Brinks Co (BCO) 2008 Q3 法說會逐字稿

Greetings, ladies and gentleman, and welcome to The Brink's Company third quarter results 2008.

At this time, all participants are in a listen-only mode. A 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. Edward Cunningham, Director of Investor Relations for The Brink's Company. Thank you, Mr. Cunningham. You may begin.

Thank you, Doug. This is Ed Cunningham. Good morning, and thanks for joining today's call, which will proceed as follows. The CEO, Michael Dan, will review our financial results and outlook. Bob Allen, CEO of Brink's Home Security, is here along with CFO Steve Yevich to discuss BHS results. Then, Mike Cazer, CFO of The Brink's Company, will make some follow-up comments before we open it up for questions.

An earnings release was issued this morning and is available on our website at BrinksCompany.com. If you wish to have it faxed to you, call 877-275-7488.

Now, for our Safe Harbor Statement. This call and the ensuing 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 or estimated results.

Information regarding factors that could cause such differences is available in today's press release and in our SEC filings, which include our most recent Form 10-Q and 10-K documents.

The information discussed on this call is representative as of today only. The Company assumes no obligation to update any forward-looking statements made during the call. This call is copyrighted and may not be used by a third party without written permission from the Company.

I'll now turn it over to Michael Dan.

Thanks, Ed. Good morning, and thank you for joining our call today. As Ed said, I'm going to review overall results, make some additional comments about Brink's Incorporated, and then Bob and Steve Yevich, who are joining us today, will cover Brink's Home Security which is on track to be spun-off tomorrow and will begin trading as an independent company when the market opens on Monday morning.

This morning, we reported third quarter earnings of $1 per share versus the $0.64 last year. Both Brink's and Brink's Home Security delivered very strong revenue and profit growth in a difficult economic environment.

In addition to the strong operating results, earnings were affected by several non-operating factors including taxes, foreign exchange, costs from former operations and costs related to the spinoff. Mike Cazer will cover these items in a few minutes.

At Brink's, we're on track to meet or exceed our 2008 annual revenue growth target which is in the high single percentage range, and our full-year operating margin should come in between 8.5% and 9%. Like most companies, we're having difficulty providing meaningful direction on the results beyond year-end as the prospect of global economic slowdown widens the range of potential outcomes.

We feel very good about our competitive position. Our growth strategy is sound, and we have a very strong balance sheet. Brink's is also a very disciplined company, with cost reduction efforts already in place, so I'm confident that we will navigate successfully through the challenges of 2009. As we gain clarity on the global economic outlook, we should be able to provide more direction on next year's revenue and margin goals.

I'll now cover the third quarter results in more detail. Earnings came in at about $46 million, or $1.00 per share, up from $30 million, or $0.64 last year. Total revenue rose 16% to $949 million. Operating profit was $79 million, up 30%.

At Brink's, revenue rose 17% to $813 million. Operating profit was $68 million, up 28%, due to the continued strong performance of our international operations and our Global Services division, which more than offset a profit decline in North America. The operating margin was 8.4%, up from 7.7% last year.

The global diversity of our operations continues to be an advantage for Brink's. Revenue from international operations, which accounts for about 70% of the total annual revenue, was $576 million for the quarter, up 23%. Operating profit increased 60% to $56 million.

The improvement was due primarily to strong results in Latin America, where revenue rose 37% to $201 million. Continued profit growth in Venezuela was supplemented by solid improvements in several other Latin American countries.

About $4 million of the revenue growth was related to currency conversion operations in Venezuela, which are winding down and should be near completion. Year-to-date revenue from the conversion is approximately $50 million. The conversion project was a great success that has had a significant impact on this year's results.

While there is greater risk in Latin America in terms of safety and security, geopolitical issues, and the threats of currency devaluation, we've been managing these risks for more than 40 years and will continue to do so.

In the EMEA region, revenue increased 17% to $357 million. Profits also improved over last year. Our efforts to turn around underperforming countries are taking hold, even though we are seeing signs of spreading economic weakness throughout Europe.

Revenue in our relatively small Asia-Pacific operations rose about 18%. Profits in this region also increased over year-ago levels.

Our North American operations continued to struggle in the third quarter. Revenue grew only 6% to $238 million, but operating profit declined 34% to about $12 million, primarily due to labor costs, some which are related to our increased investment in IT and additional marketing resources to support our growing cash logistics business.

