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<SEC-DOCUMENT>0000078890-05-000014.txt : 20050316
<SEC-HEADER>0000078890-05-000014.hdr.sgml : 20050316
<ACCEPTANCE-DATETIME>20050315174300
ACCESSION NUMBER: 0000078890-05-000014
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20041231
FILED AS OF DATE: 20050316
DATE AS OF CHANGE: 20050315
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: BRINKS CO
CENTRAL INDEX KEY: 0000078890
STANDARD INDUSTRIAL CLASSIFICATION: ARRANGEMENT OF TRANSPORTATION OF FREIGHT & CARGO [4731]
IRS NUMBER: 541317776
STATE OF INCORPORATION: VA
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-09148
FILM NUMBER: 05682808
BUSINESS ADDRESS:
STREET 1: 1801 BAYBERRY COURT
STREET 2: P O BOX 18100
CITY: RICHMOND
STATE: VA
ZIP: 23226-1800
BUSINESS PHONE: 8042899623
MAIL ADDRESS:
STREET 1: 1801 BAYBERRY COURT
STREET 2: P O BOX 18100
CITY: RICHMOND
STATE: VA
ZIP: 23226-8100
FORMER COMPANY:
FORMER CONFORMED NAME: PITTSTON CO
DATE OF NAME CHANGE: 19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>a10k031505.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
OR
[ ] 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 1-9148
THE BRINK'S COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Virginia 54-1317776
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
P.O. Box 18100,
1801 Bayberry Court
Richmond, Virginia 23226-8100
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 289-9600
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
------------------- ----------------
The Brink's Company Common Stock, Par Value $1 New York Stock Exchange
Rights to Purchase Series A Participating Cumulative Preferred Stock New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [X] No [ ]
As of March 1, 2005, there were issued and outstanding 56,734,041 shares of
common stock. The aggregate market value of shares of common stock held by
nonaffiliates, as of June 30, 2004, was $1,843,510,908.
Documents incorporated by reference: Part I, Part II and Part IV
incorporate information by reference from the Annual Report of the Company for
the year ended December 31, 2004. Part III incorporates information by reference
from portions of the Registrant's definitive 2005 Proxy Statement to be filed
pursuant to Regulation 14A.
<PAGE>
PART I
- --------------------------------------------------------------------------------
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
- --------------------------------------------------------------------------------
The Brink's Company
The Brink's Company ("the Company"), a Virginia corporation incorporated in
1930, has three operating segments within its "Business and Security Services"
businesses: Brink's, Incorporated ("Brink's"); Brink's Home Security, Inc.
("BHS"); and BAX Global Inc. ("BAX Global").
The Company formerly had operations in natural resource businesses: coal,
natural gas, timber and gold. These businesses have been sold. However, the
Company has retained significant liabilities from these Former Operations.
Financial information related to the Company's operating segments is included in
Note 2 to the consolidated financial statements in the Company's 2004 Annual
Report, which note is herein incorporated by reference.
The Company has approximately 54,000 employees including approximately 38,900 at
Brink's, 3,000 at BHS and 12,000 at BAX Global.
A significant portion of the Company's business is conducted outside the United
States. Because the financial results of the Company are reported in U.S.
dollars, they are affected by changes in the value of the various foreign
currencies in relation to the U.S. dollar. The Company, from time to time, uses
foreign currency forward contracts to hedge certain transactional risks
associated with foreign currencies. The Company is also subject to other risks
customarily associated with doing business in foreign countries, including labor
and economic conditions, political instability, controls on repatriation of
earnings and capital, nationalization, expropriation and other forms of
restrictive action by local governments. The future effects of such risks on the
Company cannot be predicted.
Available Information and Corporate Governance Documents
The Brink's Company's internet address is www.brinkscompany.com. The Company
makes available, free of charge, through its website, its Annual Report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after the Company electronically
files such information with or furnishes it to the Securities and Exchange
Commission. In addition, the Corporate Governance Policies, Business Code of
Ethics and the charters of the Audit and Ethics, Compensation and Benefits, and
Corporate Governance and Nominating Committees are available on the Company's
website and are available in print, without charge, to any shareholder upon
request by contacting the Corporate Secretary at 1801 Bayberry Court, P. O. Box
18100, Richmond, Virginia 23226-8100.
BUSINESS AND SECURITY SERVICES
Brink's, Incorporated ("Brink's")
General
Brink's is the oldest and largest armored car Company in the U.S. as well as a
market leader in many of the countries in which it operates. Brink's has
operations throughout the world with 38% of its 2004 revenues from its
operations in North America. Brink's in North America serves customers through
160 branches in the U.S. and 45 branches in Canada.
Brink's operations outside North America are located in approximately 50
countries, with concentrations in Europe (43% of Brink's 2004 revenues) and
South America (16% of Brink's 2004 revenues.) In addition, Brink's has growing
operations in the Asia-Pacific region of the world that accounted for 3% of its
2004 revenues. Brink's largest operations outside North America, in terms of
2004 revenues, were located in France, Venezuela, the Netherlands, Brazil,
Germany, the United Kingdom and Colombia. These operations accounted for 79% of
2004 revenues outside of North America.
Brink's ownership interest in subsidiaries and affiliated companies ranged from
20% to 100% at December 31, 2004. In some instances local laws limit the extent
of Brink's ownership interest.
2
<PAGE>
Customers
Brink's customers include:
o banks;
o retail and other commercial businesses;
o investment banking and brokerage firms; and
o government agencies, such as a country's central bank.
Services
The major services offered by Brink's include:
o armored car transportation;
o automated teller machine ("ATM") servicing;
o currency and deposit processing, including "Cash Logistics" services;
and the deploying and servicing of safes and safe control devices,
including its patented CompuSafe(R) service,
o coin sorting and wrapping; and
o arranging the secure air transportation of valuables ("Global
Services").
Brink's armored car transportation services generally include secure
transportation of:
o cash between businesses and banks;
o cash, securities and other negotiable items and valuables between commercial
banks, central banks (such as the U.S. Federal Reserve Banks and their
branches and correspondents) and brokerage firms;
o new currency, coins and precious metals for a number of central banks
throughout the world;
o canceled checks between banks or between a clearing house and its member
banks in certain geographic areas.
Brink's provides coin and currency processing (including "Cash Logistics")
services primarily to banks and retail customers. Cash Logistics is a fully
integrated solution that proactively manages the entire cycle of cash from
point-of-sale through deposit at the bank. The process includes transportation,
cashier balancing and reporting, deposit processing and consolidation, and
electronic information exchange. Retail customers use Brink's Cash Logistics
services to count and reconcile coins and currency in Brink's secure
environment, to prepare bank deposit information and to replenish retail
locations' coins and currency in proper denominations.
Through its proprietary cash processing and information systems, Brink's offers
customers the ability to integrate a full range of vault, ATM, transportation,
storage, processing, inventory management and reporting services. Brink's
believes that its cash processing and information systems differentiate its Cash
Logistics services from its competitors.
Brink's CompuSafe(R) services provide retail customers with a proprietary
integrated system for safeguarding and managing cash. Brink's markets its
CompuSafe(R) services to a variety of cash-intensive retail customers, such as
convenience stores, gas stations and restaurants. The service includes
installing a specialized safe in the retail establishment that holds safeguarded
cassettes. The customer's employees deposit currency into the cassettes. The
cassettes can only be removed by Brink's armored car personnel. The cassettes
are then taken to a secure currency room where the contents are verified and
transferred for deposit. Deposit detail can then be electronically reported to
the customer.
For transporting money and other valuables over long distances, Brink's Global
Services offers a combined armored car and secure air transportation service
between many cities around the world. Brink's uses regularly scheduled or
chartered aircraft in connection with its air courier services. Included in
Global Services is a specialized diamond and jewelry secure transportation
operation, with offices in the major diamond and jewelry centers of the world.
Brink's provides individualized services under separate contracts designed to
meet the distinct transportation, security and logistics requirements of its
customers. These contracts are usually for an initial term of at least one year
but continue in effect thereafter until canceled by either party.
3
<PAGE>
Competition
Brink's competes with a number of large multinational companies and with many
smaller companies throughout the world.
Primary factors in attracting and retaining customers are security, the quality
of services provided and the price for services. Brink's believes its
competitive advantages include:
o brand name recognition;
o reputation for a high level of service and security;
o proprietary cash processing and information systems;
o high-quality insurance coverage and general financial strength; and
o ability to serve multiple markets for the same customer in many of the
countries in which Brink's has operations.
Brink's believes its cost structure is generally competitive, although Brink's
believes certain competitors may have lower costs as a result of lower wage and
benefit levels for employees or as a result of different security and service
standards.
Brink's growth in revenues from financial institutions and retail businesses is
partially dependent on the growth in the economy and the relative positioning of
customers within their industries. Competitive conditions often cause customers
and potential customers to focus on the cost of all services including armored
car services. Because Brink's management believes that the high level of service
and security provided differentiates Brink's from its competitors, Brink's
resists competing on price alone.
The availability of quality and reliable insurance coverage is an important
factor in the ability of Brink's to obtain and retain customers and to manage
the risks of its business. Brink's purchases insurance coverage for losses in
excess of what it considers prudent deductibles and/or retentions. For losses
below deductible or retention levels, Brink's is self-insured. Brink's insurance
policies cover losses from most causes, with the exception of war, nuclear risk
and certain other exclusions typical for such policies. Brink's generally does
not offer its customers protection from losses arising from excluded clauses.
Insurance is provided by different groups of underwriters at negotiated rates
and terms. Insurance is available to Brink's in major markets although the
premiums charged are subject to fluctuations depending on market conditions. The
loss experience of Brink's and, to a limited extent, other armored carriers
affects premium rates charged to Brink's.
Service Mark, Patents and Copyrights
BRINKS is a registered service mark in the U.S. and certain foreign countries.
The BRINKS mark, name and related marks are of material significance to Brink's
business. Brink's owns patents with respect to certain coin sorting and counting
machines, which expire in 2007 and 2008, respectively. Brink's has patents
associated with its integrated CompuSafe(R) service, that expire in 2015 through
2018. The patents for the CompuSafe(R) device and sorting and counting machines
provide important advantages to Brink's. However, Brink's operations are not
dependent on the existence of the aforementioned patents.
The Company has entered into certain agreements to license the Brink's and the
Brink's Home Security name. Examples include licenses to distributors of
security products (padlocks, home safes, door and window hardware, etc.) offered
for sale to consumers through major retail chains.
Government Regulation
The U.S. operations of Brink's are subject to regulation by the U.S. Department
of Transportation with respect to safety of operations and equipment and
financial responsibility. Intrastate operations in the U.S. and intraprovince
operations in Canada are subject to regulation by state and by Canadian and
provincial regulatory authorities, respectively. Brink's International
operations are regulated to varying degrees by the countries in which they
operate.
Employee Relations
At December 31, 2004, Brink's and its subsidiaries had approximately 38,900
employees, including 10,600 employees in North America, (of whom 2,000 were
classified as part-time employees) and 28,300 employees outside North America.
At December 31, 2004, Brink's was a party to 13 collective bargaining agreements
in North America with various local unions covering approximately 1,600
employees, almost all of whom are employees in Canada and members of unions
affiliated with the International Brotherhood of Teamsters. Three agreements
will expire in 2005 and they are expected to be renegotiated. The remaining
agreements have various expiration dates after 2005 and extending through 2009.
Outside of North America, the branch workforce are members of labor or employee
organizations in the majority of the countries of operation. Brink's believes
that its employee relations are satisfactory.
4
<PAGE>
Properties
Brink's has property and equipment in locations throughout the world. Branch
facilities generally have office space, a vault to securely store valuables, and
a garage to house armored vehicles and to serve as vehicle terminals. Many
times, branches have additional space to repair and maintain vehicles.
Brink's owns or leases armored vehicles, panel trucks and other vehicles that
are primarily service vehicles. Brink's armored vehicles are of bullet-resistant
construction and are specially designed and equipped to afford security for crew
and cargo.
The following table discloses leased and owned facilities and vehicles for
Brink's most significant operations as of December 31, 2004.
Facilities Vehicles
- --------------------------------------------------------------------------------
Country Leased Owned Total Leased Owned Total
- --------------------------------------------------------------------------------
U.S 162 21 183 1,692 581 2,273
Canada 40 9 49 337 128 465
Europe 172 21 193 727 1,829 2,556
South America 173 42 215 101 2,315 2,416
Asia Pacific 30 - 30 1 131 132
- --------------------------------------------------------------------------------
Total 577 93 670 2,858 4,984 7,842
================================================================================
Of the leased facilities in North America, 149 facilities are held under
long-term leases. The remaining 53 facilities are held under short-term leases
or month-to-month tenancies.
Approximately 4,600 Brink's-owned CompuSafe(R) devices are located on customers'
premises in North America.
Brink's Home Security ("BHS")
General
BHS believes that it is the second largest provider of monitored security
services for residential and commercial properties in North America. BHS is
primarily engaged in the business of marketing, selling, installing, servicing
and monitoring electronic security systems in owner-occupied, single-family
residences. At December 31, 2004, BHS had approximately 921,000 systems under
monitoring contracts, including approximately 146,000 new subscribers added
during the year. BHS provides services to subscribers located in most
metropolitan areas in 44 states, the District of Columbia and several markets in
two western provinces in Canada.
BHS' typical security system installation consists of sensors and other devices
which are installed at a customer's home or commercial location. The equipment
can be configured to signal intrusion, fire, medical and other alerts. When an
alarm is triggered, a signal is sent by telephone line to BHS' central
monitoring station in Irving, Texas. The monitoring station holds an
Underwriters' Laboratories, Inc. ("UL") listing. UL specifications for service
centers include building integrity, back-up computer and power systems, staffing
and standard operating procedures. In the event of an emergency, such as fire,
tornado, major interruption in telephone or computer service, or any other event
affecting the Irving facility, monitoring operations can be transferred to a
backup facility located in Carrollton, Texas. BHS is in the process of
developing a second customer service, monitoring and computer backup facility to
replace the Carrollton facility.
BHS markets its alarm systems primarily through television and direct mail
advertising, yellow page and internet advertising, alliances with other service
companies, inbound telemarketing and field sales employees. BHS employees
install and service most of the systems; however, dealers and occasionally
subcontractors are utilized in some service areas. BHS does not manufacture the
equipment used in its security systems. Equipment is purchased from a limited
number of suppliers and no interruptions in supply are expected. Equipment
inventories are maintained at each branch office.
BHS has an authorized dealer program to expand its geographic coverage and
leverage its national advertising. The dealer program accounted for 18% of new
installations during 2004 and, as of December 31, 2004, 6% of BHS' total
subscriber base. Approximately 105 dealers were authorized to participate in the
program as of December 31, 2004. BHS requires that its dealers install the same
type of equipment as is installed by its own branches, and adhere to the same
installation quality standards.
In addition to initiating subscriber relationships through its branch and dealer
networks, BHS obtains new residential subscribers through its Brink's Home
Technologies ("BHT") division. BHT markets residential security systems, as well
as a variety of low-voltage security, home networking, communications and
entertainment options, directly to major home builders. New system activations
from BHT accounted for 9% of new subscribers added during 2004.
5
<PAGE>
BHS also provides monitored security to residents of apartment and condominium
complexes. These customers currently represent slightly more than 2% of
subscribers.
Although its core business is focused on the monitoring of residential security
systems, BHS also installs and monitors commercial security systems. In addition
to intrusion detection, products and services currently offered to these
customers include nonmonitored closed circuit video and enhanced event
reporting. BHS intends to further build its capabilities in commercial security.
Commercial customers represented approximately 4% of subscribers at year end.
Government Regulation
BHS and its employees are subject to various U.S. Federal, state and local
consumer protection, licensing and other laws and regulations. Most states in
which BHS operates have licensing laws directed specifically toward the alarm
industry. BHS' business relies upon the use of wireline telephone service to
communicate signals. Wireline telephone companies are currently regulated by
both the Federal and state governments. BHS' wholly owned Canadian subsidiary is
subject to the laws of Canada, British Columbia and Alberta.
The alarm service industry experiences a high incidence of false alarms. BHS
believes its false alarm rate compares favorably to other companies' rates. The
high incidence of false alarms in the industry has caused some local governments
to impose assessments, fines and penalties on either subscribers or the alarm
companies. A few municipalities have adopted ordinances under which both permit
and alarm dispatch fees are charged directly to the alarm companies. BHS' alarm
service contracts generally allow BHS to pass these charges on to customers.
Police departments in several U.S. cities are not required to respond to calls
from alarm companies unless an emergency has been visually verified. If more
police departments in the future refuse to automatically respond to calls from
alarm companies without visual verification, this could have an adverse effect
on future results of operations for BHS. In cities that have stopped providing
police response to burglar alarms, BHS has offered its customers the option of
receiving private guard response from guard companies which have contracted with
BHS.
Competition
BHS competes in most major metropolitan markets in the U.S. and several markets
in western Canada through BHS owned branch operations or its authorized dealer
program. The monitored security alarm market has a large number of competitors,
including thousands of local and regional companies. BHS believes it is now the
second largest provider of monitored security services to residential and
commercial properties in North America.
Competition is based on a variety of factors including, company reputation and
service quality, product quality and price. There is substantial competitive
pressure on installation fees. Several significant competitors offer
installation prices which match or are less than BHS' prices; however, many of
the small local competitors in BHS' markets continue to charge significantly
more for installation. Competitive pressure on monitoring rates, while less
intense than on installation fees, is still significant. BHS believes that the
monitoring rates it offers are generally comparable to the rates offered by
other major security companies.
BHS believes its customer retention rate is the highest among the major home
security service companies. BHS believes this favorable retention rate is due to
its focus on selecting new customers with strong credit backgrounds and
providing high quality customer service to its customers.
Employees
BHS has approximately 3,000 employees, none of whom is covered by a collective
bargaining agreement. BHS believes that its employee relations are satisfactory.
Properties
BHS has approximately 63 leased offices and warehouse facilities located
throughout the U.S. and one leased office in Canada. The lease for the central
monitoring station in Irving, Texas ended in February 2005, BHS has notified the
lessor of its intention to purchase the facility under the terms provided in the
lease. This facility also serves as BHS' headquarters and houses most
administrative, technical and marketing services personnel. Additional
administrative personnel are located in a portion of an adjacent building in
office space that is leased for a term ending in 2009. BHS plans to build a
second central monitoring station during 2005. The Irving and second site
facilities are designed to be able to provide backup capability for each other.
The lease for the current backup monitoring center in Carrollton, Texas, ends in
late 2005. BHS intends to shut down the Carrollton backup monitoring center once
the second central monitoring station is operational. BHS leases approximately
1,400 vehicles which are used in the process of installing and servicing its
security systems.
6
<PAGE>
BHS retains ownership of most of the approximately 921,000 systems currently
being monitored. When a customer cancels monitoring services, BHS typically
disables the system. In a limited number of cases, BHS removes the equipment.
When a residential customer cancels monitoring services because of an impending
household move, the retention of the BHS system in the residence facilitates the
marketing of monitoring services to the subsequent homeowner.
BAX Global Inc. ("BAX Global")
General
BAX Global provides heavy freight transportation and supply chain management
services on a global basis. BAX Global specializes in the heavy freight market
for business to business shipping.
In North America, BAX Global's air transportation services use a dedicated fleet
of 21 planes with a national sorting hub in Toledo, Ohio. BAX Global's North
American operation also has a ground network that provides transportation on a
regional and national basis.
Outside North America, BAX Global provides transportation services using
available space on commercial carriers and, on occasion, using chartered
aircraft. BAX Global's primary markets outside North America are shipping
Intra-Asia, from Asia to North America and Europe, Intra-Europe and between
North America and Europe.
BAX Global continues to expand its ocean shipping business primarily by
marketing its ocean products to its current air freight and supply chain
management customer base.
Air Transport International, LLC ("ATI"), a wholly owned subsidiary of BAX
Global, provides transportation services in North America to BAX Global and also
provides worldwide charter transportation services to other customers.
BAX Global provides certain transportation customers with supply chain
management services and operates more than 130 logistics warehouse and
distribution facilities in key world markets. BAX Global specializes in
developing supply chain management programs for companies entering new global
markets or consolidating regional activity.
BAX Global's Products
Region offered
--------------
HEAVY FREIGHT TRANSPORTATION SERVICES:
Expedited
---------
o Overnight delivery Worldwide
o Second-day delivery Worldwide
o Wholesale freight forwarding Americas
o Air import and export delivery Worldwide
Nonexpedited
------------
o BAXSaver(TM) Suite of deferred delivery products
(various deferred delivery terms) Americas
o Customs brokerage services Worldwide
o Aircraft charter services Worldwide
o Ocean delivery Worldwide
SUPPLY CHAIN MANAGEMENT SERVICES Worldwide
Heavy Freight Transportation Services
BAX Global offers its North American (U.S., Canada and Mexico) transportation
customers a variety of products and pricing options, such as guaranteed and
standard overnight and second-day delivery as well as deferred delivery
(delivery generally within one to three business days). A variety of value-added
ancillary services, such as shipment tracking, inventory control and management
reports is also offered.
BAX Global began offering a time-definite, guaranteed product to freight
forwarders, freight brokers and international airlines in 2003. BAX Global
primarily markets to small to mid-sized forwarders and provides a higher service
level as compared to common carriage. In 2005, BAX expects to continue to expand
its sales and marketing efforts to this market.
Outside North America, BAX Global offers a variety of services including
standard and expedited freight services, ocean forwarding and door-to-door
delivery.
7
<PAGE>
BAX Global also frequently acts as customs broker, facilitating the clearance of
goods through customs at international points of entry. BAX Global has the
ability to link its international network with the North American transportation
infrastructure and customs brokerage capabilities to provide seamless
door-to-door delivery and distribution between global markets and virtually any
city in North America.
BAX Global sells its services primarily through its direct sales force. BAX
Global uses various marketing methods, including print media advertising and
direct marketing campaigns.
BAX Global picks up or receives freight shipments from its customers,
consolidates the freight of various customers into shipments for common
destinations and arranges for the transportation of the consolidated freight.
BAX Global uses either commercial carriers or, in the case of most of its North
American shipments, its own transportation fleet, including its truck network,
and regional and national hub sorting facilities. BAX Global distributes the
shipments at the package's destination. While shipments move long distances on
either common carrier or BAX Global's fleet, the local pickup and delivery of
freight are accomplished principally by independent contractors using trucks
dedicated to the BAX Global network. BAX Global's independent contractors are
required to display BAX Global's logo and colors.
BAX Global has the ability to provide freight service to all North American
business communities as well as to virtually all countries throughout its
network of approximately 500 company-operated stations and agent locations in
133 countries. BAX Global's network is composed primarily of controlled
subsidiaries and, to a lesser extent, agents and sales representatives in
certain non-U.S. locations, typically under short-term contracts. Between
available space on common carriers throughout the world and its North American
network, BAX Global believes that it has sufficient capacity to meet the needs
of its customers.
BAX Global's freight business is tied to the cycles of international trade, with
higher volumes of shipments from August through December than during the other
months of the year. The lowest volume of shipments generally occurs in January
and February.
Including U.S. export and import revenue, BAX Global's international shipments
and logistics services accounted for approximately 77% of its revenues in 2004.
Intra-U.S. shipments accounted for approximately 23% of total revenues in 2004.
BAX Global's network has a worldwide communications and information system which
provides global tracking and tracing of shipments and logistics data for
management information reports, enabling customers to improve efficiency and
control costs. BAX Global's customers are increasingly turning to its online
services offering information management via its website, www.baxglobal.com.
North American Aircraft Operations
BAX Global's wholly owned subsidiary, ATI, is a U.S.-based freight and passenger
airline that operates a certificated fleet of DC-8 aircraft. BAX Global also
operates Boeing 727s under contracts with third parties that provide the
aircraft, crew, maintenance and insurance ("ACMI"). In addition to the aircraft
assigned to BAX Global's North American transportation network, ATI also
provides domestic and international service for the U.S. Government Air Mobility
Command and other charter customers.
The following is a summary of BAX Global's fleet as of December 31, 2004.
<TABLE>
<CAPTION>
BAX Global's
Transportation Charter
Aircraft Network Customers Grounded Total
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Cargo:
Leased DC-8 10 2 - 12
ACMI 727 11 - - 11
Owned DC-8 - - 3 3
- ------------------------------------------------------------------------------------------------------------
Cargo 21 2 3 26
Combi-Configured (a):
Leased DC-8 - 1 - 1
Owned DC-8 - 3 2 5
- ------------------------------------------------------------------------------------------------------------
Combi-configured - 4 2 6
- ------------------------------------------------------------------------------------------------------------
Total 21 6 5 32
============================================================================================================
(a) Aircraft configured to accommodate both passengers and cargo for use in
charter business.
</TABLE>
8
<PAGE>
Of the 21 planes in BAX Global's transportation network, 18 are assigned to
regularly scheduled routes. Generally, three planes are held for use as backups
or are in maintenance. Grounded planes are held for sale or to provide parts for
use in other Company planes.
For aircraft held under long-term lease, BAX Global is responsible for the
normal costs of operating and maintaining the aircraft. In addition, BAX Global
is responsible for all or a portion of any special maintenance or modifications
which may be required by Federal Aviation Administration ("FAA") regulations or
orders (see "Government Regulation" below). BAX Global's ultimate liability for
mandated special maintenance or modifications is generally subject to dollar
limits, specific exclusions and sharing arrangements with the lessors. Over the
last three years, BAX Global spent a total of approximately $80 million on
routine heavy maintenance of its aircraft fleet.
BAX Global is responsible for fuel costs and most other incidental costs such as
landing fees for aircraft operated under ACMI contracts.
See notes 15 and 23 to the consolidated financial statements in the Company's
2004 Annual Report for information regarding future minimum lease payments and
other purchase commitments related to the Company's aircraft. BAX Global's 13
leased aircraft have various expiration dates extending through 2005, and its 11
planes under ACMI contracts have various expiration dates through 2005. Based on
the current state of the aircraft leasing market, BAX Global believes that it
should be able to renew these agreements or enter into new agreements on terms
reasonably comparable to those currently in effect.
The average airframe age of the fleet operated by ATI is in excess of 30 years;
however, the condition of a particular aircraft and its fair market value are
dependent on its maintenance history. Factors other than age, such as cycles
(essentially the number of flights), can have a significant impact on an
aircraft's serviceability. Generally, cargo aircraft tend to have fewer cycles
than passenger aircraft over comparable time periods because they are used for
fewer flights per day and longer flight segments.
Fuel costs are a significant element of the total costs of operating BAX
Global's aircraft fleet. Fuel prices are subject to worldwide and local market
conditions. In order to protect against price increases in jet fuel, from time
to time BAX Global enters into hedging agreements, including swap contracts,
options and collars. BAX Global charges a fuel surcharge in the U.S. to its
customers when fuel costs are higher than the normal historical range.
Supply Chain Management Services
BAX Global's supply chain management business specializes in developing
solutions that include the design, implementation and management of inventory,
distribution and information processes to improve a customer's efficiency and
productivity.
BAX Global operates value-added logistics warehouse and distribution facilities
in key world markets. Companies in the healthcare, retail, automotive, aerospace
and high technology industries have been targeted as businesses with significant
supply chain management needs.
Worldwide revenues from the supply chain management business represented 10% of
BAX Global's total revenues in 2004.
Customers
BAX Global's customers include thousands of large and small industrial and
commercial businesses. Worldwide, BAX Global's top 10 customers accounted for
approximately 14% of total BAX Global revenue in 2004. The Company targets
customers in the aerospace, automotive, healthcare, high technology, retail and
other industries where rapid delivery of high-value products is required.
Competition
The transportation and supply chain management industries have been and are
expected to remain highly competitive. The principal competitive factors in the
transportation industry are price, the ability to provide consistently fast and
reliable delivery of shipments and the ability to provide premium services such
as shipment tracking. The principal competitive factors in the supply chain
industry are price, access to a reliable transportation network, warehousing and
distribution capabilities, and sophisticated information systems.
There is aggressive price competition in the heavy-freight market, particularly
for the business of high volume shippers. BAX Global competes with various types
of transportation companies, including other integrated transportation companies
that operate their own fleets, as well as with freight forwarders, premium
less-than-truckload (or "LTL") carriers, express delivery services, and
passenger airlines.
BAX Global also competes in the U.S. with freight delivery services provided by
ground transportation companies, including trucking firms and surface freight
forwarders that offer specialized time-specific services within limited
geographical areas.
9
<PAGE>
BAX Global believes its hub-and-spoke network of aircraft and trucks that serves
the North American market allows it to move freight more reliably than if it
solely used third-party services. The hub, which is located in Toledo, Ohio,
consists of various facilities, including a technologically advanced heavy
freight handling system, which is capable of sorting approximately one million
pounds of freight per hour. BAX Global's hub-and-spoke system feeds much of its
North American import and export business and BAX Global believes it provides a
competitive advantage by offering superior, reliable service to its customers,
shipping to, from or within North America.
As an international freight forwarder, BAX Global competes with government-owned
or subsidized passenger airlines and postal services. In ocean shipping, BAX
Global negotiates global contracts as a freight forwarder and a Non Vessel
Operating ("NVO") Common Carrier, which allows it to compete against other
freight forwarding/NVO companies.
In supply chain management services, BAX Global competes with many third-party
logistics providers.
Employee Relations
BAX Global and its subsidiaries have approximately 12,000 employees worldwide,
of whom about 1,900 are classified as part-time.
As of December 31, 2004, approximately 195 flight crewmembers (captains, first
officers and flight engineers), were represented for purposes of collective
bargaining by the International Brotherhood of Teamsters. This contract expired
in 2004 and is in the process of being renegotiated. Another 125 employees in
the U.S. (principally customer service, clerical and/or dock workers) were
represented by labor unions that in most cases are also affiliated with the
International Brotherhood of Teamsters. BAX Global did not experience any
significant strike or work stoppage in 2004 and believes that its employee
relations are satisfactory.
Government Regulation
The air transportation industry, including BAX Global, is subject to regulation
by the FAA under the Federal Aviation Act of 1958, as amended, and the
Transportation Security Administration ("TSA") under the Aviation and
Transportation Security Act of 2001. The FAA is an agency of the Department of
Transportation ("DOT") and TSA is an agency of the Department of Homeland
Security.
BAX Global is subject to various other requirements and regulations in
connection with its operations, including certain safety and security
regulations of the DOT and other federal and state agencies. BAX Global's
international operations are regulated to varying degrees by the countries in
which they operate.
Properties
BAX Global has approximately 260 company-operated stations (90 domestic and 170
international) and has agency agreements with approximately 115 stations (9
domestic and 106 international). BAX Global's stations are usually located at or
near airports or other transportation corridors. BAX Global operates domestic
stations, which generally include office space and warehousing facilities
located in 39 states, the District of Columbia and Puerto Rico. Nearly all
company-operated stations are leased.
BAX Global operates its main freight-sorting operation and related facilities at
its hub in Toledo, Ohio. This hub is operated under a lease with the
Toledo-Lucas County Port Authority which expires in 2013. The lease provides BAX
Global with rights of renewal for three five-year periods. Other facilities in
the U.S. are held under leases having terms of one to ten years.
BAX Global provides certain transportation customers with supply chain
management services and operates more than 130 leased logistics warehouse and
distribution facilities in key world markets.
BAX Global has, under lease through 2012, a 116,000 square foot corporate office
facility located in Irvine, California.
See "Aircraft Operations" above for information about contracted, leased and
owned aircraft.
10
<PAGE>
FORMER OPERATIONS
The Company sold or shut down its coal operations in 2002, sold its natural gas,
timber and gold operations in 2003 and 2004. The Company has retained certain
coal-related liabilities and related expenses. Retained liabilities are
significant and include obligations related to postretirement benefits for
Company-sponsored medical plans, black lung benefits, reclamation and other
costs related to closed mines, Health Benefit Act obligations, workers'
compensation claims and costs of withdrawal from multi-employer pension plans.
The Company expects to have significant ongoing expenses and cash outflow for
retained liabilities relating to its former coal operations. See notes 4, 6, and
23 to the consolidated financial statements, which notes are herein incorporated
by reference.
At December 31, 2004, the Company had approximately 29 employees related to its
former natural resource operations. These employees perform various duties
including reclaiming, maintaining and selling residual assets and managing
retained liabilities related to the former coal operations.
Forward-Looking Information
Certain of the matters discussed herein, including statements regarding foreign
exchange rates and other risks associated with foreign operations, significant
ongoing expenses and cash outflows for retained liabilities related to former
coal operations in the future (including costs related to the administration of
retained liabilities), the introduction of new products and services by BHS in
2005, BHS' continued expansion into the commercial market, the uninterrupted
supply of equipment to BHS, the impact of the refusal of police departments to
respond to calls from alarm companies without visual verification on BHS, the
completion of BHS' second station, the ability of BHS' Irving and second
stations to back each other up, BAX's continued expansion of sales and marketing
efforts to small and mid-sized forwarders, the expected seasonal impact on the
volumes shipped by BAX Global, the ability of BAX Global to renew certain
aircraft leases or enter into new leases on reasonably comparable terms, the
highly competitive nature of the transportation and supply chain management
industries, the renegotiation of union contracts and liability for reclamation
related to the former coal operations, involve forward-looking information which
is subject to known and unknown risks, uncertainties, and contingencies which
could cause actual results, performance or achievements, to differ materially
from those which are anticipated.
Such risks, uncertainties and contingencies, many of which are beyond the
control of the Company, include, but are not limited to, fluctuations in
interest and exchange rates, economic, business and social conditions in the
U.S. and abroad, effectiveness of hedging activities and the ability of
counterparties to perform, actual retirement experience of the former coal
operation's employees, black lung claims incidence, the number of dependents
covered under benefit obligations, coal industry turnover rates, actual medical
and legal costs relating to the benefits, changes in inflation rates (including
the continued volatility of medical inflation), the incidence of false alarms,
the willingness of BHS' customers to pay for private response personnel or other
alternatives to police responses to alarms, the performance of BHS' equipment
suppliers, BHS' ability to cost-effectively develop new systems in a timely
manner, decisions regarding continued support of the developing commercial
business, development delays relating to the second customer service, monitoring
and computer backup facility, including construction, permitting and IT delays,
the market for airplanes of the type used by BAX Global, concessions requested
by Brink's, BAX Global or the applicable union, changes in the scope or method
of remediation or monitoring required under the coal-related permits, the demand
for the Company's products and services, the ability of the Company and its
operations to obtain appropriate insurance coverage at reasonable prices,
pricing and other competitive industry factors, fuel prices, new government
regulations and legislative initiatives, issuance of permits, judicial
decisions, and variations in costs or expenses.
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
Not applicable.
12
<PAGE>
Executive Officers of the Registrant
The following is a list as of March 1, 2005, of the names and ages of the
executive and other officers of The Brink's Company and the names and ages of
certain officers of its subsidiaries, indicating the principal positions and
offices held by each. There is no family relationship between any of the
officers named.
<TABLE>
<CAPTION>
Name Age Positions and Offices Held Held Since
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Executive Officers:
Michael T. Dan 54 President, Chief Executive Officer and Chairman of the Board 1998
James B. Hartough 57 Vice President-Corporate Finance and Treasurer 1988
Frank T. Lennon 63 Vice President-Human Resources and Administration 1985
Austin F. Reed 53 Vice President, General Counsel and Secretary 1994
Robert T. Ritter 53 Vice President and Chief Financial Officer 1998
Other Officers:
Matthew A. P. Schumacher 46 Controller 2001
Arthur E. Wheatley 62 Vice President and Director-Risk Management 1988
Subsidiary Officers:
Robert B. Allen 51 President of Brink's Home Security, Inc. 2001
Joseph L. Carnes 47 President of BAX Global Inc. 2000
Richard M. Gold 54 President of Brink's, Incorporated 2004
==========================================================================================================
</TABLE>
Executive and other officers of The Brink's Company are elected annually and
serve at the pleasure of its Board of Directors.
Mr. Dan was elected President, Chief Executive Officer and Director of The
Brink's Company in February 1998 and was elected Chairman of the Board effective
January 1, 1999. He also serves as Chief Executive Officer of Brink's,
Incorporated, a position he has held since July 1993 and as President and Chief
Executive Officer of Brink's Holding Company, a position he has held since
December 31, 1995. He served as President of Brink's, Incorporated from December
2002 until January 2004. He also serves as Chairman of the Board of BAX Global
Inc., a position he has held since February 1998. From August 1992 to July 1993
he served as President of North American operations of Brink's, Incorporated and
as Executive Vice President of Brink's, Incorporated from 1985 to 1992.
Mr. Ritter joined The Brink's Company as Vice President and Chief Financial
Officer in August 1998. From June 1996 to July 1998, he served as Chief
Financial Officer of WLR Foods, Inc. He was a private investor and financial
consultant from April 1995 to May 1996 and was Treasurer at American Cyanamid
Company from March 1991 to January 1994 and Controller from February 1994 to
March 1995.
Messrs. Hartough, Lennon, Reed and Wheatley have served in their present
positions for more than the past five years.
Mr. Schumacher joined the Company as Controller in July 2001. Prior to joining
the Company, he was employed by NL Industries, Inc. as the Assistant Controller
from 1997 through July 2001.
Mr. Allen joined Brink's Home Security, Inc. in August 1999 as Executive Vice
President and Chief Operating Officer. He was promoted to President of Brink's
Home Security, Inc. in March 2001. From January 1997 to August 1999, he held
various positions at Aegis Communications Group (formerly ATC Communications)
including Executive Vice President of Sales and Marketing and Chief Operating
Officer. From 1980 through 1996, he held various domestic and international
positions at Frito-Lay including Vice President of Field Marketing and Country
Manager in Greece and Turkey.
Mr. Carnes was elected President of BAX Global Inc. in May 2000. He joined BAX
Global Inc. as President - U.S. and Canada in September 1999. Prior to joining
BAX Global Inc., he served as Executive Vice President, North America for Fritz
Companies Inc. where he was employed from 1987 to 1999.
Mr. Gold joined Brink's, Incorporated as President on January 1, 2004. Prior to
joining the Company, he was employed by Cummins, Inc. for 23 years. In his last
position, he served as Vice President, General Manager of a Cummins business
unit.
13
<PAGE>
PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
- --------------------------------------------------------------------------------
The Company's common stock trades on the New York Stock Exchange under the
symbol "BCO."
The following table provides information about common stock repurchases by the
Company during the quarter ended December 31, 2004.
<TABLE>
<CAPTION>
(d) Maximum Number
(c) Total Number (or Approximate
of Shares Purchased Dollar Value) of
(a) Total Number as Part of Publicly Shares that May Yet
of Shares (b) Average Price Announced Plans be Purchased Under
Period Purchased (1) Paid per Share or Programs the Plans or Programs
- --------------------------------------------------------------------------------------------------------
<S> <C>
December 1 through
December 31, 2004 7,816 $ 39.00 - -
========================================================================================================
</TABLE>
(1) Stock-for-stock exchanges for payments of exercise cost upon exercises of
stock options.
Reference is made to page 126 of the Company's 2004 Annual Report which is
herein incorporated by reference, for other information required by this item.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
Reference is made to page 127 of the Company's 2004 Annual Report which is
herein incorporated by reference, for information required by this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
Reference is made to pages 22 through 73 of the Company's 2004 Annual Report
which is herein incorporated by reference, for information required by this
item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
The information regarding quantitative and qualitative disclosures about market
risk is included in this report under Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
Reference is made to pages 74 through 126 of the Company's 2004 Annual Report
which is herein incorporated by reference, for information required by this
item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
Not applicable.
14
<PAGE>
ITEM 9A. CONTROLS AND PROCEDURES
- --------------------------------------------------------------------------------
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, the
Company carried out an evaluation, with the participation of the Company's
management, including the Company's Chief Executive Officer and Vice President
and Chief Financial Officer, of the effectiveness of the Company's disclosure
controls and procedures (as defined under Rule 13a-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based
upon that evaluation, the Company's Chief Executive Officer and Vice President
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in ensuring that information required to be disclosed
by the Company in the reports that it files or submits under the Securities
Exchange Act of 1934, is recorded, processed, summarized and reported, within
the time periods specified in the SEC's rules and forms, and that such
information is accumulated and communicated to management, including the
Company's Chief Executive Officer and Vice President and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
Except for changes put in place to enhance controls related to accounting for
deferred taxes, there has been no change in the Company's internal control over
financial reporting during the quarter ended December 31, 2004, that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
Reference is made to pages 74 through 75 of the Company's 2004 Annual Report,
which are herein incorporated by reference, for Management's Annual Report on
Internal Control over Financial Reporting and the Attestation Report of the
Registered Public Accounting Firm.
ITEM 9B. OTHER INFORMATION
- --------------------------------------------------------------------------------
The Company makes the following disclosure in lieu of furnishing it in a Current
Report on Form 8-K under Item 2.02. "Results of Operations and Financial
Condition."
On March 15, 2005, the Company issued a press release updating its previously
disclosed fourth quarter and year end financial results to reflect the recording
of two non-cash items that result in an increase in reported net income and
earnings per share. A copy of this release is being furnished as Exhibit 99(b)
to this Annual Report on Form 10-K.
15
<PAGE>
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------------------------------------------------
The information required by this Item regarding directors is herein incorporated
by reference to the Company's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after December 31, 2004. The information
regarding executive officers is included in this report following Item 4, under
the caption "Executive Officers of the Registrant."
The Company has adopted a Business Code of Ethics that applies to all of the
directors, officers and employees (including the Chief Executive Officer, Chief
Financial Officer and Controller) and has posted the Code on the Company's
website. The Company intends to satisfy the disclosure requirement under Item
5.05 of Form 8-K relating to amendments to or waivers from any provision of the
Business Code of Ethics applicable to the Chief Executive Officer, Chief
Financial Officer or Controller by posting this information on the website. The
internet address is www.brinkscompany.com.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
The information required by Item 11 is incorporated by reference to the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after December 31, 2004.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
The information required by Item 12 is incorporated by reference to the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after December 31, 2004.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
The information required by Item 13 is incorporated by reference to the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after December 31, 2004.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
- --------------------------------------------------------------------------------
The information required by Item 14 is incorporated by reference to the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after December 31, 2004.
16
<PAGE>
PART IV
- --------------------------------------------------------------------------------
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) 1. All financial statements - see index to financial statements and
schedules.
2. Financial statement schedules - see index to financial statements and
schedules.
3. Exhibits - see exhibit index.
Undertaking
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
Registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into Registrant's Registration Statements on Form S-8 Nos.
333-120254, 2-64258, 33-2039, 33-21393, 33-69040, 33-53565, 333-02219,
333-78631, 333-78633, 333-70758, 333-70772, 333-70766 and 333-70762. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
17
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 15, 2005.
The Brink's Company
------------------------------
(Registrant)
By /s/ M. T. Dan
------------------------------
(M. T. Dan,
Chairman, President and
Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated, on March 15, 2005.
Signatures Title
----------------- -----------
R. G. Ackerman* Director
B. C. Alewine* Director
J. R. Barker* Director
M. C. Breslawsky* Director
J. L. Broadhead* Director
J. S. Brinzo* Director
/s/ M. T. Dan Chairman, President and
---------------------------------- Chief Executive Officer
(M. T. Dan) (principal executive officer)
G. Grinstein* Director
R. M. Gross* Director
/s/ R. T. Ritter Vice President
---------------------------------- and Chief Financial Officer
(R. T. Ritter) (principal financial officer and
principal accounting officer)
C. S. Sloane* Director
R. L. Turner* Director
*By /s/ M. T. Dan
-----------------------------
(M. T. Dan, Attorney-in-Fact)
18
<PAGE>
Index to Financial Statements and Schedules
Financial Statements:
The consolidated financial statements of The Brink's Company, listed in the
index below which are included in the Company's 2004 Annual Report for the year
ended December 31, 2004, are herein incorporated by reference. With the
exception of the pages listed in the index below and the information
incorporated by reference included in Parts I, II and IV, the 2003 Annual Report
of the Shareholders is not deemed filed as part of this report.
THE BRINK'S COMPANY ANNUAL REPORT
Page Numbers
in 2004
Annual
Report
------------
Management's Discussion and Analysis of
Results of Operations and Financial Condition............22-73
Management's Report on Internal Control over Financial
Reporting................................................74
Reports of Independent Registered Public Accounting Firm....75-76
Consolidated Balance Sheets.................................77
Consolidated Statements of Operations.......................78
Consolidated Statements of Comprehensive Income (Loss)......79
Consolidated Statements of Shareholders' Equity.............80
Consolidated Statements of Cash Flows.......................81
Notes to Consolidated Financial Statements..................82-126
Selected Financial Data.....................................127
Financial Statement Schedules:
Page numbers
In Form 10-K
------------
Report of Independent Registered Public Accounting Firm.....19
Schedule II - Valuation and qualifying accounts.............20
19
<PAGE>
Report of Independent Registered Public Accounting Firm
The Board of Directors
The Brink's Company:
Under date of March 15, 2005, we reported on the consolidated balance sheets of
The Brink's Company and subsidiaries (the Company) as of December 31, 2004 and
2003, and the related consolidated statements of operations, comprehensive
income (loss), shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 2004, as contained in the 2004 annual
report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedule as included herein. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Richmond, Virginia
March 15, 2005
20
<PAGE>
The Brink's Company
Schedule II - Valuation and Qualifying Accounts
For the Years Ending December 31, 2004, 2003 and 2002
(in millions)
<TABLE>
<CAPTION>
Balance at Charged to Charge to Currency Balance at
Beginning of Costs and Other Translation End of
Period Expenses (a) Deductions (b) Account (c) Adjustment Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Allowance for Doubtful Accounts
- -------------------------------
Year Ended December 31, 2002 $ 41.8 4.6 (11.8) - 0.9 35.5
Year Ended December 31, 2003 35.5 (1.1) (7.5) - 0.7 27.6
Year Ended December 31, 2004 27.6 4.0 (5.8) - 0.9 26.7
Valuation Allowance for Deferred Tax Assets
- -------------------------------------------
Year Ended December 31, 2002 $ 10.3 1.5 (0.8) - (2.0) 9.0
Year Ended December 31, 2003 9.0 34.3 (0.6) - 0.8 43.5
Year Ended December 31, 2004 43.5 10.2 (0.6) 0.7 2.0 55.8
</TABLE>
(a) Includes amounts charged to loss from discontinued operations.
(b) Amounts written off, less recoveries.
(c) Includes amounts charged to Other Comprehensive Income.
21
<PAGE>
Exhibit Index
Each Exhibit listed previously filed document is hereby incorporated by
reference to such document.
Exhibit
Number Description
2(i) Membership Interest Acquisition Agreement Among Air Transport
International LLC and BAX Global Inc., dated February 3, 1998. Exhibit
2 to the Registrant's Current Report on Form 8-K filed May 14, 1998.
2(ii) Share Purchase Agreement, dated as of January 27, 1998, between Brink's
Security International, Inc., acting as Purchaser, and Generale de
Transport et D'Industrie, acting as Seller. Exhibit 10(v) to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1998 (the "1998 Form 10-K").
2(iii) Shareholders' Agreement, dated as of January 10, 1997, between Brink's
Security International, Inc., and Valores Tamanaco, C.A. Exhibit 10(w)
to the 1998 Form 10-K.
3(i) Amended and Restated Articles of Incorporation of the Registrant.
Exhibit 3(i) to the Registrant's Current Report on Form 8-K filed March
2, 2005.
3(ii) Amended and Restated Bylaws of the Registrant. Exhibit 3(ii) to the
Registrant's Current Report on Form 8-K filed March 2, 2005.
4(a) Amended and Restated Rights Agreement dated as of September 1, 2003
between the Registrant and Equiserve Trust Company, N.A., as Rights
Agent, together with Form of Right Certificate. Exhibit 1 to the
Registrant's Amendment No. 4 to Form 8-A/A filed October 9, 2003.
10(a)* Key Employees Incentive Plan, as amended. Exhibit 10(a) to the 1998
Form 10-K.
10(b)* Key Employees' Deferred Compensation Program, as amended and restated
effective January 1, 2005. Exhibit 99.1 to the Registrant's Current
Report on Form 8-K filed November 22, 2004.
10(c)* (i) Pension Equalization Plan as amended. Exhibit 10(e)(I) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 (the "1997 Form 10-K").
(ii) Amended and Restated Trust Agreement, dated December 1, 1997,
between the Registrant and Chase Manhattan Bank, as Trustee (the
"Trust Agreement"). Exhibit 10(e)(ii) to the 1997 Form 10-K.
(iii) Amendment No. 1 to Trust Agreement, dated as of August 18, 1999.
Exhibit 10(c)(iii) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1999 (the "1999 Form 10-K").
(iv) Amendment No. 2 to Trust Agreement, dated as of July 26, 2001.
Exhibit 10(c)(iv) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2002 (the "2002 Form 10-K").
(v) Amendment No. 3 to Trust Agreement, dated as of September 18,
2002. Exhibit 10(c)(v) to the 2002 Form 10-K.
(vi) Trust Agreement under the Pension Equalization Plan, Retirement
Plan for Non-Employee Directors and Certain Contractual
Arrangements of The Brink's Company made as of September 16,
1994, by and between the Registrant and Chase Manhattan Bank
(National Association), as Trustee. Exhibit 10(i) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994 (the "Third Quarter 1994 Form 10-Q").
(vii) Form of letter agreement dated as of September 16, 1994, between
the Registrant and one of its officers. Exhibit 10(e) to the
Third Quarter 1994 Form 10-Q.
(viii) Form of letter agreement dated as of September 16, 1994, between
the Registrant and Participants pursuant to the Pension
Equalization Plan. Exhibit 10(f) to the Third Quarter 1994 Form
10-Q.
(ix) Amendment No. 4 to Trust Agreement, dated as of September 22,
2003. Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 2003 (the "Third Quarter
2003 Form 10-Q").
22
<PAGE>
(x) Amendment No. 5 to Trust Agreement, dated as of September 20,
2004. Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 2004.
(xi) Amendment to Pension Equalization Plan. Exhibit 99.3 to the
Registrant's Current Report on Form 8-K filed November 22, 2004.
(xii) Amendment No. 6 t o Trust Agreement, dated as of November 22,
2004. Exhibit 99.4 to the Registrant's Current Report on Form 8-K
filed November 22, 2004.
10(d)* Executive Salary Continuation Plan. Exhibit 10(e) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991 (the
"1991 Form 10-K").
10(e)* Non-Employee Directors' Stock Option Plan, as amended and restated as of
January 14, 2000. Exhibit 10(e) to the 1999 Form 10-K.
10(f)* 1988 Stock Option Plan, as amended and restated as of January 14, 2000.
Exhibit 10(f) to the 1999 Form 10-K.
10(g)* Management Performance Improvement Plan, as amended and restated.
Exhibit 99 to the Registrant's Current Report on Form 8-K filed March 2,
2005.
10(h)* Form of change in control agreement replacing all prior change in
control agreements and amendments and modifications thereto, between the
Registrant (or a subsidiary) and various officers of the Registrant.
Exhibit 10(l)(ii) to the 1997 Form 10-K.
10(i)* Form of Indemnification Agreement entered into by the Registrant with
its directors and officers. Exhibit 10(l) to the 1991 Form 10-K.
10(j)* (i) Retirement Plan for Non-Employee Directors, as amended. Exhibit
10(g) to the Third Quarter 1994 Form 10-Q.
(ii) Form of letter agreement dated as of September 16, 1994, between
the Registrant and its Non-Employee Directors pursuant to
Retirement Plan for Non-Employee Directors. Exhibit 10(h) to the
Third Quarter 1994 Form 10-Q.
10(k)* Form of severance agreement between the Registrant (or a subsidiary) and
various of the Registrant's officers. Exhibit 10(o)(ii) to the 1997 Form
10-K.
10(l)* Directors' Stock Accumulation Plan, as amended and restated effective
January 1, 2005. Exhibit 99.2 to the Registrant's Current Report on Form
8-K filed November 22, 2004.
10(m)* Plan for Deferral of Directors' Fees, as amended and restated effective
January 1, 2005. Exhibit 99.5 to the Registrant's Current Report on Form
8-K filed November 22, 2004.
10(n) (i) Lease dated as of April 1, 1989, between Toledo-Lucas County Port
Authority (the "Authority"), as Lessor, and Burlington, as
Lessee. Exhibit 10(i) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1989 (the "Second
Quarter 1989 Form 10-Q").
(ii) Lease Guaranty Agreement dated as of April 1, 1989, between
Burlington (formerly Burlington Air Express Management Inc.), as
Guarantor, and the Authority. Exhibit 10(ii) to the Second
Quarter 1989 Form 10-Q.
(iii) Trust Indenture dated as of April 1, 1989 between the Authority
and Society Bank & Trust (formerly, Trustcorp. Bank, Ohio), as
Trustee (the "Trustee"). Exhibit 10(iii) to the Second Quarter
1989 Form 10-Q.
(iv) Assignment of Basic Rent and Rights Under a Lease and Lease
Guaranty dated as of April 1, 1989 from the Authority to the
Trustee. Exhibit 10(iv) to the Second Quarter 1989 Form 10-Q.
(v) Open-End First Leasehold Mortgage and Security Agreement dated as
of April 1, 1989 from the Authority to the Trustee. Exhibit 10(v)
to the Second Quarter 1989 Form 10-Q.
(vi) First Supplement to Lease dated as of January 1, 1990, between
the Authority and Burlington, as Lessee. Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1990.
(vii) Revised and Amended Second Supplement to Lease dated as of
September 1, 1990, between the Authority and Burlington. Exhibit
10(i) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990 (the "Third Quarter 1990 Form
10-Q").
23
<PAGE>
(viii) Amendment Agreement dated as of September 1, 1990, among City of
Toledo, Ohio, the Authority, Burlington and the Trustee. Exhibit
10(ii) to the Third Quarter 1990 Form 10-Q.
(ix) Assumption and Non-Merger Agreement dated as of September 1,
1990, among Burlington, the Authority and the Trustee. Exhibit
10(iii) to the Third Quarter 1990 Form 10-Q.
(x) First Supplemental Indenture between Toledo-Lucas County Port
Authority, and Society National Bank, as Trustee, dated as of
March 1, 1994. Exhibit 10.1 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1994 (the "First
Quarter 1994 Form 10-Q").
(xi) Third Supplement to Lease between Toledo-Lucas County Port
Authority, as Lessor, and Burlington Air Express Inc., as Lessee,
dated as of March 1, 1994. Exhibit 10.2 to the First Quarter 1994
Form 10-Q.
(xii) Fourth Supplement to Lease between Toledo-Lucas County Port
Authority, as Lessor, and Burlington Air Express Inc., as Lessee,
dated as of June 1, 1991. Exhibit 10.3 to the First Quarter 1994
Form 10-Q.
(xiii) Fifth Supplement to Lease between Toledo-Lucas County Port
Authority, as Lessor, and Burlington Air Express Inc., as Lessee,
dated as of December 1, 1996. Exhibit 10(r)(xiii) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.
10(o) (i) Credit Agreement, dated as of December 20, 2002, among BAX
Global Inc., Brink's, Incorporated and the Registrant, as
Borrowers and Guarantors, and ABN AMRO Bank, N.V. Exhibit 10(q)
(i) to the 2002 Form 10-K.
(ii) Guaranty between BAX Global, as Guarantor, and ABN AMRO Bank,
N.V. Exhibit 10(q)(ii) to the 2002 Form 10-K.
(iii) Guaranty between Brink's, Incorporated, as Guarantor, and ABN
AMRO Bank, N.V. Exhibit 10(q)(iii) to the 2002 Form 10-K.
(iv) Guaranty between the Registrant, as Guarantor, and ABN AMRO Bank,
N.V. Exhibit 10(q)(iv) to the 2002 Form 10-K.
10(p)* (i) Employment Agreement dated as of May 4, 1998, between the
Registrant and Michael T. Dan. Exhibit 10(a) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998 (the "Third Quarter 1998 Form 10-Q").
(ii) Amendment No. 1 to Employment Agreement between the Registrant
and Michael T. Dan. Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2002.
10(q)* Executive Agreement dated as of May 4, 1998, between the Registrant
and Michael T. Dan. Exhibit 10(b) to the Third Quarter 1998 Form 10-Q.
10(r)* Executive Agreement dated as of August 7, 1998, between the Registrant
and Robert T. Ritter. Exhibit 10(c) to the Third Quarter 1998 Form 10-Q.
10(s)* Severance Agreement dated as of August 7, 1998, between the Registrant
and Robert T. Ritter. Exhibit 10(d) to the Third Quarter 1998 Form 10-Q.
10(t) Trust Agreement for The Brink's Company Employee Welfare Benefit Trust.
Exhibit 10(t) to the 1999 Form 10-K.
10(u) (i) Note Purchase Agreement dated as of January 18, 2001, between
the Registrant and the Purchasers listed on Schedule A thereto.
Exhibit 10(u)(i) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2000 (the "2000 Form 10-K").
(ii) Form of Series A Promissory Note. Exhibit 10(u)(ii) to the 2000
Form 10-K.
(iii) Form of Series B Promissory Note. Exhibit 10(u)(iii) to the 2000
Form 10-K.
10(v) (i) Receivables Purchase Agreement dated as of December 15, 2000,
among BAX Funding Corporation, BAX Global Inc., Liberty Street
Funding Corp. and the Bank of Nova Scotia. Exhibit 10(v)(i) to
the 2000 Form 10-K.
(ii) Purchase and Sale Agreement dated as of December 15, 2000, among
the Originators named therein, BAX Funding Corporation and BAX
Global Inc. Exhibit 10(v)(ii) to the 2000 Form 10-K.
24
<PAGE>
10(w) (i) Note Purchase Agreement dated as of April 11, 2002 between the
Registrant and the Purchasers set forth on the signature page.
Exhibit 10(a)(i) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 2002 (the "First Quarter
2002 Form 10-Q").
(ii) Form of Promissory Note. Exhibit 10(a)(ii) to the First Quarter
2002 Form 10-Q.
10(x) (i) $43,160,000 Bond Purchase Agreement, dated September 17, 2003,
among the Peninsula Ports Authority of Virginia, Dominion
Terminal Associates, Pittston Coal Terminal Corporation and the
Registrant. Exhibit 10.2(i) to the Third Quarter 2003 Form 10-Q.
(ii) Loan Agreement between the Peninsula Ports Authority of Virginia
and Dominion Terminal Associates, dated September 1, 2003.
Exhibit 10.2(ii) to the Third Quarter 2003 Form 10-Q.
(iii) Indenture and Trust between the Peninsula Ports Authority of
Virginia and Wachovia Bank, National Association ("Wachovia"), as
trustee, dated September 1, 2003. Exhibit 10.2(iii) to the Third
Quarter 2003 Form 10-Q.
(iv) Parent Company Guaranty Agreement, dated September 1, 2003, made
by the Registrant for the benefit of Wachovia. Exhibit 10.2(iv)
to the Third Quarter 2003 Form 10-Q.
(v) Continuing Disclosure Undertaking between the Registrant and
Wachovia, dated September 24, 2003. Exhibit 10.2(v) to the Third
Quarter 2003 Form 10-Q.
(vi) Coal Terminal Revenue Refunding Bond (Dominion Terminal
Associates Project - Brink's Issue) Series 2003. Exhibit 10.2(vi)
to the Third Quarter 2003 Form 10-Q.
10(y) $150,000,000 Credit Agreement, dated as of November 18, 2004, between
the Registrant and ABN AMRO Bank N.V. Exhibit 99.1 to the Registrant's
Current Report on Form 8-K filed November 18, 2004.
10(z) $400,000,000 Credit Agreement among The Brink's Company, as Parent
Borrower, the Subsidiary Borrowers referred to therein, certain of
Parent Borrower's Subsidiaries, as Guarantors, Various Lenders,
Barclays Bank plc, as Co-Arranger and Documentation Agent, Bank of
America, N.A., as Syndication Agent, Banc of America Securities LLC, as
Co-Arranger, Scotiabanc Inc. and Wachovia Bank, National Association,
as Co-Arrangers and Syndication Agents, JPMorgan Chase Bank, as
Administrative Agent, and J.P. Morgan Securities Inc., as Sole Lead
Arranger and Bookrunner, dated as of October 15, 2004. Exhibit 99.1 to
the Registrant's Current Report on Form 8-K filed October 18, 2004.
