Brinks Co (BCO) 2005 Q4 法說會逐字稿

Greetings ladies and gentlemen, and welcome to The Brink's Company's fourth quarter results 2005 conference call. At this time, all parties are in a listen-only mode and there will be a question-and-answer session following the presentation. [OPERATOR INSTRUCTIONS].

As a reminder, this conference is being recorded and will be available for replay on dial-in number 877-660-6853, or for international parties, 201-612-7415. You will be asked to enter an account number. That number is 286. You will also be asked for a conference ID of number 191961. The replay will be available until February 23, 2006. I would now like to turn the conference over to your host Mr. Ed Cunningham, Director of Investor Relations.

Thanks Megan and good morning. My name is Ed Cunningham and I recently joined the company with responsibility for Investor Relations. I want to thank you for participating in today's call and I look forward to working with you in the future.

Joining me today are Michael Dan, our Chief Executive Officer and Bob Ritter, our CFO. As in the past, Mike and Bob will each make a few comments and then we will open it up for questions. Before turning it over to Mike, I will cover a couple of details and our Safe Harbor statement. Today's press release is also available on our website at brinkscompany.com. If you want the release faxed to you, call this number, 877-275-7488.

Now, the 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 Forms 10-Q and 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 express written permission of The Brink's Company. With that, I will turn it over to Michael Dan.

Thank you Ed. Good morning and thank you for joining us today. As you know, we completed the sale of BAX Global for $1.1 billion on January 31. After we paid fees and taxes related to the sale, the transaction would generate net proceeds of about $1 billion.

As we said in last week's announcement, the bulk of the proceeds would be used as follows. 225 million has already been used to further fund VEBA. We intend to pay down up to $185 million of our long-term debt. In fact, we have already paid down the first 46 million of this amount. And pending consideration and approval by our Board of Directors, we are studying the potential expenditure of $400 to $600 million on share repurchases.

The divestiture is an important one for us. It enables us to focus even more intently on enhancing our core competencies in security related businesses, and with the VEBA funding, it also significantly reduces the balance sheet and operating performance effects on the legacy liabilities. Also, with a much stronger balance sheet and the strong cash flow of The Brink's Company, it gives us the capability to further enhance the value of the Brink's brand name through continued expansion and acquisitions. An added benefit, is that going forward, The Brink's Company should be easier to understand and hopefully easier to value as a pure play security company.

I will now review the fourth quarter results from continuing operations, which exclude BAX Global. Fourth quarter income from continuing operations was 3.2 million or $0.06 per share, down from 16.5 million or $0.30 a share in 2004. Revenues rose 9% to 663 million, with Brink's up 9% and Brink's Home Security up 14%.

Operating profit declined 32% to 24.1 million, down from 35.3 million one year ago. There was a decline in profits at Brink's Incorporated. We also reported slightly lower profits at Brink's Home Security. In addition, the effective tax rate for the quarter was unusually high. Bob Ritter will elaborate on this in a moment.

Obviously, we were disappointed by results in the fourth quarter, which is normally a strong period for us. In fact, the month of December is usually one of the strongest at Brink's. For a variety of reasons, this December was weaker than usual and this had an unexpected, but a substantial impact on results for the quarter. Before getting into more detail, I want to assure you that we are highly focused on improving the operations and we expect to see a solid rebound in our 2006 financial performance.

Now, I'll comment on each of the business units starting with Brink's Inc. The 9% revenue increase at Brink's was driven by International operations. Revenues also rose 9% due to a balance of organic growth and the effects of acquisitions made earlier in 2005. North American revenue was up 7% on higher volumes in ground operations, and particularly Cash Logistics.

Brink's operating profit came in at 25.2 million, down from the 41.9 million in last year's fourth quarter. The biggest disappointment was in International operations, where profits came in at 14.7 million, down from 26.7 million in the fourth quarter of 2004 due entirely to much lower than expected performance in Europe.

Profits in North America were 10.5 million, down from 15.2 million a year ago. This decline was mainly due to higher vehicle cost, pension costs in the US, and continuing effects of Katrina. In addition, results in both North America and Europe were also hurt by higher safety and security cost.

The full year operating margin at Brink's was only 5.2%, down from about 7.5 in the previous year. Although 60 to 70 basis points of the drop came from severance charges and restructuring costs, the end result is still unacceptable. We are focused on improving performance and controlling costs, particularly in our European operations, and we expect our operating margin to rebound towards 7% in 2006. Percentage revenue growth should be in the high single-digit range.

Now, I would like to look more closely at our International operations. Revenue and profits were up in all regions except Europe, where sales were essentially flat year-over-year after excluding the effects of the acquisitions and a weaker euro in 2005 versus the prior year's quarter. European's flat revenue performance reflects substantially lower volumes in the Netherlands, Belgium, and Ireland. France was even a little soft versus the very strong revenues of a year ago. Germany, while showing improvement, remains challenging.

Europe's operating profit was down substantially, as the flat volume and higher costs, including cost for safety and security and additional cost of restructuring and severance expenses of about $4 million, combined to squeeze operating margins. Profits in France were down versus last year and as expected, we continue to struggle in the UK, Ireland, Netherlands, Belgium, and Germany.

We've taken aggressive action in Europe, including taking another $4 million in expenses related to severance, restructuring, and management changes. Europe will be the single biggest operating focus for management in 2006 and the key to returning towards our 7% operating margins.

