Brinks Co (BCO) 2010 Q2 法說會逐字稿

Greetings! And welcome to the Brink's Company Second Quarter 2010 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded.

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

Thank you Rob, and good morning. Today's call will proceed as follows.

CEO Michael Dan will provide an overview of financial results, segment-operating performance, strategy and outlook.

Then CFO Joe Dziedzic will make some follow-up comments before we open it up for questions.

Our earnings release was issued this morning and is available on our website at BrinksCompany.com. Before I turn the call over to Michael, I want to point out a few things about the release and today's call.

This morning we announced second quarter earnings of $0.42 per share versus $0.34 last year. Non-GAAP earnings were $0.29 versus $0.20. Our comments today will focus primarily on the non-GAAP results. A reconciliation of non-GAAP to GAAP results is provided in the earnings release, and Joe will provide additional details in his comments.

The release also provides information on organic growth. Organic growth represents the change between periods excluding acquisitions and divestitures, foreign currency translation and the remeasurement of net monetary assets in Venezuela under highly inflationary accounting.

On a non-GAAP basis, organic revenue was up 5%. In the organic segment, profit growth was up 36%.

The summary of selected results and outlook guidance is on Page 8 of the release, and provides our current forecast for 2010 organic revenue growth, segment operating profit margin and several other items, including non-segment G&A costs, US retirement-plan expenses, royalty income, tax rate, capital expenditures and depreciation and amortization.

And now for our Safe Harbor Statement.

This call, including 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 10Q and 10K documents.

The information discussed on the call is representative as of today, only. And Brink's assumes no obligation to update any forward-looking statements made during the call. The call's copyrighted and may not be used without written permission from Brink's.

I'll now turn the call over to Michael Dan.

Thanks, Ed.

Good morning and thank you for joining our call.

This morning we reported second-quarter earnings of $0.42 per share versus $0.34 per share last year on a GAAP basis. Revenue declined 3% due mainly to currency translation, but was up 7% on an organic basis.

On a non-GAAP basis, earnings were $0.29 versus $0.20 last year, with organic revenue growth of 5%. The non-GAAP results adjust for a variety of items that Joe will cover in more detail.

It is important to note that we did not adjust for severance, restructuring and certain other items that we consider to be part of normal operations. My comments today will focus mainly on the non-GAAP results, which we believe are helpful in assessing operating performance.

Non-GAAP revenue rose 5%. While most of this increase was increase was due to inflation-based price increases in Latin America, organic revenue was up in all regions.

Segment operating profit for the quarter rose 41%, to $42 million, giving the margin of 5.8% -- up from 4.3% last year. Improvement was driven by higher profits in our international operations, which more than offset lower profits in North America.

On a year-to-date, segment margin of 5.6% reflects ongoing price and volume pressure in most of our markets. The good news is, it's up 60 basis points over last year's first-half margin. Looking ahead, we are confident that profits will improve as we enter the historically stronger second half.

We expect profit growth of all our regions to push the full-year margin rate up to a range between 6.5 and 7%. The outlook for the full-year organic revenue growth remains in the low- to mid-single-digit percentage range over 2009 non-GAAP revenue of $2.9 billion.

The improved second quarter results from international operations were driven by a $10 million profit increase in Europe. But I want to be clear that the improved results in Europe were helped by a favorable comparison to a year-ago quarter that included about $8 million relating to accounting corrections, higher severance costs and asset write-offs.

Nevertheless, we are pleased to see a pickup in Global Service volume and lower severance expense in what has been a terrible economic environment there. We think the worst is behind us, but there continues to be an uncertainty regarding the macro outlook for Europe.

We're making slow but steady progress in several countries, but our operations continue to face volume and price pressures. As a result, our operating margin in Europe remains below the segment average.

Profits in Latin America were up about 14% on an organic basis, due mainly to growth in Brazil, Colombia and Venezuela. Profits were down in Chile, which is still recovering from the earthquake earlier this year.

Our exposure to Venezuela has been reduced, but it still accounts for about 5% of our year-to-date revenue. And it's an important factor in Latin American results.

