Brinks Co (BCO) 2013 Q2 法說會逐字稿

Welcome to the Brink's Company's Second Quarter 2013 Earnings Call. Brink's issued a press release on second quarter results this morning. The company also filed an 8-K that includes the release and the slides that will be used in today's call. For those of you listening by phone, the release and slides are available on the company's website at brinks.com. (Operator Instructions). As a reminder, this conference is being recorded.

Now for the company's Safe Harbor statement. This call and the Q&A session contain forward-looking statements. 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 the company's most recent SEC filings. Information presented and discussed on this call is representative as of today only. Brink's assumes no obligation to update any forward-looking statements. The call is copyrighted and may not be used without written permission from Brink's.

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

Thank you, Denise. Good morning, everyone. Joining me today are CEO, Tom Schievelbein, and CFO, Joe Dziedzic. This morning, we reported results on both a GAAP and non-GAAP basis. Non-GAAP results exclude a number of items, including US retirement expenses, acquisitions and dispositions, and some currency related items. The 2013 non-GAAP results use the expected full-year tax rate of 37.5%.

A summary reconciliation of non-GAAP to GAAP to EPS is provided on Page 2 of this morning's release. More detailed reconciliations are provided in the release and in the appendix to the slides we are using today, which were included in this morning's 8-K filing and are available on our website. We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments from this point forward will focus on non-GAAP results from continuing operations. I will start with a brief summary.

Second-quarter earnings from continuing operations came in at $0.44 per share, versus $0.48 in 2012. The segment margin rate was 5.9%, down slightly from 6% in last year's second quarter. Organic revenue growth was 8%. Currency translation had a negative impact of $20 million on revenue, $2 million on profit, and $.02 at the EPS level. On a year-to-date basis, earnings stand at $0.79 versus $1.16 in 2012, with a segment margin of 5.6%. Excluding the $19 million charge from this year's first quarter robbery at the Brussels Airport, the year-to-date margin is 6.6% versus 6% the year ago quarter. Organic revenue growth for the first half was 7%.

For those who model our results, please note that Page 7 of the Press Release provides a summary of selected results and outlook items that should be helpful in forecasting 2013 performance in more detail. I now turn the call over to Tom.

Thanks, Ed. Good morning, everyone. Second-quarter earnings were generally in line with our expectations, and we remain on track to achieve the previously-disclosed 2013 segment margin guidance in the 6 to 6.5% range as continued profit growth from international operations is expected to outpace reduced profits in North America. We are also on track to achieve organic revenue growth of 5% to 8%. I will begin by covering international operations, which account for about 75% of our revenue and deliver organic profit growth of 19% for the quarter.

Start with Latin America, which was the primary driver of this growth. The region provides about 40% of our revenue, and is our fastest growing and most profitable market. We saw good profit growth in the quarter. That was driven primarily by year-over-year improvement in Venezuela, Mexico, and Argentina. On the downside, we saw a significant slowdown in the Brazilian economy, resulting in a profit decline that Joe will cover in more detail. We expect improvement in Brazil to help drive continued profit growth in Latin America during the second half of the year, even as we continue to invest in productivity improvements and as we expect additional currency devaluation in Venezuela later this year. While overall revenue growth in Latin America has moderated over the last several quarters, we remain optimistic about our long-term growth prospects in this region and we will continue to invest there.

In Europe, which accounts for about 30% of our revenue, profits were roughly in line with our expectations when you consider that last year's second quarter included a favorable commercial settlement that was not repeated in this year's results. We expect Europe's full-year profits to come in slightly below the level we achieved in 2012.

Our relatively small Asia-Pacific operation has delivered strong revenue and profit growth, due primarily to the benefits of a streamlined cost structure that we put in place earlier this year and higher global shipments of precious metals.

Second-quarter results in North America, which account for about 25% of our revenue, were in line with our full-year guidance. As we said in our last call, turning this business around is taking longer and costing more than we expected it to a year ago. We are changing the way we do business in North America. Over the last several years, the cash in transit market in the US has become increasingly price driven. Our brand and reputation for service quality are still important differentiators, but these attributes alone will not deliver acceptable returns. The progress we have made in reducing costs, consolidating brand structure, optimizing routes, and enhancing overall productivity have not been enough to offset the ongoing pressure on volume and price. We have to do more and we are. Our efforts to improve customer service, cost, and productivity will continue.

