Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Brink’s Company (along with its subsidiaries, “Brink’s”, the “Company”, “we”, “us” or “our”) is a leading global provider of cash and valuables management, digital retail solutions, and ATM managed services throughout the world. These services include:
Cash and Valuables Management
• Cash-in-transit ("CIT") services – armored vehicle transportation of cash and coin
• Basic ATM services – replenishing funds and providing basic maintenance services to our customers’ automated teller machines
• Brink's Global Services ("BGS") – secure international transportation, pick-up, packaging, customs clearance, secure vault storage, and inventory management of high-value commodities
• Cash management services – counting, sorting, wrapping, check imaging, cashier balancing, counterfeit detection, account consolidation and electronic reporting
• Vaulting services – combines cash-in-transit services, cash management, vaulting and electronic reporting technologies for banks
• Other Services – guarding, commercial security, and payment services
Digital Retail Solutions ("DRS"), and ATM Managed Services ("AMS")
• DRS – services that facilitate faster access to cash deposits leveraging Brink’s tech-enabled devices and software platforms that enable enhanced customer analytics and visibility
• AMS – comprehensive solutions for ATM management, including cash forecasting, cash optimization, ATM remote monitoring, service call dispatching, transaction processing, and installation services
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 each operating segment based on an operating profit or loss measure, excluding income and expenses not allocated to segments.
We manage our business in the following four segments:
• North America – operations in the U.S. and Canada, including the Brink’s Global Services ("BGS") line of business,
• Latin America – operations in Latin American countries where we have an ownership interest, including the BGS line of business,
• Europe – total operations in European countries that primarily provide services outside of the BGS line of business, and
• Rest of World – operations in the Middle East, Africa and Asia. This segment also includes total operations in European countries that primarily provide BGS services and BGS activity in Latin American countries where we do not have an ownership interest.
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RESULTS OF OPERATIONS
Consolidated Review
GAAP and Non-GAAP Financial Measures
We provide an analysis of our operations below on both a U.S. generally accepted accounting principles (“GAAP”) and non-GAAP basis. The purpose of the non-GAAP information is to report our operating profit, income from continuing operations and earnings per share without certain income and expense items that do not reflect the regular earnings of our operations. The non-GAAP financial measures are intended to provide investors with a supplemental comparison of our operating results and trends for the periods presented. Our management believes these measures are also useful to investors as they allow investors to evaluate our performance using the same metrics that our management uses to evaluate past performance and prospects for future performance. We do not consider these items to be reflective of our core operating performance. The non-GAAP adjustments used to reconcile our GAAP results are described on pages 43–45 and are reconciled to comparable GAAP measures on pages 50–52.
Definition of Organic Growth
Organic growth represents the change in revenues or operating profit between the current and prior period, excluding the effect of acquisitions and dispositions and changes in currency exchange rates. See definitions on page 40.
Three Months
Ended September 30, % Nine Months
Ended September 30, %
(In millions, except for per share amounts) 2023 2022 Change 2023 2022 Change
GAAP
Revenues 1,227.4 1,136.7 8 3,629.0 3,344.6 9
Cost of revenues 921.0 880.7 5 2,785.1 2,587.9 8
Selling, general and administrative expenses 170.0 180.8 (6) 517.6 519.9 —
Operating profit 137.7 59.5 fav 323.1 218.4 48
Income from continuing operations (a)
45.7 19.2 fav 92.2 125.8 (27)
Diluted EPS from continuing operations (a)
0.97 0.41 fav 1.95 2.63 (26)
Non-GAAP (b)
Non-GAAP revenues 1,227.4 1,136.7 8 3,629.0 3,344.6 9
Non-GAAP operating profit 166.3 126.8 31 425.5 362.9 17
Non-GAAP income from continuing operations (a)
90.5 65.5 38 202.2 186.8 8
Non-GAAP diluted EPS from continuing operations (a)
1.92 1.38 39 4.27 3.90 9
(a) Amounts reported in this table are attributable to the shareholders of Brink’s and exclude earnings related to noncontrolling interests.
(b) Non-GAAP results are reconciled to the applicable GAAP results on pages 50–52.
GAAP Basis
Analysis of Consolidated Results: Third Quarter 2023 versus Third Quarter 2022
Consolidated Revenues Revenues increased $90.7 million due to organic increases in Latin America ($71.1 million) and Europe ($12.2 million) and the favorable impact of acquisitions ($34.5 million), partially offset by the unfavorable impact of currency exchange rates ($15.4 million) and organic decreases in Rest of World ($9.0 million) and North America ($2.7 million). The unfavorable currency impact was driven primarily by the Argentine peso. Revenues increased 6% on an organic basis primarily due to inflation-based price increases and growth in AMS and DRS offset by an organic decrease in BGS revenue. See above for our definition of “organic growth.”
Consolidated Costs and Expenses Cost of revenues increased 5% to $921.0 million primarily due to higher revenue including the impact of acquisition revenue partially offset by lower costs related to restructuring actions. Selling, general and administrative costs decreased 6% to $170.0 million primarily due to the prior year impact of a large loss event in our BGS line of business and lower share-based compensation expense and bonus accruals and lower costs related to restructuring actions.
Consolidated Operating Profit Operating profit increased $78.2 million due mainly to:
• organic increases in Latin America ($20.3 million), North America ($8.9 million), and Europe ($1.9 million),
• lower corporate expenses on an organic basis ($22.9 million), primarily from the prior year impact of a large loss event in our BGS line of business, and lower share-based compensation expense and bonus accruals.
• lower costs incurred related to reorganization and restructuring ($19.2 million),
• lower costs related to business acquisitions and dispositions ($16.6 million), including the impact of acquisition-related charges and intangible asset amortization in 2023, and
• the favorable operating impact of business acquisitions ($6.3 million), excluding intangible amortization and acquisition-related charges.
partially offset by:
• unfavorable changes in currency exchange rates ($11.5 million), driven by the Argentine peso and
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• an organic decrease in Rest of World ($5.4 million)
Consolidated Income from Continuing Operations Attributable to Brink’s and Related Per Share Amounts Income from continuing operations attributable to Brink’s shareholders increased $26.5 million to $45.7 million due to the increase in operating profit mentioned above partially offset by higher income tax expense ($28.8 million), higher interest expense ($19.1 million), lower interest and other nonoperating income ($3.4 million), and higher noncontrolling interest ($0.4 million). Earnings per share from continuing operations was $0.97, up from $0.41 in the third quarter of 2022.
Analysis of Consolidated Results: Nine Months 2023 versus Nine Months 2022
Consolidated Revenues Revenues increased $284.4 million due to organic increases in Latin America ($191.1 million), Europe ($54.2 million), North America ($27.6 million), Rest of World ($19.6 million) and the favorable impact of acquisitions ($107.0 million), partially offset by the unfavorable impact of currency exchange rates ($115.1 million). The unfavorable currency impact was driven primarily by the Argentine peso. Revenues increased 9% on an organic basis primarily due to inflation-based price increases and growth in AMS and DRS revenue. See above for our definition of “organic growth.”
Consolidated Costs and Expenses Cost of revenues increased 8% to $2,785.1 million primarily due to higher revenue, including the impact of acquisitions, partially offset by the impact of currency exchange rates and lower costs related to restructuring actions. Selling, general and administrative costs decreased to $517.6 million primarily due to the first nine months 2022 unfavorable impact of a change in allowance estimate ($16.0 million) due to a modification in our methodology to estimate the allowance for doubtful accounts and the impact of currency exchange rates, partially offset by organic increases in labor and other administrative costs and the impact of acquisitions.
Consolidated Operating Profit Operating profit increased $104.7 million due mainly to:
• organic increases in Latin America ($51.8 million), North America ($26.0 million), Europe ($8.3 million), and Rest of World ($3.4 million),
• lower costs incurred related to reorganization and restructuring ($19.4 million),
• lower costs related to the impact of a change in allowance estimate ($16.0 million) recorded in the first nine months of 2022 due to a modification in our methodology to estimate the allowance for doubtful accounts,
• favorable operating impact of business acquisitions ($15.8 million), excluding intangible amortization and acquisition-related charges, and
• lower costs related to business acquisitions and dispositions ($9.6 million), including the impact of acquisition-related charges and intangible asset amortization, included in "Other items not allocated to segments",
partially offset by:
• unfavorable changes in currency exchange rates ($44.0 million), driven by the Argentine peso, and
• higher corporate expenses on an organic basis ($0.9 million).
Consolidated Income from Continuing Operations Attributable to Brink’s and Related Per Share Amounts Income from continuing operations attributable to Brink’s shareholders decreased $33.6 million to $92.2 million due to higher income tax expense ($84.3 million), higher interest expense ($56.5 million), and higher noncontrolling interest ($0.8 million), partially offset by the increase in operating profit mentioned above and higher interest and other nonoperating income ($3.3 million). Earnings per share from continuing operations was $1.95, down from $2.63 in the first nine months of 2022.