Our North American operating margin was 5%, down from 7.9% last year. The weakness was centered in the US, as Canada continues to improve on a year-over-year basis. More than ever, customers in the financial services and retail sectors are looking to cut costs and our cash logistic services can help them do it.

Our commitment to this business should drive revenue and margin growth higher over time. In the meantime, I can assure you that we are equally committed to improving our near-term efficiency, productivity and profitability through targeted cost reductions.

In summary, it was another solid quarter for Brink's, and we feel positive about the rest of the year. As I mentioned earlier, we're holding off on providing revenue and profit percentage goals for 2009. In the coming months, we should gain at least some degree of clarity on the state of the global economy. Hopefully, we can provide more meaningful direction on our next call.

I'll close by saying that even in these difficult economic times, I feel very good about our people, our business and our competitive position around the world. We are the best at what we do. We have good growth opportunities and the financial flexibility to pursue them.

Next up is Bob Allen who will cover Brink's Home Security. But I want to take this opportunity to thank Bob, his entire management team and all the BHS employees for their significant contributions to the success of The Brink's Company; also, my four board members who will be going with Bob to oversee the continued growth and success of Brink's Home Security.

We should complete the spinoff on Friday. And starting on Monday, Brink's Home Security will begin trading as an independent company under the ticker symbol CFL on the New York Stock Exchange. Our shareholders will also become CFL shareholders, and they will be in excellent hands.

It's all yours, Bob.

Thanks, Michael, and good morning, everyone.

Brink's Home Security turned in yet another solid quarter under continued difficult market conditions. Revenue increased 9% to $135 million. Revenue growth was driven by the continuing expansion of our customer base, which grew 7%, and now includes approximately 1.3 million valued customers. Operating profit rose about 26% to $32 million. Our profit margin was 23.8%, up from last year's rate of 20.5%. Last year's results included a $2.5 million charge for litigation.

The analyzed disconnect rate for the third quarter was 9%, up from 6.9% in the year-ago quarter. Approximately half of the increase in the rate was due to higher residential and commercial subscriber cancellations. The remaining balance was due to multifamily contract cancellations and technical subscriber adjustments, neither of which affects impairment charges. We expect the full-year disconnect rate in 2008 to range between 7.5% and 8%.

Monthly recurring revenue rose almost 10% to $39.8 million, so future cash flow continues to grow. Installations for new customers were down about 7% from a year-ago level, which we believe is due primarily to the ongoing weakness in the housing market.

But even with some weakness in installations and a higher disconnect rate, we still grew the subscriber base by 7.1%.

Looking ahead, a recovery in the housing market would certainly help, but like most people, we are assuming the current weakness persists through the balance of this year and well into next year.

On a full-year basis for 2008, we expect to deliver mid-single digit subscriber growth, revenue growth of about 10% and double-digit operating profit growth. Looking forward to 2009, we expect to achieve continued growth in subscribers, revenue and operating profit.

Brink's Home Security will issue a 10-Q on or about November 24th. It will include our third quarter results as a stand-alone company.

That completes my prepared remarks. I'll close by offering my thanks to Michael and all the fine folks at Brink's for their tremendous support over the years and during our preparation for the spinoff. We are all proud to have been part of The Brink's Company.

I am also very proud of our Brink's Home Security employees and their continued performance in a very tough environment. I know that Brink's Home Security is ready for the challenges ahead.

Now, I'll turn it over to Mike Cazer.

Thanks, Bob, and good morning, everyone.

As Michael and Bob said, both operating units turned in strong third quarter results. I'm going to provide a little more detail about some of the items that affected earnings. I'll also cover some balance sheet, pension and spinoff-related details.

In addition to the 30% increase in operating profit, net income was boosted by a 12-point reduction in our effective tax rate from 45% to 33%. The lower rate was mainly due to the global composition of our earnings and the reversal of valuation allowances outside of the US.

For the full year, on the same basis, we continue to expect our tax rate to be in the 31% to 34% range. The post-spin BCO should have a full-year 2008 tax rate of between 24% and 26%. We expect that the 2009 effective tax rate for the post-spin BCO will be between 31% and 34%.

Corporate expenses were up more than $7 million versus the third quarter of 2007. The increase was due mainly to foreign exchange losses associated with the remeasurement of a euro-denominated inter-company dividend impacted by the strengthening of the US dollar.

The foreign exchange exposure that contributed to this remeasurement loss has subsequently been mitigated. We also incurred another $2 million in expenses related to the spinoff in the quarter.

Year-to-date expenses related to our strategic review, proxy matters and the spin total about $11 million. We estimate that fourth quarter spending on this effort will be another $7 million to $8 million. So, total 2008 expenses for these matters should be about $18 million or $19 million. Approximately $13 million of these expenses will be reclassified to discontinued operations once the spinoff is executed.

During the quarter, our former coal operations generated about $500,000 of income versus expenses last year totaling nearly $4 million. This positive swing is due mainly to lower pension and post-retirement expenses.

The impact of minority interest on earnings rose nearly $4 million in the quarter, reflecting continued profit growth in consolidated, but not wholly owned subsidiaries, most of which are in Latin America.

I want to comment on a few items related to Brink's Incorporated, specifically foreign currency impact and operating margins. As Michael noted, international operations account for about 70% of revenue at Brink's. So, the third quarter results continue to benefit from a weak dollar. Third quarter revenue was up 23% and operating profit rose 60%. On a constant currency basis, the revenues and profits were up 15% and 52%, respectively, still very strong.

Since the end of the third quarter, the US dollar has continued to strengthen against several of the major currencies where Brink's operates. This will have a negative effect on our reported revenues and earnings. However, please remember that the vast majority of our expenses are in the same currency as where the revenues are generated. So, in effect, our operations are naturally hedged.

Additionally, we have sizeable operations in the US and in countries where currencies are currently pegged to the US dollar. This should partially mitigate the impact of the strengthening dollar.

The sequential margin increase at Brink's between the second and the third quarter was expected. Margins went from 10.3% in the first quarter to 6.6% in the second quarter, and then back up to 8.4% in the third quarter.

It's important to remember that the first quarter results included about $35 million of higher margin revenue from the currency conversion project versus $12 million in the second quarter. With revenue of about $4 million in the third quarter, the conversion is, for the most part, now complete.

The lower margin in the second quarter was also due in part to the timing of wage increases in Latin America. On a year-over-year basis, Brink's third quarter margin increased by 70 basis points due to profit increases in Latin America and Europe, partially offset by a decline in North America.

There's a lot of focus in the corporate world on liquidity and pension obligations, so I think it's appropriate to review these areas in a little more detail than normal.

First, let's look at cash resources and liquidity. Brink's ended September with a $95 million net cash position. This is a $28 million increase versus the June balance. Our net cash position is comprised of $257 million of cash, less $162 million of debt.

The biggest portion of our debt is long-term debt which totals $144 million. This is made up of $76 million from our credit facilities and $43 million from bonds related to our former coal business that are due in 2033, and $25 million primarily related to capital lease obligations.

As of September 30, we have a $400 million committed revolver and access to smaller, uncommitted credit facilities. We have used $76 million of the $400 million revolver and, therefore, have available committed capacity of $324 million. The uncommitted credit facilities also have available capacity.

Additionally, we have other committed funding sources for $50 million, of which $32 million is available.

Within the last week, both Moody's and S&P have confirmed the investment-grade rating for the post-spin BCO company. Maintaining an investment-grade rating is important to us. It's also important to many of our customers and differentiates Brink's from its competitors.

BHS will start out with no debt, a $75 million committed credit facility and $50 million of cash on hand. We believe that both BCO and BHS have strong balance sheets and liquidity to weather the current storm and execute their plans.

Let's take a quick look at cash flow items for Brink's, Inc. CapEx for the third quarter was $49 million and year-to-date was $119 million. We expect to spend between $45 million and $55 million in the fourth quarter on CapEx.

Depreciation has run about $30 million per quarter through September and should be between $125 million and $130 million for the year.

Let's turn to retirement plans. Pension obligations and their underlying assets have been much discussed lately as asset values have declined. I want to provide an overview of our pension and retiree obligations, and share some additional insights into their impact on 2009.

The equity value of the assets that support our US and international pension plans and our post-retirement and medical obligations have declined along with the equity markets in recent months. We have done a preliminary analysis of 2009 funding and expense requirements based on the current lower asset values.

Based on these current asset values, we do not expect to be required to make any cash contributions to these benefit plans in 2009, although we estimate that we will be required to make manageable contributions in later years. We will evaluate the appropriateness of voluntary contributions to these plans, but are confident that we have ample financial capacity to make these contributions if we elect to do so.

We do expect an increase in non-cash expenses of between $25 million and $30 million in 2009 related to these plans. This increase in expense is driven by lower expected return on plan assets and increased lost amortization.

Please remember that these estimates are based on current asset values. The actual amounts will be determined based on the asset values and other relevant assumptions as of December 31st. These details will be fully disclosed in our annual 10-K filing.

I'll close with a quick update on a few spinoff details. We remain on track with the planned distribution of shares of the new company after the close of business tomorrow, October 31st, with trading beginning on Monday morning on the New York Stock Exchange. But before the distribution, BCO will inject $50 million of cash into BHS.

The spin will affect The Brink's Company's financial statements, and our 2008 10-K, BHS' results and the corporate expenses related to the spin will be reflected in discontinued operations.

Next week, we will file an 8-K that will provide pro forma financials for Brink's. As Bob mentioned, BHS will file its 10-Q on or before November 24, and it will show third quarter results as a stand-alone company.

That's it for now. Doug, we're ready to open up the call for questions.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. (OPERATOR INSTRUCTIONS.)Our first question comes from the line of Jamie Clement with Sidoti & Company. Please proceed with your question.

Gentlemen, good morning.

Morning.

Mike, if I could just ask you a quick question, just for clarification purposes. You said that in the fourth quarter, there's about a $7 million or $8 million incremental corporate spend related to the spinoff. Will that be classified in discontinued operations when you report the fourth quarter?

Yes, it will.

Okay, okay. So, an ongoing quarterly corporate expense number is -- are you prepared to discuss that? Should it be consistent with what we were seeing out of the Company prior to the spinoff expenses this year?

That's right. We're taking a look at all of our corporate costs as a result of the spin to look for areas where we can reduce them. And so, we're in the process of working that. Right now, we're not prepared to communicate what the result of that will be. But I think if you look at our history, pre-spin, that's probably a good indicator of the next quarters or so.

Okay, that's fair.

And Michael, if I can ask you a question. With the disruption surrounding the US banking sector towards the tail end of September and the beginning of October, I'm curious how that impacted your business one way or the other. What did that mean for Brink's over that dicey couple of week period of time?

Actually, it was a little bit hectic for us. We had a lot of extra cash calls, emergency shipments and those types of things that we had to scramble for because it was a difficult time for many people's confidence in the system.

But at the end of the day, there was basically two big dislocations. One was the Wachovia, and we have a pretty good share of Wachovia's business. And we weren't affected by that at all. And the other one, of course, was Washington Mutual, which we had zero of their business because they chose months ago to demand lower prices that we just weren't willing to meet, and they moved away from us. That could have been difficult because they declared bankruptcy, which is very different than what Wachovia did. And so, we dodged that arrow.

Very -- thank you very much for your time. I'll let others ask questions. Thank you.

Our next question comes from the line of Clint Fendley with Davenport. Please proceed with your question.

Good morning, gentlemen.

Hi.

Michael, the mixed shift that we've seen going to high-value services from the CIT business and the margin implications has been a big driver for your recent results as well as your longer-term outlook. How do you see the global slowdown impacting that shift during the next year?

Well, I wish I could describe what accurately would be what the global slowdown is going to be. So, with that caveat, I actually think it'll be neutral for us. History has shown that we've gone into recessionary periods before. There's usually a delay or a lag before it impacts our particular business.

In fact, when people are under the credit crunch as they are today, they're actually turning to cash, away from credit cards, so more cash tends to flow as people try to control their own personal spending habits.

But, of course, I have no idea how the global slowdown is going to affect our international and global operations or the duration of how long it's going to last.

And any thoughts on just some of your virtual vaulting? You talked a little bit about your ability to cut costs for your customers --- how that might be received down in South America and just the implications on the sustainability of your results in that region?

The risk in Latin America would, of course, be devaluation in some of the markets down there, depending on what goes forward. But we are spreading our products and our technology, which mostly is more expense-wise in the US and throughout the world, and rolling that out. And we're real excited about it. We're going to be very, very careful, though, because with global economic conditions, we've got to be careful of the credit sides because there's quite an investment in rolling out some of these products.

And what about your customers switching costs in an environment like this? How do you approach those in a slowing market?

Actually, some of these are capital-intensive costs that we bear, and it tends to make the customer a little more sticky because we're much more involved in their cash collection and reporting process.

And so, we view -- that's why we're investing so much money on the SG&A and IT side. We have used these more sticky products. It gives them more visibility of what's going on with their cash flow and their cash needs. And more importantly, it gives them faster credit.

Okay, thank you.

Our next question comes from the line of Brian Butler with FBR. Please proceed with your question.

Good morning, guys.

Hi, Brian.

A question on the Home Security side, can you give a little more color on the disconnect and the 9% and then the 7.5% to 8% going forward? Is that the right level to look at in a weaker environment is where it goes, or does that trend back down? And if it does, how so?

Well, in the third quarter, we did see an increase in subscribers raising their hand saying they wanted to disconnect. There are more people that are moving out of their homes and into apartments and/or staying in their homes and saying they're tightening up their budgets. And a lot of people will just say, "I don't need security," which can be a mask for economic issues.

But that drove half of the increase. That is a full percentage point over prior year. The other half was multifamily disconnects and our true-up on subscriber count, neither one of which really impacts revenue or impairment charges.

The multifamily contracts, we're winding down from there, but we had a big lump of them come in the third quarter that came off of contract and chose to disconnect. So, that was the other half of that increased 9% in the third quarter.

On the full-year basis, sequentially, the fourth quarter is generally lower than the third quarter, and we feel that that is going to be the case again this year. And we are taking up the full-year guidance to 7.5% to 8%, though.

Okay. I guess another way to look at it is just what gives you guys any kind of comfort or understanding that if the economic environment gets even worse, that the disconnect rate doesn't go to 9%, 10%? I mean, is there a natural break there? Can you just help people understand that?

Well, it's hard to forecast the degree of financial difficulties that people will run into. We've seen a slow uptick over the last couple of months. We haven't seen a sea change in people raising their hand at this point.

Okay. And then, one more question on the cash and transit side. I know you guys had been working on some cost controls going in the third and fourth quarters to kind of bring those margins back up, and you felt some of that was within your control.

Can you give some color on just how that's progressing? It looks like you made a little progress in the third quarter. Should we expecting anymore benefit from that, or is the economic environment just going to be holding you guys down here.

We did improvements throughout the quarter. It did get better the third quarter over second quarter. Management is focused on that.

Volumes, you'd think, would be an issue with slowing economics, but the reality is that there's more cash running in circulation today, and it's moving faster and by demand. So, we expect to see further improvement in the fourth quarter.

Okay. And then, the last one is more the accounting on the pensions. That $25 million to $30 million in non-cash expense, was that just for pensions, or did that also include the impact of the VEBA?

That also includes the impact of VEBA.

Okay, great. Thank you very much guys.

Our next question comes from the line of Yvonne Varano with Jefferies & Company. Please proceed with your question.

Thanks. Just a follow-up on the disconnect. You talked about the multifamily coming off contract. Are there any more of those in the near future that we should be looking for?

Yes, Yvonne, we have about 22,000 multifamily customers, and they'll be up for renewal over the next four or five years. Some people are choosing to stay with us. Some people are disconnecting. So, it'll be a slow bleed over time. Again, it's hard to say exactly when they'll hit.

Can you talk a little bit about why they're choosing to disconnect and not stay with you?

Yes. Right now, demand for apartments is very high. When demand's high for apartments and occupancy rates are high, a lot of properties don't feel the need to have to offer extras because they don't need to have much differentiation in the market.

When apartments have low vacancy rates, we've been able to sell in and use our service as an amenity. Right now, everybody's in a cost-tightening mode, and security's one of the things that they're doing without.

Great. And then, just on the Brink's side, I know we had talked, Michael, a little about the competitive situation with some competitors not doing as well as yourself. Has that turned into any new business for you?

Yes, it has, and concern about the financial stability with some of the competition around the world is rising amongst our financial and retail customers, which gives us good optimism in spite of the economic turmoil we're experiencing.

And then, just globally, I know it's probably a little bit difficult to look at all your customers, but any potential you see now? You talked about Wachovia and WaMu here, but any potential WaMus internationally?

No. I think what we've seen, not only here in the United States from Secretary Paulsen and Chairman Bernanke, but what's happened in Europe is that banks have been nationalized and taken over. And history has shown that the FDIC also steps in very aggressively on the second and third tier banks as needed.

So, I think if people could turn back the clock and relook at Bear Stearns and Lehman Brothers, they probably would relook at WaMu also. It might have been a little more stable environment that we're in. So, I don't look for that to be a threat.

Great, thanks.

Our next question comes from the line of Steve Velgot with SIG. Please proceed with your question.

Thank you. Most of my questions have been asked, but I did have a question just about how Brink's is going to report its segment-related information going forward. Is there a plan to give further breakout of the results, revenue and operating profit, by business segment, or what's the plan with that?

Steve, we're currently evaluating what's the right level for segment disclosure. And as soon as we've made that determination, we'll communicate that. But we're currently at it. We've made no call yet.

Okay. Thank you.

Our next question comes from the line of Michael Kim with Imperial Capital. Please proceed with your question.

Hi, good morning, gentlemen.

Good morning.

Morning.

A couple of questions. First, on North America, can you provide a little bit more detailed breakout on the cash logistics business and when you might expect to see that start to make a stronger contribution? Is that a near-term event or something that we should expect later in the following year? And then, I have some follow-up questions.

Yes, that segment of the business has been accelerating. We're moving the Company from a selling of individual services to solution selling, and it's expensive on the IT side and on the sales marketing side as we diversify our efforts in those areas.

But our pipeline is full. We're putting out more and more bids and selling more and more CompuSafes as the year's gone on. And next year will be a little bit murkier because of the economic dislocation we're experiencing. But the interest on those products, because they can lower cost and save money for the customers, is very, very high.

And were you primarily seeing acceleration from smaller institutions or moving a little bit higher up on the food chain for the -- ?

-- I would say in the small and mid-size institutions.

And have you started to see any pushback in terms of their situation and focusing on other priorities at this point, or are they still -- is your sense that they're still looking pretty closely at reducing costs in the near-term?

Well, there's no question they're looking at not only reducing costs, but getting same-day credit, which is very powerful.

Okay. And then, just turning on the international side, have you seen any significant shifts in your safety and security costs? Obviously, I think there's a little bit more dislocation out there. I wanted to see if you had any more detail on how you start to see that trend.

Well, year-to-date, we've had very, very strong performance. We've had an uptick in instances with the economy, which is to be expected. I expect that that will also increase next year. But Brink's is the best at what it does and has the lowest cost on that side because of the investment we make in our people in training and security levels.

Okay, great. And then, just switching gears to Brink's Home Security, the installations that we saw in this quarter, would you characterize that as sort of an ongoing trend through the rest of year? Usually, I think, the fourth quarter tends to be a little bit lower.

And I know it's hard to look out into 2009, but if your thoughts were that you could maintain the install numbers similar to where we are here, or do you think that might actually start to trend lower?

Well, one encouraging thing going into the fourth quarter is our marketing efforts are still holding up in the marketplace. We still have a lot of people calling us and inquiring about installing a Brink's Home Security System. So, that's good news.

We are looking -- we have slowed down, obviously, in the installation front. We continue to grow subscribers, more importantly. But that has gone down for the full-year to the mid-single digits.

Going into next year, we're finalizing our plans, but we still see subscriber growth being positive next year.

Okay, great. Thank you very much.

Our next question comes from the line of Jeff Kessler with Imperial Capital. Please proceed with your question.

Hey, thank you. I'm getting used to my new position when I ask questions on these calls now.

Jeff, Imperial Capital's been on twice.

I know. Well, I know you have nothing against me.

With regard to the Brink's Inc., we've been seeing a rise -- as credit dries, cash seems to be king. And we've seen this before, historically, with M1 going up as well. And I'm wondering if you're seeing an increase, particularly outside the US, where people have been hit by ID theft in the use of the velocity of cash, which might be helping your business, not just in the US, but abroad?

Well, Jeff, I would characterize it as that cash is king, and one that is expanding everywhere. And as I'm sure you're aware, people are fleeing to the US dollar. And so, the demand for US dollars all over the world has increased.

I mentioned in my prepared remarks that some of the contribution for our strong performance in the quarter was from our global service division, which is reflective of that velocity movement. And I expect that to continue.

That also has to do with moving of precious metals, which has been at unprecedented levels. And that's part of the strength of Brink's, is the diversity of its operations, the lines of businesses, geographical reach help balance us out through these difficult economic turmoil.

Okay. So, even if there may be some banking or some customer dislocations over the course of the next year, the fact remains that there probably is going to still be an acceleration in the use of cash, particularly US dollars and, we'll call it precious metals, which could offset -- mitigate some of that customer problem.

No question.

Okay. On the Brink's Home Security Side, number one, usually when you have a downturn in the real estate business, there is a decreased number of movers. Have you already seen the benefit from that when it comes to your attrition rates? And are you going to be looking -- is there any juice left in that, or have we gotten most of that and the rest of it's just basically downside from here?

Well, you're right, Jeff. When there's less moves going on in the marketplace, that does help us on the disconnect front. We have seen an uptick in people that are moving out of homes and into apartments, which is something new than has happened in the past, but it's not a sea change. It's been a slow progression.

We'll still benefit from less housing transactions and less moved disconnects.

Okay. Now, I know you're not going to get into a detailed discussion with me on creation cost multiples here because it would bore everybody to death, and you won't give it to me anyway, but I guess the question is, are you seeing an increase in your creation costs per customer?

Jeff, Michael's trained me well, so -- we've said before that over the last couple of years with the housing market slowing down, we have invested more heavily in marketing, which has increased our creation costs slightly. But we've also been getting a greater monthly recurring revenue from those customers, so our EVA hasn't been affected.

All right, and I wanted to deal directly with that last part of your question as well, and that is, on your ARPU, besides trying to get regular cost increases, whatever you can get, knowing that other companies out there have two-way, and your competitor across the pond has a video, are you looking at other types of methods? Like Protection One has gotten involved with one of the web-based providers in their so-called e-secure. Are you looking at other types of, and are you going to be using --- more importantly, using other types of ways of getting revenue from your customers over the next couple of years, particularly over the next year, to try to offset some of the increased difficulty you're seeing in getting new customers.

Yes. We always want to get more revenue out of not only new customers but also existing customers. We're always looking at new things to add. I'd say one of the more major drivers going forward will be IP connections of panels, which allow you to do a lot more things, as well as radio or digital communications that signals back to the monitoring center. You get more people that don't put in a hard-wired phone or want wireless backup to their monitoring system. That helps drive a lot of revenue.

And this is all incremental revenue to the base monitoring rate?

Correct.

Okay. Okay, thank you very much.

You bet.

And our next question is a follow-up question from the line of Jamie Clement. Please proceed with your question.

Thank you. I think, Bob, you and your team have been pretty clear on the cash expectations that you expect to use over the next year or two with the rebranding and whatnot, but a question for Michael.

I don't know how much stock you put into the trading of the BCO win issued and how this whole thing will shake out, but historically, over the last couple of years, you've bought back a fair amount of stock. If that's a legitimate price on where your stock opens on Monday, are there extraordinary capital needs over the next year that would sort of prevent you from considering a buyback again?

All issues of capital structure are -- we've been on hold, as you know, because of the spin. So those things will be discussed with the board at the next meeting.

We will continue to conduct ourselves in a shareholder-friendly manner. I do, however, see some opportunity on the acquisition side that hasn't existed in recent times because of the economic dislocation. We are also determining which one of those are most attractive at the current time.

But in terms of looking out of a year in terms of just core capital spending, are there any unusual expenses that you see over the next 12 to 18 months, or is the long-term trend a good one to consider as we look out to next year?

This is Mike. We've looked at our capital projections for the next year, and we feel good about our liquidity position and our availability to deal with them, including strategic options, be it acquisitions or share buybacks. So, we feel like we've got the resources that we need to execute the options we want to do.

Okay, very good. Thank you very much.

Our next question is a follow-up question from the line of Steve Velgot. Please proceed with your question.

Yes, I may have missed this, but it's a question for Mike Cazer. The $25 million to $30 million of non-cash expense for the pension and VEBA, how does that compare to current year, or was that referencing an incremental expense?

Steve, that's an incremental non-cash expense.

Got you. Okay, thank you.

(OPERATOR INSTRUCTIONS.) There are no further questions in the queue at this time. I'd like to thank everyone for participating on today's call. You may disconnect your lines at this time. Have a great day, everyone.