South America was a bright spot for us. Sales and operating profit were up nicely. The continuation of favorable market conditions in Venezuela, our largest operation, were amplified by improved performance in Argentina, Chile, and Colombia. In Asia-Pacific, revenues and operating profit also improved over last year on good showings by Global Services.

In North America, operating profit declined 31%, despite a 7% revenue increase on higher levels of business in Cash Logistics and ground operations. The profit decline was a result of flat volume and higher vehicle and pension costs, as well as some higher safety and security expenses. Katrina cost has also contributed to the decline, as we must book expense now and we will not be able to record our expected insurance proceeds until later this year.

Now, for the full-year summary. Revenues at Brink's for all of 2005 totaled 2.2 billion, a 12% increase over 2004. Operating profit margin of 112 million for a margin of 5.2%.

Regarding the outlook, in 2006, we expect a strong profit recovery at Brink's, and we built upon continued sales growth and margin improvement, particularly in Europe and North America. It is important to keep in mind that restructuring and severance costs recorded in 2005 amounted to almost $15 million. We expect annualized savings to be in the $9 million range, with about 6 million of that being felt in 2006. Most of this benefit will come in our European operations.

Internationally, we are highly focused on improving performance in Europe. We expect to begin reaping the benefits of continued integration of the acquisitions we made early last year. As I mentioned earlier, our restructuring efforts in Ireland, the UK, Belgium and the Netherlands should yield considerable profit improvement. We will stay focused. In North America, our value-added Cash Logistics and CompuSafe services should maintain their solid growth, while our traditional cash-in-transit and ATM services, which make up the bulk of our business, should improve with better market conditions.

2006 operating profit in North America should also benefit by the $13 million from lower pension cost in the United States. I am confident that North America is headed in the right direction already. In South America, with the exception of Brazil, market conditions remained relatively stable. There are always risks there, but under the currency exchange rates, we don't see anything in the near term that would change overall conditions. In Asia-Pacific, our smallest region, we should continue to produce solid results driven by strength in Global Services. Focus would be on Australia, where results have slipped year-over-year and a major contract is up for renewal.

Now turning to Brink's Home Security. Fourth quarter revenues were up 14% year-over-year, as new subscribers continue to be added. Despite the impact of Hurricane Katrina, the average number of subscribers was up about 11% year-over-year. The faster pace of revenue and our subscriber growth resulted primarily from the rapid expansion of our home technologies area.

Operating profits declined about 5% versus last year's quarter. In most quarters, profit from recurring services increased substantially on a year-over-year basis. However, in the fourth quarter, loss revenue and higher costs from Katrina cut into our results. Although we have business interruption insurance to cover Katrina, we won't record its value until later. In addition, we are beginning to see costs associated with the new Knoxville facility begin to grow.

A small improvement in profits from recurring services was offset by increased investments in new installations, particularly in our new residential construction markets. The good news is this market has been growing very quickly. The bad news is that the initial installation and activations in new construction are more costly than our existing traditional home business, and we have been growing a little too fast in this area.

We have a plan that has already been implemented to better balance staffing levels with the rate of installations and with subsequent activations. However, this issue will probably continue to affect margins for another couple of quarters.

Hurricane Katrina also continues to temporarily affect performance. It cost us 4,200 subscribers during the third quarter, an additional 500 in the fourth quarter, for a total of 4,700 lost due to the hurricane. As I mentioned earlier, our insurance coverage is expected to insulate the Company from any material negative financial impacts, but accounting recognition of the insurance proceeds will be reflected in future periods.

On a more positive note, our subscriber base continues to expand and the fundamentals of our business remain strong, although costs are still a little bit higher than I would like to see. The disconnect rate for the quarter was higher than normal due to the effects of Katrina and the subscriber count reconciliation. But, having said that, without the effects of Hurricane Katrina, the full-year rate would have been 6.7%, basically in line with 2004. We intend to do all we can to keep the rate below 7%.

Subscriber growth rate was up 10% versus last year's fourth quarter. And we ended the quarter with a little over 1 million active customers, generating monthly recurring revenue of $29.1 million. So, cash flow continues to be strong.

We continue to achieve solid growth from all three key subscriber acquisition channels. In the fourth quarter, our branches accounted for over 75% of our new subscribers. Our dedicated dealer network contributed 17%, and our home technologies division, which provides prewiring for new home builders accounted for 8%. As I just mentioned, the cost and timing of new subscribers from the new homes side was not coordinated as well as we would like, so costs were a little higher than last year.

On a full-year basis, 2005 revenue at Brink's Home Security rose 13% to $392 million. Despite the disappointing fourth quarter results, operating profit at Brink's for the year was 87.4 million, up 8% over 2004. The effects of timing of the accounting recognition of Katrina's cost and the insurance proceeds also coupled with a little higher disconnect rate prevented meeting our profit goal of 10% year-over-year.

The outlook for Brink's Home Security remains bright. We have a very strong brand, highly effective marketing, and excellent service performance. We will use these strengths to focus on enhancing our industry-leading performance in the residential security market, as we build our technical and sales capabilities on the commercial side.

Our new customer care center in Knoxville, Tennessee will become operational this quarter. It will support our growing customer base. The Knoxville startup will generate higher cost, lower margins in the first two quarters of 2006. Nevertheless, I continue to expect Brink's Home Security to achieve the triple-double, that is double-digit growth in revenue, subscribers, and profit for the full year of 2006.

In summary, with the sale of BAX Global behind us, Brink's Incorporated will continue to pursue the market opportunities in its traditional armored car operations, while expanding further into cash processing, where the potential for revenue and margin growth is greater. As I said earlier, the percentage of sales growth in 2006 at Brink's should be in the single high-digit range and our operating margin should move towards 7%. We expect Brink's Home Security to continue to build on its excellent operational and financial success, with the 2006 growth in revenues, profits, and new subscribers at 10% or better. As a result, the overall performance, financial position and growth prospects of The Brink's Company should continue to improve.

Now, for some additional comments on the results and financial position, here is Bob Ritter.

Thanks, Michael. I'll begin with some comments on the fourth quarter and the full year's performance for 2005 and point out some things that should be kept in mind for forecasting performance in 2006. First, with the completion of the sale of BAX Global, the revenues and operating performance of BAX have been reclassified from continuing operations to discontinued operations for all periods presented. For more information on the reclassification of results, I'd like to call your attention to the Form 8-K filing we made on Monday this week. And for those of you interested in seeing how BAX Global performed, you can see the fourth quarter and full year's pretax earnings related to BAX Global in the schedule of income from discontinued operations on page 9 of today's release. While recovering discontinued operations, we reached an agreement with the US Government to settle our claims for refunds of Federal Black Lung Excise Tax payments in the fourth quarter, and expect to receive the agreed upon $15 million shortly.

Looking ahead at discontinued operations for 2006, besides reflecting BAX's results of operations for January 2006, we expect to record an after-tax gain on the sale of over $400 million during the first quarter. In later quarters, we will adjust the gain based on post-closing adjustments called for in our agreement with Deutsche Bahn.

Now, to finish up on the BAX Global sale. As you know, we retained Air Transport International, the airline which supported BAX Global. We expected to complete the sale when the final regulatory approval is received. We will receive only nominal compensation for it and we do not expect to see any significant impact on operations from operating ATI in the interim.

Now, turning to Brink's. As Michael said, a disappointing fourth quarter. Europe was problematic once again with relatively flat revenues and high costs. Almost $4 million was recorded for severance and restructuring, and the total for the year for restructuring and severance at Brink's was almost $15 million with much of it in Europe.

Looking to 2006, although we do not yet have as much momentum in Europe as we would like to see, we do have reason to expect a good rebound. First, we don't currently see the need for any significant restructuring and severance charges. So, the $15 million drag on 2005 results should be greatly reduced, if not eliminated. Second, management expects the actions being completed in Europe will improve costs by at least $6 million in 2006 with an additional $2 to $3 million when we hit the full annualized run rate. Finally, in the United States, with the pension plan now frozen, net pension cost should decline about $13 million from the 2005 level. So, between Europe and the US, there is almost $35 million in easily identifiable cost improvement.

Now, at Brink's Home Security, the fourth quarter's performance was not what we have come to expect from Brink's Home Security. During the quarter, we were still seeing the effects of the extremely rapid growth experienced in 2005 for the new home sector. The upshot of this growth was excessive costing. But, as Michael noted, actions have already been taken to bring growth in this area into greater control.

On the recurring profit side, the loss of revenue from sites destroyed or abandoned as a result of Hurricane Katrina cut pretty hard into the quarter, probably in the area of $1 million. We expect to be reimbursed for this, but we will see the income associated with it only when we settle our business interruption claim in the future. Higher bad debts and expenses related to the Knoxville startup also reduced earnings.

On the disconnect rate side, let me remind you that the impact of Katrina was outlined in the text portion of our release today. In addition, a reconciliation of the subscriber counts led us to cut the number by 5,300. This pushed up the fourth quarter rate. But looking at the full year, with Katrina at 7.2% or without the effects of Katrina at 6.7%, customer retention remains a strong point for Brink's Home Security.

Looking to 2006, as Michael has noted previously, the Knoxville startup will probably pull down profits during the first half of the year, but we should see that effect tapering off as the year goes on and we are able to optimize the workload between our Dallas area and Knoxville facilities. In addition, net pension expenses should come down about $2.5 million or so year-over-year.

Costs from former coal operations were down substantially in the quarter just ended, as we recorded over $6 million in gains, primarily related to the formal transfer of retained liabilities. The full year had almost $12 million of gains, which partially offset the normal level of recurring expenses. I expect only minimal gains to be recorded from here forward, so our base expense will jump in 2006.

On the positive side, with the addition of $225 million to the VEBA and the chance to generate income on this contribution for 11 months, we'll see the credit against medical expenses grow significantly, reducing expenses in 2006 by $16 to $17 million.

Looking at corporate expenses, we are still going pretty hard despite the closing of BAX Global, and I would expect our efforts will continue at the current level for several months. But, eventually, we will see professional fees and other costs start to come down as we become more efficient and adapt to our new smaller corporate size. The pension freeze will cut costs by about $1.5 million.

Partially offsetting these positive effects, however, will be the startup of option expensing, which will probably hit corporate by $4 to $5 million during 2005. In other words, as the year progresses, we will see how much of a reduction we will be able to achieve. But certainly as we start the year, the run rate will not be much different from that recently experienced.

Now, let me cover taxes. The fourth-quarter tax rate in continuing operations was higher than one might normally expect for two reasons. We repatriated about $49 million from Brink's international operations, and after paying US taxes and netting out credits, the net effect was to add $3 million to our tax costs. Losses in the fourth quarter in business units in countries where we have established valuation reserves against net operating loss carry-forwards were high. And so as a result, we do not record an offsetting benefit for these losses, and most of these units were in the European operations. As performance improves and we normalize things, I would expect the 2006 tax rate to be around 40%. We will study this further and provide an update for you in our Form 10-K filing.

Finally, I would like to make a few comments about the Company's cash flow and debt position. I will start with depreciation and amortization. Looking at full-year 2005, Brink's came in as expected at around $90 million and Brink's Home Security was right in the middle of expectations at $58 million. In total, the Company's 2005 depreciation and amortization on continuing operations came in at just under $150 million.

Looking to 2006, we expect Brink's depreciation and amortization expenses to be in the range of $100 to $105 million, and Brink's Home Security should be in the $63 to $67 million range. In total, the Company should record depreciation and amortization of about $165 to $170 million in 2006.

As for capital expenditures, spending in 2005 for The Brink's Company continuing operations hit $272 million. Spending for Brink's Home Security in 2005 was 162 million. And at Brink's, we spent slightly more than we previously expected due to the purchase of a branch that we originally thought we would lease, ending 2005 at $109 million.

Capital spending for Brink's for 2006 is currently expected to be in the range of $110 to $120 million. A good portion will go for IT spending to continue building our advantage there. And remember, Brink's Home Security incurred almost $20 million of spending in 2005 for its two call centers. Since this won't be repeated, we expect 2006 spending to be about flat at $160 to $165 million. Total BCO spending should be in the 270 to 280 million range.

As for financing, after eliminating cash and debt related to BAX Global entities, we ended the quarter with outstanding debt of about $315 million. Combining this with roughly $100 million in cash, the Company's net debt was about 215 million at the end of December. This was up from September levels, primarily to clean up inter-company payables between BCO and BAX Global, in anticipation of the sale of BAX. We allowed the asset securitization facility to end since it was tied to BAX Global's US accounts receivable.

Of course, with the recently completed sale of BAX Global, these figures on debt and cash will change dramatically. As Michael noted earlier, we have already paid down $46 million of debt and are working to finalize the pay down of up to $140 million more.

That's all I have for now. Megan, we are ready for questions.

Thank you sir. Ladies and gentlemen, at this time, we will be conducting the question-and-answer session. [OPERATOR INSTRUCTIONS] Jeff Kessler, Lehman Brothers.

Thank you, and I -- can you hear me okay, because I'm with a cell phone in an airport?

Yes, Jeff.

Okay. First, a couple of corporate questions. First, you talked briefly about the potential for a share repurchase and you have talked about this for a while, obviously. Can you give us any idea of the timing on this, and obviously you are not going to give us a date, but in the broader sense of time, what are you looking for here?

Jeff, the process is, first we had to close BAX to get the proceeds, which we have done and announced last week as you know. And the next step is to go to our Board of Directors with a recommendation with some investment bankers through our presentations on what we think is the best way to proceed and get their concurrence to do so. We would expect to do that in the very, very near future. And then assuming, which I fully expect to get the support of the Board, we will begin the process to have that happen hopefully before mid-year.

Okay. Second question is, with regard to the funding of the VEBA, isn't it to your benefit at some point to sit down with the United Mine Workers union or their lawyers and begin to discuss whether or not $400 million is adequate to them to cover their, either the net present value or what they believe is the long-term liabilities, and are you going to do that at some point?

Jeff, it's got nothing to do with the United Mine Workers anymore. This is federal legislation that says where we have to go, what these funding levels are going to be, and I can assure you that the interests of United Mine Workers are well protected at the governmental level.

So, we have nothing to do with talking with these people anymore. These are legal liabilities we have and we have to deal with them, and we have studied this thing to death. We know what the right funding level is, we believe we are very comfortable with where we've funded the VEBA to to-date and that that is adequate, and what we will be studying is whether we use existing cash flow resources of the Company or a combination of VEBA as we go forward to be the most efficient use of shareholder funds in the coming years.

Okay. Final corporate question. That is with regard to the refund that you will get on insurance, you are taking an operating hit right now to BHS. When you get those insurance proceeds coming back over the course of 2006, where are we going to find them on the operating line? Will they be below the operating line or are they going to be up in operations, just so we know when they do come?

Jeff, they will come -- in all likelihood they probably would come in either one or two very large hits, and they will show up in operating earnings.

Okay.

For both companies, Brink's Inc. and Brink's Home Security. There are claims for both companies Jeff. So it will be both companies.

Okay. Now just turning to Brink's operations in Europe. Clearly for the quarter, you were probably about 250 basis points below what we were expecting in terms of the margins. And so one of these factors is that you are lowering your expectation for margin for Brink's for next year, and you have obviously explained to us why you think those expectations are lower.

My question to you is, number one, is this a question of spreading better revenue over the cost structure you have? And if it is, is it beneficial for you to consider other types of acquisitions, ones that may be appearing right now so to speak over in Europe by getting some greater scale? Is that what might help you or is it simply cutting costs down on a per unit basis, because clearly the cost structure has been hurting you over there.

Jeff. Yes, yes, yes, no, no, no, are the answers to those questions. Jeff, it is different by country. The issues in Europe, it has been a very, very competitive environment in that we had dramatic losses of business, and just volumes of business for customers in some countries. So, the first issue is --.

What if you were to take out a major competitor?

If the opportunity presents itself that -- if it is good economics, we are always in the acquisition deal stream, we would consider that, but it depends on the country. The first thing we had to do was right size our operations. This is what we know how to do. This is what we are excellent operators at, and we have to face those costs.

And we run this business for the long-term shareholder value, not for the quarter-to-quarter, and this has been a very, very difficult year for Europe and by the way, a very, very difficult quarter. The entire shortfall on the International side operations of this Company came from Europe. That is because we have taken some aggressive actions, not only on the restructuring, but in management realignment and some management changes over there to address these issues, because this is what we know how to do and we believe this is in the best long-term interest of our shareholders.

Now on the acquisition front, we believe there are opportunities over there that could be of interest to us. We don't comment on whether we are involved in any of those things at all at the current time. We are (technical difficulty) viewing all the deal streams and we will continue to be looking for the best long-term use of our shareholder funds or debt capacity of this company.

Okay. One final question, then I will leave, and that is, on Brink's Home Security, you mentioned that you did perhaps grow a little bit too fast and perhaps a little bit too [thick] and obviously cost some in your new technology installation area, is it possible that you targeted or received growth rates, regardless of Katrina, got growth rates that were a little bit too high to make you comfortable to keep attrition down to the levels at which we have become used to. Does Brink's Home Security have to grow at 12, 13, 14%, can it grow at 10% and 9% and still satisfy your objective, because it is a lot easier to control attrition at those types of rates than it is at mid-teens types of rates.

Jeff, I think it is a good question. We are out of balance, not in our traditional business. We are out of balance in our home technology business, and because of the great success we are having in that particular business, and that is where we got out of balance. So, we have got to balance, there is a longer time between the prewires, the final installation, and the activations.

And I also think we are a little bit affected by the housing slowdown that is going on down in the Florida area in particular. We recognized that earlier this year and we have taken aggressive steps to slow that growth down by doing basically three things. Canceling of builders, who we didn't have the right economics as far as the activation rate is going. Two, raising prices in those areas where we felt we were out of balance. And more importantly, giving us some breather room to be able to catch up, because our turnover of our employees has been impacted. We've also had the Katrina impact, where there is so much demand for labor down there, people are paying [abnormal] rates for technicians and for construction workers and clean-up personnel, and we lost some efficiency.

So, I don't think the answer is slowing down the growth of Brink's Home Security. 75% of it is traditional business, we don't have any issues there. It's just on the home technology side. I think we've taken those steps, they are in place, but I believe that we can continue to efficiently and successfully grow Brink's Home Security in a triple double rate and you will see that. The Knoxville cost that we talked about at the last call, [which] impacted fourth quarter and the first two quarters a little bit and we would be right back on pace to have a triple-double in the year 2006.

Just needed some ammunition for when I'm -- I'm going down to Barnes Buchanan conference. So, they will be asking about that down there. So, thank you very much.

Thanks Jeff.

Wayne Archambo, BlackRock Capital.

Good morning. On the buyback, have you determined yet as to whether or not you are going to be buying in the open market or would be doing the Dutch auction?

We have not yet determined that. We have studied it to death and we will be going to our Board of Directors with recommendations for that. But, those decisions have not been finalized, but I think it's pretty obvious that a Dutch auction would be an efficient way of doing a major portion of the buyback.

Okay. And even after the buyback and the debt paydown, you are still going to have a pretty under-levered balance sheet to say the least. I mean, do you plan to deploy the capital in any meaningful way there at that point?

We will take a look at our balance sheet, our cash position, and our debt structure, and we will either continue to invest in growing the business that we have or look at additional ways to return value to our shareholders.

Okay. Final question, I remember about ten years ago, Clark Equipment had sold a division there, sitting on a lot of cash, and Ingersoll-Rand came in and acquired them. The point of my question is, with you sitting with this level of cash, do you feel at all vulnerable from being acquired, being approached, do you have anything in place to prevent that from happening?

First of all, we are not going to sit on this cash for very long. We are going to -- would be going with recommendations to our Board in the very, very near future to begin this process. The whole philosophy of this Company is, what we call [VEBA] based, getting return on assets, and having cash sitting in your balance sheet is not a very effective or efficient way to run our Company for our shareholders.

So, we've laid out our plan, we announced the sale of BAX and we reiterated it when we confirmed the sale of BAX, and we are going to steer that strategy and I believe we will get concurrence from our Board of Directors to proceed in an expeditious manner. So we are not in that position.

Thank you.

Bill Giese, Peregrine Capital.

Hi, I was hoping if you could help me get my arms around, if not your estimate for final insurance proceeds, what your estimates are for the Katrina impact on both Brink's and BHS?

We are still gathering all that information. The ballpark figure would probably be in the $1 million range for Brink's Home Security and Brink's Incorporated is going to be little more difficult, because we are still experiencing the effects of that. And therefore, the claim for that particular subsidiary hasn't been finalized yet. But, it will probably be more than the Brink's Home Security claim, but we just don't have our hands around that yet.

Okay. I know that it was something that you had mentioned on the Q3 call as well, at that point at least for BHS, your insurance coverage was insulating you. Can you just help me understand what changed quarter-to-quarter, or what -- was the impact different?

I misspoke, and I misspoke because in past history, when we had hurricanes, which was not the first time we've had hurricanes, we would put up a receivable on the balance sheet to offset the expense that we had. And the accounting pronouncements and the accounting view because all those insurance disasters that have taken place has changed. And we have been advised by our outside accountants that the best way to account for this is to expense the cost in the period and wait till you receive the proceeds, which is a little bit different than the understanding I had at the third quarter call.

Okay. And so, in the third quarter call, did you assume that treatment and now you get -- by reversing it, you get kind of a larger impact in Q4?

Although there are two pieces to that. Part of our insurance covers the actual loss of the sites themselves, and we have replacement cost coverage on that and that we have accrued the -- to cover the losses associated with the disconnects.

The other piece that Michael was just talking about was business interruption insurance and there was a minimal effect on that in the third quarter, and we had expected to have that -- have an offsetting impact during the fourth quarter.

Just one clarification, we believe that there is many parts to this business interruption insurance. There is the loss of the homes that no longer exist, which is one type of claim, and there's the expense that we are going to -- through the recovery of this whole process, and the insurance reserves for that in total would be around $7 million, in total.

Okay. Great. That is very helpful. I am trying to get a better sense of run rate. The last question I have for you on the Brink's business, can you just help me understand what are the factors that drive, in the US in particular, the higher vehicle expense and the safety costs that you referenced that aren't -- that changed inter-quarter that you didn't have visibility on this time last quarter?

First of all, as you know, the fourth quarter is the highest fuel spike we had. And we don't have a moving fuel cost average, we have a fuel surcharge we put into our customer base or we agree to roll in to the standard contract pricing. And during the fourth quarter, fuel costs, as you know, spiked to their highest levels, and that had probably a large impact.

The second had to do with a small spike in the amount of vehicle accidents we had and therefore the reserves we have to book against it. And the third factor was the pension expense, which is one of the reasons, as you know, we've frozen the pension plan at the end of 2005.

Can you quantify the pension expense piece of it for me?

For Brink's Inc., it is worth about $13 million after you net out the increase that we are -- because we did increase the defined contribution -- planned contribution we are making. So, the net effect is about $13 million for the year.

And in the Q4, in particular?

The $13 million is how much lower we expect 2006 to be. So, you basically would take one-fourth of that every quarter.

Okay. But, I know that it has been a couple of quarters in a row you've referenced pension expense impacting Brink's profitability, particularly in the US. I am just trying to get a sense whether sequentially it was meaningfully larger, meaningfully smaller, about the same?

What we do with pension expense is, we -- our actuaries determine what they think our full expense should be for the year and then we just basically cut it in four.

Okay. So that would be -- so then, if there was no sequential change, why is that highlighted in one of the things that impacted performance relative to plan?

We weren't talking about plan, we were comparing to the prior year.

Okay. Great. Thank you.

Craig Rosenblum, Millbrook Capital.

Good morning, guys. Most of my questions have been answered. But, I have a couple of things I just like to get a better understanding of. In Brink's Inc. in Europe, you talked about the large volume declines. Can you just give us a little better understanding of that, is it pricing, you are walking away from business, is it new competitors, what is going on there?

It is all. In Ireland, we suffered a strike and we suffered some loss of business as a result of that strike. In Holland, we lost our major customer, which actually took place early last year this time of the month.

In Belgium, we lost a good-sized customer. But, more importantly, there's been some heavy regulation put into that particular marketplace, which has caused the banks to lower the volume of services they are receiving, which has not only affected us, it's affected all the other operators.

And in Germany, I would say, it has been more the competitive pressure, not just this year, but for the last three or four years. But, those markets are changing. There's been some serious upheaval in the German market, which will benefit us. It gives me good confidence that things are happening in Germany, plus the management group that we have on the ground in Germany is proving to be very, very adept and I am very proud of them.

In Belgium and in Holland, Ireland and the UK, is where we have suffered the majority of these restructuring expenses, and we have just taken a tough medicine that we have to take, at a time we have to take it to run this business, and obviously we wish we didn't go through these fits and these changes quarter-to-quarter or year-to-year, but you have to adjust the size of your business and your cost structure to meet that. And in Europe it just happens to be very expensive to do so compared to other regions in the world.

Michael Hoffman, Friedman, Billings, Ramsey.

Hi, gentlemen. Debt paydown, incremental 140 million, what are your thoughts about the timing of that?

We are going to move on that as quickly as we can. Some of that has a notice period, and in some cases we are negotiating issues associated with that and in others we are waiting for the payment dates to come up on other debt that has to be paid down. But we are -- in addition some of it includes recapitalization of a couple of our international subsidiaries which has taken a little bit of time to arrange to move the cash over there and then they will be able to cut their debt down.

Okay, so for modeling purposes can we assume it has gone for three quarters, two quarters, how to think about it?

I would expect most of that Michael to be done by the end of this first quarter.

Okay. With regards to share buyback, Mike, I guess, when you answered one of the earlier questions, it seemed like maybe that was going to happen faster then they commented, but no later than mid-year. Clearly your [nuances as to the] philosophy of shareholder returns, return on capital.

Yes, Michael, the process is the final recommendation from management to the Board. The Board's concurrence is that we have the right plan and the right balance of the plan to do that, it is just the mechanics, and I believe very strongly that a Dutch auction will be used for a large portion of the buyback. The mechanics of putting out the prospectus and going through it just takes four to six weeks for that process to take place.

Okay, when does the Board get your final recommendations, say yea or nay so that you can then kick off this four to six weeks--

We don't publicize when we go to our Board meetings. But we are working very hard and very diligently with outside advisors and we will hopefully be choosing and recommending to our Board who we use to do this process as soon as we get through that process.

Okay. Just so I get this margin adjustment you are suggesting we should think about with regards to restructuring, Bob, it's take the European margins or international margin and just outright add 4 million back, is that the only thing you want us to sort of reset as we go into 2006?

No, I think when you look at 2006 and we can break that down. We have about $15 million worth of restructuring and severance costs and the vast majority of that, probably 12 million to 13 million landed -- probably in the 12 range landed in Europe. So, that will instantly come back into international. In addition, most of the $6 million in reduction and expenses that is going to come about during 2006, that Michael mentioned, should be in Europe. And those are the two big factors that are going to jump-start the international side, and there is the additional $13 million that we have pointed out before is going to aid the margins on the North American side.

Okay. So, the 15 and the 13, just add it together, divide by four and apply it on a quarterly basis? That is the way to think about it.

Actually we have disclosed that in our 10-Qs. So, we should actually be able to go back and tell you by quarter the severance cost and so forth. So, you will know exactly how that falls.

Okay.

The 6 million will be a little lighter in the first half of the year, but then it will kick in, you know, full speed by the middle of this year.

Okay. All right, great. And then with regards to Brink's Home Security. I guess the question is, if you had done the cleanup on the 5,300 subs on January 1, what would your fourth quarter attrition look like?

Probably down around the 6% range, slightly, probably 6 to 6 and a quarter.

Okay. And then to get this triple double, Mike, I get the sales numbers, that is easy enough, but if you are going to have pressure for two quarters from irrational exuberance on home technology, it means a pretty robust second half, help me understand how to model that?

Actually, Michael, I think it will be much easier than you think it is going to be, plus we'll have these insurance proceeds coming back sometime during the year. I don't expect to see those insurance proceeds go probably till mid-year or the third quarter just because of the process it takes and the experience we have had in the past of receiving those funds.

But, 75% of the Brink's business, the traditional business is right on track and growing at double-digit rates just fine. Home Technologies, now that we have slowed that process down, we are okay. You are just going to see little higher operating expense going through as we go through the startup and training of our new Knoxville facility, which opens next week by the way. But, that is going to add efficiency to our process. I mean, we are stuffed, we have extra facilities in Dallas. And by the third quarter, we will be exiting some facilities there and we will have a more economically efficient call center base in Knoxville than we currently have in Dallas. And so, getting to that is not as a big stretch that you think it is.

Okay. To get to it then means you are going back to margins that are -- EBIT margins that are going to be 23% again then, and that is the only way you can get there?

In my judgment, you will be getting back to those margins in the second half of the year, you won't see those in the first half of the year.

Okay. But that includes the benefit of the insurance, not--?

No. The insurance, in my judgment, will help offset being in the lower range in the first two quarters. I'd expect to be around the 20% in the first two quarters. I can't predict the timing of insurance payments and how that is going to affect margins. But, it will come in during the calendar year.

Okay. And then lastly, Bob, maybe this is in the press release, but by the time I dug through everything else, answered a million calls, I didn't get to the free cash flow analysis. What was your free cash flow in '05 and what do you think you are targeting for '06?

We didn't put a free cash flow number in there because we are still pulling apart some of that information related to discontinued operations. But, we would expect -- in the next few days, we are going to be able to file an 8-K that has a balance sheet. So, you will be able to see the -- how everything flowed through during the year.

Okay. And what's your thoughts about free cash flow in '06?

You can take the -- we have already told you what we think our depreciation and amortization is and we gave you the Capex. So, that is going to exceed our depreciation and amortization. So, the other piece of the puzzle that I guess you are looking for is cash taxes.

Yes.

And that one we are also trying to sort through because in the past, when we typically had $25 to $35 million a year in cash taxes, a part of that related to BAX subsidiaries and we are just trying to finalize that number, so we can give you a better idea. We should have that within, hopefully a week or two. Definitely it will be in the K.

Okay. Very good. Thanks.

Steven Fisher, UBS.

Good morning. Just to follow up on the recordkeeping issue at Home Security, the 5,300 accounts. I mean, is that routine, is that something you do every quarter, every year, and where was the reconciliation error?

It is some thing we do pretty much on an every-year basis in a great amount of detail. And basically, what we have to do is to make sure we match up all of our accounting records with all of our subscriber records to make sure that we have the most accurate count for you of the subscribers that we can depend on for getting cash in the future. It had -- almost it had very limited impact on the company from a P&L standpoint.

Okay. And is this something that is -- you have come up with a discrepancy in previous years and just not as big and now it is just a bigger number?

Yes, we have always -- last year for example, I think the number was probably less than 500 subscribers.

Okay. And then, just lastly, you talked about some strength in the cash logistics business. What kind of things, what kind of projects and contracts are driving the strength there?

We are growing at 23% rate in that business. We are having more and more success and starting to take on some of the larger financial institutions, back offices, and we just signed a major contract at the end of last year, which we are in the process of implementing. There was some effect in the fourth quarter in start-up costs, etc. But, that is going very, very well as we start this first year, and I expect that business to continue to grow at that rate and we are real excited about that business.

And do those contracts have a better margin profile than just the pure cash movement?

Absolutely. It's a much more sophisticated business, much more value-added business, and we've been building our capabilities and investing in technology to continue to be able to focus on that in the future. I think it will drive the growth of Brink's Incorporated in the next five years.

Okay, thank you.

David Campbell, Thompson, Davis & Co.

Yes, thanks. We began the presentation with a discussion about how December, the month of December, was a problem. And yet then, when we got into the discussion, it seemed like the whole fourth quarter was a problem. Can you elaborate on that?

The fourth quarter -- first of all, we are talking about Brink's Inc., David. The whole problem is in the European theatre. We've taken these aggressive steps late in the quarter of December and concentrated basically on restructuring and some management changes and severance costs that were necessary, and those all occurred in the December quarter, I'm sorry, in the December month of the quarter.

To give you some flavor, on a year-over-year basis, the International operations is off about $12 million. Almost 15 of that came from Europe because of restructuring cost, and a vast majority of that was a December issue for us. For the year, we are down about $27 million on International operations year-over-year, 32 million of that because of the restructuring cost and some of these performance issues and shrinkage in some markets was European based.

So, it's really those decisions you made in December that made that month so bad?

That's correct.

Okay. And you mentioned another $4 million of severance cost at one point. It sounded like that was in the first quarter, but then I take it it was not, it was in the fourth quarter?

December.

In December. Okay. And you bought a -- I mean, you bought several -- you made several acquisitions in Europe. So, it seems like an area of the world that you were interested in expansion, but you blame a lot of problems internationally obviously on Europe. So, can you explain why on the one hand you would want to buy these companies, and -- of course you eliminate competition, but other than that what's the reason?

David, where we purchased companies in Europe, and Luxembourg as an example has been a very, very successful acquisition. And we are not at all pleased with where we find ourselves with the small acquisition that we made in Scotland.

And the other acquisitions were in areas we did not operate in, in Eastern Europe, and those are new territories for us. The problems that we talked about that has caused these restructuring costs are in countries we've operated in for an extended period of time, basically Ireland, UK, Holland, and Belgium.

Okay, great. Thank you.

James Clement, Sidoti & Company.

Good morning, gentlemen.

Good morning.

Michael, I'm wondering if I can kind of get a sense of your feeling and how much progress you guys actually made in Europe in the month of December? I know -- typically, you see a seasonal drop-off in the first quarter vis-a-vis the fourth quarter in that division as a whole. So, X-ing out the pension savings and those kinds of things, I mean would you still expect to see the normal seasonal decline or did you accomplish enough thus far in the European operations that we wouldn't expect to see that same kind of magnitude in the first quarter?

Always you are going to see a drop in the first quarter in our business. Always the strongest are the third and fourth quarter, the first two quarters are down. I think we've made good progress. We are just getting the results in for the first month. They're not all finalized yet. And we have some countries that look pretty good and there are some countries that are still a little bit disappointing [although we were].

And Europe is going to be the focus. We've got management structure and reorganization, there are some changes we made, and management here including myself, we are focused on Europe because that's the issue. Everywhere else, I think the operations are efficient, or the plans and the activities we have planned are solid, and we have the management in place to execute them. *** AUDITING ENDS - 1:00:00 *** So, if Europe is the issue, we've got some great managers there and we did a reorganization to make it a little bit better. We've moved some people around and we had to move some people out. That has been accomplished and that's where we are focused.

I'd just ask a follow-up. Just to avoid any kind of confusion, I mean, so, you know, with the normal seasonality of this business it is quite possible that even with the pension savings, you could be looking at a sequential operating profit margin decline in that segment, right, before it starts to pick back up again?

From the first quarter of '05?

No, from the fourth quarter of '05 to the first quarter of '06. Like in other words, the results because of the seasonality make it a little bit worse before they get better?

It will definitely be better in Europe in the first quarter.

Okay.

Right. But there is some sequential, the rest of the business, I am not sure how it is all going to piece together.

Okay. You understand what I am asking there, right?

We are going to be better in Europe in the first quarter than we were in the fourth quarter.

Okay. In absolute terms, even EX the seasonalities, what you are telling me, right?

Yes.

Okay. Just another question. Bob, I don't know if this question maybe should be directed at you, but looking out past 2006, I don't know how far out your kind of your capital expenditure kind of outlook goes. But, I mean, it looks like you are probably going to be running close to $100 million Capex in excess of depreciation. I mean is this the kind of level that we should think about or at least on the Capex side kind of going forward, or should that come back in a substantial way and the follow-up question to that would be, I mean does this have any ramifications in terms of -- you guys manage your business on an EVA basis. So, are there any kind of cost-to-capital ramifications that you guys sort of see going forward here?

I will answer the first one. I think it is probably going to stay somewhere in that range. And the reason for that is the bulk of that differential between depreciation and amortization and Capex is occurring in Brink's Home Security, and we drive that on an EVA basis. Basically every time they bring a subscriber in, they are doing it, because I think that subscriber has a very high probability of being positive and we want to continue to drive growth in Brink's Home Security as fast and as hard as we can as long as we keep it under control. So, if you look at the Brink's Home Security piece of this, that is actually a good thing, because we are building more and more future cash flow into the company at a good EVA setup. And in Brink's, a big part of the differentials over the last couple of years, and I will expect it to run for a few more years as we are investing relatively heavily in the IT side, because if we are going to be as successful as we think we can be in Cash Logistics, we have to be better than everybody else, in the way we communicate and the way we control our operations. We don't want to have a situation where we are out of control there. So, we are going to continue to spend there, because that is a great business to support for the future.

Okay alright, thanks very much for your time.

You are welcome.

Gentlemen it appears that we are out of time for questions today. Would you like to make any closing comments?

No, thank you. I just want to thank everybody for sitting in on the call and we look forward to talking to you again and answering your follow-up questions. Thanks.

Thank you ladies and gentlemen for your participation in today's teleconference. As a reminder, this conference will be available for replay until February 23, 2006. The number to access this replay is 877-660-6853. For international parties, please dial 201-612-7415. After that you may enter account number 286 and conference id, 191961. Once again thank you for your participation. You may disconnect your lines at this time.