There is widespread economic and geopolitical turmoil and a parallel market-exchange rate no longer exists. And it is unlikely that we will be able to repatriate cash in the foreseeable future.

As I've stated many times, this business has been operating in Venezuela for a long time and has been through several economic and geopolitical cycles. We have a very strong management team there, and I'm confident they will overcome their current challenges. In the meantime, we are continuing to pursue growth in our other Latin American countries.

The growth of our relatively small Asia-Pacific region was due mainly to last year's acquisitions in India and China. But we also saw growth in our Global Service business in this region, due to a pickup in demand for gold and other precious metals in Hong Kong and India.

In North America, price and volume pressures led to a $3 million profit decline. Our CIT business continues to struggle; especially in the US. We're facing aggressive pricing by competitors who are under enormous pressure to gain market share.

In many cases, their pricing levels are simply unsustainable. It is a very difficult environment, but we know the true cost of doing business the right way, and we will remain disciplined in our efforts to obtain fair value in exchange for our commitment to safety and security of our people and customer service.

Over the long-term, we will win more business than we lose to those who cut corners on safety, security and price to win share. That's why Brink's is the premier brand in the industry.

We also remain highly focused on our CompuSave service in North America. During the quarter we had about 400 net installs; a bit slower than we had hoped for, but about even with the first-quarter pace. Our installed base is now a little over 11,000 units, and our goal of reaching 13,000 by year-end will be challenging.

But the pipeline remains strong, and as with the rest of our North American business, we expect improved second-half results from CompuSave as well.

The overall performance of Global Services, which spans all regions, was very encouraging. We continue to benefit from higher demand for transport and storage of commodities, including gold and other precious metals. The diamond and jewelry markets appear to have stabilized and are showing signs of recovery.

The demand for our service is currently driven more by the diamond market than the jewelry market. This reflects the impact of diamond investors in a rising price environment as opposed to recovery in the retail jewelry markets.

The demand from US retailers, by far the largest drivers of global diamond and jewelry demand, has not recovered as much as we had hoped at this point. A pickup in demand in the US could lead to further improvement in Global Services, not only in North America but across all regions.

That concludes my review of operations. No doubt we continue to face challenges on all fronts, but if I reflect on the quarter and look ahead, I'm encouraged by the fact that organic revenue growth is holding up fairly well. Our secular margin's ahead of year-ago levels. We've now entered what's historically been the stronger part of our year for our business.

We've demonstrated our ability to withstand a severe recession [without strain] from our highly disciplined approach to positioning Brink's for continued growth. In fact, I believe our competitive position has improved as the year has progressed, and will continue to do so.

Our core strategy remains intact. We are focused on growing our cash logistics and other high-margin services in our current markets by entering new geographies with strong growth potential.

Over the last 18 months, it has been very difficult for the global economy. We've demonstrated our commitment to executing this strategy by completing the acquisitions in Brazil, Russia, India, China and France. We are pursuing additional opportunities to expand our global infrastructure, which in turn enables us to offer high-value solutions to a broader base of customers.

Economic and market conditions will continue to test us. But I feel very optimistic about our competitive position and our growth prospects. We have the world's premier brand, a global footprint in the industry's broadest array of value-added services, and the financial strength to address challenges and pursue growth opportunities.

As economies around the world stabilize and improve, our position as the global leader in secured logistics will only get stronger.

I'll now turn it over to Joe, and then we'll take questions. Joe?

Thank you, Michael.

Good morning, everyone. Michael covered the main points from an operating perspective, so I'll provide some details behind the results.

I'll start by reinforcing Michael's perspective on our performance and outlook.

During the second quarter, historically our lowest quarter of the year, we delivered on a non-GAAP basis organic revenue growth of 5%. We expanded our segment margin rate by 150 basis points to 5.8%, and we grew earnings-per-share by 45%.

Latin America continued to perform very well. Europe made improvements in the quarter versus last year and versus last quarter. And North America was affected by the difficult pricing and volume conditions in the US.

We are revising our full-year segment margin rate estimate to 6.5 to 7%, based on the difficult macroeconomic environment in Europe and the challenging pricing and volume environment in the US. This still represents a 50 to 100 basis point improvement over the 6% non-GAAP segment margin rate for the full year 2009.

Our first half 2010 results are 60 basis points better than the first half 2009, and we expect to continue improving on this in the second half of this year.

Now for some of the details behind second-quarter results.

We provided both GAAP and non-GAAP results in the press release. We are providing non-GAAP information because we believe it will make it easier for investors to assess our operating performance on a trend basis, and without certain items that make comparability with prior periods difficult.

Particularly over the last several quarters, our results have included items that made it difficult to draw comparisons with prior periods. For example, our second-quarter 2010 GAAP earnings were impacted by a Venezuela net monetary asset remeasurement gain, a tax settlement that lowered our second-quarter tax rate significantly below our expected full-year rate, and royalties from our former Home Security unit.

Last year's GAAP results also included several items, including a gain on the sale of [whole] assets and the impact of reporting Venezuela at the more favorable exchange rate. We have provided a GAAP-to-non-GAAP reconciliation in the press release for the last six quarters.

There were several events in the quarter I would like to explain in more detail. Our brand-licensing agreement with our former Home Security unit will terminate in August of this year. These royalties generated pre-tax income of $7 million in 2009, and an estimated $5 million in 2010.

We said last quarter that the exchange-rate situation in Venezuela could be volatile, and it has been. Last December we announced our decision to repatriate cash on Venezuela and adjust our 2009 results to reflect a change from the official government rate to the less-favorable parallel rate.

Our stated strategy was to repatriate cash and reduce our net monetary assets, and we did so through May of this year. From December of last year to May of this year, we repatriated $24 million and reduced our net monetary assets to $14 million.

Then the rules changed.

In late May, the Venezuelan government passed a law that effectively closed the parallel exchange market and created a new currency exchange managed by the Venezuelan Central Bank. The new law requires an exchange rate between 4.3 and 5.3. It limits exchanges to $350,000 per month per legal entity and requires Central Bank approval.

We're confident that we can obtain the necessary US dollars to support our operations. But we don't expect to be able to repatriate dividends for the foreseeable future. We will continue to invest in Venezuela with locally-generated cash flow and continue to explore opportunities to repatriate cash.

The Venezuelan net monetary assets at the end of the second quarter were $23 million versus 28 million at the end of the first quarter. The Venezuelan exchange rate at the end of the second quarter was 5.3, based on the new Venezuelan Central Bank exchange process. This is the exchange rate we expect to utilize going forward, based on the current exchange mechanisms.

During the second quarter, we recognized a $1.7 million gain on the remeasurement of Venezuelan monetary assets and liabilities. This compares to a loss of $4.9 million in the first quarter. This is the result of changes in the exchange rate and balance of monetary assets and liabilities under highly inflationary accounting.

These amounts have been excluded from our non-GAAP results.

Despite the difficult economic environment in Venezuela, our business continues to perform well. It is important to remember that this is a profitable cash-generating operation with strong management and a long history of success.

While the exchange controls currently limit our ability to repatriate cash, we remain committed to the business, we'll continue to invest in safety and security, and believe the business will weather the latest volatility with its business model intact.

Now for taxes.

Second quarter included an $8 million non-cash settlement, which was included in our full-year non-GAAP estimate of 36 to 39%. As we've stated previously, our quarterly tax rate has a history of significant variability due to settlements and other items.

Given this variability, we decided to use the midpoint of the full-year forecasted range as the tax rate in our quarterly non-GAAP results.

Excluding the first-quarter charge related to the new healthcare legislation, the tax rate for the year is still estimated to be in the 36 to 39% range. Based on where we generate profits and losses around the world and our tax-planning activities, we continue to expect our tax rate to be in this range for 2010, which is consistent with our 2009 non-GAAP tax rate of 37%.

Total restructuring and severance expense for the quarter was $1 million versus $3 million in last year's second quarter. As expected, these expenses were down significantly from the past two quarters, when we spent about $9 million per quarter; most of it in Europe.

As we have often stated, we consider these costs to be a normal part of operations that are likely to continue. In the second half of the year, we expect severance and restructuring at the historical levels of $2 million to $5 million per quarter.

Capital expenditures through the first half of the year were $61 million; down $14 million from last year, primarily due to last year's purchase of armored vehicles in the US versus using capital leases this year.

We've reduced our full-year outlook for CapEx to a range between $160 million and $175 million; down from our prior range of $180 million to $200 million. This reduction reflects lower spending across all regions, and weakness in the euro.

Depreciation and amortization is estimated to be between $130 million and $140 million. We will continue to manage spending carefully as we execute our strategy of investing in safety and security and pursuing growth in selected markets throughout all economic cycles.

Our first-half cash flow from operating activities was $49 million; a decline of $37 million versus the first half of last year. That is due entirely to two transactions involving discontinued businesses.

Last year we received a $24 million recovery from a tax settlement, and this year we paid a previously-disclosed $12 million claim related to our former BAX global business.

During the second quarter and through Tuesday of this week, we have repurchased 1.1 million shares at an average price of $19.65 per share, for total expenditures of $22 million.

I would characterize these repurchases as very opportunistic, and yes it is an indication of our view regarding valuation. But the cash flow impact is equally compelling, if you consider that one share repurchased for $20 can be financed through the new revolver at an incremental 2.1% interest rate. The annual financing cost per share after tax is only about $0.26. This compares to the $0.40 we pay annually in dividends.

Obviously we have to pay back the principle, but given the relatively small amount of the existing repurchase authority, and the fact that we continue to repatriate cash from around the world, we feel this is very manageable.

On an annualized basis, we expect the repurchases to date to be accretive after borrowing costs by about $0.03 per share. We will continue to be very opportunistic with the $12 million remaining on the repurchase authorization. Again, this repurchase does not change our strategic commitment to continue investing in emerging markets and developing more high-margin services and solutions.

Our non-segment expense, which includes our corporate G&A and legacy pension and medical costs was inline with our expectations for the quarter. We are on track for our total-year estimate of $40 million in G&A and $23 million for pension and medical. Total non-segment expense is on track with the guidance we provided at the beginning of the year.

Now for a brief review of our liquidity position. We ended the quarter with $143 million of cash and $263 million of debt, resulting in a net debt position of $119 million. On July 16th, we refinanced our revolver. It is a 4-year deal that results in an interest rate of LIBOR plus 212 basis points, compared to the previous 45 basis points.

Based on the current drawn amount of $130 million, the annual incremental after-tax cost is estimated to be $2 million or about $0.04 per share.

I'll close by providing additional color on our guidance of low- to mid-single-digit percentage organic revenue growth and a segment margin rate between 6.5 and 7% on a non-GAAP basis. Our outlook is based on several factors. The second half has historically been the strongest for us, and we expect improved results across all regions.

We expect lower severance and restructuring the remainder of the year, in addition to realizing a payback on recent actions.

The recovery in our Global Service business continues across most regions, and our first-half margin rate is 60 basis points ahead of last year; already within our estimated range of 50 to 100 basis points improvement.

As Michael said, we will remain highly disciplined in our focus on growth in an extremely challenging environment. We have the right strategy in place and are taking the necessary steps to position Brink's to deliver for our customers, employees and shareholders.

Rob, let's open it up for questions.

Thank you.

We will now be conducting the question-and-answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

You may press *2 if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * key. One moment, please, while we poll for questions.

Thank you.

Our first question will be coming from the line of Clint Fendley of Davenport & Company. Please proceed with your question.

Thank you. Good morning, everyone.

First of all, thank you guys for the reconciliation tables and the non-GAAP. They're both very helpful, here.

I wondered if we could begin talking a little bit about your outlook for North American segment margins. I know you don't usually give those on a per-country basis, but could you help us here and just update us on what's happening in this market with regard to pricing and demand?

Volume is still an issue in the US business part of North America. Unchanged from the last couple quarters. And pricing has reached I would call a desperation level, by some of our competitors. And we're just frankly walking away from some business.

So we're obviously given the opportunity by our customers to match some lower pricing, and we just refuse to do it. It's not good economics. That discipline has served us well through the years and will continue to do so.