Non-GAAP Basis
Analysis of Consolidated Results: Third Quarter 2023 versus Third Quarter 2022
Non-GAAP Consolidated Revenues There is no difference between GAAP and Non-GAAP revenue amounts for the periods presented. See page 37 for details.
Non-GAAP Consolidated Operating Profit Non-GAAP operating profit increased $39.5 million due mainly to:
• organic increases in Latin America ($20.3 million), North America ($8.9 million), and Europe ($1.9 million), and
• lower corporate expenses on an organic basis ($22.9 million) primarily from the prior year impact of a large loss event in our BGS line of business, and lower share-based compensation expense and bonus accruals, and
• the favorable operating impact of business acquisitions ($6.3 million), excluding intangible amortization and acquisition-related charges,
partially offset by:
• unfavorable changes in currency exchange rates ($15.4 million), driven primarily by the Argentine peso and
• an organic decrease in Rest of World ($5.4 million)
Non-GAAP Consolidated Income from Continuing Operations Attributable to Brink’s and Related Per Share Amounts Non-GAAP income from continuing operations attributable to Brink’s shareholders increased $25.0 million to $90.5 million due to the operating profit increase mentioned above and higher interest and other nonoperating income ($16.1 million), partially offset by higher interest expense ($19.2 million), higher income tax expense ($10.6 million), and higher noncontrolling interest ($0.8 million). Earnings per share from continuing operations was $1.92, up from $1.38 in the third quarter of 2022.
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Analysis of Consolidated Results: Nine Months 2023 versus Nine Months 2022
Non-GAAP Consolidated Revenues There is no difference between GAAP and Non-GAAP revenue amounts for the periods presented. See page 38 for details.
Non-GAAP Consolidated Operating Profit Non-GAAP operating profit increased $62.6 million due mainly to:
• organic increases in Latin America ($51.8 million), North America ($26.0 million), Europe ($8.3 million), and Rest of World ($3.4 million), and
• the favorable operating impact of business acquisitions ($15.8 million), excluding intangible amortization and acquisition-related charges,
partially offset by:
• unfavorable changes in currency exchange rates ($41.8 million), driven primarily by the Argentine peso, and
• higher corporate expenses on an organic basis ($0.9 million).
Non-GAAP Consolidated Income from Continuing Operations Attributable to Brink’s and Related Per Share Amounts Non-GAAP income from continuing operations attributable to Brink’s shareholders increased $15.4 million to $202.2 million due to the operating profit increase mentioned above and higher interest and other nonoperating income ($16.4 million), partially offset by higher interest expense ($56.8 million), higher income tax expense ($5.8 million), and higher noncontrolling interest ($1.0 million). Earnings per share from continuing operations was $4.27, up from $3.90 in the first nine months of 2022.
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Revenues and Operating Profit by Segment: Third Quarter 2023 versus Third Quarter 2022
Organic Acquisitions / % Change
(In millions) 3Q'22 Change Dispositions (a)
Currency (b)
3Q'23 Total Organic
Revenues:
North America $ 400.6 (2.7) 1.0 (0.8) 398.1 (1) (1)
Latin America 301.1 71.1 0.6 (33.2) 339.6 13 24
Europe 220.0 12.2 34.9 20.7 287.8 31 6
Rest of World 215.0 (9.0) (2.0) (2.1) 201.9 (6) (4)
Segment revenues (c)
1,136.7 71.6 34.5 (15.4) 1,227.4 8 6
Revenues - GAAP $ 1,136.7 71.6 34.5 (15.4) 1,227.4 8 6
Operating profit:
North America $ 38.2 8.9 0.4 — 47.5 24 23
Latin America 66.5 20.3 0.2 (18.9) 68.1 2 31
Europe 25.9 1.9 5.4 2.6 35.8 38 7
Rest of World 48.3 (5.4) 0.3 (0.6) 42.6 (12) (11)
Segment operating profit 178.9 25.7 6.3 (16.9) 194.0 8 14
Corporate (d)
(52.1) 22.9 — 1.5 (27.7) (47) (44)
Operating profit - non-GAAP 126.8 48.6 6.3 (15.4) 166.3 31 38
Other items not allocated to segments (e)
(67.3) 18.2 16.6 3.9 (28.6) (58) (27)
Operating profit - GAAP $ 59.5 66.8 22.9 (11.5) 137.7 fav fav
Amounts may not add due to rounding.
(a) Non-GAAP amounts include the impact of prior year comparable period results for acquired and disposed businesses. GAAP results also include the impact of acquisition-related intangible amortization, restructuring and other charges, and disposition-related gains/losses.
(b) The amounts in the “Currency” column consist of the effects of Argentina devaluations under highly inflationary accounting and the sum of monthly currency changes. Monthly currency changes represent the accumulation throughout the year of the impact on current period results of changes in foreign currency rates from the prior year period.
(c) Segment revenues equal our total reported non-GAAP revenues.
(d) Corporate expenses are not allocated to segment results. Corporate expenses include salaries and other costs to manage the global business and to perform activities required by public companies.
(e) See pages 43–45 for more information
Analysis of Segment Results: Third Quarter 2023 versus Third Quarter 2022
North America
Revenues decreased 1% ($2.5 million) primarily due to a 1% organic decrease ($2.7 million) and the unfavorable impact of currency exchange rates ($0.8 million) from the Canadian dollar, partially offset by the favorable impact of acquisitions ($1.0 million). Organic revenue decreased primarily due to volume reductions due to the rationalization of our customer portfolio to optimize profitability and lower BGS revenue, mostly offset by price increases in the U.S. and modest growth in AMS and DRS revenue. Operating profit increased $9.3 million, primarily due to a 23% organic increase ($8.9 million) and the favorable impact of acquisitions ($0.4 million). The organic increase resulted primarily from price outpacing the impact of labor and other cost increases, cost productivity, and the impact of cost savings related to restructuring primarily in the U.S.
Latin America
Revenues increased 13% ($38.5 million) primarily due to a 24% organic increase ($71.1 million) and the favorable impact of acquisitions ($0.6 million), partially offset by the unfavorable impact of currency exchange rates ($33.2 million), primarily from the Argentine peso partially offset by favorable impact from the Mexican peso. The organic increase was primarily driven by inflation-based price increases across the segment and growth in AMS and DRS revenue. Operating profit was up 2% ($1.6 million) primarily due to a 31% organic increase ($20.3 million) and the favorable impact of acquisitions ($0.2 million), mostly offset by the unfavorable impact of currency exchange rates ($18.9 million). The organic increase was driven by higher revenue which outpaced the impact of labor and other cost increases.
Europe
Revenues increased 31% ($67.8 million) due to the favorable impact of the NoteMachine acquisition ($34.9 million), a 6% organic increase ($12.2 million), and the favorable impact of currency exchange rates ($20.7 million) driven by the euro. The organic increase was primarily due to price increases and the growth of AMS and DRS revenue. Operating profit increased $9.9 million, primarily due to the NoteMachine acquisition ($5.4 million), a 7% organic increase ($1.9 million), and the favorable impact of currency exchange rates ($2.6 million). The organic increase was primarily driven by higher revenue outpacing the impact of labor and other cost increases across the segment and the revenue mix benefit of higher AMS and DRS revenue.
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Rest of World
Revenues decreased ($13.1 million) due to a 4% organic decrease ($9.0 million), the unfavorable impact of currency exchange rates ($2.1 million) and dispositions ($2.0 million). Organic growth in the segment in cash-in-transit, DRS and AMS was more than offset by a decline in BGS revenue. Operating profit decreased $5.7 million due to a 11% organic decrease ($5.4 million) and the unfavorable impact of currency exchange rates ($0.6 million), partially offset by the favorable impact of dispositions ($0.3 million). The organic decrease was primarily due to the impact of the decrease in higher-margin BGS revenue.
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Revenues and Operating Profit by Segment: Nine Months 2023 versus Nine Months 2022
Organic Acquisitions / % Change
(In millions) YTD '22 Change Dispositions (a)
Currency (b)
YTD '23 Total Organic
Revenues:
North America $ 1,171.0 27.6 3.2 (4.4) 1,197.4 2 2
Latin America 898.7 191.1 2.1 (102.9) 989.0 10 21
Europe 668.8 54.2 107.0 12.4 842.4 26 8
Rest of World 606.1 19.6 (5.3) (20.2) 600.2 (1) 3
Segment revenues (c)
3,344.6 292.5 107.0 (115.1) 3,629.0 9 9
Revenues - GAAP $ 3,344.6 292.5 107.0 (115.1) 3,629.0 9 9
Operating profit:
North America $ 96.7 26.0 0.8 0.1 123.6 28 27
Latin America 194.2 51.8 0.7 (46.1) 200.6 3 27
Europe 63.1 8.3 13.5 2.2 87.1 38 13
Rest of World 120.9 3.4 0.8 (3.9) 121.2 — 3
Segment operating profit 474.9 89.5 15.8 (47.7) 532.5 12 19
Corporate (d)
(112.0) (0.9) — 5.9 (107.0) (4) 1
Operating profit - non-GAAP 362.9 88.6 15.8 (41.8) 425.5 17 24
Other items not allocated to segments (e)
(144.5) 34.7 9.6 (2.2) (102.4) (29) (24)
Operating profit - GAAP $ 218.4 123.3 25.4 (44.0) 323.1 48 56
Amounts may not add due to rounding.
