a normal course of business.

Okay. Talking about the U.S. mix, what gives you confidence that that mix change shifts back to better quality revenues so that you get decent profitability on the U.S. operation?

There is a mix change going on, Michael, and, of course, the first quarter is always the weakest and we only make money in the first quarter of the last couple of years. We’ve always made the money in the second and third quarter, mainly in that business, the fourth, with the economy picking up last year, strongly. But there is this mixed issue. I think that the improvement in the guaranteed overnight product, which grew nicely in the first quarter, that was a good surprise. Unfortunately, the standard overnight product fell off a little more than we thought. Once again, it’s in that fixed cost model. The good news is that fixed cost model continues to reduce and we’re down to like 20, 25 percent of our revenue. It’s going through that fixed cost model. So our strategy is in place. We continue to execute it. I was a little disappointed in the margins in the United States in the first quarter, but our strategy seems to be working. We seem to be able to create value there. I think it’s helped our stock price. And I think if we continue to execute that we’ll continue to do just what we’ve always said, which is improve BAX, make our cost to capital, and create options to do the best long-term interest of our shareholders with that investment and that asset.

All right. And just to clarify for myself, several of you have talked about in the past that you need to be about a 4.5 percent operating margin in order to cover your cost to capital. It would seem it’s an awfully deep hole to climb out of with the North American operation having this mix issue, even as strong as Asia is. And so if you don’t get to 4.5 percent on a full-year basis in ’05, when do you? Because you had one of the best economic years in this business in ’04. We’re in a stable economy in ’05. When do you?

As I commented on the last conference call, I told you I didn’t think we would hit that in 2005. 2006, which, of course, is dependent upon the economic performance of the economies around the world, I think, with the strategy we have today, we could hit those particular marks. And that’s what management’s strategy is and that’s what we’re trying to execute against to once again improve the value of this organization.

You once shared with me that you had done this fairly hefty restructuring in ’00 in that business and that you were going to wait out an economic improvement to prove out that the restructuring was the right move. And certainly you seemed to have gotten evidence of that last year, but are you satisfied with the rate of improvement at this point, given how deeply you cut in that business in 2000 and then the level of volume improvements that you saw in 2004?

Yes, I think where BAX is, considering where we went through the difficulties with the economic situation in 2001/2002, which was a delay, I think BAX is back on the normal track of the rate of improvement that we had hoped for.

Okay. To Brink’s in Europe, Prosegur [ph], out of – I may be pronouncing that wrong - out of Spain, somewhat of an upstart armor company and then you’ve got Loomis with Securitas guys, are they just willing to buy business at this point? Are we going to face an ongoing pressure in your smaller countries? And when do they sort of try and hit you in France, I guess, given --?

I’m not sure what all their strategies are, but Prosegur just announced publicly that they are pulling out of all of northern France and heading south with all their businesses because of a very competitive and difficult situation. I mean, obviously, our major competitor in France was a company called Loliance [ph], which was taken over for pennies on the dollar after it went through almost liquidation by Securitas, which I think helps stabilize that marketplace a little bit. But you know we are the leading provider in that marketplace and we have an excellent management team. We’re doing a good job. And I don’t think the competitive pressures in France are going to be as difficult as we’re experiencing in some of the other countries like Germany, Netherlands, Belgium, etc.

But some of our acquisitions that we just made, especially in Luxembourg and in the U.K., are going to strengthen. There are some good synergies that will come through after we go through the integration, which is going to take probably the balance of this year. And the opportunities that we have with the recent acquisition announced in Eastern Europe are exciting for us because our customers in western Europe have been after us for years to expand into those countries. And we think we are going to be able to build upon our existing relationships and the business space we bought there will be more successful than the seller has been able to demonstrate in the last few years. And we’re excited about that.

Okay. And then for Bob Ritter, just some modeling issues. You’ve said you think you’ll do 38 percent taxes for the full-year. Did I get that right?

Yes. Our numbers right now, we’re looking at our projections for the year it looks like we’ll be coming in around 38 percent.

And should we model that right in to get there second, third, and fourth? Or are there issues on the tax side that we’ve got to reflect in the second because of the restructuring?

No. Any restructuring costs that we should have in the second quarter we should be able to reflect to our tax rate.

Okay. And the first quarter ’04, $4.4 million gain, is that an after-tax number?

No. That’s pre-tax.

Pre-tax. So what’s the tax-adjusted number, so –-?

That was a U.S. item. The tax effect, we probably had state tax benefits for it, so I’m guessing it’s probably close to the statutory rate here in the U.S., which is 35 percent.

Okay. And then your corporate overhead number was up a bit in this quarter. Can you talk a little bit about what’s going on there?

Sure. If we had known last year, at the beginning of the year, how much Sarbanes-Oxley might cost us, I think we probably would have been accruing at a little higher rate. As we went through the year, the estimates that we received from both our outside providers and our audit firms, as they learn more and more about what was going on, it kept going up. So we were more back-end expense for those items last year. We know it’s going to be, although we think the number is going to come down this year, we know it’s still going to be a relatively high number. So we’re taking more -- I was going to say aggressive, but it’s because we know more now, we’re making sure we accrue more in the beginning of the year.

Okay. And then it looks like, based on what you’re sharing with us, that we’re going to get sort of a repeat of last year’s model, which is somewhat even for the second quarter, a little bit better in the second, and then significantly better third, fourth. Is that the right way to think about the business model?

Yes. That’s the way we’re looking at it.

David Campbell, Thompson, David & Co.

Questions; one, Bob, I think you mentioned acquisitions at Brink’s will be cumulative of $100 million of annual revenues. How much of the $100 million was effective in the first quarter?

Relatively small amounts because the acquisitions that we did in Luxembourg and Scotland came in in March. And then Ireland was done earlier in the year, but Ireland is not a very big player for us. And the other acquisition that we just did was obviously after the end of the quarter. So, you saw a little bit of influence in this quarter. One of the things we’re looking ahead, starting in the second quarter, we’re going to try to break out what’s coming out of acquisitions versus FX and organic growth for you to make it a little easier to understand.

Earlier, Mike, you mentioned, it was in the press release, I guess, too, that domestic shipping volumes on BAX were stronger at the end of the quarter. Most of your competitors and most of the trucking companies have said that the early Easter holiday cost them some business, deferring it into April. But you don’t seem to be saying that. You seem to be saying that the growth rate at the end of the quarter was better than earlier in the quarter.

That’s correct. That’s what we saw.

What do you see in April?

April started out reasonable volumes.

I mean up from last year?

Yes.

Ed Brea, Sterling Capital

Just a couple of questions from me. Within the Brink’s Home Security Division, the capital spending, can you just break down where the different capital buckets are going within that division?

In Brink’s Home Security, if you look at it on a normal year, we probably have anywhere between $3 and $7 million, which we spend on regular capital that you might be familiar with – software, desk furniture, and the rest of that stuff. Most of the rest of our capital goes into subscriber acquisitions. But this year, we have already spent a little less than $11 million acquiring our home office and our call center down in Dallas. We are going to spend, in total, including that amount, over the year roughly $25 million, because we’ll be spending an additional amount to set up the Knoxville site. That will be spread out over the next quarter or 2. So this year, you are going to see about $25 million more than the norm being spent in Brink’s Home Security.

The second question is related to the BAX Division. I think you all probably also received a letter from our firm regarding looking at strategic options for BAX. But you mentioned that the Europe and the U.K. are potential, I guess, market opportunities for BAX for additional growth. I’m curious as to the magnitude of the spending that might be required to generate that growth and what kind of opportunity you’re seeing over there for BAX.

Most of that growth opportunity is coming on the supply chain and logistics side of the business, which will cause some CapEx, as we ramp up, but they are with our longstanding customers. We’ve had great success in Asia-Pacific and we’re growing with them. Just the exact type of business that we want to further solidify BAX’s profit potential.

And so my understanding is, within BAX, the Asia-Pacific traffic was always, I guess, the structure of the business model was always very –- much more profitable that the domestic model. Would the model you’re trying to achieve over in Europe and the U.K. be consistent with that international model?

Yes, it would be, very much so, because we don’t operate at that fixed cost lift operation that we do in North America.

So what kind of incremental investment are we considering?

We don’t disclose the individual. BAX’s CapEx for the year are supposed to be around I think $40 million, which is up a little bit from last year, financing the profitable growth.

So that would include that number?

Yes.

Yes, it would.

James Clement, Sidoti

Bob, I wonder if I could ask you a quick question. I don’t know if you disclosed this. I don’t think you necessarily did, but in terms of the restructuring and severance costs that you guys expect to incur in the second quarter, do you have an approximate dollar value of what you plan on spending?

No, we don’t have that yet, because part of it revolves around our discussions. Actually, first of all, the complete review of our businesses over there and then our discussions with the unions and making sure that we’re taking all of the appropriate actions. So we will have to work through that number. And if it gets to the point where it looks like it’s going to be significant, we will make an appropriate disclosure at that time.

That then feeds into my follow-up question. I think in just sort of how you were describing it, you talked a little bit about some of the weakness in the Netherlands and Belgium, but is it fair to assume that some of this restructuring is going on in other countries as well. It sounds like it, correct?

Those are the 2 primary focuses, but, obviously, there are a couple of other little pockets that Michael wants to make sure we’ve looked at. But the 2 that he mentioned are the key.

Just another follow-up, just about BAX in the U.S. The standard overnight product, what did you say that that declined this quarter?

I think it was about 10 percent.

Okay. Do you attribute higher fuel prices as being the main driver in that, or are there other things going on? I mean just how sensitive do you view that product?

There is an effect of higher fuel prices because the surcharges get to be so material that it makes it more attractive for people to move freight to BAXSaver type products, which we saw also with an 11 percent in volume there. Yet, on the other hand, our emergency overnight guaranteed product was up 20 percent. We will have to get things there, step up to the plate and pay it, even with those fuel surcharges.

Jerome Lundy, Millbrook Capital

My question is on BAX. In the quarter, it looks like we -- well, we don’t have access to working capital information, but it looks like what we have it was cash flow positive by less than $1 million, maybe, and I understand you expect it to do better the rest of the year. But one of the things that you’ve talked about in terms of your rationale for holding onto it would be the cash flow you are going to generate from it. Nothing so far. And I understand you expect it to do better, but what can we reasonably expect there and is that still a valid rationale?

And then the second piece is you mentioned improving utilization for the ATI fleet. What can you really do to do that. I mean, obviously, you don’t control the economy and you’ve already grounded some planes and maybe there is more that you can do there, but what specifically improves that utilization [inaudible] capital?

I’m going to try to answer the second question first while Bob tries to get the information in his fingertips to answer the first question. And it was concerning the ATI utilization?

Yes.

Okay. There are basically 3 areas of business we do with ATI. Half the planes fly roughly half the fleet for BAX’s domestic network. The other half does some U.S. military work, we call charter work, [inaudible] charter work. And we measure their success basically, their launch efficiency, and we’ve been maintaining very, very high service levels, not only for BAX but for our government and ad hoc charter work throughout the quarter. The utilization of their fleet is very, very high. In fact, some of the capital spending that we see at BAX this year has to do with pursuing our strategy is maintaining as flexible a model as we can, and actually we bought some airplanes rather than lease them because it made more financial sense for us to do and it increased our financial flexibility on return conditions and those types of things. So we’re very pleased with where we find ourselves with ATI and their performance within the group.

Where specifically do you expect to increase utilization and how?

Utilization of the fleet is how much -- first of all, we have capacity on the airplanes and how much we up-sell to the guaranteed overnight product and how fast we are able to continue to expand, which we’ve been doing at a 20 percent growth rate of our freight forwarder product, might be able to keep those planes full. And the fuller those planes get, the more opportunity we have to up-sell the guaranteed product. And that’s what’s had an effect on the improved performance in 2004, and we expect it will have an even greater effect on the performance of BAX in 2005.

No, I understand that and I agree with you. If you increase capacity, you’ll do much better, or you increase utilization you’ll do much better, but what is going to drive that increase in utilization?

Volume.

So just the economy doing better?

And the growth of those 2 business lines. The growth of the freight forwarder product that’s growing to 20 percent a year, which is very, very valuable for us, has made a big difference. And then, once again, as that capacity tightens on the planes, our ability to increase yields by going to the guaranteed overnight product.

Okay. Got it. And did you want to come back to me on the first question? Do you have an answer, or --?