When that's going to ease or stop, I don't know. But that's happening on our base CIT business, and some on the ATM side. It's had no effect on our CompuSave or our value-added services which some of our competitors have some products and some don't.

I'm convinced we're on the right path, the right strategy, and we just have to see it through.

And have you seen that pretty much same pressure uniformly across the US? Any particular states or regions that have been hit harder than others?

You know, it's coming mostly from the financial services sector, which as you know over the last two years has become ever bigger. They're under a lot of strain and stress with recent reforms.

So somebody who's willing to offer a very, very attractive price to a financial institution today, it's pretty hard for them to say no. And by their hand, I will assure you that the pricing levels that I've seen in the marketplace are unsustainable.

And on your reduced outlook for CapEx, does this imply that you're throttling back on the deployment of CompuSave?

Part of this concept -- most of it, as Joe had mentioned in his remarks, has to do with just looking across the global scene and recognizing that we have to be very prudent with any of our CapEx.

The guidance we gave today is our best look at where we're going to be for the year. It still might be a little bit on the high side. It depends on how things go.

But the way we look at it is, where we have strong [EVA]-producing countries, we'll continue to invest aggressively. Where we have some problems in countries, where we need to step up and make some investments to fix the countries, we'll continue to do so.

But our business management group across the globe is just looking at every single project to make sure that we're prudently investing money during these difficult economic times.

Okay. And last question here.

I wondered if you could discuss, Michael, just the new channel opportunities for your Global Services business. We seem to be hearing more from you guys about luxury goods, pharmaceuticals. How could this impact your volumes in the next say 2 to 3 years?

Well, quite substantially. But it's early days. We have a couple of contracts that we're doing very, very successfully for some major people. And people tend to say, "Hey -- why are they doing that?"

And so our pipeline is full with opportunities, and we're excited about pharmaceuticals in particular, followed by luxury goods. And we are investing in hiring resources, and that just puts more revenue through our asset base, which is a very profitable, high-return business for us.

Great. Thank you, guys.

Thank you. Our next question is from the line of Jamie Clement with Sidoti & Company. Please proceed with your question.

Good morning, gentlemen.

Good morning.

Michael, just a follow-up to Clint's question with respect to North America.

Correct me if I'm wrong. I mean it sounds to me that what you're seeing in the marketplace from a competitive standpoint -- this is the kind of thing [your team]'s for. I mean it seems like your industry is cyclical with respect to this. And it seems as if eventually that pricing does, in fact, prove unsustainable and you end up getting led down the road.

Is that your thought of what's going on here?

Yes. Been there, done that, seen that three or four times in my career. And I will tell you that I always think that this is the worst I've ever seen, and I've seen worse.

But for somebody to come around and drop prices 30 or 40% in a business that makes 7 to 8% margins, it's just not sustainable.

Yes. And Michael, let me ask you a follow-up to that. And I want to hesitate in naming names, so I'm just not going to.

Do you think that part of the current round of what is going on is as a result of some bank consolidation as well as some failures that may have messed up some competitors' [inaudible] over the last two years?

All of that plays into the mix. There are tremendous financial pressures out there. People have fixed asset bases in place. The volume declines put pressure on people to say, "Hey. I need more revenue on my asset base." And just some people don't have the discipline that we had through the years.

And I know through experience and watching this industry for over 30 years, it just doesn't work. Not only here in the United States, but anywhere in the world.

Changing gears to Europe. Less on the competitive front and more on just the underlying health of the CIT market and that sort of thing.

My impression obviously is just in reading the papers and that sort of thing. Obviously Europe during the June quarter seemed like there was another economic shockwave that kind of hit them.

It seemed like conditions in your industry were certainly no better than they were in the fourth quarter or the first quarter of 2010; maybe even a little bit worse.

I actually thought your numbers were actually pretty good this quarter. I mean do you feel you're starting to get your arms around some of the things that you guys actually had to [roll] over?

There's no question about it. We've had a concerted effort with three or four executives from the US business new management team that's been in Europe for almost a year now. We've changed some management in some key areas. It's starting to get some traction, because we're doing the blocking and the tackling. We're making the tough choices, as we always have.

And so I'm really positive about the steps we've taken in Europe. We've got a long way to go. The margin is nowhere near what it needs to be. But we're doing the right things for the right reasons and being very prudent in our investments to make sure that we come out of this on the right side of the equation.

And I'm happy with the team that we've assembled over there.

And is my categorization or classification of European operating environment being at a very, very low bottom right now, I mean, would you say that's accurate?

No question.

Okay. All right. Thank you very much.

Thank you. Our next question is from the line of Ian Zaffino of Oppenheimer. Please proceed with your question.

Hi. Good morning.

I'll repeat to [inaudible], too. [inaudible] I just wanted to dig down a little bit deeper. Is there anything structural per se that D&A can eventually get in line? Or -- sorry -- that CapEx can't get in line with D&A?

I understand just running [inaudible] CompuSave and I think that's probably good, given that it's high margin. But is there really a need to dump so much capital into such a low-margin or lower-margin, lower-return businesses, going forward? If you could answer that, and then I have a follow-up. Thanks.

Well, first of all, there's a certain level of CapEx we're spending just to maintain the business. I mean there's CapEx for our growth products. And we're aggressively investing in our growth, higher-margin products because it's the right thing to do, and we will continue to do so.

I don't think we're going to spend as much capital as we just guided to, because I don't think it's physically possible for us to do it unless we get some really large orders in for our CompuSave. And that will probably bleed into next year, anyway.

But at the end of the day, our CapEx is reflective of a company that's on a growth trajectory. And we have a shrinking interest rate environment, and we're showing organic growth. Because we're blocking and tackling and have the discipline we have.

And I'm convinced that we've made a choice to continue to invest at a certain level, so when this economic situation turns around, we're just in a better competitive position than anybody else. And that'll be a great return for our shareholders.

All right.

And I would agree with you on that. I agree with that as far as the investing in your higher-growth opportunities. But from the lower-margin end, is there really an opportunity -- let's just say this -- to shrink your lower-return assets and reduce them?

You know, we have an asset base which basically consists of facilities and buildings. And IT.

And those are really the three areas that we spend CapEx on. And our strategy is to put as much revenue through that asset base as we can through as many lines of business and obviously investing in the higher-margin ones.

But at the end of the day, you're still going to have the trucks. You're still going to have the buildings, and you still have your IT investments.

Okay. All right.

And just one last question on this, just so I can understand this a little bit better.

You talk about the trucks, but then you talk about your high-margin opportunities. I understand you need a certain baseline of trucks to perform some of those high value-added services. But do you really need all of them, per se? Or again is there an opportunity to prune around the edges?

Well, we're always trying to operate as efficiently as we can. And obviously with the economic strains that we've had the last two years, management's been focused like a laser beam on costs and CapEx. And I think the spend levels that Joe talked about earlier in his comments reflect that we continue to do that.

But at the end of the day, we're in the risk business and we have a great strategy that we're implementing and we're going to invest in that strategy for the long-term benefit of our shareholders.

Okay. Thank you very much.

Thank you.

Our next question is from the line of Chris Marangi with Gabelli & Company. Please proceed with your question.

Hi. Good morning.

Before this latest economic storm, I think you had articulated a goal of 10% segment margins, improving 50 basis points as year. Is there any reason to think that that has changed? Obviously it's been delayed.

No. Not at all. Not at all.

You have to understand that the economic storm we came through hurt our highest-margin businesses and slowed down some of the deployments of things like CompuSave, and really hurt the diamond jewelry business, as we've talked about on previous calls.

We're seeing that business come back and Asia's doing fine. Latin America's doing fine. Europe has picked up quite a bit. Some of the growth in diamonds is, as I said in my earlier comments, it's investors. Investors are looking to put money into hard assets and gold has been very attractive. And by the way, diamonds are very attractive.

Right.

So the ultimate mix of the business, if we were to go out five years from now, still looks like a higher mix of value-added services and higher margins?

There's no question about it. It's our strategic plan that we're executing on.

