Note 7 - Accumulated Other Comprehensive Income (Loss)
Note 8 - Fair Value of Financial Instruments
Note 9 - Debt
Note 10 - Share-Based Compensation Plans
Note 11 - Capital Stock
Note 12 - Supplemental Cash Flow Information
Note 13 - Contingent Matters
Note 14 - Reorganization and Restructuring
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits
Exhibits
EX-31.1
ex311q32018.htm
EX-31.2
ex312q32018.htm
EX-32.1
ex321q32018.htm
EX-32.2
ex322q32018.htm
Brinks Earnings 2018-09-30
BCO 10Q Quarterly Report
Balance Sheet
Income Statement
Cash Flow
10-Q 1 bco0930201810-q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 001-09148
THE BRINK’S COMPANY
(Exact name of registrant as specified in its charter)
Virginia
54-1317776
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
1801 Bayberry Court, Richmond, Virginia 23226-8100
(Address of principal executive offices) (Zip Code)
(804) 289-9600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one): Large Accelerated Filer ý Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller Reporting Company ¨ Emerging Growth Company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No ý
As of October 22, 2018, 50,616,323 shares of $1 par value common stock were outstanding.
1
Part I - Financial Information
Item 1. Financial Statements
THE BRINK’S COMPANY
and subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In millions, except for per share amounts)
September 30, 2018
December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents
$
314.2
614.3
Restricted cash
92.7
112.6
Accounts receivable, net
630.7
642.3
Prepaid expenses and other
136.6
119.0
Total current assets
1,174.2
1,488.2
Property and equipment, net
694.2
640.9
Goodwill
651.9
453.7
Other intangibles
254.2
105.7
Deferred income taxes
231.0
226.2
Other
179.8
144.9
Total assets
$
3,185.3
3,059.6
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings
$
23.6
45.2
Current maturities of long-term debt
54.2
51.9
Accounts payable
147.8
174.6
Accrued liabilities
495.7
488.5
Restricted cash held for customers
46.9
74.7
Total current liabilities
768.2
834.9
Long-term debt
1,441.3
1,139.6
Accrued pension costs
184.0
208.8
Retirement benefits other than pensions
358.3
362.8
Deferred income taxes
17.3
25.1
Other
171.4
150.2
Total liabilities
2,940.5
2,721.4
Commitments and contingent liabilities (notes 4, 8 and 13)
Equity:
The Brink's Company ("Brink's") shareholders:
Common stock, par value $1 per share:
Shares authorized: 100.0
Shares issued and outstanding: 2018 - 50.6; 2017 - 50.5
50.6
50.5
Capital in excess of par value
633.9
628.6
Retained earnings
456.7
564.9
Accumulated other comprehensive loss
(918.0
)
(926.6
)
Brink’s shareholders
223.2
317.4
Noncontrolling interests
21.6
20.8
Total equity
244.8
338.2
Total liabilities and equity
$
3,185.3
3,059.6
See accompanying notes to condensed consolidated financial statements.
2
THE BRINK’S COMPANY
and subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions, except for per share amounts)
2018
2017
2018
2017
Revenues
$
852.4
849.5
$
2,581.2
2,443.8
Costs and expenses:
Cost of revenues
652.6
666.4
2,013.0
1,905.6
Selling, general and administrative expenses
125.4
116.6
368.4
346.5
Total costs and expenses
778.0
783.0
2,381.4
2,252.1
Other operating expense
(7.4
)
(0.1
)
(6.3
)
(6.1
)
Operating profit
67.0
66.4
193.5
185.6
Interest expense
(17.0
)
(7.7
)
(47.8
)
(18.5
)
Loss on deconsolidation of Venezuela operations
—
—
(126.7
)
—
Interest and other income (expense)
(8.1
)
(21.2
)
(29.3
)
(43.8
)
Income (loss) from continuing operations before tax
41.9
37.5
(10.3
)
123.3
Provision for income taxes
23.0
16.4
53.0
48.1
Income (loss) from continuing operations
18.9
21.1
(63.3
)
75.2
Loss from discontinued operations, net of tax
(0.1
)
—
—
(0.1
)
Net income (loss)
18.8
21.1
(63.3
)
75.1
Less net income attributable to noncontrolling interests
1.4
1.2
4.9
6.3
Net income (loss) attributable to Brink’s
17.4
19.9
(68.2
)
68.8
Amounts attributable to Brink’s
Continuing operations
17.5
19.9
(68.2
)
68.9
Discontinued operations
(0.1
)
—
—
(0.1
)
Net income (loss) attributable to Brink’s
$
17.4
19.9
$
(68.2
)
68.8
Income (loss) per share attributable to Brink’s common shareholders(a):
Basic:
Continuing operations
$
0.34
0.39
$
(1.34
)
1.36
Discontinued operations
—
—
—
—
Net income
$
0.34
0.39
$
(1.34
)
1.36
Diluted:
Continuing operations
$
0.34
0.38
$
(1.34
)
1.33
Discontinued operations
—
—
—
—
Net income
$
0.34
0.38
$
(1.34
)
1.33
Weighted-average shares
Basic
51.1
50.7
51.0
50.7
Diluted
52.0
51.9
51.0
51.6
Cash dividends paid per common share
$
0.15
0.15
$
0.45
0.40
(a) Amounts may not add due to rounding.