We are now more highly focused than ever on aligning CIT cost structure with the market and maximizing asset utilization. We are also accelerating efforts to shift our revenue mix towards those lines of business that offer higher margin growth opportunities, such as money processing, ATM management, and Compusafe. The cash in transit business is the entry point for providing these and other services, so stabilizing volume and price in CIT is a key step in accelerating near-term profit growth across the business. Our 7% margin goal in North America is still in place. The balance of 2013 will be challenging, but we expect to demonstrate year-over-year profit improvements beginning in 2014. We also expect margin improvement to accelerate in 2015, with the goal to reach 7% in 2016, which is a year longer than our previous target date.

We will continue to take decisive action in North America and elsewhere to improve results and achieve long-term success. In North America, I expect 2013 to mark the bottom in terms of profitability. In Europe, we have already achieved substantial margin improvement by exiting unprofitable operations in several countries, the most recent being our guarding business in Germany, and our cash in transit business in Turkey. Restructuring of our Asia-Pacific operations has also led to greater profitability in that region. We remain very optimistic about Latin America's growth prospects and we will continue to seek opportunities to invest in adjacent markets. We have also instilled greater discipline in our capital allocation process, resulting in savings of about $30 million annually since 2011.

Finally, we have transformed our senior management team with new leaders in North America, Asia Pacific region, Human Resources, Information Technology, and Commercial Strategy. The team is energized, focused on improving performance, and committed to creating value for our shareholders.

I will now turn it over to Joe, who will provide the details regarding our results and our outlook. Joe?

Thanks, Tom. I will start with a summary of second-quarter results, and then cover the assumptions behind our full-year outlook. Total revenue grew 6% a reported basis and 8% on an organic basis, due mainly to organic growth in Venezuela, Argentina, and Mexico. An unfavorable currency impact of 2% was driven by Venezuela, Argentina, and Brazil. Segment operating profit increased $3 million, due to a $7 million profit increase in international operations that was partially offset by a $4 million profit decline in North America. The improvement in international operations was driven by Latin America -- primarily Venezuela, Mexico, and Argentina. The $0.04 decline in earnings per share was due in part to higher interest expense and negative currency translation. The earnings-per-share bridge highlights that non-controlling interest, which reflects amounts owed to minority partners, offset the improvement in segment profit. This expense, which is essentially part of operations, combined with higher interest costs and negative currency, to drive the $0.04 decline in earnings per share.

Now, let us look a little closer at total segment results. The organic revenue growth of 8% came from international operations, most of it from Latin America, but we also had organic growth in Europe and the Asia-Pacific region, reflecting growth in our global services business. North America revenue was flat and profits there fell by $4 million, due to continued price and volume pressures. International profits improved by $7 million, as profits in Latin America were driven by improved results in Venezuela, Mexico, and Argentina. Profits in Brazil declined due to wage inflation and slowing volumes. A portion of the wage increase was caused by the passage of the new law last December that raises the wages of many workers in our industry by about 30%. We expect to recover a substantial amount of this wage inflation later this year. Profits in Europe declined, due to a 2012 commercial settlement in the Netherlands that did not repeat in 2013, and a customer loss in France, partially offset by improvement in our global services line of business and the benefit of a change in tax legislation in France.

The total segment margin rate declined slightly to 5.9%, due mainly to the profit decline in North America. Year to date cash flow from operating activities, excluding changes in customer obligations and discontinued operations, declined by $24 million, versus last year, due to the decline in operating profit, the timing of insurance recoveries, and increased working capital. Year to date capital expenditures and capital leases were relatively flat at $80 million as we continued to reduce maintenance capital spending through efficiency projects. The North America region decreased CapEx by $14 million, primarily due to lowered purchases of armored vehicles and lower investment in IT. The international segment CapEx spend increased by $14 million, due to investment in productivity initiatives in Latin America, especially Mexico. Our plan in 2013 is to hold the capital spend to about the same level as 2012. We will continue to focus on efficiently deploying capital to maintain a level of safety and security that Brink's is known for, while reallocating capital to focus on growth and productivity efforts. Net debt increased by $111 million since year end, due to about $60 million in acquisitions, the timing of the insurance recoveries, and an increase in working capital.

Our overall guidance for the year has not changed. We still expect the full year margin rate to come in between 6% and 6.5% as continued improvement in international profits is expected to offset the impact of the profit decline in North America. We continue to expect organic revenue growth of 5% to 8%, driven primarily by Latin America at similar growth rates to 2012, with no significant growth in North America or Europe.

We are expecting an unfavorable currency impact of between 2% and 4%, due primarily to currency devaluation in Venezuela. In February of this year, Venezuela devalued its currency by about 16%, versus the exchange rate we were using to report our results. Our guidance still assumes a total devaluation of about 40% for the year, the total impact of which is estimated to be a reduction of $100 million, or about 2% of total revenue. In North America, we expect the weak revenue trend of the last few years to continue and we continue to expect a full year 2013 margin rate somewhere between 2% and 3%. The steps we have taken to improve results in North America -- which include exiting unprofitable markets, consolidating branches, reducing headcount, and investing in productivity -- have clearly been insufficient in offsetting price and volume pressure. The rest of 2013 for North America will be devoted to developing the capability to stabilize price and volume, building more robust IT capabilities, strengthening senior management, and positioning our US operations for resumption of year-over-year profit growth in 2014. As Tom mentioned, the goal to recapture our historical margin rate of 7% is still very much in place. Achieving this milestone has been pushed out a year to 2016.

To meet this target, we will focus our commercial efforts on getting closer to our customers so that we can better understand their challenges and deliver differentiated solutions. In Europe, we are assuming a slight decline in full-year profits, due to a previously communicated contract loss in France and the absence of a commercial settlement that boosted 2012 results, partially offset by the benefit of a change in tax legislation in France. We do not believe there is enough growth in these mature markets in 2013 to offset these items. In Latin America, we expect profit growth across most of the region, driven by strong organic revenue growth. We expect the Venezuela devaluations and an increase in our productivity investments to offset some of this growth. We expect the payback on the productivity investments to be realized in 2015 and beyond, as the implementation costs decline and the benefits accelerate.

In summary, we remain highly focused on executing the necessary steps to maximize margins in the mature US and Europe cash in transit markets, invest in developing markets, and build strong growth businesses and adjacent markets. Our new leadership team is highly focused on delivering solutions to our customers, protecting our employees, and generating strong returns to our shareholders. Denise, let us open it up for questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question will come from Jeff Kessler of Imperial Capital. Please go ahead.

A couple of questions with regard to North America and particularly North America margins. You have talked about some of the things that you were doing to try to, let us just say, rebalance yourself in the market competitively with regard to price and you have talked about some of the things that you are doing with regard to productivity. What are you doing in terms of trying to measure the type of return on invested capital? Is there a goal that you have for capital allocation and the return on that capital that you want for North America, going out, let's call it, 18 months? And what does it take to get there? What type of business mix shift do you need toward the higher-margin businesses to get a return that merits the continued investment of capital? And I am certain that you have taken down that investment of capital over the past year.

Joe, you want to address the capital question?

Sure. Let me start with -- you saw from the results that we have taken the capital down in North America. North America is down $12 million, on a year-over-year basis. Most of that is in armored vehicles and leasehold improvements in buildings and we have even reduced some of the IT on a first-half year-over-year basis, so you see the continued capital reallocation to our growth markets. In North America, we have got a global target of at least a minimum 12% hurdle rate that we use globally for our investments. Obviously, when we look at individual investments, country by country, we look at a country specific-risk adjusted rate. So you would argue that the North America rate would be lower than some of the other emerging markets or growth markets that we are in. But what is clear is we have reduced the capital in the more mature markets. We are focusing it more on productivity initiatives that have very fast paybacks and where there are growth opportunities in those markets, we are making those investments, but generally speaking, the growth investments are happening mostly in Latin America.

Okay. Do you have to have CIT in place in North America to be able to have the entrée into the higher, if you want to call it, the logistics and other higher, and then Compusafe markets? In other words, how can you try to tweak that mix a little bit so that the entry point into your higher-margin businesses does not have to always come through CIT?

So Jeff, this is Tom. We do believe that the CIT has to be in place to accomplish many of these other markets -- for instance, the ATM servicing, the money processing and Compusafe, because it all becomes an offering. What we are doing, is we are emphasizing those other services -- CIT is still a part of it, but it will continue to be a smaller part of the mix going forward. And so that is what we are current evaluating. That is also what we are currently tracking.

Right.

Jeff, today, we are about three-quarters CIT in North America and about a quarter of high-value solutions -- that includes our global services business. Clearly, we need to shift that mix to more of the high-value services, and that is a big focus of where we are allocating our time and attention and commercial resources within the business, but CIT is the infrastructure that allows you to capitalize on the higher value services.

Okay. A second question, just quickly, on insurance recoveries. You, over the course of the first half of the year, obviously the insurance recoveries were a factor in your earnings. Do you have a better handle on what the schedule for those recoveries are going to be over the second half of the year or into the first half of 2014?

We would expect the recoveries to happen very timely. This is just working through the logistics of the documentation process. We have no concerns of recovery or the timing within the year for sure.

Finally, for about the last ten years, we've heard about your small but growing Asian business, and I'm just wondering is Asia-Pac always going to be, for whatever reasons that you can discern, is it always going to be small? Because it seems to be an area with potential but for Brink's it has always remained somewhat small as a percentage of the total business.

So if you look at Asia-Pacific, we obviously have a very robust global services business. The cash in transit, or our traditional businesses, are much more challenged in that particular market because of all the laws there, relative to carrying firearms and other things. So, from a CIT perspective, I do believe that we do not anticipate a huge growth in the Asia-Pacific market. Now what we can do and what we are going to start to focus on is the high-value solutions, because in many cases, we can provide some of those solutions that we are developing for whether it's in Europe, Latin America, or North America -- we can translate some of those services into the far east.

All right, great. Okay, thank you very much.

Sure.

Our next question will come from Jamie Clement of Sidoti & Company. Please go ahead.

First question on North America and, forgive me in advance for being blunt, but I feel like we've heard for the last seven or eight years that the company's emphasis, given the pricing and volume trend in North America, was going to be towards, quote value added services, and I thought that when you took over the role of CEO, there was actually, finally, an acknowledgment that in fact at least Compusafe was, in fact, margin dilutive, not margin enhancing, so I'm confused what to make of margins being down this year, no sense of necessarily any recovery in the cash market in the US from a volume perspective going forward, your competitors' also wanting to get more into the money processing and ATM management business, and some questions about the Compusafe business and obviously, there are a lot of comparisons drawn to the home security model where there's an upfront investment that's required by the company, and that you all acknowledged about a year ago that that investment wasn't necessarily meeting your return thresholds.

So certainly on Compusafe, we spent a lot of time on Compusafe. We are very confident now that Compusafe is earning the kind of margins that we would require of a product that is that capital intensive. So those margins are back where they need to belong. Obviously, that is for the business going forward, so it takes a while to raise the entire margins for the rest of the installed base and so that is what we are working on, relative to Compusafe. There is no doubt that the rest of the market remains very challenged in terms of the volume and pricing pressure.

I mean I guess what I'm ultimately getting at is if there is something that has changed or is changed over time in the marketplace where either banks just are not willing to pay for a level of service or alternatively, that there has been a change in the payments market in one way or the other, that what we seem to be hearing is really the same words that we've been hearing for six or seven years and the same kind of margin targets, but I don't see how we get to 7% from where we are now, with what really sounds like the same strategy that's been espoused over the last four or five years, quite frankly.

I cannot speak for the last four or five years, Jamie. What I can tell you is that we have a plan, at the CIT business, which has very low margins versus the money processing, ATM servicing and Compusafe, which are higher. And as we switch more of the business into those higher margin services, we should and will see the margins improve.

Okay. Switching gears to Latin America and Joe, you all are assuming, obviously, another deval in the Bolivar. I do not think you commented on what has been reported as potentially two additional [waging] statement, they did increases in Venezuela. Are those included in your guidance and where your numbers somewhere between 15% and 20% in the fall? Do you believe that to be true? Is that consistent with what you are hearing?

The additional mandated wage increases for minimum wages -- we are hearing the same thing. That has been out there for a little bit. Obviously, there's enormous amount of volatility and unpredictability and what is going to happen to Venezuela, but our wage negotiation cycle runs from May to May, so we negotiated with -- our unions agreed on a wage increase that we believe will hold true for the next 12 months until the next wage negotiation cycle. So in spite of what the government may mandate for the minimum wage increase in the country, we are comfortable with what we have agreed to with our union and believe that that will stick until next May. That has obviously been included into our guidance that we have provided for the year.

Okay, but in other words, the wage increase that has already happened.

Yes.

Right. Okay. Why would you, given that Brazil has precipitously fallen in the second quarter, why would you assume that it would improve in the second half? I believe in your prepared remarks --

There was a law change back in December of last year. Actually, there was an announcement that the law would change, that the employees in the security industry, broadly speaking, would get a 30% wage increase, and we can debate the politics of the announcement in December and the law not passing until late first quarter, early second quarter. The timing of when that actually took effect in our industry, it made its way into the various union negotiations an actual wage increases, and we started paying the employees more, and then turning that around and passing it through the market -- there's been a lag effect, not only for us but for our competitors as well, and they've made reference to that in their earnings releases and discussions as well. So we are expecting, in the second half of the year, to be able to recover some of that wage increase that the entire industry has felt.

Okay. Joe, I was unclear on whether you were just purely talking about the wage increase or you were talking about market dynamics as well, because obviously, out of a lot of other industries, we've heard about a fairly significant slowdown in the Brazilian economy and for example, deposit growth essentially going to zero for the first time in 10 or 15 years. But your business is still doing fine, it is just a question of the wages is what you are saying, that is right?

Well, the biggest impact in the first half was the incurred wage increase, without being able to pass it through to customers, and we are expecting in the second half of the year to get some retroactive increases, which is, quite frankly, the normal cycle in the region. And so we have felt, definitely, the volume impact as our customers, the financial institutions, have seen spreads compressed, they have seen pressures on their volumes and their cost and, of course, we are feeling that, as is the rest of our industry. So our profit improvement in Brazil in the second half is driven more by being able to pass through the wage inflation that we have incurred in the first half, as opposed to expecting a volume increase.

Okay. That is helpful and then the final question --- and I know why we will see the 10Q in the next couple of weeks, but you provide some cash flow information but just in looking at the net debt picture, ex Venezuela, your net debt's up roughly $130 million over the last 6 months. What are the working capital drivers there? I mean obviously, there was the Brussels situation in the first quarter, which is some of it, but I would normally expect you to be a working capital collector after your strong second half, than be a working capital user during your stronger second half.

So if you look at our cycle, but because of the timing of annual payments -- so year-end bonuses go out in the first quarter. There are a number of additional annual things like insurance and other policies that get paid at the beginning of the year, so there is usually a big dip in the first quarter on cash flow. In the first half, we tend to consume cash -- in the second half, we tend to grow cash. So when you look at our first half cash flow versus year end and the debt being up $130 million ex Venezuela, what you see is about $60 million of acquisition spend that was mostly in the first quarter. That was the Mexico acquisition; we bought out our partner in Chile; we bought out our partner in India, so that is about $60 million of it. Insurance recoveries also had an impact. That makes up more than half of the increase. With a $660 million receivables balance and 7% organic growth for the first half of the year, naturally you are going to have a working capital increase and our receivables balance is four times as big as our payables balance. Most of our expenses are wages, so there is really no payment terms on that. So when you have organic growth, you get, naturally, an increase in working capital, the receivables driven. Now, we did see some difficulty in a few Latin American countries with collecting on this receivables, which is normal as the industry gets tougher and times get tougher -- that becomes a more difficult collections cycle and we are very focused on it and allocating resources to ensure that we collect those timely.

Okay. That is perfect. That is information that is not all in your slides or your press releases. So it is helpful to bridge the gap. All right, thanks very much for your time.

(Operator instructions). The next question will come from Rob Pierce of UBS. Please go ahead.

My question is really about the Irish cash in transit market. One of your competitors stated in a recent profit wording that there had been price pressure in that market. Could you confirm this and have to change your strategy at all there, in recent months, as a result?

We have not changed our strategy in Ireland. We are in the process of finalizing a couple of contracts there, so no -- we have not changed our strategy in Ireland.

Okay, thank you. That was my only question.

Okay. Thanks.

And our next question will come from Chris Marangi of Gabelli. Please go ahead.

I do not want to belabor North America but I am glad to hear that 7% margins are still in the cards, albeit a year later and we can all appreciate the concept of under-promise, over-deliver, but three questions. One, what kind of price volume assumptions are you making in that target? Two, Mel Parker, who is your new leader is probably still in the bathroom in North America by now, but has he come up with his own plan as he has looked at this market with a set of fresh eyes? And three, how much of the delay is related to a decision to invest further in the market versus other structural issues?

Let me address the Mel Parker thing and then I will probably ask for some clarification. So, Mel has been there for six months. The plan that we are talking about has got Mel's fingerprints on it. The plan that I am talking about is the one where we are going to continue to look at improvements from a cost perspective. We are getting much closer to customers. The whole discussion about reducing the percentage of our income that comes from the cash in transit market and emphasizing money processing and the ATM servicing and Compusafe, and we are tracking that on a monthly basis. So Mel is absolutely deeply involved in it. The change of senior management at the North America is based on Mel's assessment of the management, so both of those things Mel's been intimately involved with the strategic directions in North America. So now give me your last question again?

Sure, the one-year delay in your 7% margin target, is that due to a decision on your part to invest in getting closer to the customer, IT, other things, or is that more just related to price volume pressure -- not being able to leverage those (inaudible)?

I would say it is both, Chris. I mean clearly, if all of the other things we have done in terms of cutting costs would have worked to get us on the correct path, it would have been different, but that has not been as successful as we had hoped, so we are changing the strategy that we are looking at in terms of the percentage that goes to each of those lines of business, as well as all of the management.

And to my first question, would you expect or implicit in your target, would you expect price volume growth in North America over the next three years?

We would certainly expect to get some growth once we have success with the more high-margin services. At the present time, we are not expecting significant volume growth. If we get it, that would be wonderful, but we are not expecting significant volume growth, so we are talking about at least changing the trajectory based on a flat market.

Okay and on a related point, any update on -- I presume most of the price volume pressures come in the financial part of the business. Any update on the retail market? Interest rates have begun to back up, albeit in a small way, but has that spurred any more conversations on [virtual vaulting]?

We have not seen a huge spurt in terms of the retail. With the interest rates going up, you would anticipate you would start to see some more volume as they would require more timely or more often in terms of the pickups. I do not think it has gone up enough to make a difference yet in terms of changing the behavior of the retailers.

Have you looked back and is there some threshold at which interest rates reach that you might see a more robust return of [stops]?

That is a good question. To my knowledge, we don't have a particular threshold, it's just more of a sliding, but --

We have historically tended to lag the economic turns up and down. And so, I think we would need to see a much stronger recovery, and once the retailers start to have more cash sitting in their registers for an extended period is when they'll take that action, but they're going to need to see confidence in the recovery in the growth of their business before they take on additional cost.

Just one question on Europe. Any update on the exit from Germany?

We are proceeding in accordance. We do have now, finally concurrence from the antitrust authority in Germany, so we are working through the details of that, but it is on track, albeit a little bit slower than we'd hoped, because of their antitrust authority, but we're on track.

Okay and now this one is on one of your newer initiatives, the Brink's Money Card and the acquisition of Redetrel, which are different businesses, obviously, but any early takes from those?

So we have got a couple of our initial customers on the payroll card. That is a positive. The Redetrel acquisition continues to perform and we are going to be looking at the integration of that, so both of those are clearly small, but we are encouraged by where they are at the present time.

Okay, thanks.

Our next question will come from a follow-up from Jeff Kessler of Imperial Capital. Please go ahead.

Thank you. With regard to Compusafe and in following up on questions about the so-called alarm model, one of the things that you can do to decrease the payback period is to offer more services than you are already offering on Compusafe. Compusafe has a base of services that you offer. There are some options that you have had in the past and I am wondering what you can do to drive down the payback period on Compusafe to make it as it becomes hopefully a larger part of the business on we will call it a cash logistics, if you will. As it becomes a higher margin, you have to make it a higher margin first. To get at the higher margin, you've got to get a better return on it in a better cash on cash payback, and to do that, you probably have to get a value proposition that is a little bit better than you initially started out with or the company initially started out with seven, eight, whatever it is, ten years ago, with the product. I am wondering are there other services that you are considering tacking onto Compusafe to improve the payback period and also improve the margin on it?

We are looking at a number of services, I mean of the traditional services, in addition to, obviously the safe and to the pickup and to the cash management, but we are looking at some full treasury management services for retailers as well. So we are looking at all of those particular, so to speak, lines of businesses, Jeff, and we are trying to assert in which of those each of the particular retailers would value.

Okay and I am assuming that this is what -- you are looking at this and anything that might occur, will occur hopefully over the next couple years.

Well, I mean, it has already started to occur and it clearly will take -- everything that is going out in terms of Compusafe is very profitable. Now the issue is we have 14,000 Compusafes that are installed. So it takes a while for us -- and we have talked about in the past that those were at very low margins. So it takes a while to change that entire inventory to a positive.

And you are marketing services not just to Compusafe going in but to the existing base of 14,000?

Clearly.

Yes.

Joe? No, I think that is probably it, Jeff. I mean we agree, and that is what we are in the process of doing.

Okay.

Our next question will be a follow-up from Jamie Clement of Sidoti & Company. Please go ahead.

Joe, just a follow-up. I was curious if you all were willing to disclose the amount of cash you all currently had in the US versus abroad.

Little to none, by design.

Okay.

Very little. At year-end last year, because of our tax position in the US where it makes it tax inefficient to repatriate capital in the US, we relocated all of our debt to outside the US and we have been managing the cash very tightly to ensure that we have minimal to no cash or debt in the US, to minimize the interest expense and the cash flow needs of the US operation.

Okay, but just out of curiosity (laughter) -- not to bring this topic up again, but I guess I am going to have to -- as required contributions ramp up over the next couple of years, even at, let us say you improve margins 150 basis points a year, would you be in a position where you would be able to use a credit facility to be able to make those contributions versus having to go the equity route?

So let us start. There is absolutely no issue with us using our credit facility in many different currencies around the world. We can borrow in the US to make the pension contributions and meet the cash flow demands of the business in the US, if necessary. We do not need to do that because over the past year and a half, we put some tax planning structures in place that allows us to repatriate capital from a handful of countries very tax efficiently that allows us to meet the cash flow demands of the US and that's what we have done to address the near term pension contributions. The long term pension contributions, there is a tax structure being implemented that will allow us to compliantly, tax efficiently repatriate earnings from around the world.

Very good.

So Jamie, let me just be clear. We do not plan on using equity to fund the pension.

Okay. Last question is it seems as if the trend in payment technology has been more towards mobile. Are there acquisitions that you take a look at that would get you a little bit more into the payment space on the mobile side, or is that just completely out of the realm of really what your business is all about? Because it sounds like with the Compusafe strategy, there is a little bit more of kind of wanting to get a little bit closer to the customer in the payments market.

Yes and we're looking at the full gamut of payments and that would be whether it's the payroll card, the prepaid card, whether it's digital forms, mobile payments. So all of that still remains of interest to us. Your comment that mobile appears to be more promising is a lot dependent on the particular market that you are in and so we think that all of those payment options are viable and we are looking at which ones that we play in and to what extent we play in those markets.

No, absolutely and I was specifically talking about the US, but yes, absolutely agree. Okay, thank you all for your time.

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