Just on the volume side of the business, particularly in North America. Obviously much of that is cyclical. Have you noticed any secular change? Has there been a change in consumer behavior toward less cash, for example?

No. Actually it's just the opposite. More cash is flowing because of the tough economic times. People are afraid to use credit cards. So cash is still growing at about 6% in this particular country. And we expect to continue to do so.

ATM deployments are still taking place. So I don't have any fears of that.

Okay. Then just lastly, obviously you've had to do a revolver. You referenced being opportunistic with share repurchases and investments around the world.

Can you just remind us of how you think about leverage and what the right leverage for this business should be? Or could be?

We like the capital structure we have today, and we like the liquidity we have, because it gives us flexibility to continue investing. Both reinvesting in the existing business as well as in acquisitions. We've recently done a number of acquisitions in emerging markets and we like the prospects of our pipeline of additional acquisitions. We like the current capital structure because it gives us a lot of flexibility to keep investing for growth.

Okay. So you're at basically a half-return of cyclically depressed EBITDA in terms of net leverage? I mean would you be comfortable paying that to one if you found the right opportunity? Or two? Or whatever the number is?

For the right growth opportunity, we'd be happy to take on additional debt if that's necessary.

And if we've got the right return and the right growth prospects, absolutely.

Okay. Thank you.

Thank you.

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

Hi. Good morning, guys. Just going back to the North American CIT business. When you look at past cycles, what was the level of customer recapture following some aggressive pricing actions by competitors in those cycles? Was it a 12- to 18-month timeframe or longer? Was the decision made more by the unsustainable pricing, or was it the customer responding to the service levels?

It usually takes place anywhere from 6 to 18 months. That's been the past historic cycle time. And it's because people physically -- physically -- take on too much work than they can physically fit into a truck. And then the service levels start to deteriorate.

And at the same time, when somebody hears those pricing levels and people talk, then the customers start demanding lower rates. And they start to implode. They have no choice.

And on their cost side, is it your sense then that some of those competitors are more aggressive on the safety and security side? Or are there other ways that they're looking at the business?

No. They're just trying to put more revenue on their asset base at what I call any cost. At any cost.

The trucks are out there. Their crews are out there. And if I can get some more revenue and if I have to discount it to get it in a declining volume market, they're being aggressive at doing so. And it's just not sustainable.

And historically, what was the rate of customer recapture? Did the majority of those customers come back to Brink's that you'd lost? How has that typically played out?

Actually, it tends to be there are other customers where either the service falls off and they have a little more attractive price than Brink's. Not greatly, but a more attractive price than Brink's. And they're getting lousy service.

They're saying, "Well, for another 10% or 15%, I could have Brink's level of service." So their other customers tend to come to us, because they see the service decline. And then they're stuck with a low-margin business. And that's why it's not sustainable.

And then just switching gears to CompuSave. It had been tracking at pretty good levels in the prior two quarters. Can you talk about the little bit slower pace this past quarter? And your thoughts for the remainder of the year?

We think it's just a timing issue. The pipeline is very, very full. The interest in the product is continuing to be very, very strong.

I think it's a timing issue. It's a little bit tougher for some organizations to make decisions in tough economic times. The decision process, I think, has slowed down in some cases.

But I think that's temporary, and I think we'll be back on track in 2011 with our CompuSave installation rates.

And where are you seeing the strongest level of sales pipeline activity or interest?

Actually, more and more banks are offering the service to their customers, or almost selling it for us. Because it's just a very, very attractive proposition.

And once again, this is in a market with the lowest interest rates that we've had, I think, in our lifetimes. And I don't think that's going to be the case in a few years. When those interest rates start to go up, the attractiveness of this product becomes ever more compelling for all the participants.

Great! Thank you very much.

Thank you.

As a remainder, ladies and gentlemen, if you would like to ask a question, you may press *1 on your telephone keypad. We'll pause a moment to poll for questions.

Thank you.

Our next question is from Brad Safalow with PAA Research. Please proceed with your question.

Hi. Thanks for taking my question.

Yes, sir.