See page 40 for footnote explanations.
Analysis of Segment Results: Nine Months 2023 versus Nine Months 2022
North America
Revenues increased 2% ($26.4 million) primarily due to a 2% organic increase ($27.6 million) and the favorable impact of acquisitions ($3.2 million), partially offset by the unfavorable impact of currency exchange rates ($4.4 million) from the Canadian dollar. Organic revenue increased primarily due to price increases in the U.S. partially offset by volume reductions due to the rationalization of our customer portfolio to optimize profitability and lower BGS revenue. Operating profit increased $26.9 million, primarily due to a 27% organic increase ($26.0 million), the favorable impact of acquisitions ($0.8 million), and the favorable impact of currency exchange rates ($0.1 million). The organic increase resulted primarily from higher revenue which outpaced the impact of labor and other cost increases, cost productivity and the impact of cost savings related to restructuring primarily in the U.S.
Latin America
Revenues increased 10% ($90.3 million) primarily due to a 21% organic increase ($191.1 million) and the favorable impact of acquisitions ($2.1 million), partially offset by the unfavorable impact of currency exchange rates ($102.9 million), primarily from the Argentine peso partially offset by favorable impact from the Mexican peso. The organic increase was driven by inflation-based price increases across the segment and growth in AMS and DRS revenue. Operating profit was up 3% ($6.4 million) primarily due to a 27% organic increase ($51.8 million) and the favorable impact of acquisitions ($0.7 million), partially offset by the unfavorable impact of currency exchange rates ($46.1 million). The organic increase was driven by higher revenue which outpaced the impact of labor and other cost increases.
Europe
Revenues increased 26% ($173.6 million) due to the favorable impact of the NoteMachine acquisition ($107.0 million), an 8% organic increase ($54.2 million), and the favorable impact of currency exchange rates ($12.4 million). The favorable currency impact was driven by the euro. The organic increase was primarily due to price increases throughout the segment and the growth of AMS and DRS revenue. Operating profit increased $24.0 million primarily due to the favorable impact of acquisitions ($13.5 million), an organic increase ($8.3 million, and the favorable impact of currency exchange rates ($2.2 million). The organic increase was primarily driven by higher revenue which outpaced the impact of labor and other cost increases and the revenue mix benefit of higher AMS and DRS revenue.
Rest of World
Revenues decreased 1% ($5.9 million) due to the unfavorable impact of currency exchange rates ($20.2 million) and dispositions ($5.3 million), partially offset by a 3% organic increase ($19.6 million). The organic increase was primarily due to growth in AMS and DRS revenue partially offset by a decline in BGS revenue in the third quarter. Operating profit increased $0.3 million primarily due to a 3% organic increase ($3.4 million) and the favorable impact of dispositions ($0.8 million), partially offset by the unfavorable impact of currency exchange rates ($3.9 million), driven by most currencies throughout the segment. The organic increase was primarily due to the impact of labor and other operational cost saving actions throughout the segment and the revenue mix benefit of higher AMS and DRS revenue.
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Income and Expense Not Allocated to Segments
Corporate Expenses
Three Months
Ended September 30, % Nine Months
Ended September 30, %
(In millions) 2023 2022 change 2023 2022 change
General, administrative and other expenses $ (32.4) (57.0) (43) $ (122.3) (125.4) (2)
Foreign currency transaction gains 5.4 3.6 50 15.3 9.4 63
Reconciliation of segment policies to GAAP (0.7) 1.3 unfav — 4.0 (100)
Corporate expenses $ (27.7) (52.1) (47) $ (107.0) (112.0) (4)
Corporate expenses include corporate headquarters costs, regional management costs, currency transaction gains and losses, costs related to global initiatives and adjustments to reconcile segment accounting policies to U.S. GAAP.
Corporate expenses for the first nine months of 2023 decreased $5.0 million versus the prior year period. This was primarily driven by lower net compensation costs, including share-based compensation and bonus accruals ($18.3 million), as well as an increase in foreign currency transaction gains ($5.9 million). These lower costs were partially offset by increased charges related to insurance and security losses ($11.8 million), higher professional fees ($4.3 million) and higher bad debt expense ($3.1 million) reported as part of the reconciliation of segment policies to U.S. GAAP.
Other Items Not Allocated to Segments
Three Months
Ended September 30, % Nine Months
Ended September 30, %
(In millions) 2023 2022 change 2023 2022 change
Operating profit:
Reorganization and Restructuring (0.4) (19.6) (98) $ (14.6) (34.0) (57)
Acquisitions and dispositions (19.4) (35.7) (46) (56.4) (66.3) (15)
Argentina highly inflationary impact (8.1) (12.0) (33) (30.3) (27.1) 12
Change in allowance estimate — 0.3 (100) — (16.0) (100)
Chile antitrust matter
— (0.3) (100) (0.4) (1.1) (64)
Reporting compliance (0.7) — unfav (0.7) — unfav
Operating profit $ (28.6) (67.3) (58) $ (102.4) (144.5) (29)
Reorganization and Restructuring
2022 Global Restructuring Plan
In the first quarter of 2023, management completed the review and approval of remaining actions included in the previously announced restructuring program across our global business operations. The actions were taken to enable growth, reduce costs and related infrastructure, and to mitigate the potential impact of external economic conditions. In total, we have recognized $32.2 million in charges under this program, including $10.0 million in the first nine months of 2023. We expect total expenses from the program to be between $42 million and $48 million. When completed, the current restructuring actions are expected to reduce our workforce by 3,300 to 3,500 positions and result in annualized cost savings of at least $60 million.
Other Restructurings
Management periodically implements restructuring actions in targeted sections of our business. As a result of these actions, we recognized net costs of $16.5 million in the first nine months of 2022, primarily severance costs. We recognized $4.6 million in net costs in the first nine months of 2023, primarily severance costs. The majority of the costs in both the 2023 and 2022 periods result from the exit of a line of business in a specific geography with most of the remaining costs due to management initiatives to address the COVID-19 pandemic.
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Due to the unique circumstances around these charges, they have not been allocated to segment results and are excluded from non-GAAP results. Charges related to the employees, assets, leases and contracts impacted by these restructuring actions were excluded from the segments and corporate expenses as shown in the table below.
Three Months Ended September 30, % Nine Months
Ended September 30, %
(In millions) 2023 2022 change 2023 2022 change
Reportable Segments:
North America $ (0.3) (5.1) (94) $ (4.3) (12.6) (66)
Latin America (0.3) (8.2) (96) (4.3) (13.5) (68)
Europe 0.2 (5.3) fav (4.0) (7.5) (47)
Rest of World — (1.0) (100) (0.7) (1.1) (36)
Total reportable segments (0.4) (19.6) (98) (13.3) (34.7) (62)
Corporate items — — — (1.3) 0.7 unfav
Total $ (0.4) (19.6) (98) $ (14.6) (34.0) (57)
Acquisitions and dispositions Certain acquisition and disposition items that are not considered part of the ongoing activities of the business and are special in nature are consistently excluded from segment and non-GAAP results. These items are described below:
2023 Acquisitions and Dispositions
• Amortization expense for acquisition-related intangible assets was $43.2 million in the first nine months of 2023.
• We derecognized a contingent consideration liability related to the NoteMachine business acquisition and recognized a gain of $4.8 million.
• We recognized $4.7 million in charges in Argentina in the first nine months of 2023 for an inflation-adjusted labor increase to expected payments to union workers of the Maco Transportadora and Maco Litoral businesses (together "Maco"). Although the Maco operations were acquired in 2017, formal antitrust approval was obtained in 2021, which triggered negotiation and approval of the expected payments in 2022. We recognized $12.5 million in related costs in 2022.
• Net charges of $3.4 million were incurred for post-acquisition adjustments to indemnification assets related to previous business acquisitions.
• We incurred $2.0 million in integration costs, primarily related to PAI, in the first nine months of 2023.
• Transaction costs related to business acquisitions were $3.6 million in the first nine months of 2023.
• We recognized a $2.0 million loss on the disposition of Russia-based operations in the first nine months of 2023.
• Compensation expense related to the retention of key PAI employees was $1.3 million in the first nine months of 2023.
2022 Acquisitions and Dispositions
• Amortization expense for acquisition-related intangible assets was $37.4 million in the first nine months of 2022.
• We recognized $12.4 million in charges in Argentina in the first nine months of 2022 for expected payments to union workers of the Maco businesses.
• Net charges of $7.8 million were incurred for post-acquisition adjustments to indemnification assets related to previous business acquisitions.
• We incurred $2.9 million in integration costs, primarily related to PAI and G4S, in the first nine months of 2022.
• Transaction costs related to business acquisitions were $2.7 million in the first nine months of 2022.
• Restructuring costs related to acquisitions were $0.2 million in the first nine months of 2022.
• Compensation expense related to the retention of key PAI employees was $2.6 million in the first nine months of 2022.
Argentina highly inflationary impact Beginning in the third quarter of 2018, we designated Argentina's economy as highly inflationary for accounting purposes. As a result, Argentine peso-denominated monetary assets and liabilities are now remeasured at each balance sheet date to the currency exchange rate then in effect, with currency remeasurement gains and losses recognized in earnings. In addition, nonmonetary assets retain a higher historical basis when the currency is devalued. The higher historical basis results in incremental expense being recognized when the nonmonetary assets are consumed. In the first nine months of 2023, we recognized $30.3 million in pretax charges related to highly inflationary accounting, including currency remeasurement losses of $23.9 million. In the first nine months of 2022, we recognized $27.1 million in pretax charges related to highly inflationary accounting, including currency remeasurement losses of $24.4 million. These amounts are excluded from segment and non-GAAP results.
Change in allowance estimate In the first quarter of 2022, we refined our global methodology of estimating the allowance for doubtful accounts. Our previous method to estimate currently expected credit losses in receivables (the allowance) was weighted significantly to a review of historical loss rates and specific identification of higher risk customer accounts. It also considered current and expected economic conditions, particularly the effects of the coronavirus (COVID-19) pandemic, in determining an appropriate allowance. As many of our regions begin to recover from the pandemic, we have re-assessed those earlier assumptions and estimates. Our updated method now also includes an estimated allowance for accounts receivable significantly past due in order to adjust for at-risk receivables not captured in our previous method. As part of the analysis under the updated estimation methodology, we noted an increase in accounts receivable significantly past due, particularly in the U.S., and we recorded an additional allowance of $16.7 million. In the second quarter and third quarter of 2022, the additional allowance was reduced by $0.7 million as a result of collections. Due to the fact that management has excluded these amounts when evaluating internal performance, we have excluded these amounts from segment and non-GAAP results.
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Chile antitrust matter We recognized an estimated loss of $9.5 million in the third quarter of 2021 related to a potential fine. In 2022, we recognized an additional $1.4 million adjustment and, in the first nine months of 2023, we recognized an additional $0.4 million adjustment to our estimated loss. The adjustments result from a change in currency rates. Due to the special nature of this matter, this charge has not been allocated to segment results and is excluded from non-GAAP results. See Note 14 for details.
Reporting compliance Certain compliance costs (primarily third party expenses) are excluded from segment and non-GAAP results. In the first nine months of 2023, we incurred $0.7 million in costs related to mitigation of the material weakness. We did not incur any such costs in 2022.
45
Foreign Operations
We currently serve customers in more than 100 countries, including 52 countries where we operate subsidiaries.
We are subject to risks customarily associated with doing business in foreign countries, including labor and economic conditions, the imposition of international sanctions, including by the U.S. government, political instability, controls on repatriation of earnings and capital, nationalization, expropriation and other forms of restrictive action by local governments. Changes in the political or economic environments in the countries in which we operate could have a material adverse effect on our business, financial condition and results of operations. The future effects, if any, of these risks are unknown. In April 2019, the U.S. government sanctioned the Venezuela central bank and, as a result, the Company has ceased support of the Venezuela business.
Our international operations conduct a majority of their business in local currencies. Because our financial results are reported in U.S. dollars, they are affected by changes in the value of various local currencies in relation to the U.S. dollar. Recent strengthening of the U.S. dollar relative to certain currencies has reduced some of our reported U.S. dollar revenues and operating profit and may continue through the end of 2023.
At September 30, 2023, Argentina's economy remains highly inflationary for accounting purposes. At September 30, 2023, we had net monetary assets denominated in Argentine pesos of $74.1 million (including cash of $71.4 million) and net nonmonetary assets of $174.9 million (including $99.8 million of goodwill, $2.2 million in equity securities denominated in Argentine pesos and $38.6 million in debt securities denominated in Argentine pesos).
During September 2019, the Argentine government announced currency controls on both companies and individuals. Under the exchange procedures implemented by the central bank, approval is required for many transactions, including dividend repatriation abroad.
We have previously elected to use other market mechanisms to convert Argentine pesos into U.S. dollars. Conversions under these other market mechanisms generally settle at rates that are less favorable than the rates at which we remeasure the financial statements of Brink’s Argentina. We did not have any such conversions or conversion losses in the nine months ended September 30, 2023 or September 30, 2022.
Although the Argentine government has implemented currency controls, Brink’s management continues to provide guidance and strategic oversight, including budgeting and forecasting for Brink’s Argentina. We continue to control our Argentina business for purposes of consolidation of our financial statements and continue to monitor the situation in Argentina.
Changes in exchange rates may also affect transactions that are denominated in currencies other than the functional currency. From time to time, we use short term foreign currency forward and swap contracts to hedge transactional risks associated with foreign currencies. At September 30, 2023, the notional value of our short term outstanding foreign currency forward and swap contracts was $574 million, with average contract maturities of approximately one month. These short term foreign currency forward and swap contracts primarily offset exposures in the euro and the Mexican peso and are not designated as hedges for accounting purposes. Accordingly, changes in their fair value are recorded immediately in earnings. At September 30, 2023, the fair value of our short term foreign currency contracts was a net asset of approximately $6.3 million of which $9.2 million was included in prepaid expenses and other and $2.9 million was included in accrued liabilities on the condensed consolidated balance sheet. At December 31, 2022, the fair value of these foreign currency contracts was a net liability of approximately $7.0 million of which $3.5 million was included in prepaid expenses and other and $10.5 million was included in accrued liabilities on the condensed consolidated balance sheet.
Amounts under these contracts were recognized in other operating income (expense) as follows:
Three Months
Ended September 30, Nine Months
Ended September 30,
(In millions) 2023 2022 2023 2022
Derivative instrument gains included in other operating income (expense) $ 4.3 25.4 $ 22.9 58.4
We also have a cross currency swap contract to hedge exposure in Brazilian real, which is designated as a cash flow hedge for accounting purposes. Accordingly, changes in the fair value of the cash flow hedge are initially recorded in the gains (losses) on cash flow hedges component of accumulated other comprehensive income (loss). We immediately reclassify from accumulated other comprehensive income (loss) to earnings an amount to offset the remeasurement recognized in earnings associated with the respective intercompany loan. Additionally, we reclassify amounts from accumulated other comprehensive income (loss) to interest expense amounts that are associated with the interest rate differential between a U.S. dollar denominated intercompany loan and a Brazilian real denominated intercompany loan.
At September 30, 2023, the notional value of this contract was $30 million with a weighted-average maturity of approximately 0.1 years. At September 30, 2023, the fair value of the cross currency swap contract was an asset of $7.2 million and was included in prepaid expenses and other on the condensed consolidated balance sheet. At December 31, 2022, the fair value of the cross currency swap contract was an asset of $14.6 million and was included in prepaid expenses and other on the condensed consolidated balance sheet.
46
Amounts under this contract were recognized in other operating income (expense) to offset transaction gains or losses and in interest expense as follows:
Three Months
Ended September 30, Nine Months
Ended September 30,
(In millions) 2023 2022 2023 2022
Derivative instrument gains (losses) included in other operating income (expense) $ (0.5) 0.3 $ (7.7) (6.2)
Offsetting transaction gains (losses) 0.5 (0.3) 7.7 6.2
Derivative instrument losses included in interest expense (0.2) (0.3) (0.7) (1.0)
Net derivative instrument gains (losses) (0.7) — (8.4) (7.2)
In the second quarter of 2021, we entered into ten cross currency swaps to hedge a portion of our net investments in certain of our subsidiaries with euro functional currencies. We elected to use the spot method to assess effectiveness for these derivatives that are designated as net investment hedges. Accordingly, changes in fair value attributable to changes in the undiscounted spot rates are recorded in the foreign currency translation adjustments component of accumulated other comprehensive income (loss) and will remain there until the hedged net investments are sold or substantially liquidated. We have elected to exclude the spot-forward difference from the assessment of hedge effectiveness and are amortizing this amount separately on a straight-line basis over the term of these cross currency swaps.
In July 2022, we terminated these cross currency swap contracts and received $67 million in cash as settlement. We subsequently entered into a total of nine cross currency swaps with a total notional of $400 million to hedge a portion of our net investment in certain of our subsidiaries with euro functional currencies. Swaps with a total notional of $215 million will terminate in May 2026 and swaps with a total notional of $185 million will terminate in April 2031. We have designated these swaps as net investment hedges for accounting purposes.
In July 2023, we entered into a zero cost foreign exchange collar contract with a $215 million notional amount and a May 2026 expiration date. We sold a put option with a lower strike price and bought a call option with a higher strike price to manage the foreign exchange risk related to the final settlement of the $215 million notional cross currency swaps. Upon the execution of the zero cost foreign exchange collar contract, we de-designated the existing $215 million notional cross currency swaps and re-designated the combined $215 million notional cross currency swaps and zero cost collar into a new hedging instrument. At re-designation, the existing $215 million notional cross currency swaps had a non-zero fair value representing an off-market component of the participating cross currency swaps. The off-market value is being ratably amortized into earnings through May 2026. The combined cross currency swaps and zero cost collar has been designated as a net investment hedge for accounting purposes.
At September 30, 2023, the notional value of these cross currency swap contracts was $400 million with a remaining weighted average maturity of 2.1 years for the cross currency swaps maturing in May 2026 and a remaining weighted average maturity of 6.3 years for the cross currency swaps maturing in April 2031. At September 30, 2023, the fair value of these currency swaps was a net liability of $17.3 million of which $5.6 million was included in prepaid expenses and other and $22.9 million was included in other liabilities on the condensed consolidated balance sheet. At December 31, 2022, the fair value of these currency swaps was a net liability of $11.7 million of which $5.6 million was included in prepaid expenses and other and $17.3 million was included in other liabilities on the condensed consolidated balance sheet. At September 30, 2023, the fair value of the zero cost collar was an asset of $2.6 million included in other assets on the condensed consolidated balance sheet.
The effect of the amortization of the spot-forward difference on the net investment hedges cross currency swaps is included in interest expense as follows:
Three Months
Ended September 30, Nine Months
Ended September 30,
(In millions) 2023 2022 2023 2022
Net derivative instrument gains included in interest expense $ (1.2) (1.3) (4.1) (4.4)
See Note 1 to the condensed consolidated financial statements for a description of how we account for currency remeasurement for Argentine subsidiaries, beginning July 1, 2018 under the heading, "Argentina".
47
Other Operating Income (Expense)
Other operating income (expense) includes amounts included in segment results as well as income and expense not allocated to segments.
Three Months
Ended September 30, % Nine Months
Ended September 30, %
(In millions) 2023 2022 change 2023 2022 change
Foreign currency items:
Transaction losses $ (4.6) (32.7) (86) $ (31.5) (73.4) (57)
Derivative instrument gains 4.3 25.4 (83) 22.9 58.4 (61)
Gains (losses) on sale of property and other assets 3.2 (0.1) fav 1.4 1.4 —
Impairment losses (3.0) (4.9) (39) (7.2) (7.9) (9)
Indemnification asset adjustments (1.4) (7.8) (82) (4.0) (7.8) (49)
Share in earnings of equity affiliates 0.7 0.5 40 1.9 1.3 46
Royalty income 1.9 2.1 (10) 5.5 7.2 (24)
Contingent consideration liability adjustment — — — 4.8 — 100
Other gains 0.2 1.8 (89) 3.0 2.4 25
Other operating income (expense) $ 1.3 (15.7) fav $ (3.2) (18.4) (83)
Nonoperating Income and Expense
Interest expense
Three Months
Ended September 30, % Nine Months
Ended September 30, %
(In millions)
2023 2022 change 2023 2022 change
Interest expense $ 53.8 34.7 55 $ 151.5 95.0 59
Interest expense was higher in the first nine months of 2023 primarily due to higher interest rates on corporate debt. Borrowings were used to fund general corporate initiatives and other working capital needs.
Interest and other nonoperating income (expense)
Three Months
Ended September 30, % Nine Months
Ended September 30, %
(In millions) 2023 2022 change 2023 2022 change
Interest income $ 12.9 8.1 59 $ 26.9 17.0 58
Gain (loss) on marketable securities (b)
(9.0) 0.3 unfav (10.0) (0.2) unfav
Foreign currency transaction gains (losses) 0.9 1.6 (44) (0.2) 3.9 unfav
Retirement benefit cost other than service cost 0.2 (3.1) fav 1.0 (11.1) fav
Argentina turnover tax (2.4) — unfav (4.3) — unfav
Non-income taxes on intercompany billings (a)
(0.4) (0.6) (33) (1.3) (1.8) (28)
Other 0.7 — fav (0.4) 0.6 unfav
Interest and other nonoperating income (expense) $ 2.9 6.3 (54) $ 11.7 8.4 39
(a) Certain of our Latin American subsidiaries incur non-income taxes related to the billing of intercompany charges. These intercompany charges do not impact the Latin America segment results and are eliminated in our consolidation
(b) Primarily related to realized loss on sales of available-for-sale debt securities in the third quarter of 2023.
48
Income Taxes
Three Months
Ended September 30, Nine Months
Ended September 30,
(in millions) 2023 2022 2023 2022
Continuing operations
Provision (benefit) for income taxes (in millions) $ 37.3 8.5 $ 81.0 (3.3)
Effective tax rate 43.0 % 27.3 % 44.2 % (2.5 %)
Valuation Allowance-Tax Credits
In the first quarter of 2022, we concluded that it is more-likely-than-not that a substantial amount of the U.S. deferred tax assets for U.S. foreign tax credit and general business credit carryforwards that previously required a valuation allowance would be realized. Our conclusion was based upon an analysis of the final foreign tax credit regulations that the U.S. Treasury published in the Federal Register on January 4, 2022. Based upon this analysis, we determined a significant amount of the post-2021 foreign withholding taxes will now be ineligible for U.S. foreign income tax credit treatment and therefore we forecasted that Brink’s U.S. operations would no longer annually be generating new foreign tax credits in excess of its annual foreign tax credit utilization limit. As a result, we expect to be able to utilize a substantial amount of our foreign tax credit and general business tax credit carryforwards to offset future tax prior to their expiration. Accordingly, we reversed a substantial amount of our valuation allowance on our net U.S. deferred tax assets, resulting in a $52.8 million benefit in our provision for income taxes for the period ended September 30, 2022.
In the second quarter of 2023, we concluded that changes in Brazilian tax law will allow Brazilian withholding taxes to be eligible for U.S. foreign tax credit treatment. Based on this conclusion, we expect to annually be generating more new foreign tax credits and utilizing fewer foreign tax carryforwards to offset taxes prior to their expiration. As a result, we recorded a $7.0 million tax expense in our provision for income taxes for the nine month period ended September 30, 2023. It is possible that further developments in foreign country or U.S. tax laws could occur and may require us to change our assessment of the ultimate amounts we consider more-likely-than-not to be realized.
On July 21, 2023, the U.S. Treasury issued Notice 2023-55 (the "Notice") announcing temporary relief for taxpayers in determining whether a foreign tax is eligible for a foreign tax credit under the final foreign tax credit regulations mentioned above. The Notice will allow us to apply the pre-January 4, 2022 regulations in determining the creditability of foreign taxes for our 2022 and 2023 U.S. income tax filings. The impact in our provision for income taxes for the three and nine month periods ended September 30, 2023 is less than $1.0 million of tax expense.
Effective Tax Rate
Our effective tax rate may fluctuate materially from these estimates due to changes in pre-tax earnings, permanent book-tax differences, changes in the expected amount and geographical mix of earnings, changes in current or deferred taxes due to legislative changes, changes in valuation allowances or accruals for contingencies, changes in distributions of share-based payments, changes in U.S. taxable income, and other factors.
Noncontrolling Interests
Three Months
Ended September 30, % Nine Months
Ended September 30, %
(In millions) 2023 2022 change 2023 2022 change
Net income attributable to noncontrolling interests $ 3.8 3.4 12 $ 10.1 9.3 9
The increase in net income attributable to noncontrolling interests in the three months ended September 30, 2023, and nine months ended September 30, 2023, in comparison to the three months and nine months ended September 30, 2022, is primarily attributable to higher 2023 operating results reported by certain subsidiaries that are not wholly-owned.
49
Non-GAAP Results Reconciled to GAAP
Non-GAAP results described in this filing are financial measures that are not required by or presented in accordance with GAAP. The purpose of the non-GAAP results is to report financial information from the primary operations of our business by excluding the effects of certain income and expenses that do not reflect the ordinary earnings of our operations. The specific items excluded have not been allocated to segments, are described in detail on pages 43–45, and are reconciled to comparable GAAP measures below.
Non-GAAP results adjust the quarterly non-GAAP tax rates so that the non-GAAP tax rate in each of the quarters is equal to the full-year estimated non-GAAP tax rate. The full-year non-GAAP tax rate in both years excludes certain pretax and income tax amounts. Amounts reported for prior periods have been updated in this report to present information consistently for all periods presented.
The Non-GAAP financial measures are intended to provide investors with a supplemental comparison of our operating results and trends for the periods presented. Our management believes these measures are also useful to investors as they allow investors to evaluate our performance using the same metrics that our management uses to evaluate past performance and prospects for future performance. We do not consider these items to be reflective of our operating performance as they result from events and circumstances that are not a part of our core business. Additionally, non-GAAP results are utilized as performance measures in certain management incentive compensation plans.
Non-GAAP results should not be considered as an alternative to revenue, income or earnings per share amounts determined in accordance with GAAP and should be read in conjunction with their GAAP counterparts. Non-GAAP financial measures may not be comparable to non-GAAP financial measures presented by other companies.
YTD '23 YTD '22
(In millions, except for percentages) Pre-tax income Income taxes Effective tax rate Pre-tax income Income taxes Effective tax rate
Effective Income Tax Rate (a)
GAAP $ 183.3 81.0 44.2 % $ 131.8 (3.3) (2.5) %
Retirement plans (d)
(6.2) (1.3) 6.5 2.1
Reorganization and restructuring (b)
14.6 2.7 34.0 6.1
Acquisitions and dispositions (b)
57.3 7.7 63.1 14.5
Argentina highly inflationary impact (b)
53.6 (1.6) 29.0 (0.5)
Change in allowance estimate (b)
— — 16.0 3.8
Valuation allowance on tax credits (e)
— (6.7) — 52.8
Chile antitrust matter (b)
0.4 0.1 1.1 0.3
Reporting compliance (b)
0.7 — — —
Income tax rate adjustment (c)
— 9.2 — 9.5
Non-GAAP $ 303.7 91.1 30.0 % $ 281.5 85.3 30.3 %
Amounts may not add due to rounding.
(a) From continuing operations.
(b) See “Other Items Not Allocated To Segments” on pages 43–45 for details. We do not consider these items to be reflective of our operating performance as they result from events and circumstances that are not a part of our core business.
(c) Non-GAAP income from continuing operations and non-GAAP EPS have been adjusted to reflect an effective income tax rate in each interim period equal to the full-year non-GAAP effective income tax rate. The full-year non-GAAP effective tax rate is estimated at 30.0% for 2023 and was 30.3% for 2022.
(d) Our U.S. retirement plans are frozen and costs related to these plans are excluded from non-GAAP results. Certain non-U.S. operations also have retirement plans. Settlement charges and curtailment gains related to these non-U.S. plans and costs related to our frozen non-U.S. retirement plans are also excluded from non-GAAP results.
(e) In the first nine months of 2022, we released a portion of our valuation allowance on certain U.S. deferred tax assets primarily related to foreign tax credit carryforward attributes with such amount being further adjusted in the first nine months of 2023. The valuation allowance release was due to new foreign tax credit regulations published by the U.S. Treasury in January 2022.
50
Non-GAAP Results Reconciled to GAAP
Three Months
Ended September 30, Nine Months
Ended September 30,
(In millions, except for percentages and per share amounts) 2023 2022 2023 2022
Revenues:
GAAP $ 1,227.4 1,136.7 $ 3,629.0 3,344.6
Non-GAAP $ 1,227.4 1,136.7 $ 3,629.0 3,344.6
Operating profit:
GAAP $ 137.7 59.5 $ 323.1 218.4
Reorganization and restructuring (b)
0.4 19.6 14.6 34.0
Acquisitions and dispositions (b)
19.4 35.7 56.4 66.3
Argentina highly inflationary impact (b)
8.1 12.0 30.3 27.1
Change in allowance estimate (b)
— (0.3) — 16.0
Chile antitrust matter (b)
— 0.3 0.4 1.1
Reporting compliance (b)
0.7 — 0.7 —
Non-GAAP $ 166.3 126.8 $ 425.5 362.9
Operating margin:
GAAP margin 11.2 % 5.2 % 8.9 % 6.5 %
Non-GAAP margin 13.5 % 11.2 % 11.7 % 10.9 %
Interest expense:
GAAP $ (53.8) (34.7) (151.5) (95.0)
Acquisitions and dispositions (b)
0.2 0.3 0.7 1.0
Non-GAAP $ (53.6) (34.4) $ (150.8) (94.0)
Interest and other nonoperating income (expense):
GAAP $ 2.9 6.3 $ 11.7 8.4
Retirement plans (d)
(2.1) 1.6 (6.2) 6.5
Acquisitions and dispositions (b)
(0.9) (1.8) 0.2 (4.2)
Argentina highly inflationary impact (b)
22.7 0.4 23.3 1.9
Non-GAAP $ 22.6 6.5 $ 29.0 12.6
Provision (benefit) for income taxes:
GAAP $ 37.3 8.5 81.0 (3.3)
Retirement plans (d)
(0.6) 0.7 (1.3) 2.1
Reorganization and restructuring (b)
0.1 3.8 2.7 6.1
Acquisitions and dispositions (b)
3.3 12.7 7.7 14.5
Argentina highly inflationary impact (b)
(0.9) — (1.6) (0.5)
Change in allowance estimate (b)
— (0.1) — 3.8
Valuation allowance on tax credits (e)
— (2.2) (6.7) 52.8
Chile antitrust matter (b)
— 0.1 0.1 0.3
Reporting compliance (b)
— — — —
Income tax rate adjustment (c)
1.4 6.5 9.2 9.5
Non-GAAP $ 40.6 30.0 $ 91.1 $ 85.3
Net income (loss) attributable to noncontrolling interests:
GAAP $ 3.8 3.4 10.1 9.3
Retirement plans (d)
— — — 0.1
Acquisitions and dispositions (b)
0.3 0.3 0.8 0.8
Income tax rate adjustment (c)
0.1 (0.3) (0.5) (0.8)
Non-GAAP $ 4.2 3.4 $ 10.4 9.4
Amounts may not add due to rounding.
See page 50 for footnote explanations.
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Three Months
Ended September 30, Nine Months
Ended September 30,
(In millions, except for percentages and per share amounts) 2023 2022 2023 2022
Income (loss) from continuing operations attributable to Brink's:
GAAP $ 45.7 19.2 $ 92.2 125.8
Retirement plans (d)
(1.5) 0.9 (4.9) 4.3
Reorganization and restructuring (b)
0.3 15.8 11.9 27.9
Acquisitions and dispositions (b)
15.1 21.2 48.8 47.8
Argentina highly inflationary impact (b)
31.7 12.4 55.2 29.5
Change in allowance estimate (b)
— (0.2) — 12.2
Valuation allowance on tax credits (e)
— 2.2 6.7 (52.8)
Chile antitrust matter (b)
— 0.2 0.3 0.8
Reporting compliance (b)
0.7 — 0.7 —
Income tax rate adjustment (c)
(1.5) (6.2) (8.7) (8.7)
Non-GAAP $ 90.5 65.5 $ 202.2 186.8
Diluted EPS:
GAAP $ 0.97 0.41 $ 1.95 2.63
Retirement plans (d)
(0.03) 0.02 (0.11) 0.09
Reorganization and restructuring (b)
0.01 0.33 0.25 0.58
Acquisitions and dispositions (b)
0.31 0.45 1.02 1.00
Argentina highly inflationary impact (b)
0.67 0.26 1.17 0.62
Change in allowance estimate (b)
— — — 0.26
Valuation allowance on tax credits (e)
— 0.05 0.14 (1.10)
Chile antitrust matter (b)
— — 0.01 0.02
Reporting compliance (b)
0.02 — 0.02 —
Income tax rate adjustment (c)
(0.03) (0.13) (0.18) (0.18)
Non-GAAP $ 1.92 1.38 $ 4.27 3.90
Amounts may not add due to rounding.
See page 50 for footnote explanations.
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LIQUIDITY AND CAPITAL RESOURCES
Overview
Cash flows from operating activities improved $92.5 million in the first nine months of 2023 as compared to the first nine months of 2022. Cash used for investing activities increased by $35.8 million in the first nine months of 2023 compared to the first nine months of 2022. We financed our liquidity needs in the first nine months of 2023 with existing cash from operations.
Operating Activities
Nine Months
Ended September 30, $
(In millions) 2023 2022 change
Cash flows from operating activities
Operating activities - GAAP $ 293.0 200.5 92.5
(Increase) decrease in restricted cash held for customers 44.9 4.4 40.5
(Increase) decrease in customer obligations (a)
5.5 (4.0) 9.5
Operating activities - non-GAAP $ 343.4 200.9 142.5
(a) To adjust for the change in the balance of customer obligations related to cash received and processed in certain of our secure cash management services operations. The title to this cash transfers to us for a short period of time. The cash is generally credited to customers’ accounts the following day and we do not consider it as available for general corporate purposes in the management of our liquidity and capital resources.
Non-GAAP cash flows from operating activities is a supplemental financial measure that is not required by, or presented in accordance with, GAAP. The purpose of this non-GAAP measure is to report financial information excluding cash flows from restricted cash held for customers and the impact of cash received and processed in certain of our secure cash management services operations. We believe this measure is helpful in assessing cash flows from operations, enables period-to-period comparability and is useful in predicting future operating cash flows. This non-GAAP measure should not be considered as an alternative to cash flows from operating activities determined in accordance with GAAP and should be read in conjunction with our condensed consolidated statements of cash flows.
GAAP
Cash flows from operating activities improved $92.5 million in the first nine months of 2023 compared to the same period in 2022. The increase was attributed to higher operating profit, lower amounts paid for income taxe s (we had $74.5 million in cash payments for income taxes in 2023 as compared to $101.6 million in 2022) and working capital changes, partially offset by higher amounts paid for interest (we had $161.2 million in cash payments for interest in 2023 as compared to $88.7 million in 2022), restricted cash held for customers (restricted cash held for customers decreased by $44.9 million in 2023 compared to a decrease of $4.4 million in 2022), and changes in customer obligations related to certain of our secure cash management services operations (customer obligations decreased by $5.5 million in 2023 compared to an increase of $4.0 million in 2022).
Non-GAAP
Non-GAAP cash flows from operating activities improved $142.5 million in the first nine months of 2023 as compared to the same period in 2022. The increase was attributed to higher operating profit, lower amounts paid for income taxes and working capital changes, partially offset by higher amounts paid for interest.
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Investing Activities
Nine Months
Ended September 30, $
(In millions) 2023 2022 change
Cash flows from investing activities
Capital expenditures $ (133.1) (131.5) (1.6)
Acquisitions, net of cash acquired — (14.2) 14.2
Dispositions, net of cash disposed 1.1 — 1.1
Marketable securities:
Purchases (58.3) (18.3) (40.0)
Sales 48.7 7.7 41.0
Proceeds from sale of property and equipment 5.7 3.3 2.4
Proceeds from settlement of cross currency swap — 64.3 (64.3)
Net change in loans held for investment (12.3) (23.3) 11.0
Other (0.6) (0.1) (0.5)
Discontinued operations 0.9 — 0.9
Investing activities $ (147.9) (112.1) (35.8)
Cash used in investing activities increased by $35.8 million in the first nine months of 2023 versus the first nine months of 2022. The increase was primarily due to decreased proceeds from the settlement of the euro cross currency swaps, as discussed in Note 8, partially offset with net change in loans held for investment, as discussed in Note 13, and decreased payments for acquisitions.
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Capital expenditures and depreciation and amortization were as follows:
Nine Months
Ended September 30, $ Full Year
(In millions) 2023 2022 change 2022
Property and equipment acquired during the period
Capital expenditures:
North America $ 27.8 29.6 (1.8) 41.4
Latin America 35.2 39.0 (3.8) 50.1
Europe 41.5 32.8 8.7 50.5
Rest of World 23.1 25.5 (2.4) 34.4
Corporate 5.5 4.6 0.9 6.2
Capital expenditures - GAAP and non-GAAP $ 133.1 131.5 1.6 182.6
Financing leases: (b)
North America $ 42.0 30.1 11.9 46.3
Latin America 3.7 8.8 (5.1) 10.9
Europe 15.6 4.7 10.9 8.1
Rest of World 0.2 0.1 0.1 0.4
Financing leases - GAAP and non-GAAP $ 61.5 43.7 17.8 65.7
Total:
North America $ 69.8 59.7 10.1 87.7
Latin America 38.9 47.8 (8.9) 61.0
Europe 57.1 37.5 19.6 58.6
Rest of World 23.3 25.6 (2.3) 34.8
Corporate 5.5 4.6 0.9 6.2
Total property and equipment acquired $ 194.6 175.2 19.4 248.3
Depreciation and amortization (a)
North America $ 53.9 51.6 2.3 69.1
Latin America 40.0 36.8 3.2 49.1
Europe 41.1 27.8 13.3 39.6
Rest of World 17.8 17.7 0.1 23.6
Corporate 5.3 6.4 (1.1) 8.4
Depreciation and amortization - non-GAAP $ 158.1 140.3 17.8 189.8
Argentina highly inflationary impact 3.8 2.1 1.7 2.9
Reorganization and Restructuring 1.2 0.1 1.1 1.0
Acquisitions and dispositions — — — 0.1
Amortization of intangible assets 43.2 37.4 5.8 52.0
Depreciation and amortization - GAAP $ 206.3 179.9 26.4 245.8
(a) Incremental depreciation related to highly inflationary accounting in Argentina, accelerated depreciation related to restructuring activities and acquisition-related integration activities, and amortization of acquisition-related intangible assets have been excluded from non-GAAP amounts.
(b) Represents the amount of property and equipment acquired using financing leases. Because the assets are acquired without using cash, the acquisitions are not reflected in the condensed consolidated statements of cash flows. Amounts are provided here to assist in the comparison of assets acquired in the current year versus prior years.
Non-GAAP capital expenditures and non-GAAP depreciation and amortization are supplemental financial measures that are not required by, or presented in accordance with GAAP. The purpose of these non-GAAP measures is to report financial information excluding incremental depreciation resulting from highly inflationary accounting in Argentina, accelerated depreciation from restructuring activities and acquisition-related integration activities, and amortization of acquisition-related intangible assets. We believe these measures are helpful in assessing capital expenditures and depreciation and amortization, enable period-to-period comparability and are useful in predicting future investing cash flows. These non-GAAP measures should not be considered as alternatives to capital expenditures and depreciation and amortization determined in accordance with GAAP and should be read in conjunction with our condensed consolidated statements of cash flows.
Our reinvestment ratio, which we define as the annual amount of property and equipment acquired during the period divided by the annual amount of depreciation, was 1.3 for the 12 months ending September 30, 2023 compared to 1.4 for the 12 months ending September 30, 2022.
Capital expenditures in the first nine months of 2023 were primarily for cash devices, information technology, armored vehicles and machinery and equipment.
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Financing Activities
Nine Months
Ended September 30, $
(In millions) 2023 2022 change
Cash flows from financing activities
Borrowings and repayments:
Short-term borrowings $ 76.6 11.5 65.1
Long-term revolving credit facilities, net (72.6) 217.0 (289.6)
Other long-term debt, net (54.7) 149.5 (204.2)
Borrowings (repayments) (50.7) 378.0 (428.7)
Acquisition of noncontrolling interest (0.6) (7.8) 7.2
Debt financing costs — (5.5) 5.5
Repurchase shares of Brink's common stock (105.7) (27.3) (78.4)
Dividends to:
Shareholders of Brink’s (29.7) (28.3) (1.4)
Noncontrolling interests in subsidiaries (6.5) (6.9) 0.4
Acquisition-related financing activities:
Cash paid for acquisition related settlements and obligations
(10.5) (2.8) (7.7)
Tax withholdings associated with share-based compensation (7.6) (10.2) 2.6
Other 3.9 2.7 1.2
Financing activities $ (207.4) 291.9 (499.3)
Debt borrowings and repayments
Cash flows from financing activities decreased by $499.3 million year over year as we had net cash used in financing activities of $207.4 million in the first nine months of 2023 compared to net cash provided by financing activities of $291.9 million in the first nine months of 2022. The change was driven primarily by a decrease in net borrowings compared to the prior year nine month period. Additionally, we used $105.7 million to repurchase shares of common stock in 2023, compared to $27.3 million in 2022.
Dividends
We paid dividends to Brink’s shareholders of $0.64 per share or $29.7 million in the first nine months of 2023 compared to $0.60 per share or $28.3 million in the first nine months of 2022. Future dividends are dependent on our earnings, financial condition, shareholders’ equity levels, our cash flow and business requirements, as determined by the Board of Directors.
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Reconciliation of Net Debt to U.S. GAAP Measures
September 30, December 31,
(In millions) 2023 2022
Debt:
Short-term borrowings $ 124.9 47.2
Long-term debt 3,294.2 3,355.6
Total Debt 3,419.1 3,402.8
Less:
Cash and cash equivalents 933.5 972.0
Amounts held by Cash Management Services operations (a)
(93.6) (85.2)
Cash and cash equivalents available for general corporate purposes 839.9 886.8
Net Debt (b)
$ 2,579.2 2,516.0
(a) Title to cash received and processed in certain of our secure Cash Management Services operations transfers to us for a short period of time. The cash is generally credited to customers’ accounts the following day and we do not consider it as available for general corporate purposes in the management of our liquidity and capital resources and in our computation of Net Debt.
(b) Included within Net Debt is net cash from our Argentina operations of $71 million at September 30, 2023 and $58 million at December 31, 2022 (see Note 1 to the condensed consolidated financial statements for a discussion of currency controls in Argentina).
Net Debt is a supplemental non-GAAP financial measure that is not required by or presented in accordance with GAAP. We use Net Debt as a measure of our financial leverage. We believe that investors also may find Net Debt to be helpful in evaluating our financial leverage. Net Debt should not be considered as an alternative to Debt determined in accordance with GAAP and should be reviewed in conjunction with our condensed consolidated balance sheets. Set forth above is a reconciliation of Net Debt, a non-GAAP financial measure, to Debt, which is the most directly comparable financial measure calculated and reported in accordance with GAAP, as of September 30, 2023, and December 31, 2022.
Net Debt increased by $63 million primarily due to borrowings to support providing increased provisional credit from growth in our DRS line of business and to fund the share repurchase program.
Liquidity Needs
Our liquidity needs include not only the working capital requirements of our operations but also investments in our operations, business development activities, payments on outstanding debt, dividend payments and share repurchases.
Our liquidity needs are typically financed by cash from operations, short-term debt and the available borrowing capacity under our Revolving Credit Facility (our debt facilities are described in more detail in Note 9 to the condensed consolidated financial statements, including certain limitations and considerations related to the cash and borrowing capacity). As of September 30, 2023, $437 million was available under the Revolving Credit Facility. Based on our current cash on hand, cash generated from operations, and amounts available under our credit facilities, we believe that we will be able to meet our liquidity needs for the next 12 months.
Limitations on dividends from foreign subsidiaries . A significant portion of our operations are outside the U.S. which may make it difficult or costly to repatriate cash for use in the U.S. See “Risk Factors” in Item 1A of our annual report on Form 10-K for the year ended December 31, 2022, for more information on the risks associated with having businesses outside the U.S.
Our conclusion that we will be able to fund our cash requirements for the next 12 months by using existing capital resources, cash on hand, and cash generated from operations does not take into account any potential material worsening of economic conditions, and material increases in inflation, that would adversely affect our business. The anticipated cash needs of our business could change significantly if we pursue and complete additional business acquisitions, if our business plans change, or if other economic conditions change, such as material increases in inflation, from those currently prevailing or from those now anticipated, such as higher inflation or if other unexpected circumstances arise that may have a material effect on the cash flow or profitability of our business, including material negative changes in the health and welfare of our employees or changes in the condition of our customers or suppliers, and the operating performance or financial results of our business. Any of these events or circumstances, including any new business opportunities, could involve significant additional funding needs in excess of the identified currently available sources and could require us to raise additional debt or equity funding to meet those needs. Our ability to raise additional capital, if necessary, is subject to a variety of factors that we cannot predict with certainty, including:
• our future profitability;
• the quality of our accounts receivable;
• our relative levels of debt and equity;
• the volatility and overall condition of the capital markets; and
• the market prices of our securities.
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Equity
On October 27, 2021, we announced that our Board of Directors authorized a $250 million share repurchase program that expires on December 31, 2023 (the "2021 Repurchase Program"). This authorization replaces our previous $250 million repurchase program, authorized by the Board in February 2020 (the "2020 Repurchase Program"), which expired on December 31, 2021, with no amount remaining available.
Under the 2021 Repurchase Program, we are not obligated to repurchase any specific dollar amount or number of shares. The timing and volume of share repurchases may be executed at the discretion of management on an opportunistic basis, or pursuant to trading plans or other arrangements. Share repurchases under this program may be made in the open market, in privately negotiated transactions, or otherwise.
During the first nine months ended September 30, 2023, we repurchased a total of 1,453,573 shares of our common stock for an aggregate of $105.7 million and an average price of $72.72 per share. These shares were retired upon repurchase. At September 30, 2023, $92 million remained available under the 2021 Repurchase Program.
Under the 2020 Repurchase Program, we entered into an accelerated share repurchase arrangement ("ASR") in the fourth quarter of 2021 and repurchased 1,742,160 shares in November 2021 in exchange for a $150 million upfront payment to a financial institution. Under this ASR, the purchase period had a scheduled termination date of June 1, 2022. In April 2022, the financial institution elected to early terminate this ASR and an additional 546,993 shares were repurchased. In total, 2,289,153 shares were repurchased under this ASR at an average repurchase price of $65.53.
U.S. Retirement Liabilities
Assumptions for U.S. Retirement Obligations
The amounts in the tables below are based on a variety of estimates, including actuarial assumptions as of the most recent measurement date. The assumptions used to estimate our U.S. retirement obligations can be found in our Annual Report on Form 10-K for the year ended December 31, 2022. The estimated amounts will change in the future to reflect payments made, investment returns, actuarial revaluations, and other changes in estimates. Actual amounts could differ materially from the estimated amounts and will be updated at December 31, 2023.
Our most significant actuarial assumptions include:
• Changing discount rates and other assumptions in effect at measurement dates (normally December 31)
• Investment returns of plan assets
• Addition of new participants (historically immaterial due to freezing of pension benefits and exit from coal business)
• Mortality rates
• Change in laws
Funded Status of U.S. Retirement Plans
Actual Actual Projected
(In millions) 2022 Nine Months 2023 4th Quarter 2023 2024 2025 2026 2027
Primary U.S. pension plan
Beginning funded status $ (65.8) (24.0) (12.7) (24.9) (24.7) (22.5) (8.5)
Net periodic pension credit (a)
26.0 11.3 3.8 14.0 12.1 10.0 8.3
Payment from Brink’s — — — — — 11.7 11.5
Benefit plan experience gain (loss) 15.8 — (16.0) (13.8) (9.9) (7.7) (5.0)
Ending funded status $ (24.0) (12.7) (24.9) (24.7) (22.5) (8.5) 6.3
UMWA plans
Beginning funded status $ (219.4) (94.9) (91.1) (95.7) (97.9) (100.4) (103.4)
Net periodic postretirement cost (a)
2.9 (0.6) (0.2) (2.2) (2.5) (3.0) (3.4)
Benefit plan experience gain 58.5 — — — — — —
Prior service credit (b)
66.7 — — — — — —
Other (3.6) 4.4 (4.4) — — — —
Ending funded status $ (94.9) (91.1) (95.7) (97.9) (100.4) (103.4) (106.8)
Black lung plans
Beginning funded status $ (101.3) (75.8) (73.0) (70.4) (65.3) (60.5) (56.1)
Net periodic postretirement cost (a)
(2.6) (2.9) (1.0) (3.6) (3.3) (3.1) (2.8)
Payment from Brink’s 8.8 5.7 3.6 8.7 8.1 7.5 6.9
Benefit plan experience gain 19.3 — — — — — —
Ending funded status $ (75.8) (73.0) (70.4) (65.3) (60.5) (56.1) (52.0)
(a) Excludes amounts reclassified from accumulated other comprehensive income (loss).
(b) The UMWA plan was updated to move to a fully insured medical program through Medicare Advantage and a prior service credit has been established.
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Primary U.S. Pension Plan
Pension benefits provided to eligible U.S. employees were frozen on December 31, 2005, and are not provided to employees hired after 2005 or to those covered by a collective bargaining agreement. We did not make cash contributions to the primary U.S. pension plan in 2022 or the first nine months of 2023. There are approximately 10,700 beneficiaries in the plan.
Based on our current assumptions, we do not expect to make contributions until 2026.
UMWA Plans
Retirement benefits related to former coal operations include medical benefits provided by the Pittston Coal Group Companies Employee Benefit Plan for UMWA Represented Employees. There were approximately 2,500 beneficiaries in the UMWA plans as of December 31, 2022. The Company does not need to make additional contributions to these plans until 2033 based on actuarial assumptions.
Black Lung
Under the Federal Black Lung Benefits Act of 1972, Brink’s is responsible for paying lifetime black lung benefits to miners and their dependents for claims filed and approved after June 30, 1973. There were approximately 800 black lung beneficiaries as of December 31, 2022.
Summary of Expenses Related to All U.S. Retirement Liabilities through 2027
This table summarizes actual and projected expense related to U.S. retirement liabilities.
Actual Actual Projected
(In millions) 2022 Nine Months 2023 4th Quarter 2023 FY2023 2024 2025 2026 2027
Primary U.S. pension plan $ (1.9) (10.2) (3.4) (13.6) (8.7) (2.0) 5.0 11.1
UMWA plans 2.5 (3.6) (1.5) (5.1) (2.5) (2.5) 2.3 2.5
Black lung plans 9.8 6.4 2.1 8.5 7.8 7.3 6.8 6.3
Total $ 10.4 (7.4) (2.8) (10.2) (3.4) 2.8 14.1 19.9
Summary of Payments from Brink’s to U.S. Plans and Payments from U.S. Plans to Participants through 2027
This table summarizes actual and projected payments from Brink’s to U.S. retirement plans and from the plans to participants.
Actual Actual Projected
(In millions) 2022 Nine Months 2023 4th Quarter 2023 FY2023 2024 2025 2026 2027
Payments from Brink’s to U.S. Plans
Primary U.S. pension plan $ — — — — — — 11.7 11.5
Black lung plans 8.8 5.7 3.6 9.3 8.7 8.1 7.5 6.9
Total $ 8.8 5.7 3.6 9.3 8.7 8.1 19.2 18.4
Payments from U.S. Plans to participants
Primary U.S. pension plan $ 44.4 33.4 14.7 48.1 48.0 48.0 48.0 47.7
UMWA plans 20.3 15.6 4.4 20.0 19.9 19.8 19.6 19.5
Black lung plans 8.8 5.7 3.6 9.3 8.7 8.1 7.5 6.9
Total $ 73.5 54.7 22.7 77.4 76.6 75.9 75.1 74.1
Contingent Matters
See Note 14 to the condensed consolidated financial statements for information about contingent matters at September 30, 2023.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.