See accompanying notes to condensed consolidated financial statements.
3
THE BRINK’S COMPANY
and subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2018
2017
2018
2017
Net income (loss)
$
18.8
21.1
$
(63.3
)
75.1
Benefit plan adjustments:
Benefit plan actuarial gains
13.5
9.6
51.2
32.5
Benefit plan prior service credits (costs)
(0.9
)
(0.4
)
(0.6
)
(1.6
)
Deferred profit sharing
0.1
—
0.1
0.1
Total benefit plan adjustments
12.7
9.2
50.7
31.0
Foreign currency translation adjustments
(0.6
)
16.5
(31.4
)
49.4
Unrealized net gains (losses) on available-for-sale securities
—
(0.3
)
—
0.4
Gains (losses) on cash flow hedges
—
—
0.6
(0.1
)
Other comprehensive income before tax
12.1
25.4
19.9
80.7
Provision for income taxes
3.1
3.7
10.1
12.5
Other comprehensive income
9.0
21.7
9.8
68.2
Comprehensive income (loss)
27.8
42.8
(53.5
)
143.3
Less comprehensive income attributable to noncontrolling interests
1.4
3.3
5.0
7.7
Comprehensive income (loss) attributable to Brink's
$
26.4
39.5
$
(58.5
)
135.6
See accompanying notes to condensed consolidated financial statements.
4
THE BRINK’S COMPANY
and subsidiaries
Condensed Consolidated Statements of Equity
(Unaudited)
Nine-Months ended September 30, 2018
(In millions)
Shares
Common
Stock
Capital in Excess of Par Value
Retained
Earnings
AOCI*
Noncontrolling
Interests
Total
Balance as of December 31, 2017
50.5
$
50.5
628.6
564.9
(926.6
)
20.8
338.2
Cumulative effect of change in accounting principle(a)
—
—
—
3.3
(1.1
)
—
2.2
Net income
—
—
—
22.3
—
3.2
25.5
Other comprehensive income
—
—
—
—
11.1
1.1
12.2
Dividends to:
Brink’s common shareholders ($0.15 per share)
—
—
—
(7.6
)
—
—
(7.6
)
Noncontrolling interests
—
—
—
—
—
(0.7
)
(0.7
)
Share-based compensation:
Stock awards and options:
Compensation expense
—
—
6.8
—
—
—
6.8
Other share-based benefit transactions
0.4
0.4
(10.5
)
—
—
—
(10.1
)
Balance as of March 31, 2018
50.9
$
50.9
624.9
582.9
(916.6
)
24.4
366.5
Net income (loss)
—
—
—
(107.9
)
—
0.3
(107.6
)
Other comprehensive loss
—
—
—
—
(10.4
)
(1.0
)
(11.4
)
Dividends to:
Brink’s common shareholders ($0.15 per share)
—
—
—
(7.6
)
—
—
(7.6
)
Noncontrolling interests
—
—
—
—
—
(1.2
)
(1.2
)
Share-based compensation:
Stock awards and options:
Compensation expense
—
—
5.7
—
—
—
5.7
Consideration from exercise of stock options
—
—
0.8
—
—
—
0.8
Other share-based benefit transactions
0.1
0.1
0.2
—
—
—
0.3
Dispositions of noncontrolling interests
—
—
—
—
—
(0.4
)
(0.4
)
Balance as of June 30, 2018
51.0
$
51.0
631.6
467.4
(927.0
)
22.1
245.1
Net income
—
—
—
17.4
—
1.4
18.8
Other comprehensive income
—
—
—
—
9.0
—
9.0
Shares repurchased
(0.4
)
(0.4
)
(4.3
)
(20.4
)
—
—
(25.1
)
Dividends to:
Brink’s common shareholders ($0.15 per share)
—
—
—
(7.7
)
—
—
(7.7
)
Noncontrolling interests
—
—
—
—
—
(1.9
)
(1.9
)
Share-based compensation:
Stock awards and options:
Compensation expense
—
—
6.3
—
—
—
6.3
Other share-based benefit transactions
—
—
0.3
—
—
—
0.3
Balance as of September 30, 2018
50.6
$
50.6
633.9
456.7
(918.0
)
21.6
244.8
(a)
Effective January 1, 2018, we adopted the provisions of ASU 2014-09, Revenue From Contracts with Customers, ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, and ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory. We recognized a cumulative effect adjustment to January 1, 2018 retained earnings as a result of adopting each of these standards. See Note 1 for further details of the impact of each standard.
* Accumulated other comprehensive income (loss)
See accompanying notes to condensed consolidated financial statements.