First question, just a housekeeping item. The mark on the Venezuela assets just looks like it's the change from the 8.9 parallel rate to the 5.3 now government-enforced rate. Is that correct?

Correct. It was actually from 7 at the end of the first quarter down to 5.3 in the second quarter, and we marked it every month based on the rate in effect. So $1.7 million, pretax.

And then just shifting gears on the Global Services and some of the hard-value items; specifically jewelry. You guys talked about how the diamond business is doing better. Certainly if you look at the commerce department data in the US, you get similar data in India. Certainly, the trade has picked up.

Can you talk about the mix that you had, let's say in 2007, between service to actual retailers versus service to people who are actually trading diamonds and where it is today?

Retailers are farther down the list as far as the mix of Global Services business. But that's the ultimate demand.

Right.

That's what keeps the pipeline flowing. So we really want to see the retail come back, which gets the velocity going. And we're hopeful that that will happen in North America, which is the Number 1 consuming nation of these types of goods. Diamonds and jewelry.

But the rest of the world is doing well, and that business is picking up. And it'll be interesting to see how the holiday season goes here in the United States.

In terms of the health of the retail market, I mean, I look at the comps from the major retailers and I look at the IDEX online data. What other data do you guys look at to get a gauge of the health? Or your expectations, going forward?

Well, you know we started the source, which is the mines. As you recall, last year we talked about the number of diamond mines that were shut down. Demand came back and they're all open again. So it starts there. It goes all the way through the cycles from Australia, from Africa; we follow it everywhere.

The key now is rough prices are up 50-60% on a year-over-year basis. So we benefit from that. We benefit from those.

And there's more velocity going on on the rough side. How much of that is investor-driven versus just filling the supply in the chain, I'm not sure. I do know that our Asian business is picking up strongly, reflecting the growing wealth in that region.

And Europe is showing improvement in this year-to-date so far, in the second quarter, particularly. The issue now is, "What's going to happen in the United States?" And once again, the holiday season will tell us.

Sure.

And then just specifically on Asia. Can you talk about -- I know you've made a number of small acquisitions there. You've discussed a number of times that there's not really one large platform that you could acquire.

Could you talk a little bit more about what your investment strategy is as of this moment, and how you plan to get more scale in that market?

It's very difficult if you have to look at it country by country.

First of all, in China, our ability to operate in our conventional manner is just non-existent at the current time due to local regulations and laws. No one's given a security license to carry weapons in China. It's as simple as that.

So we use a sub-contractor model. And we're growing our Global Services business. In particular, [in our goods] logistics business, in particular, in China at a nice rate. And we're going to try to penetrate that through offering consulting services or our cash logistics business, where we don't have to have the same regulatory approvals that are in place for our conventional business.

And we're pursuing that with dedicated resources, and we would hope that that would help us penetrate China.

In India, we've been there for 25 years. We've bought up and we will continue to add to our growing business there in a fast-growing market. We're positioned appropriately in our conventional businesses.

Japan's very difficult. The cost of real estate in Japan makes it virtually impossible for us to grow our traditional business there. Yet it's a very, very strong market for us in Global Services, and will continue to be so in the future.

Then we are looking at acquisitions in other countries throughout Northern Asia. We're already well positioned in Australia, and it's just a matter of finding the way to get in on the growth wagon there, in a more effective way than we have to date.

And just specifically on China, subcontracting model. Can you at least speak to what does ATM installation growth look like? Cash in circulation and those types of metrics. What does that look like to you and how much can you even grow with a subcontracting model there?

That's why we're trying to get into the consulting side and running the cash [growing] side. We think we can grow that way.

The scale of what's going on in China in the financial industry is just hard to fathom. The largest bank in this country has 6,600 branches, and just announced they're going to 6,300 branches. The top five banks in China average over 60,000 locations. The scale is just incredible.

I just think we have to peel that onion in a different way. I don't see a foreign company being granted licenses to conduct business in the way that we have historically around the world for many years to come. That's just not the market.

So we're going to enter through the back door, so to speak.

Okay. Appreciate all the color. Thank you.

Thank you.

There are no further questions at this time. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.