Yes, Jerome, in fact, I’ll come back to you on 2 different points there. All of the information that we have related to cash flow and so forth is in our 10-Q and we’re in the final quality review process of going through that and we would expect that we’ll be filing it, I don’t think it will be done by this afternoon, but certainly by tomorrow, it will be filed. So you’ll be able to see all of this in the normal detail that we provide for you. But as it looks right now, BAX has seen their working capital go up a little bit during the quarter, but obviously that’s driven somewhat by the profitability and the revenues that we’ve seen in Asia. But they are going to be -- after you net out the AR securitization, they should be breakeven or better on a cash flow basis in what is typically their worst quarter.

Okay. And then for the full year?

For the full year, we would expect they should be cash positive.

But you can’t give us any information as to, even if you don’t want to talk about operating figures, what you expect it to do from a working capital basis?

It will be –- let me take a look at the number that we had in our 10-K. I think what you should do is go from there and look northward because we expect our profitability to go up. But as you look at the 10-K last year remember that the operating cash flow that came out of BAX looked lower than it really was because last year our AR securitization dropped from, if my memory serves me correctly, $72 million at the end of the prior year down to $25 million at year-end. So you had that factor making it look as though BAX’s cash generation from operations was less.

Wayne Archibo, Black Rock

I just wanted to follow up on an earlier question related to the letter that’s been sent to you. Could you give us some timeline as to when shareholders would see a response from this letter? You did not give any timeline. Obviously, we don’t want to see this go into perpetuity.

Well, we have a normal process in our Company of being totally transparent with what our strategies are and where we’re going, which we have communicated, I think, very clearly and effectively in the past. If that strategy changes, we would also communicate that with the same transparency we’ve had in the past.

So does that give me any sense of a timeline with respect to a response to this letter?

Once again, there is a normal process that takes place in this Company and we’ll review all of these things and if there is a change in our strategy we will communicate that appropriately to all of the shareholders.

What is the normal response time that you would expect in response to this letter?

We receive letters or comments from shareholders on a regular basis, which we take very, very seriously and take into consideration as we go through the normal process of our Company at the management and board level and we will treat this in exactly the same way.

So just to ask it one more time, what is the normal response time of such letters?

We don’t have a response time to any particular shareholder view that we receive in the mail. We receive these all the time. We value them very, very much. We take them very, very seriously and will be part of the standard process of running our Company.

So you’re not going to give us a timeline basically is what you’re telling us?

I’m trying to describe exactly the process that we always use in the operation, management, and governance of this Company and that it will be done in the normal due course.

What’s due course? 60 days? 2 years? I mean I just wish you would be more specific.

I don’t think I can be any more specific than I have, and I’m not trying to be argumentative, but every time we receive a letter from a shareholder we take it, we distribute it, and handle it in an appropriate manner and we are handling this the same way. And other letters that we have received that a previous caller mentioned have also been handled the same way.

I think this shareholder represents the feelings of a lot of shareholders of your stock and the frustration to unlock value and I think you have an obligation to the shareholders on this call to give them some sense of your sense of urgency in response to this letter.

We have shareholders who share that view, we have shareholders that have different views, our job is to manage the process, the best creation of long-term value for our shareholders, and we’re going to do it.

Chris Merenga, Dibelly, Inc.

Could you give us a sense as to how much the fuel surcharges impacted revenue growth and to what extent that might have affected margins?

The biggest on revenues would, of course, been with BAX Global, just because of the percentage of fuel cost. About 80 percent of those get passed through to the customer base, and 20 percent of them we struggle with the late time. But I don’t have the exact figures that would be, but it is material-affected in the last quarter.

This will be in our filing when we come out with our 10-Q. For the North Americas, just to give you a little help on that, the number looks like it’s going to be in the 9 percent range. We just have to make sure that’s the final one, as we finish our quality control checks. But that will -- you’ll be able to look that up in the 10-Q when we file tomorrow.

I’m sorry. That’s a 9 percent increase in the fuel surcharge, or --?

About 9 percent of the revenues in the North American operations are related to fuel surcharges.

Jeff Kessler, Lehman Brothers

One of your growth drivers in the Brink’s, Inc. business in the United States has been the non-CIT business. All of what we’ll call Cash Logistics -- what am I missing here?

CompuSave.

Thank you. CompuSave and the like. With your competition in Europe trying to describe itself as anything but a CIT company, even though they are, I don’t know what they were – cash management, cash this, cash that – what is the current percentage of business in the U.S. that is non-CIT, what we’ll call value -- if you want to call it ancillary value-added outsourcing, and what can you take it up to -- Europe is obviously a lower level, but doesn’t that represent both a branding and a growth area for you in Europe, if you can get it?

Well, Jeff, once again, the base strategy at Brink’s is we have this asset base and we try to put as many revenue lines through it. So when you’re talking CIT, ATM, CompuSave, Cash Logistics, they’re all using the components of the asset bases of these. So it’s hard sometimes to separate revenue by line of business in this particular Company, number one. Number two, I would tell you that the, other than CIT, portion of the business is probably in the United States about 50 percent now, 50 percent CIT and 50 percent more value-added-type revenue.

And the opportunity in Europe to expand those services is attractive to us. I will tell you the Cash Logistics side of the business tends to be advanced in Europe than it has been in the United States, historically, because the bank consolidation that took place sooner and earlier in the European theater than it has in the North American theater. So CompuSave is a relatively new concept that we’ll be introducing into Europe. It’s really totally immaterial there at the current time. But Cash Logistics is a more sophisticated product in Europe than it is in the United States.

Does that mean that by having it more sophisticated does that mean that it’s a more mature business that is harder to penetrate, or is it a business that, simply put, that if you get into it the margins are higher or that the banks have already figured out a way of doing it? I know folks like Gunnebo and people like that have been selling the machines to everybody that they can find.

Right. Because the banks have outsourced sooner in Europe than in North America is the point I’m trying to make.

Steven Fisher, UBS

Just trying to get to the U.S. core volume growth at Brink’s, Inc. If you didn’t say it already, can you just tell us what that was or what the Canadian foreign currency benefit was?

I do think we said it was about 3 percent. It was very minor. Let me just grab the right page so I can make sure --

Total North America was a little over 3 percent. And the currency piece in Canada, it was a secondary piece of it, so it couldn’t have been a material amount.

The actual U.S. business, was that down year-over-year?

No, the U.S. business itself was up year-over-year.

It has been relatively flat the last 2 or 3 years and we are now beginning to see that trend change.

Okay. Just on the acquisitions, can you give us a sense of when we might expect them to be accretive?

I would say latter part of the year, fourth quarter, first quarter of next year. The integration costs have to take place, re-branding, those types of things will be running through. But we’ll see good benefit from those the last quarter or the first part of next year at the very latest.

Okay. And then just following up on a Cash Logistics question. The last quarter you said you had a contract in process. Where does that stand? I think that was a financial institution. Where does it stand? Would there be some benefit there in the next quarter or 2?

Yes. We are in the process of assimilating those different operations over a scheduled period, which will go on for the balance of this year.

And does the pipeline continue to be filled with new projects there in the U.S.?

Yes. We have more and more interests developing on that side of the business and we continue to ramp up and add resources to be able to handle those in an efficient way.

David DeGroff, MFS Investment Management

I was wondering on the Brink’s international side, operating profit was down $2.3 million there. How much of that was from the 2 markets you specified – I think the Netherlands and Belgium?

I would tell you the vast majority of it.

And could you just talk about how easy it is to restructure the businesses to get back to an acceptable margin?

It’s a more difficult process in Europe, needless to say, with the social contracts we have, but we have a very experienced management group in Europe that has dealt with this in the past, both upsizing and downsizing. I would tell you it would probably take anywhere from 2 to 4 months to complete the process.

So the margins in the other core European entities were flat or up?

Yes. Relatively flat, I would tell you.

Okay. Was any of that a write-off of stranded costs from losing the contract, or --?

No.

No, we record the costs associated with a contractor expense as we incur them.

At this time, we have reached the allotted time for our Q&A session. Mr. Dudley, will there be any closing remarks?

No, thank you, Operator, I just want to thank everybody for joining us today and we’ll be available today for follow-up questions or questions we didn’t get to. Thank you.

This concludes today’s Brink’s Company first quarter earnings conference call. You may now disconnect.