5
Nine-Months ended September 30, 2017
(In millions)
Shares
Common
Stock
Capital in Excess of Par Value
Retained
Earnings
AOCI*
Noncontrolling
Interests
Total
Balance as of December 31, 2016
50.0
$
50.0
618.1
576.0
(907.0
)
17.7
354.8
Net income
—
—
—
34.7
—
5.8
40.5
Other comprehensive income
—
—
—
—
33.2
1.1
34.3
Dividends to:
Brink’s common shareholders ($0.10 per share)
—
—
—
(5.0
)
—
—
(5.0
)
Noncontrolling interests
—
—
—
—
—
(0.2
)
(0.2
)
Share-based compensation:
Stock awards and options:
Compensation expense
—
—
4.5
—
—
—
4.5
Consideration from exercise of stock options
—
—
0.7
—
—
—
0.7
Other share-based benefit transactions
0.4
0.4
(8.8
)
—
—
—
(8.4
)
Balance as of March 31, 2017
50.4
$
50.4
614.5
605.7
(873.8
)
24.4
421.2
Net income (loss)
—
—
—
14.2
—
(0.7
)
13.5
Other comprehensive income (loss)
—
—
—
—
14.0
(1.8
)
12.2
Dividends to:
Brink’s common shareholders ($0.15 per share)
—
—
—
(7.6
)
—
—
(7.6
)
Noncontrolling interests
—
—
—
—
—
(2.4
)
(2.4
)
Share-based compensation:
Stock awards and options:
Compensation expense
—
—
4.0
—
—
—
4.0
Consideration from exercise of stock options
—
—
1.9
—
—
—
1.9
Balance as of June 30, 2017
50.4
$
50.4
620.4
612.3
(859.8
)
19.5
442.8
Net income
—
—
—
19.9
—
1.2
21.1
Other comprehensive income
—
—
—
—
19.6
2.1
21.7
Dividends to:
Brink’s common shareholders ($0.15 per share)
—
—
—
(7.5
)
—
—
(7.5
)
Noncontrolling interests
—
—
—
—
—
(0.9
)
(0.9
)
Share-based compensation:
Stock awards and options:
Compensation expense
—
—
4.0
—
—
—
4.0
Consideration from exercise of stock options
0.1
0.1
—
—
—
—
0.1
Other share-based benefit transactions
—
—
(0.9
)
(0.1
)
—
—
(1.0
)
Balance as of September 30, 2017
50.5
$
50.5
623.5
624.6
(840.2
)
21.9
480.3
* Accumulated other comprehensive income (loss)
See accompanying notes to condensed consolidated financial statements.
6
THE BRINK’S COMPANY
and subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
(In millions)
2018
2017
Cash flows from operating activities:
Net income (loss)
$
(63.3
)
75.1
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss from discontinued operations, net of tax
—
0.1
Depreciation and amortization
119.5
106.4
Share-based compensation expense
18.8
12.5
Deferred income taxes
(18.2
)
(18.0
)
Prepayment penalties
—
6.5
Gains on sale of property, equipment and marketable securities
(4.2
)
(2.0
)
Gain on business dispositions
(10.1
)
(0.6
)
Loss on deconsolidation of Venezuela operations
126.7
—
Impairment losses
4.3
2.6
Retirement benefit funding (more) less than expense:
Pension
6.8
12.8
Other than pension
13.6
13.1
Remeasurement losses due to Argentina and Venezuela currency devaluations
5.9
9.1
Other operating
6.6
3.8
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable and income taxes receivable
(80.0
)
(98.6
)
Accounts payable, income taxes payable and accrued liabilities
53.2
58.5
Restricted cash held for customers
(0.7
)
20.8
Customer obligations
(4.9
)
9.8
Prepaid and other current assets
(20.6
)
(80.5
)
Other
(4.8
)
5.6
Net cash provided by operating activities
148.6
137.0
Cash flows from investing activities:
Capital expenditures
(104.0
)
(117.4
)
Acquisitions, net of cash acquired
(521.0
)
(147.7
)
Dispositions, net of cash disposed
8.4
—
Marketable securities:
Purchases
(55.9
)
(35.0
)
Sales
47.3
21.2
Cash proceeds from sale of property and equipment
2.8
1.4
Other
(0.9
)
1.1
Net cash used by investing activities
(623.3
)
(276.4
)
Cash flows from financing activities:
Borrowings (repayments) of debt:
Short-term borrowings
(5.2
)
(25.6
)
Cash supply chain customer debt
(15.0
)
(0.3
)
Long-term revolving credit facilities:
Borrowings
350.4
799.2
Repayments
(44.2
)
(411.2
)
Other long-term debt:
Borrowings
1.2
6.8
Repayments
(40.9
)
(107.4
)
Prepayment penalty
—
(6.5
)
Payment of acquisition-related obligation
(0.3
)
—
Repurchase shares of Brink's common stock
(25.1
)
—
Dividends to:
Shareholders of Brink’s
(22.9
)
(20.1
)
Noncontrolling interests in subsidiaries
(3.8
)
(3.5
)
Proceeds from exercise of stock options
0.8
2.7
Tax withholdings associated with share-based compensation
(11.3
)
(10.0
)
Other
0.6
1.0
Net cash provided by financing activities
184.3
225.1
Effect of exchange rate changes on cash
(29.6
)
2.8
Cash, cash equivalents and restricted cash:
Increase (decrease)
(320.0
)
88.5
Balance at beginning of period
726.9
239.0
Balance at end of period
$
406.9
327.5
See accompanying notes to condensed consolidated financial statements.
7
THE BRINK’S COMPANY
and subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of presentation
The Brink’s Company (along with its subsidiaries, “Brink’s” or “we”) has three operating segments:
•
North America
•
South America
•
Rest of World
Our unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and applicable quarterly reporting regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes in our Annual Report on Form 10-K for the year ended December 31, 2017.
We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements. Actual results could differ materially from these estimates. The most significant estimates are related to goodwill and other long-lived assets, pension and other retirement benefit obligations, legal contingencies and deferred tax assets.