10(aa) Share Transfer Agreement, dated February 2, 2005, between Group 4
Securitas Holdings Limited, as Seller, and Brink's Limited, as Buyer.
10(bb) Share Transfer Agreement, dated February 2, 2005, between Group 4
Securicor Holdings Limited, Securicor International BV and Brink's
Luxembourg S.A. and Brink's, Incorporated.
13 Parts of the 2004 Annual Report of the Registrant.
21 Subsidiaries of the Registrant.
23 Consent of independent auditors.
24 Powers of attorney.
31 Rule 13a-14(a)/15d-14(a) Certifications.
32 Section 1350 Certifications.
99(a)* Amendment to Pension-Retirement Plan relating to preservation of assets
of the Pension-Retirement Plan upon a change in control. Exhibit 99 to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1992.
99(b) Press Release, dated March 15, 2005, issued by the Registrant.
- --------------------------
*Management contract or compensatory plan or arrangement.
25
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>2
<FILENAME>exhibit10aa.txt
<DESCRIPTION>EXHIBIT 10(AA)
<TEXT>
<PAGE>
EXHIBIT 10(aa)
2 February 2005
------------------------------
SHARE TRANSFER AGREEMENT
------------------------------
BETWEEN
GROUP 4 SECURITAS HOLDINGS LIMITED
AS SELLER
AND
BRINK'S LIMITED
AS BUYER
<PAGE>
Content
-------
1. DEFINITIONS AND INTERPRETATION............................................4
2. SALE AND PURCHASE OF SALE SHARES..........................................8
3. PURCHASE PRICE AND CLAW BACKS FROM THE PURCHASE PRICE.....................9
4. PRE-COMPLETION ACTIONS...................................................10
5. COMPLETION AND POST COMPLETION EVENTS....................................11
6. CONDITIONS PRECEDENT AND OPTION NOT TO PURCHASE..........................16
7. WARRANTIES AND REPRESENTATIONS OF THE SELLER.............................18
8. OTHER OBLIGATIONS OF THE SELLER..........................................34
9. REPRESENTATIONS AND WARRANTIES OF THE BUYER..............................40
10. INDEMNIFICATION..........................................................42
11. FLOOR THRESHOLD AND CEILING..............................................45
12. DURATION OF INDEMNIFICATION..............................................45
13. PENSIONS INDEMNITY.......................................................46
14. NOTIFICATION PROCEDURE AND PAYMENT OF THE INDEMNITY......................47
15. MISCELLANEOUS............................................................49
2
<PAGE>
SHARE TRANSFER AGREEMENT
------------------------
This agreement is made on February 2nd, 2005
BETWEEN:
1. GROUP 4 SECURITAS HOLDINGS LIMITED a company incorporated in England and
Wales with Company Number 02380914 whose registered office is at Farncombe
House, Broadway, Worcestershire WR12 7LJ
(hereinafter the "Seller)
AND:
2. BRINK'S LIMITED a company incorporated in England and Wales with Company
Number 00959654 whose registered office is at Arnold House, 36/41 Holywell Lane,
London EC2A 3LB
(hereinafter the "Buyer")
WHEREAS:
(A) Group 4 Falck Cash Services UK Limited ("the Company") is a company
registered in England and Wales with Company Number 2831111.
(B) The share capital of the Company is (pound)1,900,002 divided into 2
Ordinary Shares of (pound)1 each and 1,900,000 6 per cent Redeemable
Preference Shares of (pound)1 each.
(C) The principal activity of the Company is the provision of transportation
and storage security services.
(D) The Seller has agreed to transfer its shareholding in the Company in
accordance with the conditions and with the giving of the warranties and
undertakings set out below, which for the Buyer, have an essential and
determining influence on its undertaking to purchase the Company.
3
<PAGE>
IT IS HEREBY AGREED AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
------------------------------
1.1 Definitions in this agreement shall have the following meanings unless
the context does not permit:
"Accounts" means the audited accounts (balance sheets, profit and loss accounts
and annexes) of the Company as at the Last Accounting Date;
"Accounting Methods and Principles" means the generally accepted accounting
methods and principles in the UK or such other international body as is
appropriate;
"Agreement" means this document and the Schedules hereto;
"Assets" means the raw materials, assets, movable goods, installations and
equipment used by the Company in the carrying out of its activities including
those assets specified in the Seller's commitments to the European Commission;
"Authorisations" means all authorisations, licences, permits, certificates,
approvals or other documents obtained by the Company from an administrative
authority or any other authority or by a professional entity set-up in one of
the countries where the Company carries on its activities or is the owner of
assets at any given time;
"Business Day" means a day other than a Saturday or Sunday or public holiday in
the UK;
"Buyer" has the meaning given to it above;
"Buyer's Group Affiliate" means an entity directly or indirectly controlled by
the Buyer or which directly or indirectly controls the Buyer or which is
directly or indirectly controlled by one or several undertakings controlled by
the Buyer, and "control" means in relation to a body corporate, the power of a
person to secure that the affairs of the body corporate are conducted in
accordance with the wishes of that person by means of the holding of shares, or
the possession of voting power, in or in relation to that or any other body
corporate; or by virtue of any powers conferred by the constitutional or
corporate documents, or any other document, regulating that or any other body
corporate, and "Buyer's Group Affiliates" means all of such affiliates of the
Buyer;
"Clauses" means the clauses of this Agreement;
"Clearance" means the formal confirmation by the European Commission that the
Transactions fulfil the obligations of Group 4 Falck A/S and Securicor plc,
pursuant to their written commitments to the European Commission dated 28 May
4
<PAGE>
2004, to enter into final binding sale and purchase agreements for the sale of
the Securicor Luxembourg Divestment Business and the UK CIT Divestment Business,
as such terms are defined in the said commitments;
"Company" has the meaning given to it in the recitals above;
"Completion" means completion of the transfer of the Sale Shares in accordance
with Clause 5;
"Completion Statement" means a statement showing the turnover and profit or
loss, for the period from the Last Accounting Date to Completion and the assets
and liabilities of the Company as at Completion in the same format as the
current "monthly reporting pack" produced by the Company in the ordinary course
of its business such Completion Statement being prepared in accordance with
Accounting Methods and Principles and with all available supporting documents;
"Confidentiality Agreement" means the confidentiality agreement dated 2
September 2004 between G4S and Brink's EMEA S.A.S;
"Customers' Accounts" means all customer funds held by the Company immediately
prior to Completion;
"Date of this Agreement" means the date on which this Agreement is signed;
"Disclosure Schedule" means the Seller's disclosures to the warranties and
representations set out in Schedule 2;
"the Dumbarton Road Premises" means the building known as and forming 89
Dumbarton Road, Glasgow as more particularly described in the Dumbarton Road
Lease;
"the Dumbarton Road Lease" means the lease of the Dumbarton Road Premises
registered in the Land Register under Title Number GLA100684;
"Encumbrance" means all liens, sureties, interest, charges, restrictions,
options, promises or third party right or interest;
"G4S plc" means Group 4 Securicor plc;
"Intellectual Property Rights" means trademarks, patents, designs, models and
author's rights and generally all the rights giving their owner the exclusive
rights of use, together with all trading names, registered names, know-how and
processes used by the Company in carrying out its activities;
"the Inverness Premises" means the premises known as and forming Unit 12, Block
2, Lotland Trading Estate, Inverness (otherwise known as 21 Henderson Road,
Inverness) as more particularly described in the Inverness Lease;
5
<PAGE>
"the Inverness Lease" means the lease between MacGregor Properties Limited and
the Company dated 10 August and registered in the Books of Council and Session
on 10 September both months 2004;
"Last Accounting Date" means 31 December 2003, namely the last accounting
reference date of the Company for which audited accounts have been prepared SAVE
THAT at Completion the final draft unaudited accounts (subject only to a
pensions disclosure note) or, if available, the audited accounts of the Company
for the period to 31 December 2004 will be provided to the Buyer at which point
the Last Accounting Date shall mean 31 December 2004;
"Leasehold Premises" means the Scottish Leasehold Premises, the Edinburgh
Premises and the Manchester Premises;
"Loss" means all losses, costs, expenses, penalties and any other damage of
whatever nature, including all professional and advisory fees;
"Management Accounts" means the last available monthly management accounts of
the Company prior to Completion;
"Material Adverse Change" means any event, fact, deed, action or circumstance of
whatsoever nature which, individually or in the aggregate, (i) fundamentally
affects or endangers the Company, its operation or profitability, such as, but
not limited to, (a) the loss of one or several Material Contracts except if such
loss results from the normal expiry of such Material Contract or the customer's
decision not renew the Material Contract at its expiry date, (b) the loss of the
Vehicles fleet, (c) the loss of the Premises, (d) any material condition imposed
by an administrative or judicial authority with a view to the closing of this
Agreement; or which (ii) fundamentally affects or endangers the due fulfilment
by the Seller of any of its obligations under this Agreement, such as any
insolvency proceedings affecting the Seller; or a material difference of an
adverse nature in the assets or liabilities of the Company as from the Date of
this Agreement to the date of Completion as derived from the draft unaudited or
audited accounts (as the case may be) of the Company for the period ended 31
December 2004 or the Management Accounts;
"Material Contracts" have the meaning given to them in Clause 7.17.2;
"Monitoring Trustee" means the trustee monitoring the compliance of the merging
parties, Group 4 Falck A/S and Securicor plc, with their commitments under the
European Commission's ruling of 28th May 2004;
"Parties" means collectively the Seller and the Buyer and "Party" means one or
other of the aforesaid;
"Purchase Price" means the sum of EUR 2,000,000 (Two Million Euros);
6
<PAGE>
"RBS Contract" means the contract between the Company and The Royal Bank of
Scotland plc dated 1 July 1996 as amended pursuant to the latest addendum dated
1 September 2004;
"Rented Vehicles" means the vehicles over which the Company has possession by
virtue of leases with or without an option to purchase;
"Sale Shares" means 2 Ordinary Shares of (pound)1 each and 1,900,000 6 per cent
Redeemable Preference Shares of 1 each comprising the whole of the issued share
capital of the Company (a Sale Share being one of the Sale Shares) at
Completion;
"Schedule" means each Schedule to this Agreement, and "Schedules" means all and
every Schedule;
"the Scottish Leasehold Premises" means (1) Yard A; (2) Yard G; (3) the
Inverness Premises; and (4) the Dumbarton Road Premises;
"Seller" has the meaning given to it above;
"Seller's Group Affiliate" means an entity directly or indirectly controlled by
the Seller or which directly or indirectly controls the Seller or which is
directly or indirectly controlled by one or several undertakings controlled by
the Seller, and "control" means in relation to a body corporate, the power of a
person to secure that the affairs of the body corporate are conducted in
accordance with the wishes of that person by means of the holding of shares, or
the possession of voting power, in or in relation to that or any other body
corporate; or by virtue of any powers conferred by the constitutional or
corporate documents, or any other document, regulating that or any other body
corporate, and "Seller's Group Affiliates" means all of such affiliates of the
Seller;
"Shares" means the Sale Shares;
"Taxes" or "Impositions" means all forms of taxation and statutory,
governmental, state, federal, provincial, local, government or municipal
charges, duties, imposts, contributions or levies for which the Company is
liable under all laws applicable to it, whatever the basis for recovering the
fee or the entity responsible for recovering such fee and generally all
additional amounts imposed with respect to the foregoing, including all
interest, fines, penalties, and other charges relating to it, and including any
transferee or secondary liability in respect of the foregoing (whether by law,
contractual agreement or otherwise);
"Tax Regulations" means all legislation with respect to Taxes as well as any
applicable regulation or other official pronouncement of the applicable rules in
a country having taxing jurisdiction over the Company, as well as any
7
<PAGE>
international treaty (including directives, regulations or other applicable
treaties in the relevant country), and any other binding authority applicable in
a taxing jurisdiction;
"Transactions" means the sale by the Seller to the Buyer of the Sale Shares
pursuant to this Agreement and the sale by Securicor International BV to Brink's
Luxembourg SA of the whole of the issued share capital of Securicor Luxembourg
SA pursuant to an agreement of even date with this Agreement;
"Transitional Services" means the services (including use of equipment) to be
provided by the Seller or a Seller's Group Affiliate to the Company pursuant to
Clause 8.5.2;
"Vehicles" means the vehicles owned by the Company.
"Yard A" means the yard area located in the Barclay Curle Complex at 739 South
Street, Glasgow known as and forming Yard A;
"Yard A Licence" means the basis upon which the Company occupies Yard A; "Yard
G" means the yard area located in the Barclay Curle Complex at 739 South Street,
Glasgow known as and forming Yard G;
"Yard G Licence" means the basis upon which the Company occupies Yard G.
1.2 Clause and schedule headings do not affect the interpretation of this
agreement.
1.3 A person includes a corporate or unincorporated body.
1.4 Words in the singular include the plural and in the plural include the
singular.
1.5 A reference to one gender includes a reference to the other gender.
1.6 A reference to a statute or statutory provision is a reference to it
as it is in force for the time being taking account of any amendment,
extension, or re-enactment and includes any subordinate legislation
for the time being in force made under it.
SECTION I - SALE AND PURCHASE
-----------------------------
2. SALE AND PURCHASE OF SALE SHARES
--------------------------------
2.1 Subject to the provisions of Clause 6, the Seller agrees to sell to
the Buyer, and the Buyer agrees to purchase from the Seller, the Sale
Shares at Completion.
8
<PAGE>
2.2 At Completion the Seller owns and will transfer to the Buyer the Sale
Shares with full title guarantee, free of any Encumbrance.
2.3 At Completion, the Buyer will have the retrospective right in respect
of the period following the Last Accounting Date to all dividends,
interim dividends and other distributions payable in respect of the
Sale Shares in respect of the period since the Last Accounting Date
(other than a dividend required in order to ensure that the Company is
cash free in accordance with Clause 2.4), and will benefit from any
subscription and allocation rights attached to the Sale Shares from
this same date.
2.4 At Completion, the Company shall be cash free and shall be free from
inter company loans, bank or other third party loans or finance (save
for lease agreements or finance in the ordinary course of business)
and lines of credit. At Completion the Company shall also be free from
any obligation, including contingent obligations, to the Seller and
any Seller's Group Affiliate, including without limitation any such
obligations to make payment for or repayments of payments received in
respect of Group Relief (as defined in Section 402 Income and
Corporation Taxes Act 1988).
3. PURCHASE PRICE AND CLAW BACKS FROM THE PURCHASE PRICE
-----------------------------------------------------
3.1 It has been agreed that the Sale Shares will be transferred to the
Buyer in consideration for a sum equal to the Purchase Price, in other
words, the total sum of EUR 2,000,000 (Two Million Euros).
3.2 On Completion the Buyer shall pay the Purchase Price by means of a
transfer into the following bank account:
Account Name : Group 4 Securicor plc
Account Number : 76962522
Bank : Barclays Bank plc
Fleet Street
London EC4
Sort Code : 20-30-19
SWIFT : BARCGB22
IBAN : GB36BARC20301976962522
9
<PAGE>
3.3 If the Company is not successful in entering into a new contract with
The Royal Bank of Scotland plc by 31 December 2005 ("the Tender")
(other than as a result of the Company being in breach of the RBS
Contract following Completion), then the Seller shall repay to the
Buyer (upon notice from the Buyer of the Tender being unsuccessful) by
way of a reduction of the Purchase Price:
3.3.1 the sum of (euro)500,000 in the event that the Seller or a
Seller's Group Affiliate should win the Tender;
3.3.2 the sum of (euro)250,000 in the event that the Tender is
awarded to a third party other than a Buyer's Group Affiliate.
4. PRE & POST COMPLETION OBLIGATIONS
---------------------------------
4.1 Notification to Authorities
The Seller shall forthwith after the date of execution of this
Agreement notify this Agreement to the European Commission requesting
Clearance prior to the date of Completion.
4.2 Cash and Coin Inventory
4.2.1 On the Date of Completion, but immediately preceding Completion, a
joint inspection team composed of representatives of the Seller and
the Buyer will, in a process to be jointly agreed prior to Completion
("the Reconciliation Process"), conduct a physical count of the total
cash and coin inventory (to include any overage account) maintained by
the Company and will compare the result of the physical count referred
to in this Clause 4.2.1 (the "Physical Inventory") with sum of all
individual Customers' Account balances announced to the relevant
Customers on the Date of Completion pursuant to Clause 4.2.2 (the
"Administrative Inventory"). Any discrepancy between the Physical
Inventory and the Administrative Inventory will be agreed by the joint
inspection team but no payment will be made by the Buyer to the
Seller, or vice versa, in respect of such discrepancy except in
accordance with Clause 4.2.3.
4.2.2 On the date of Completion, the Company shall inform each of its
customers, where relevant, of its Customer's Account balance and other
inventory held by the Company on behalf of such customer and request
that the customer confirm its Customer Account balance to the Company.
4.2.3 If following completion of the Reconciliation Process there is any
claim by a customer with respect to such customer's account balance as
referred to in Clause 4.2.1, then that claim shall be the sole
responsibility of the Seller. The Seller shall indemnify and hold
harmless the Buyer from and against any liabilities resulting from
such claims by customers, provided, however, that neither the Buyer,
nor the Seller, nor the Company shall settle nor agree to settle or
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compromise any such claim, without the other's consent (which consent
shall not be unreasonably withheld or delayed) In the event of any
such claim by a customer, the Seller shall have full and unrestricted
access to the relevant documents and records of the Company and the
Buyer shall procure that the relevant employees shall provide
reasonable assistance to the Seller in order to investigate the
customer's complaint.
The Seller shall only be liable to indemnify the Buyer under this
Clause 4.2.3 if, and to the extent that, the aggregate of all claims
brought under this Clause 4.2.3 exceeds the amount of any overage
account held by the Company at Completion. The amount of the overage
will be clearly shown in any schedules comprising the Reconciliation
Process on Completion.
4.2.4 In respect of the period prior to Completion, the Buyer shall have no
obligation and no responsibility for the Customers Accounts and the
Seller shall hold the Buyer harmless from all complaints, claims and
suits of customers with respect to such Customer Accounts in respect
of such period.
4.2.5 Any claims made by customers relating to Losses incurred following
Completion will be the sole responsibility of the Buyer.
4.3 Meeting with RBS
Immediately upon receiving permission from the Monitoring Trustee the
Seller shall procure that a meeting takes place, in a process and
manner approved by the Monitoring Trustee, when Fiona Burke shall
introduce the Buyer to The Royal Bank of Scotland plc as the Seller's
favoured purchaser of the Sale Shares.
4.4 Scottish Midland Claim
In the event that the sum of (pound)4,000 to be provided in the
Company's Management Accounts for February as referred to in Schedule
3 is not paid by the Company to Scottish Midland by Completion, any
claim by Scottish Midland in respect of the subject matter of such
provision shall be dealt with in accordance with the provisions of
Clause 4.2.3, notwithstanding such provision.
5. COMPLETION AND POST COMPLETION EVENTS
-------------------------------------
5.1 Date and location of Completion
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5.1.1 Subject to the provisions of Clauses 6.1, and 6.2, Completion will
take place within two weeks from the date upon which Clearance is
obtained, such Completion to take place on such date within that
period as the Buyer and Seller agree, or failing such agreement, to
take place on the fourteenth day following the date of such Clearance,
such date being a Business Day or, if such day is not a Business Day,
the first Business Day following the expiry of the fourteen day
period,
5.1.2 Completion will take place at the London offices of Eversheds, or in
any other location agreed to in writing between the Buyer and the
Seller.
5.2 Operation of Completion
5.2.1 At Completion, the Seller shall give to the Buyer:
(a) The share certificates in respect of the Sale Shares;
(b) The statutory registers of the Company showing the transfer of
the Sale Shares;
(c) The resignation letter of Bernard Whiddon Smith from the Board of
Directors of the Company;
(d) a duly executed transfer transferring the Sale Shares to the
Buyer; and
(e) the following documents in respect of the Manchester Premises (as
defined in Schedule 1:
(i) Lease (unbound) relating to Unit 1 Littler's Point, Second
Avenue, Trafford Park, Greater Manchester dated 15th October 1998
made between Crankshaft Limited (1) and Konica Business Machines
(UK) Limited (2);
(ii) