Brinks Co (BCO) 2006 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and thank you for holding. Welcome to The Brink's Company first-quarter 2006 earnings conference call.

A replay of today's call will be available starting this afternoon through May 17, 2006. The replay number in North America is 1-877-660-6853. Outside of North America, the number is 1-201-612-7415. The pass code for the replay is 286 and the conference ID is 199248. A replay of today's webcast will also be available on our Web site at BrinksCompany.com. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Ed Cunningham, Director of Investor Relations. Thank you. Mr. Cunningham, you may begin.

Thank you. Good morning. This is Ed Cunningham. Thanks for joining today's call. With me today are Michael Dan, our Chief Executive Officer, and Bob Ritter, our CFO. As in the past, Michael and Bob will each make a few comments and then we will open it up for questions.

Before turning it over to Michael, I will cover a few details related to the call. First-quarter earnings were released this morning. The press release is available on our Web site, Brink'sCompany.com. If you wish to have the release faxed to you, call this number -- 877-275-7488.

Now, our Safe Harbor statement -- this call, including the question-and-answer session, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from projected results. Additional information regarding factors that could cause actual results to differ materially from the projected results is readily available in today's press release and in our filings with the Securities and Exchange Commission, including our most recent 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 expressed written permission of The Brink's Company.

With that, I will turn the call over to Michael Dan.

Thank you, Ed. Good morning, everyone, and thanks for joining us today on our first-quarter conference call.

The first-quarter income from continued operations was $24.2 million or $0.42 per share, up from 10.5 million or $0.19 in last year's first quarter. Quarterly revenue rose 10% to 663.6 million. Total operating profit from continuing operations was 44.1 million, up 52% from the 29 million in last year's weak first quarter.

The improved results were driven by several factors. First and foremost, sales and profits increased at both Brink's Incorporated and Brink's Home Security. Profits at Brink's were 39.6 million, up 31% on a revenue increase of 10%. Brink's Home Security profits rose 4% to 23.4 million on a 14% increase in revenue.

Beside the effects of the revenue growth, cost savings also helped, including the impact of freezing the U.S. pension obligations, particularly at Brink's Incorporated, which contributed about $3 million. Expenses related to our former coal operations were substantially lower, thanks in part to the use of a portion of the proceeds from the sale of BAX Global, which funded $225 million as a contribution into the VEBA. Finally, we had net interest income of 1.1 million, versus net expense of 3.3 million last year. This 4 million-plus swing was made possible by the short-term investment of divestiture proceeds, which we also used to pay down a substantial portion of debt during the quarter. In a few minutes, Bob Ritter will provide more details on some of these financial items.

In summary, it was a good quarter with one exception, and that's our Brink's European operations, which have been struggling over the last year or so and unfortunately continue to do so. We expect results in Europe to improve this year but the strength and timing of the turnaround is difficult to predict. Despite this uncertainty, our outlook for the full year is basically unchanged. We continue to expect Brink's to generate an annual operating profit margin approaching 7% with percentage revenue growth in high single digits. Our full-year outlook for Brink's Home Security remains the same. We continue to expect annual sales and profit growth in this business to exceed 10%.

I will comment now in more detail. I will start with Brink's, Inc. As I mentioned, first-quarter profits rose 31% to 39.6 million on a 10% revenue increase. Revenue and profits were up in both North America and international operations. North American revenue was 201.3 million, up 8%. Operating profit rose 45% to $18.4 million. The strong results were driven by broad improvement in U.S. operations, especially in our cash-in-transit and ATM services. Profits in North America were also helped by a net reduction of about 3 million in pension expense. We also had lower safety and security costs, something which benefited international results as well. Revenue from the international side rose 11% to 357.6 million, reflecting increases in all regions. Operating profit was 21.2 million, up 20% due primarily to continued strong performance in South America. South America revenue rose 23% to a little over $100 million but profits were up 18%. Generally favorable results across the board were partially offset by a loss in Brazil.

Profits from our relatively small Asian-Pacific operations were flat on slightly higher revenues of about 18 million. Improved performance in Hong Kong and Japan was offset by lower profits in Australia. We are currently in discussions with a customer in the Asia-Pacific region regarding a potential discontinuation of service. Depending on the outcome of these discussions, we may record impairment and restructuring charges of up to $10 million, as well as some income tax valuation allowances.

Our biggest challenge in 2006 is Europe, where revenue was up 7% to about $239 million. The effects of acquisitions we made in the first and second quarters of last year were largely offset by the effects of the weaker euro. Operating profit for the quarter was slightly behind year-ago levels. Improved results in France and restructuring-related cost reductions were offset by continued weakness in other European countries, especially the United Kingdom, Ireland, Germany and Holland.

Regarding the full-year outlook at Brink's, in North America, our traditional cash-in-transit and ATM services, which make up the bulk of our business, should be able to maintain or improve current levels of performance, as our value-added cash logistics and CompuSafe service continues to grow. It's also important to remember that the 2006 full-year operating profit in North America should benefit by about 13 million from lower pension costs in the U.S.

International operations -- we expect year-over-year improvement but we obviously have some challenges to overcome. Our South American operations, with the exception of Brazil, should continue to perform well. But our outlook is tempered by the inherent risk of instability in this region.

In Asia-Pacific, which is our smallest region, our global service business should help us deliver long-term growth. However, as I mentioned earlier and in the press release, 2006 results could be hurt by a loss of a significant customer in this region.

In Europe, we continue to expect profit growth over last year. As I said earlier, it's difficult to predict the magnitude and the timing of the expected improvement. Expect a stronger second half of the year. Last year, restructuring and severance costs in Europe totaled almost $15 million, and we expect annualized savings to be in the $9 million range with about 6 million being captured in 2006. Most of this will benefit our European operations. It's clearly the focus of our efforts in 2006. A substantial portion of management time has been and will continue to be spent on improving performance there. I assure you that we will remain highly focused on improving profitability in Europe.

Before moving to Brink's Home Security, I want to address fuel costs, which everyone knows has been going up and continues to do so. Fortunately, our first-quarter results at Brink's were not significantly affected, as fuel surcharges offset most of the cost increase. We hope and expect that surcharges will continue to offset most of the continuing rises. However, there could be some margin compression if costs remain at the current levels or rise further.

Now, over to Brink's Home Security. First-quarter revenues were up 14% to 104.7 million, due to continued growth in our subscriber base and slightly higher average monetary rates. Operating profit was 23.4 million, up 4% over last year's first quarter. As expected, the higher profits from recurring services were partially offset by an increased investment in new installations and costs relating to our new monitoring facility in Knoxville, Tennessee. As a result, the quarterly operating margin was 22.3%, down from the 24.4% in last year's first quarter, a strong result.

The higher costs relating to new subscribers were driven in part by our continuing effort to penetrate new residential construction markets, what we call our home technology service business. As we reported on our last call, this market has been growing quickly for us, too quickly in some ways. In the new construction markets, there's a longer time lag between our initial investment and customer activation. That is the case with our existing, traditional markets. We are addressing this imbalance in a variety of ways. For example, we are raising prices, improving efficiency, and being more selective in developing relationships with homebuilders. Basically, we are targeting home buyers who are likely to initiate monitoring more quickly. We're starting to see some tangible improvement, but this issue will probably continue to affect margins for at least another quarter, as we told you last quarter.

Despite the growth issues in home technology, which is a good problem, our subscriber base continues to expand and the fundamentals of the business remain strong. The annualized disconnect rate for the first quarter was 5.5%. Remember, this is the first-quarter rate, typically the low for the year, but an excellent performance. Subscriber growth was up more than 10% versus last year's first quarter, and we ended the quarter with approximately 1.048 million active customers generating monthly recurring revenue of 30.1 million, so cash flow continues to be strong.

We continue to achieve solid growth from all three key subscriber acquisition channels. In first quarter, our branches accounted for 74% of the new subscribers. Our dealer network contributed 18%, and our home technologies division accounted for 8%.

Finally, the increasing fuel costs during the first quarter did not have a significant impact on operating profit, since a large portion of these increased costs are capitalized as part of the cost of new installations. Obviously, these costs will affect future performance, so we must continue efforts to improve efficiency and increase pricing on future installations and renewals.

Now, turning to the outlook for Brink's Home Security, it 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 continue to build our technical and sales capabilities on the commercial side. Our new customer care center in Knoxville became operational on February 28; it is already supporting our growing customer base. The Knoxville start-up will generate higher costs, reduce margins for at least another quarter, as we reported last year. Nevertheless, we continue to expect Brink's Home Security to achieve a triple double -- that is double-digit growth in revenue, subscribers and profits -- for the full year of 2006.

In summary, we certainly have challenges ahead, but we remain optimistic about the long-term performance of The Brink's Company. We will continue to pursue market opportunities at Brink's Incorporated in its traditional armored car operations while expanding further into cash processing, where the potential for revenue and margin growth is greatest. As I said earlier, annual percentage sales growth in Brink's should be in the high single digit range with our annual operating margin approaching 7%. We expect Brink's Home Security to continue to build on its excellent operational and financial success with 2006 growth in revenues and profits and new subscribers at 10%. As a result, the overall performance, the financial positions and the growth prospects for The Brink's Company should continue to improve. Our optimism is tempered by the challenges we face in international operations in general and in Europe in particular. Our ability to offset rising fuel costs is also a concern.

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

Thanks, Michael.

I will begin with some comments on the first quarter, point out some things to keep in mind for forecasting performance in 2006, and then cover some information on cash flow and the balance sheet.

First, as Michael said, it was a good start to the year. Brink's Inc. saw solid performance in North America and South America. North America's performance combined both the effects of revenue growth with cost reductions, particularly due to the actions taken on pension costs. Internationally, strength across the board in South America more than overcame the weaker-than-expected performance in our European operations. Improved safety and security costs also contributed worldwide.

The solid start was particularly important to see after the weak fourth quarter last year. The basis for this improvement was the elimination of restructuring costs this year, the solid growth in the Americas, along with a lower-cost for U.S. pension benefits and worldwide safety and security costs.

Looking ahead, just remember the last year's second-quarter operating profits at Brink's were very weak at $15 million. But we may have a solid tailwind, since we hope to not have restructuring costs, which approximated $10 million last year, and certainly won't have the U.S. pension costs. If the performance improvements in revenues and other costs continue, we should have another solid quarter. However, we will have to keep a very close watch on the timing of any costs which may come out of the customer situation in Asia-Pacific.

As Michael noted, Brink's Home Security had some drag in Q1 from extra costs related to the Knoxville facility and Home Technologies, even though that showed improvement versus late last year. We should still see some drag from these factors in Q2.

Loss of former operations came in about as expected for the first quarter. You should expect these costs in total to be in a similar to slightly higher range in the second and later quarters.

Looking ahead, corporate expenses should begin to decline some. The real test will be tightening down on costs in the second half and particularly in the fourth quarter when SOX-404 costs usually accelerate.

Our current expectation for the full-year effective tax rate on continuing operations runs in the 41 to 42% range, the same as is reflected in this quarter's results. Don't forget to update your shares outstanding for EPS calculations to reflect the 10 million-plus shares we've recently repurchased.

Now, I will cover the usual comments about cash flow measures. Depreciation and amortization hit $39 million for the quarter with Brink's at about $23 million and Brink's Home Security at about 16 million. We expect these figures will ramp up as normal throughout the year, so we're holding to our full-year estimates of 100 to $105 million for Brink's and 63 to $67 million for Brink's Home Security.

Capital spending in the first quarter was a little lower than expected with Brink's in at about $20 million, and Brink's Home Security at $42 million. We believe that the relatively low level of spending was a matter of timing and expect these numbers will climb during the year. So we also hold our full-year estimates for CapEx at 110 to $120 million for Brink's and 160 to $165 million at Brink's Home Security.

Now, I'm sure you noticed our net debt schedule in today's release and the dramatic changes from year-end. Of course, this resulted from the sale of BAX Global. At March 31, debt is about $160 million lower that it was at year-end. Our borrowing capacity will provide the fuel to drive growth going forward, since most of our free cash flow is plowed back into the expansion of Brink's Home Security and into Brink's initiatives.

At March 31, cash and marketable securities were up about $715 million from year-end levels. Of this balance, 530 million has already been used to cover the Dutch auction tender. A further 70 to $100 million is ear-marked for tax payments and liability reduction. I will also remind you that we still have almost $70 million in remaining authority for share repurchases. As we've told many of you before, being a return-driven company, we're not interested in holding onto cash for any extended period of time.

That's all I have for now. We are ready for questions.

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

Thank you and congratulations on what has to be to everybody a surprisingly good number, because we weren't -- obviously after the fourth quarter, we weren't expecting this.

A couple of questions here -- first -- and the obvious question is the U.S. CIT business and the ancillary businesses that surround it, better-than-expected after a couple of quarters during 2005 which were not as good as expected. What is driving the U.S. -- what is driving the U.S. growth? 8% up in revenue is good, but the operating margin was certainly better than what was expected and besides the pension costs.

Jeff, first of all, we ramped up our security costs quite substantially in the fourth quarter with the threats that we faced in the United States, so some of those costs came out in the first quarter where the threat levels and the amount of funds moving isn't at the same level.

Secondly, as I mentioned the last couple of calls, that I've been feeling the worm turning a little bit. People are looking for quality service and are more concerned about uptime of ATM machines than lower price. I think that is helping us also.

I also think we are starting to get some benefit from some of the technology investments, and of course the growth in our higher-margin businesses such as CompuSafe and cash logistics. I think you put all of those together and I am pleased, on top of all that, to see the revenue growth of 8%, because as you recall, the last couple of years, that has been in the low single digits. So it's pleasing to see that revenue line starting to move.

Yes. Any change in the CompuSafe numbers?

They are growing at a reasonable rate. I'm not sure what the exact total is now; it's over 5000, I believe. But I can have Ed get back to you with that.

Yes, that would be great. Europe -- I'm not so much focused on your specific business because -- but knowing what is going on with some of your major competitors, one trying to get its business and another going out of business or hopefully not going out of business but actually maybe selling to somebody, but they are in bankruptcy -- what is it in Europe right now that characterizes the market that's making it so tough, both on a continental and on a country-by-country basis? Can one compete in Europe at this point in time and make a good profit?

Well, it's been very difficult for everybody, and there's a lot of buyer power in Europe and there's been some competitive issues there for a long time. The situation differs by country. As you know, in Holland, we lost a major contract at the beginning of last year, which has affected that operation quite dramatically, although we've made some strong improvements there with our restructuring costs, and we still have areas for improvement to go, and the prospect of there aren't improving to the level we want.

In Germany, of course, the largest competitor there is going into bankruptcy receivership and now has been bought out by a turnaround firm, a U.S.-based turnaround firm. You know, we gained some business there late in the quarter, but the startup costs of us assuming that business has wiped out any effect, but I expect things to get better there as the year goes forward.

We're doing fine in France. The UK, Ireland and Belgium are issues. Belgium is a highly regulated environment, and the government keeps changing the regulations and it causes us to invest more capital and/or restructure in trying to find a way to survive. That also drives higher costs, and as the costs get higher, the customers look for ways to get back on service, and that affecting us there.

So, we've got our work cutout for us, and we've got a good management team in place in Europe and there's a plan in each country. It's more of a timing issue, and I'm confident we will have a stronger second half of the year than the first half of the year. But I am concerned about two countries. Overall, with the balance in Latin America and the improvement in the U.S., I'm confident that the business unit overall will hit its targets for the year.

Okay, two quick other questions. First, the pre-wired business in the United States, depending on whether you're unit or whether you're not unit, it either the greatest thing since sliced bread or it's a business that has a lot of risk attached to it. How do you intend to -- not how you view it but what is your strategic plan and how fast do you think you can reasonably growth this business, given that there are some -- that there's a footprint to be gained here, because there's not a lot of competition but on the other hand, the price of that footprint might be a little bit higher at the beginning?

It could, Jeff, but I think it's got the best EVA of all of our business lines at Brink's Home Security. Because these are new homes and people tend to move into a new home and stay longer than they do when they buy an existing home. So it's what still the best EVA business we have. The risk of course is that we don't get the customers turned on and in a slowing housing market, and our largest market by the way happens to be Florida in this line of business, and that's what's happening there. There's this time lag between turning on the revenue stream. So we recognized this last year, we talked about it on the conference call, we've taken some aggressive steps; those steps are starting to have some traction. I think we are a little bit higher at our operating margin this quarter than we had indicated we thought we would be because of those steps, but there's still room for improvement and they're still going to build probably 800,000 or one million new homes in the United States, so it's a great place to be. We're getting better and better at refining our process there to get it down as efficiently as we do on our traditional business. So, we're definitely committed to the business line and we think, long-term, it's an important sales channel for Brink's Home Security's future.

One final question -- even after the Dutch auction and even with -- even if you were to have $70 million of further share repurchase, you are still underleveraged when it comes to your balance sheet at this point in time. Is there some type of financial plan -- maybe this is directed towards Bob -- that you have in mind for using debt to get a better return for shareholders, whether it's buying a business or investing heavily in some area that has great EVA? Let us know what it is.

Well, Jeff, as we've demonstrated, we are an EVA-oriented business and we're going to do what's in the best long-term interest of our shareholders. This Board of Directors will continue to steer that course as we go forward. We will be looking at all options to make sure we're doing what we think is in the best long-term interest of the shareholders here, and we're looking at every one of those issues. As we reach consensus on those, we will proceed and announce them in an orderly fashion.

Okay, so I take it that this is something that the Board has to look at overall when you make proposals.

Absolutely.

Mr. Michael Hoffman, Friedman, Billings, Ramsey.

If I could hitchhike on Jeff's question about the balance sheet, just to pursue it a little further, --

Michael, you have to speak up a little bit, please.

If I can follow on Jeff's question about the balance sheet, just pursue it a little bit longer, when you think about your being an EVA-based business model and you're essentially all equity financed at this juncture virtually, how long of a time do you allow the balance sheet to stay under-levered as you pursue all these strategic potentials before you put a line in the sand and put leverage on and buy back stock?

Michael, we understand the position of what our balance sheet is, and we understand what the opportunities are available in the marketplace. As we go through the analysis in conjunction with the Board of Directors, we will make directions on what we think is the best thing to do. We're not going to go out and make acquisitions for acquisition sake. We've got a high hurdle rate with the performance of the two units that we have. We will be looking, as we've talked in previous conference calls, at appropriate, bolt-on acquisitions if they are priced right and make strategic sense and fit our strategic model with a review of the Board of Directors.

If we don't find those opportunities in an appropriate way, we are going to look at ways to enhance shareholder value either through share buybacks, or looking at dividend increases as appropriate, because that's how we can operate this company for the best interests of our shareholders.

I assume that was the answer to the sort of big-picture of it. Is there a timeline at which you are measuring yourself on -- (multiple speakers) -- capture some of that?

We will do what's in the best interest of shareholders, and I think that's the best I can comment on it at the current time.

Okay. Back to Europe and (indiscernible) with [Maitland] Patterson having made their investment, do you get any sense that having that investment made -- you know, they had a flawed business model, obviously; that's why they went into bankruptcy, let alone the embezzlement issues. Do you get any indication since their appearance on the scene that things are going to change?

Well, I don't have a clue what's going to happen. I don't know what they paid for the assets; I'm sure they got them very, very cheap. I don't know what kind of support they're going to get from the financial community and the retail community in the German marketplace. I do know that about 30% or 40% of their business has moved out and it was absorbed by us and other competitors in the market. So they are going to have to resize that business or decide what they're going to do with it. I really don't have a clue. We look at it. We had no interest in acquiring assets and hoping we had business that followed. We took the approach that we were interested in assets to grow and expand our business, but we had their commitments from the customers and the liquidators weren't interested in doing his job, which was dispose of the assets in an orderly fashion, and he found somebody who buys distressed companies to step into that role. So it will be interesting to see what happens. I can assure you, they can't continue to operate under their business model, which has led to the embezzlements, I'm sure. So market prices are moving dramatically. It will be interesting to see how it plays out.

Okay, you have touched on a couple of things I was curious about. So you are seeing price go up in the marketplace, you did see customers come back, and you gained new business that you didn't have previously?

Yes, within our existing footprint.

Okay.

We were involved in bidding on the process, but we refused to bid on assets without the known business base. It's just our disciplined approach to doing things, so (indiscernible) it up on the outside. But we signed up a substantial amount of business, Michael. We have not been able to have any benefit effect of us because it took place late in the quarter and we suffered startup costs, but during this year, we will be able to get kind of efficient on that business. We will probably have some small expansions and add some armored vehicles type things, and improve our position in Germany for the long-term. So we're pleased with where we find ourselves.

Right. I assume the two countries you alluded to in Europe that you're not happy with are the UK and Ireland.

The UK, Ireland and Holland.

We know the issues in Holland; you've addressed those. What is persisting? The Irish economy is booming. So what is persisting in Ireland and the UK that it continues to be a struggle for you?

A very, very dangerous environment -- there has been a substantial amount of robberies against the industry, which has been very, very expensive and the market prices have been very, very aggressive by the competitors. It's just a very, very difficult environment, and the market is shrinking. The economy is doing fine, as you said, but the market is shrinking a little bit, and it's dangerous. So our security costs are very, very high; we have to protect our people first. I think there will be changes in the marketplace. The industry can't afford the level of losses that are taking place, and that has been communicated to the industry. I expect it will probably be another year but Ireland will shake out in probably next year.

Okay. Is there a point where you walk away from countries?

Yes, we've done it that in the past and if necessary, we will do that again.

Okay, when you look at the U.S. business, how much of the delta -- one of the issues I'm trying to get my hands on is that the first week of February, we were given a sense of guidance, if you will, about outlook -- high single digits, approaching 7% op margins for the Brink's Inc. business in total. Better than the fourth quarter should be the first quarter was kind of any indication. The U.S. or North American operation is so extraordinarily strong, where is the predictability factor? Did you have a sense you were headed in that direction in the beginning of February? If not, what happened in the subsequent seven weeks?

Well, I think that the first quarter, as I explained, some security costs came out, some of our efficiencies came in, and once again, we have -- the cash logistics business has had a good growth rate. And all of those things contribute to the mix, Michael. We're still suffering from -- in the Katrina area, we're losing money. It's a slow rebuilding process down there and we are supporting our customers. We're losing money down there. So I think there is further room for improvement, so long as we keep our safety and security costs under control, and keep our nose to the grindstone. I think the management group in the U.S. is maturing. We've reorganized there once or twice in geographical areas. I think we have a strong and focused team and they're doing a good job. So now it's up to execution, provide excellent customer service, and keep our safety and security costs under control and we can have further improvement there.

Okay, but you knew what your pension and your safety and security exposure was coming into the quarter, so did the mix shift margin-wise in new growth so much?

No, safety and security, we don't ever know what it's going to be until the quarter is over. So you know that's always a variable factor, Michael. That always will be. We had a pretty good -- the West Coast economy, the Southwest economy, they are all doing pretty good, and that helps our business. But it's really all the factors I cited earlier in the presentation. There's no one thing you can hang your hat on.

Okay. I guess that's it for now.

Beth Lilly, Woodland Partners.

Good morning, guys. I want to ask about the commercial business. You know, Michael, you mentioned it in your comments and I know you are looking to grow that side of the Brink's Home Security business. Can you talk about what level of revenues you've achieved. I think, on prior calls, you've talked about slowly moving into that market. Just give us a sense of revenues as well as Maybe profitability in the quarter.

We are still in the process of making sure we can have a better handle on that, and at some point, it will be large enough and we will break out the details, Beth, but we were about 3500 installations as I recall correctly, in the first quarter, to give you an idea of the size and scope. We've continued to build up our sales and marketing resources there by adding additional representatives, and we're making a strong push on it. I'd like to grow that business obviously in the 30 or 40% range, which is pretty easy with the size it is today. But we're going to continue to ramp that business up. Its economics are very, very similar to our traditional business and not quite as good, so we're making sure that the pricing model is appropriate as we go forward. As we expand our footprint, our capabilities, I think we can accelerate that growth a little bit. It will be an important sales channel for us going forward for long-term growth prospects at Brink's Home Security. Probably next year or at the earliest the following year, we will start breaking out that business line to get some more visibility for our shareholders.

Would you say it has the same level of probability as the home security business?

It's a little bit lower. We don't have much experience, Beth, with it. We've been in the business for over 20 years on the residential side, so we're taking a cautious approach as we go forward. We're making sure that our go-to-market strategy is appropriate. I'm sort of pleased with where we are today but I think, a little more time under our belt, I will feel a little more comfortable.

Okay. Then I want to ask one other question about the share repurchase authorization. You bought back 10 million. What remains on a dollar amount? Did you say $70 million remains on your buyback authorization?

That's authorization from the Board of Directors for an additional $70 million purchase authority.

Okay, so that's fine. That's all my questions. Great quarter, guys.

Steven Fisher, UBS.

Good morning. Do you have any sense of whether the insurance recoveries that you talked about last quarter will be any different than you previously estimated?

No, we're still looking at probably third quarter, more than likely, and we still think we are in the vicinity of 5 to $7 million overall, between both of the operating units. We were hoping it would be midyear but I think it will be third quarter. But as soon as it happens, we will book it.

That's 5 to 7 million recoveries?

Between both Brink's Home Security and Brink's Inc.

Okay, I thought that was more in the line of 2 million last quarter, but maybe I'm off on that.

No, the 2 million figure was our estimate of what the property damage piece of it would be, because the largest piece of it is probably going to end up being in business interruption.

We are at about 4300 homes, I believe, that we've had to write off and we are expecting about another 1000, and we originally told you about 5000 homes, and that's where we're going to end up, I think.

Okay. On the customer situation in Asia-Pacific, and is there anything that you can talk about? What happened there? What's going on? Was it sort of -- (multiple speakers) -- something on your side, something on their side?

No, it's a competitive situation where somebody has underpriced the market quite dramatically, and we had an offer -- an ability to match that price if we chose. Based on our relationship and our service quality, it is a price that makes no sense. We are trying to engage in discussions with the customer and quite frankly to save them from themselves, because I happen to know it's not going to work, what the competition is doing. But I'm not going to lower my price to an unsustainable level, and if necessary, I will shrink the business. Unfortunately, it will be a one-time cost of -- we estimate the turn time of about $10 million, but that's the right thing to do for the long-term running of this business.

Okay, that's helpful. Thanks. Then the security and safety costs, this was -- seemed to be the first quarter in awhile that you actually reported lower costs; that's a good thing. I mean, is there anything specifically that you did over the last quarter that helped to drive that, or is it really just -- (multiple speakers) -- you mentioned -- (technical difficulty) -- don't know until the end of the quarter. Is it just a matter of chance?

It's not a matter of chance. It's a matter of management focus, strong investment, some luck within the business that we are in, and frankly, we had a poor year last year, so we are hopefully back on a more normalized operation and level there, but it's a risk business we are in; it's a dangerous business, and things can change rapidly, so we have to keep out eye on the ball. Hopefully we will get back to our normal level, which we've had the last five or six years, and of course, that will show up in our results.

Does more management focus mean you spend more on procedures, or equipment or training or those types of things?

All of those types of things, both physical, electronic improvements, training, everything, yes.

David [DuGroth], MFS Investments.

I wanted to follow up on North American margins as well. It looks like the pension savings sequentially only accounted for 150 basis points of the saving. So are there one-time benefits in the quarter or in Q4 on the safety and security? Do you accrue for things there and that pushed the margin down?

No, the third and fourth quarter is typically the most dangerous time in the unit's business. That's when retail sales spike, as you know, because of the holiday season. We increase our security and focus manning levels, number of vehicles on the street, part-time additional security force that we have to bring in; it's just a normal thing we do. That comes off in the first quarter, as a rule, and partially you're seeing that benefit there and the other things I mentioned earlier in the call.

Typically, the fourth quarter margins are the best, not the worst, so --

Because along with that comes increased volumes, increased -- and we didn't have those types of increased volumes, for instance, some of our indicators like coin sales and those types of things. Don't forget, we were suffering from the losses driven from Katrina. I mean, our customer base was wiped out, that whole area. So, all of that is factored in. By the way, we're still suffering; we're still losing money in that area, just not as bad. And we flew in help and flew in support, and have people living in hotels and motels down there supporting our customer in the fourth quarter. All of this is part of the mix.

Okay, so the other 230 basis point improvement sequentially is pretty much from safety and security? Is that --

And more efficient operations.

Dave, another piece of that is, if you recall, all of the economic reports that we've seen suggested that particularly December was fairly weak in the U.S. and France, for that matter, and then there was a very sharp rebound in January/February/March of this year, so that type of thing helps as well.

Okay, so there were no one-time benefit type things in Q1?

No -- (multiple speakers).

Okay. Why are you calling out fuel? I guess it was my understanding that you have the pass-throughs and I didn't think there were any caps for your customers?

The smaller customers, midsize customers, it's easier to get the fuel surcharges. Some of the larger customers, it's always a protracted battle and it's a negotiation to get them to agree. With the recent spike in fuel prices, which we are all seeing, we're going back again to try and get some relief, and with the bigger customers, it's just very, very difficult.

Okay, but there are no fuel caps in the contracts?

Not on the -- on the contracts, we were allowed to get fuel surcharges, none.

Okay, so given that, it seems like the 7% margin goal for the year -- I mean, we really didn't see any of the savings in Europe come through in this quarter. It seems like that's fairly conservative or I mean if you're going to stay around 9% in North America.

Factoring in the possible write-off we will have to take with the Asian-Pacific situation.

Okay. How much revenue is at risk there?

I think about 18 or $19 million if I recall correctly.

On an annual basis?

Yes, on an annual basis, in the low 20s.

Okay. What's going on in Brazil? Is that big enough that it could derail the year as well, or is that a pretty small operation?

Actually, things are improving. In fact, I just got returned from a Latin American trip last week. Things are starting to improve in Brazil. There has been tremendous price competition down there for the last 3.5 years, very similar to what happened in Germany. By the way, there was a failure of a small company down there where the owners embezzled and money disappeared, not to the degree it happened in Germany, but that sort of woke the marketplace up a little bit. So I see Brazil improving. It's the only loss situation that we have in that that theatre, and I would hope, by the end of this year, that the price increases will be back on track in Brazil.

Okay. Shifting over to Europe, it didn't look like any of the savings came through in the quarter -- operating profits lower, year-over-year. What happened there and --?

We received some of the savings in some of the countries of restructuring, but they were just overshadowed by losses in the UK and Ireland and real poor performance in Holland. This is a tough -- it's just a tough road over there. I've also been over to Europe twice this year already, but we've got good plans that we've got to execute. Timing is very, very difficult there. I am confident that Europe will have stronger a second half than the first half. We are a little bit behind on the cost savings line where it's supposed to achieve, but once again, the UK has just overcome that and we've got to fix the UK business and we are hard at work doing that.

Okay, was there any restructuring in the quarter, this quarter, more restructuring costs?

No.

Then switching over to BHS, quickly, I know Knoxville was only on for I guess one month in the quarter. How much did that impact Q1? Then should we see more of an impact in the margins in the second quarter -- because it will be on for a full three months?

Yes, I think we will -- once again, I predict that the margins will be a little bit under pressure for the first two quarters. We are actually a little bit better than I thought they would be in the first quarter. I expect the second quarter to have a little more pressure on it, because (indiscernible) startup costs, those types of things. But come third quarter, we would be shutting down another facility, we will be able to get out of because Knoxville is up and operating. It's just the growth of the Brink's Home Security's business and their efficiency, so we'll end up with our triple double in my opinion.

Okay. Do you know how much that impacted the quarter, the first quarter?

It's probably in the $1 million range, which was ramping up during the quarter.

Okay, great. Then the last thing I had -- how much was the FAS 123 option hit in the quarter?

In total for the Company, it was up about 1.5 million. $800,000 of that is in corporate, and Brink's has a good chunk of the rest.

Okay. Is that sort of the run rate for the full year, Bob?

In total, we are expect -- and we've talked about this in our 10-K and we will obviously update it again in the Q, but we're looking at somewhere in the 8, 9 million range and there's probably maybe 50% of that is probably going to hit in the third quarter. The rest of that is going to be spread out over the other quarters.

Okay, great. Thanks a lot, guys.

Craig Rosenblum, Millbrook Capital.

Jerome Lande here, actually. The Netherlands contract that you lost last year, we always understood that to be something that [Heroes] had taken away. I'm wondering if that is something that might have a little bit of daylight to it in line with your comments about taking some of those contracts back in Germany.

No. Unfortunately, the concentration that that customer was over [Heroes], giving them the work, and we took a very, very strong stance with the customer and we saved them from [Heroes], and they ended up going to our other competitor that operates there. So, actually our customers should be grateful that we saved them from falling into the same trap the other customers did. But [Heroes] had a small part of the business in Holland, which they continue to operate that unit -- did not go into liquidation, so that was not a factor.

So if [Heroes] didn't win that business but another competitor did, did that other competitor also outprice you?

No. Actually, I think, in our discussions with our customer, who wanted to go to a very, very low-cost alternative and hedge their bets, as they say, by giving a substantial portion of the business to the low-cost operator and leaving us with some, we took the position with the customer that that was going to be too damaging, that our prices would have to be raised, or we were better off not having any of the business. They didn't like that attitude, so they decided to give the whole business to [Heroes]. Obviously, [Heroes] couldn't handle the whole business and so then they turned to the other competitor in the marketplace. That's what happened in Holland.

Got it. So I can characterize then, there's probably not the daylight that I might have expected.

Correct.

One other thing that people have speculated on in Germany is the government's attitude with regard to increased regulation after [Heroes'] explosion. What is the climate there? Are you hearing a scuttlebutt of increased regulation?

We are always concerned about that when an incident like this takes place in the market. I'm not sure what's going to happen. There are so many people who have been hurt by this, so many retailers and financial institutions have been hurt by this, that there is talk of that. But you know, it's harder to do on a country-by-country basis today in Europe because of the EU. So we're keeping our close contacts with the regulators and we're dealing with our customers the best we can, and we're trying to get them to analyze how does this situation develop? What caused this type of incident to take place? This is the largest one that has taken place in the industry, but it's not the first one. This is probably the 20th that I have witnessed in my career in this industry. We're trying to get the customers in other countries to focus on the same thing. We are the risk business. This is not a low-cost bidder business, and you're -- we are in the trust integrity business. These people stole and misappropriated over EUR500 million, and it's astounding. But I can tell you that this was predicted, customers were told it was unsustainable, told this pricing was impossible to happen, and it was just so attractive, they chose to ignore the advice. Unfortunately, as they didn't save anything, they paid a terrible, terrible price.

Yes. Understood.

In Asia, the customer situation you have, is that business that's being taken away by one of your major competitors, somebody we would all be familiar with, or a local guy?

Somebody who operates in one country.

Got you.

A large operator, but he operates in one country.

Understood. I just want to close by saying, A, terrific quarter and congratulations, and B, that your stance with regard to that customer is exactly the kind of discipline that we're pleased to own as Brink's shareholders, so keep up the great work.

(OPERATOR INSTRUCTIONS). Rob Norfleet, Davenport.

Great quarter. Just a couple of quick questions -- first, I guess for Bob, just a few housekeeping items. Bob, what was the level of interest income that was earned from the VEBA during the quarter that was an offset to the liability or the discontinued operation expense?

It was roughly 3 million, but I am rushing through a calculation here for you so I can give you a better number on it. It was 3.3 million.

Great. Secondly, I know you talked briefly about the corporate expense item with BAX out and obviously some of the restructuring initiatives that we are undertaking. You had mentioned we will see, in the second half of the year, that trend down. Given what we did with 12 million in the first quarter, plus or minus, where could we expect that trendline to come out in the second half of the year and especially as we look into 2007?

We're still working through that issue, but there was a very substantial amount of money that was spent in the second half of last year primarily related with consultants and so forth, associated with Sarbanes-Oxley and other issues that we had here. That has become very much of a focus for us going forward, and I think you'll start to see some real benefits of that in the second half.

Great. Last question, I guess for Mike real quickly, I know we had talked about this probably about year ago, in some cities like Las Vegas, there was a trend where police weren't answering alarm calls due to the high cost of false alarm calls. Is that condition just isolated to one or two markets in general, or has it picked up steam? How is Brink's Home Security dealing with that if it potentially moves into other markets?

It has -- I would say it has legs. It's probably affecting about 12 markets around the U.S. today to some degree. Some markets do it in a very, very intelligent way, which really has no effect on us. Other markets tend to be a little more severe. But we haven't had a negative effect from a sales, marketing or installation rate in any of those markets yet. But it's still a risk factor that could affect us and we're keeping a close eye on it. We are very active with the industry associations more directly in addressing city councils and police departments. Obviously, at the end of the day, our quality service, our rate of dispatch is the best in the industry. We try to highlight those things and set up Best Practices, and we will continue those types of efforts because that is in the best long-term interest of our company and the industry.

Grade, congratulations again on a nice quarter.

Wayne Archambo, BlackRock.

Most of my questions have been answered. Just if I could, on the acquisition side, could you just give us some sense regionally or by business where your priorities are?

We don't comment on those types of things. Just from a geographical standpoint, you know, we are interested in Africa, further expansion in Latin America and Eastern Europe, and then of course there is the expansion of our existing lines of business we have in some countries that we would like to spread to other countries. Of course, we're looking outside our existing two businesses, which is the security monitoring business and the security solutions/cash logistics business, into other security or safety-related areas. We will continue to do that, and if we find an attractive opportunity, we will bring it forward to the Board for consideration.

Just lastly, on Holland, it just sounds like there's structural issues there that aren't going to go away anytime soon, no matter how great your team is there. At some point, if this persists for some time, would you consider pulling out of that country?

Absolutely, and we've done it before and if it requires that, we will do that.

[Teddy Pun], Credit Suisse.

Going back to your European operations and in particular Ireland and the UK, have you seen the worst right now, and when do you expect business to stabilize and improve? I guess in terms of acquisitions or divestitures, is there a timeframe as to when you guys will decide to do something in order to improve operating leverage? Obviously, it seems like operations have been poor for the past two or three quarters. I just want to see if there's a timeline you set for yourself in terms of whether it makes -- (multiple speakers).

It's not as simple an answer as that, and we don't set a timeline. First of all, we aren't going to put ourselves in a box. As a rule, when things gets so bad that we go to the customer base and tell them we're going to exit the marketplace, the customers have a little different attitude and decide to properly compensate us. Don't forget, we also have a very nice global services network, where we move things between countries around the world, and those are both important countries for that business, so we need to have operations there.

But we look at each one of these for long-term strategic goals. We've been through -- Germany has been a four to five-year struggle, and after five years, I think we're going to finally see the light of dawn, finally, because of what's happened in the marketplace. Part of the Brink's advantage is our size, scope and geographical reach, and our patience in balancing out the good areas and the bad areas and not overreacting to any particular negative situation.

Have you seen the worst already or do you expect -- (technical difficulty)?

I'm sorry, you are fading out.

Have we seen the worst in terms of -- (technical difficulty)?

I think Ireland is a relatively small country, and so I don't think so. I think the Irish security environment is a very, very serious situation. You know, the peace efforts over there have gained some hold, but there's a lot of people who made a living being domestic terrorists and criminals. It's a very dangerous place to operate in for a time. We can say the same in the UK. There are more attacks and robberies in the UK than there is -- in a week than there is in the rest of the world in a year. So it's a dangerous environment, and we have to raise our defenses and first protect our people and our customers' product. Then we have to extract the proper compensation out of the marketplace. Companies that don't do that don't last in this business. The UK is an important market. We're committed to being there, but we have to fix it. We've got a lot of energy and management focus on it, and I am confident that we will be able to do a good job in the UK, a little less confident in Ireland, but Ireland is a relatively small market.

In terms of restructuring and cost structure, are you pretty satisfied with current levels in the UK and in Ireland, or do you expect potentially there could be more --?

You have to speak up. We can't hear you.

In terms of the cost structure or restructuring going forward, are you pretty satisfied with the current level in terms of your employees and what not? Should we expect potentially there will be more restructuring efforts that's going to happen there?

I would hope not. The only country that concerns me with that would be Belgium, where the government keeps trying to regulate a solution to a problem they created by regulating -- (technical difficulty) -- and we are in discussions with the Belgian government, who is being more open-minded and more business-friendly and trying to right that situation. But we have to operate within the regulatory parameters of the countries.

Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.