Consolidation
The condensed consolidated financial statements include our controlled subsidiaries. Control is determined based on ownership rights or, when applicable, based on whether we are considered to be the primary beneficiary of a variable interest entity. See "Venezuela" section below for further information. For controlled subsidiaries that are not wholly-owned, the noncontrolling interests are included in net income and in total equity.
Investments in businesses that we do not control, but for which we have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method and our proportionate share of income or loss is recorded in other operating income (expense). Investments in businesses for which we do not have the ability to exercise significant influence over operating and financial policies are accounted for at fair value, if readily determinable, with changes in fair value recognized in net income. For equity investments that do not have a readily determinable fair value, we measure these investments at cost minus impairment, if any, plus or minus changes from observable price changes. See "New Accounting Standards" section below for further information. All intercompany accounts and transactions have been eliminated in consolidation.
Foreign Currency Translation
Our condensed consolidated financial statements are reported in U.S. dollars. Our foreign subsidiaries maintain their records primarily in the currency of the country in which they operate. The method of translating local currency financial information into U.S. dollars depends on whether the economy in which our foreign subsidiary operates has been designated as highly inflationary or not. Economies with a three-year cumulative inflation rate of more than 100% are considered highly inflationary.
Assets and liabilities of foreign subsidiaries in non-highly inflationary economies are translated into U.S. dollars using rates of exchange at the balance sheet date. Translation adjustments are recorded in other comprehensive income (loss). Revenues and expenses are translated at rates of exchange in effect during the year. Transaction gains and losses are recorded in net income.
Foreign subsidiaries that operate in highly inflationary countries use the U.S. dollar as their functional currency. Local currency monetary assets and liabilities are remeasured into U.S. dollars using rates of exchange as of each balance sheet date, with remeasurement adjustments and other transaction gains and losses recognized in earnings. Other than nonmonetary equity securities, nonmonetary assets and liabilities do not fluctuate with changes in local currency exchange rates to the dollar. For nonmonetary equity securities traded in highly inflationary economies, the fair market value of the equity securities are remeasured at the current exchange rates to determine gain or loss to be recorded in net income. Revenues and expenses are translated at rates of exchange in effect during the year.
Venezuela
Deconsolidation. Our Venezuelan operations offer transportation and logistics management services for cash and valuables throughout Venezuela. Political and economic conditions in Venezuela, the impact of local laws on our business as well as the currency exchange control regulations and continued reductions in access to U.S. dollars through official currency exchange mechanisms, have resulted in an other-than-temporary lack of exchangeability between the Venezuelan bolivar and the U.S. dollar. These conditions have restricted the ability of our
8
Venezuelan operations to pay dividends and royalties. It has also restricted the ability for our Venezuela business to settle other operating liabilities which has significantly increased the risk that this business will no longer be self-sustaining.
Our Venezuela operations experienced negative operating cash flows in the first quarter of 2018. As a result, our Venezuela business obtained local currency borrowings in the first and second quarters of 2018 for the first time since the second quarter of 2016. Our Venezuela business is currently seeking additional local financing to support ongoing needs for more bolivars in an environment with significant inflation. It is uncertain as to whether our Venezuela business will be able to obtain the incremental financing in order to operate the business.
Banks provide a majority of the business for our Venezuela operations and these banks are limited by law as to how much they can charge their customers in interest. The maximum increase to interest allowable under the law is significantly lower than current and projected inflation rates. Therefore, we do not believe that bank customers will accept increases in our prices that will cover our increase in vendor and labor costs resulting from inflation. Through its restriction by law of interest increases for banks, the Venezuelan government has implemented a defacto price control that affects our business.
The currency exchange regulations, combined with other government regulations, such as price controls and strict labor laws, have significantly limited our ability to make and execute operational decisions at our Venezuelan subsidiaries. With the May 2018 re-election of the President in Venezuela for an additional six-year term, we expect these conditions to continue for the foreseeable future.
As a result of the conditions described above, we concluded that, effective June 30, 2018, we did not meet the accounting criteria for control over our Venezuelan operations and, as a result, we began reporting the results of our investment in our Venezuelan subsidiaries using the cost method of accounting. This change resulted in a pretax charge of $127 million in the second quarter of 2018. The pretax charge included $106 million of foreign currency translation losses and benefit plan adjustments previously included in accumulated other comprehensive loss. It also included the derecognition of the carrying amounts of our Venezuelan operations’ assets and liabilities, including $32 million of assets and $11 million of liabilities, that are no longer reported in our condensed consolidated balance sheet as of September 30, 2018. We have determined the fair value of our investment in, and receivables from, our Venezuelan subsidiaries to be insignificant based on our expectations of dividend payments and settlements of such receivables in future periods. For reporting periods beginning after June 30, 2018, we have not included the operating results of our Venezuela operations. In the first nine months of 2018 and 2017, we provided immaterial amounts of financial support to our Venezuela operations. Our exposure to future losses resulting from our Venezuelan business is limited to the extent to which we decide to provide U.S. dollars or make future investments in our Venezuelan subsidiaries.
Highly Inflationary Accounting. The economy in Venezuela has had significant inflation in the last several years. Prior to deconsolidation as of June 30, 2018, we reported our Venezuelan results using our accounting policy for subsidiaries operating in highly inflationary economies. Results from our Venezuelan operations prior to the June 30, 2018 deconsolidation are included in items not allocated to segments and are excluded from the operating segments.
Remeasurement rates during 2018 and 2017. In the first quarter of 2016, the Venezuelan government implemented the DICOM exchange mechanism and announced that it would allow this exchange mechanism rate to float freely. In the first nine months of 2017, the DICOM rate declined approximately 80%. Prior to deconsolidation as of June 30, 2018, in the first six months of 2018, the rate declined approximately 97%. We received only minimal U.S. dollars through this exchange mechanism. Prior to deconsolidation as of June 30, 2018, we recognized a $2.2 million pretax remeasurement gain. The after-tax effect of this gain attributable to noncontrolling interest was $2.0 million. In the first nine months of 2017, we recognized a $9.1 million pretax remeasurement loss. The after-tax effect of this loss attributable to noncontrolling interest was $1 million.
Items related to our Venezuelan operations were as follows:
•
Our investment in our Venezuelan operations on an equity-method basis was $23.1 million at December 31, 2017.
•
Our Venezuelan operations had net payables to other Brink's affiliates of $2.7 million at December 31, 2017.
•
Our Venezuelan operations had net nonmonetary assets of $23.0 million at December 31, 2017.
•
Our bolivar-denominated net monetary liabilities were $2.3 million (including $3.4 million of cash and cash equivalents) at December 31, 2017.
•
Accumulated other comprehensive losses attributable to Brink’s shareholders related to our Venezuelan operations were $114.9 million at December 31, 2017.
Argentina
We operate in Argentina through wholly owned subsidiaries and a smaller controlled subsidiary (together "Brink's Argentina"). Revenues from Brink's Argentina represented approximately 8% of our consolidated revenues for the first nine months of 2018. The operating environment in Argentina continues to present business challenges, including ongoing devaluation of the Argentine peso and significant inflation. For the year ended December 31, 2017, the Argentine peso declined approximately 15% (from 15.9 to 18.6 pesos to the U.S. dollar). In the first nine months of 2018, the Argentine peso declined approximately 55% (from 18.6 to 41.3 pesos to the U.S. dollar).
Beginning July 1, 2018, we designated Argentina's economy as highly inflationary for accounting purposes. As a result, we consolidate Brink's Argentina using our accounting policy for subsidiaries operating in highly inflationary economies beginning with the third quarter of 2018. Argentine peso-denominated monetary assets and liabilities are now remeasured at each balance sheet date using the currency exchange rate then in effect, with currency remeasurement gains and losses recognized in earnings. In the third quarter of 2018, we recognized an $8.1 million pretax remeasurement loss.
9
At September 30, 2018, we had net monetary assets denominated in Argentine pesos of $19.3 million, including cash of $11.1 million. At September 30, 2018, we had net nonmonetary assets of $147.6 million, including $98.7 million of goodwill.
At September 30, 2018, we had no equity securities denominated in Argentine pesos. In highly inflationary economies, the fair market value of equity securities are remeasured at current exchange rates to determine gain or loss to be recorded in net income.
New Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue From Contracts with Customers. Under the new standard, an entity recognizes an amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The standard also requires expanded disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We adopted this standard effective January 1, 2018 using the modified retrospective method and recognized a cumulative-effect adjustment increasing retained earnings by $1.5 million. The most significant effects of the new standard for us are associated with variable consideration and capitalization of costs to obtain contracts, such as sales commissions. Previously, we recognized the impact of pricing changes in the period they became fixed and determinable and we expensed sales commissions and other costs to obtain contracts as they were incurred. We do not expect a material impact on our future consolidated statements of operations or consolidated balance sheets as a result of implementing this standard. However, adoption of the new standard resulted in expanded disclosures related to revenue (see Note 2).
The FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, in January 2016. This new guidance changes the accounting related to the classification and measurement of certain equity investments. Equity investments with readily determinable fair values must be measured at fair value. All changes in fair value will be recognized in net income as opposed to other comprehensive income. We adopted ASU 2016-01 effective January 1, 2018 and recognized a cumulative-effect adjustment increasing retained earnings by $1.1 million.
In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which changes the timing of when certain intercompany transactions are recognized within the provision for income taxes. We adopted ASU 2016-16 effective January 1, 2018 using the modified retrospective method. As a result, we recognized a cumulative-effect adjustment increasing retained earnings attributable to Brink's by $0.7 million.
The FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, in November 2016. This new guidance requires entities to include restricted cash and restricted cash equivalent balances with cash and cash equivalent balances in the statement of cash flows. Inclusion of restricted cash impacts our operating activities, financing activities and the effect of exchange rate changes on cash. We adopted ASU 2016-18 effective January 1, 2018 using the retrospective transition method. The adoption of this ASU changed previously reported amounts in the condensed consolidated statement of cash flows for the nine months ended September 30, 2017. Net cash provided by operating activities increased $20.8 million, net cash provided by financing activities decreased $0.3 million and the effect of exchange rate changes on cash increased favorably by $9.7 million as compared to previously reported amounts for the prior year period.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will require the recognition of assets and liabilities by lessees for certain leases classified as operating leases under current accounting guidance and will also require expanded disclosures regarding leasing activities. ASU 2016-02 will be effective January 1, 2019 and we have elected to adopt the new standard at the adoption date through a cumulative-effect adjustment to the opening balance of retained earnings. Under this approach, we will continue to report comparative periods presented in the period of adoption under ASC 840. We completed the initial assessment phase of the project at the end of 2017 and are currently in progress with our completeness assessment, data extraction, process redesign and system implementation. While we have made progress on all work streams indicated above, we are not yet in a position to quantify the impact. We expect that adoption will result in a significant increase in total assets and total liabilities as well as expanded disclosures.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which amends and simplifies the application of hedge accounting guidance to better portray the economic results of risk management activities in the financial statements. The guidance expands the ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness, and eases certain hedge effectiveness assessment requirements. The guidance is effective January 1, 2019 with early adoption permitted. We are currently evaluating the impact of this guidance, including transition elections and required disclosures, on our financial statements and the timing of adoption.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (“Tax Reform Act”). The guidance is effective January 1, 2019 with early adoption permitted. We are currently evaluating the potential impact of the standard on financial reporting and the timing of adoption.
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which changes the fair value measurement disclosure requirements. The guidance is effective January 1, 2020 with early adoption permitted. We are currently evaluating the potential impact of the standard on financial reporting and the timing of adoption.
In August 2018, the FASB issued ASU 2018-14, Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The guidance is
10
effective January 1, 2021 with early adoption permitted. We are currently evaluating the potential impact of the standard on financial reporting and the timing of adoption.
In September 2018, the SEC issued a final rule that amends certain of the Commission’s disclosure requirements. In most cases, this final rule's amendments reduce or eliminate some of registrants' disclosure requirements. However, for interim reporting, the amendments expand the financial reporting requirements for changes in shareholders' equity. We adopted this guidance early and as a result our condensed consolidated statements of equity include a reconciliation for the current quarter and year-to-date interim periods as well as the comparative periods of the prior year (i.e., a reconciliation covering each period for which an income statement is presented).
11
Note 2 - Revenue from Contracts with Customers
Performance Obligations
We provide various services to meet the needs of our customers and we group these service offerings into three broad categories: Core Services, High-Value Services and Other Security Services.
Core Services
Cash-in-transit and ATM services are core services we provide to customers throughout the world. We charge customers per service performed or based on the value of goods transported. Cash-in-transit services generally involve the secure transportation of cash, securities and other valuables between businesses, financial institutions and central banks. ATM services are generally composed of management services, including cash replenishment and forecasting, remote monitoring, transaction processing, installation and maintenance.
High-Value Services
Our high-value services leverage our brand, global infrastructure and core services and include cash management services, global services and payment services. We offer a variety of cash management services such as currency and coin counting and sorting, deposit preparation and reconciliation, and safe device installation and servicing (including our CompuSafe® service). Our global services business provides secure ground, sea and air transportation and storage of highly-valued commodities including diamonds, jewelry, precious metals and other valuables. We also provide payment services which include bill payment and processing services on behalf of utility companies and other billers plus general purpose reloadable prepaid cards and payroll cards.
Other Security Services
Our other security services feature the protection of airports, offices, warehouses, stores, and public venues in Europe and Brazil.
For performance obligations related to the services described above, we generally satisfy our obligations as each action to provide the service to the customer occurs. Because the customers simultaneously receive and consume the benefits from our services, these performance obligations are deemed to be satisfied over time. We use an output method, units of service provided, to recognize revenue because that is the best method to represent the transfer of our services to the customer at the agreed upon rate for each action.
Although not as significant as our service offerings, we also sell goods to customers from time to time, such as safe devices. In those transactions, we satisfy our performance obligation at a point in time. We recognize revenue when the goods are delivered to the customer as that is the point in time that best represents when control has transferred to the customer.
Our contracts with customers describe the services we can provide along with the fees for each action to provide the service. We typically send invoices to customers for all of the services we have provided within a monthly period and payments are generally due within 30 to 60 days of the invoice date.
Although our customer contracts specify the fees for each action to provide service, the majority of the services stated in our contracts do not have a defined quantity over the contract term. Accordingly, the transaction price is considered variable as there is an unknown volume of services that will be rendered over the course of the contract. We recognize revenue for these services in the period in which they are provided to the customer based on the contractual rate at which we have the right to invoice the customer for each action.
Some of our contracts with customers contain clauses that define the level of service that the customer will receive. The service level agreements (“SLA”) within those contracts contain specific calculations to determine whether the appropriate level of service has been met within a specific period, which is typically a month. We estimate SLA penalties and recognize the amounts as a reduction to revenue.
12
Revenue Disaggregated by Reportable Segment and Type of Service
(In millions)
Core Services
High-Value Services
Other Security Services
Total
Three months ended September 30, 2018
Reportable Segments:
North America
$
236.9
146.5
—
383.4
South America
104.3
107.9
3.3
215.5
Rest of World
88.9
128.6
36.0
253.5
Total reportable segments
430.1
383.0
39.3
852.4
Not Allocated to Segments:
Venezuela
—
—
—
—
Total
$
430.1
383.0
39.3
852.4
Three months ended September 30, 2017
Reportable Segments:
North America
$
186.5
130.0
—
316.5
South America
121.1
123.1
3.2
247.4
Rest of World
81.9
127.6
55.3
264.8
Total reportable segments
389.5
380.7
58.5
828.7
Not Allocated to Segments:
Venezuela
11.6
9.2
—
20.8
Total
$
401.1
389.9
58.5
849.5
Nine months ended September 30, 2018
Reportable Segments:
North America
$
616.7
410.8
—
1,027.5
South America
343.6
350.6
9.4
703.6
Rest of World
270.8
387.9
140.0
798.7
Total reportable segments
1,231.1
1,149.3
149.4
2,529.8
Not Allocated to Segments:
Venezuela
18.4
33.0
—
51.4
Total
$
1,249.5
1,182.3
149.4
2,581.2
Nine months ended September 30, 2017
Reportable Segments:
North America
$
541.7
390.4
—
932.1
South America
314.9
329.1
10.2
654.2
Rest of World
237.7
355.6
149.0
742.3
Total reportable segments
1,094.3
1,075.1
159.2
2,328.6
Not Allocated to Segments:
Venezuela
60.0
55.2
—
115.2
Total
$
1,154.3
1,130.3
159.2
2,443.8
The majority of our revenues from contracts with customers are earned by providing services and these performance obligations are satisfied over time. Smaller amounts of revenues are earned from selling goods, such as safes, to customers where the performance obligations are satisfied at a point in time.
Certain of our high-value services involve the leasing of assets, such as safes, to our customers along with the regular servicing of those safe devices. Revenues related to the leasing of these assets are recognized in accordance with ASC 840, Leases, but are included in the above table as the amounts are a small percentage of overall revenues.
13
Contract Balances
Contract Asset
Although payment terms and conditions can vary, for the majority of our customer contracts, we invoice for all of the services provided to the customer within a monthly period. For certain customer contracts, the timing of our performance may precede our right to invoice the customer for the total transaction price. For example, Brink's affiliates in certain countries, primarily in South America, negotiate annual price adjustments with certain customers and, once the price increases are finalized, the pricing changes are made retroactive to services provided in earlier periods. These retroactive pricing adjustments are estimated and recognized as revenue with a corresponding contract asset in the same period in which the related services are performed. As the estimate of the ultimate transaction price changes, we recognize a cumulative catch-up adjustment for the change in estimate.
Contract Liability
For other customer contracts, we may obtain the right to payment or receive customer payments prior to performing the related services under the contract. When the right to customer payments or receipt of payments precedes our performance, we recognize a contract liability.
The opening and closing balances of receivables, contract assets and contract liabilities related to contracts with customers are as follows:
(In millions)
Receivables
Contract Asset
Contract Liability
Opening (January 1, 2018)
$
642.3
0.4
5.6
Closing (September 30, 2018)
630.7
2.5
3.2
Increase (decrease)
$
(11.6
)
2.1
(2.4
)
The amount of revenue recognized in the nine months ended September 30, 2018 that was included in the January 1, 2018 contract liability balance was $5.1 million. This revenue consists of services provided to customers who had prepaid for those services prior to the current year.
We also recognized revenue of $0.6 million in the nine months ended September 30, 2018 from performance obligations satisfied in the prior year. This amount is a result of changes in the transaction price of our contracts with customers.
Contract Costs
Sales commissions directly related to obtaining new contracts with customers qualify for capitalization. These capitalized costs are amortized to expense ratably over the term of the contracts. At September 30, 2018, the net capitalized costs to obtain contracts was $1.7 million, which is included in other assets on the condensed consolidated balance sheet. Amortization expense was not significant and there were no impairment losses recognized related to these contract costs in the first nine months of 2018.
Practical Expedients
For the majority of our contracts with customers, we invoice a fixed amount for each unit of service we have provided. These contracts provide us with the right to invoice for an amount or rate that corresponds to the value we have delivered to our customers. The volume of services that will be provided to customers over the term is not known at inception of these contracts. Therefore, while the rate per unit of service is known, the transaction price itself is variable. For this reason, we recognize revenue from these contracts equal to the amount for which we have the contractual right to invoice the customers. Because we are not required to estimate variable consideration related to the transaction price in order to recognize revenue, we are also not required to estimate the variable consideration to provide certain disclosures. As a result, we have elected to use the optional exemption related to the disclosure of transaction prices, amounts allocated to remaining performance obligations and the future periods in which revenue will be recognized, sometimes referred to as backlog.
We have also elected to use the practical expedient for financing components related to our contract liabilities. We do not recognize interest expense on contracts for which the period between our receipt of customer payments and our service to the customer is one year or less.
14
Impact on Reported Amounts
We adopted ASU 2014-09, Revenue From Contracts with Customers, effective January 1, 2018 using the modified retrospective method. As a result, we recognized a cumulative-effect adjustment to January 1, 2018 retained earnings. Comparative prior year period amounts are reported in accordance with previous accounting standards. The adoption of the new revenue recognition standard impacted our reported amounts in 2018 as follows:
(In millions)
As reported
Impact of New Revenue Recognition Standard
Pro Forma under Old Revenue Recognition Standard
Three months ended September 30, 2018
Statement of Operations
Revenues
$
852.4
2.1
850.3
Operating profit
67.0
2.3
64.7
Net income (loss) attributable to Brink's
17.4
1.6
15.8
Nine months ended September 30, 2018
Statement of Operations
Revenues
$
2,581.2
4.8
2,576.4
Operating profit
193.5
2.7
190.8
Net income (loss) attributable to Brink's
(68.2
)
1.8
(70.0
)
As of September 30, 2018
Balance Sheet
Prepaid expenses and other assets
$
136.6
2.5
134.1
Other assets
179.8
1.7
178.1
Retained earnings
456.7
3.3
453.4
15
Note 3 - Segment information
The Brink’s Company offers transportation and logistics management services for cash and valuables throughout the world.
Core services include:
•
Cash-in-Transit (“CIT”) Services – armored vehicle transportation of valuables
Global Services – secure international transportation of valuables
•
Cash Management Services
◦
Currency and coin counting and sorting; deposit preparation and reconciliations; other cash management services
◦
Safe and safe control device installation and servicing (including our patented CompuSafe® service)
◦
Vaulting services
◦
Check imaging services for banking customers
•
Payment Services – bill payment and processing services on behalf of utility companies and other billers at any of our Brink’s or Brink’s-operated payment locations in Brazil, Colombia, Panama and Mexico and Brink’s Money™ general purpose reloadable prepaid cards and payroll cards in the U.S.
Other security services include:
•
Commercial Security Systems Services – design and installation of security systems in designated markets in Europe
•
Guarding Services – protection of airports, offices, and certain other locations in Europe and Brazil with or without electronic surveillance, access control, fire prevention and highly trained patrolling personnel
We identify our operating segments based on how our chief operating decision maker (“CODM”) allocates resources, assesses performance and makes decisions. Our CODM is our President and Chief Executive Officer. Our CODM evaluates performance and allocates resources to our operating segments based on a profit or loss measure which, at the reportable segment level, excludes the following:
•
Corporate expenses - former non-segment and regional management costs, currency transaction gains and losses, adjustments to reconcile segment accounting policies to U.S. GAAP, and costs related to global initiatives
•
Other items not allocated to segments - certain significant items such as reorganization and restructuring actions that are evaluated on an individual basis by management and are not considered part of the ongoing activities of the business are excluded from segment results. Prior to deconsolidation (see Note 1), results from Venezuela operations were also excluded from our segment results due to the Venezuelan government's restrictions that have prevented us from repatriating funds. We also exclude certain costs, gains and losses related to acquisitions and dispositions of assets and of businesses. Beginning in the third quarter of 2018, we began to consolidate Brink's Argentina using our accounting policy for subsidiaries operating in highly inflationary economies. We have excluded from our segment results the impact of highly inflationary accounting in Argentina, including currency remeasurement losses. Incremental third party costs incurred related to the mitigation of material weaknesses and the implementation and adoption of ASU 2016-02, the new lease accounting standard effective for us January 1, 2019, are also excluded from segment results.
16
The following table summarizes our revenues and segment profit for each of our reportable segments and reconciles these amounts to consolidated revenues and operating profit:
Revenues
Operating Profit
Three Months Ended September 30,
Three Months Ended September 30,
(In millions)
2018
2017
2018
2017
Reportable Segments:
North America
$
383.4
316.5
$
33.6
16.9
South America
215.5
247.4
46.3
47.7
Rest of World
253.5
264.8
30.8
33.3
Total reportable segments
852.4
828.7
110.7
97.9
Reconciling Items:
Corporate expenses:
General, administrative and other expenses
—
—
(20.6
)
(22.4
)
Foreign currency transaction gains (losses)
—
—
0.4
0.5
Reconciliation of segment policies to GAAP
—
—
4.8
0.4
Other items not allocated to segments:
Venezuela operations
—
20.8
—
2.5
Reorganization and Restructuring
—
—
(7.3
)
(6.4
)
Acquisitions and dispositions
—
—
(10.7
)
(6.1
)
Argentina highly inflationary impact
—
—
(8.3
)
—
Reporting compliance(a)
—
—
(2.0
)
—
Total
$
852.4
849.5
$
67.0
66.4
(a)
Accounting standard implementation and material weakness mitigation. Additional information provided at page 45.
Revenues
Operating Profit
Nine Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2018
2017
2018
2017
Reportable Segments:
North America
$
1,027.5
932.1
$
80.3
43.9
South America
703.6
654.2
148.0
123.3
Rest of World
798.7
742.3
82.6
84.1
Total reportable segments
2,529.8
2,328.6
310.9
251.3
Reconciling Items:
Corporate expenses:
General, administrative and other expenses
—
—
(72.6
)
(59.9
)
Foreign currency transaction gains (losses)
—
—
(1.8
)
0.7
Reconciliation of segment policies to GAAP
—
—
6.5
(1.4
)
Other items not allocated to segments:
Venezuela operations
51.4
115.2
2.3
19.1
Reorganization and Restructuring
—
—
(15.5
)
(16.1
)
Acquisitions and dispositions
—
—
(24.6
)
(8.1
)
Argentina highly inflationary impact
—
—
(8.3
)
—
Reporting compliance(a)
—
—
(3.4
)
—
Total
$
2,581.2
2,443.8
$
193.5
185.6
(a)
Accounting standard implementation and material weakness mitigation. Additional information provided at page 45.
17
Note 4 - Retirement benefits
Pension plans
We have various defined-benefit pension plans covering eligible current and former employees. Benefits under most plans are based on salary and years of service.
The components of net periodic pension cost for our pension plans were as follows: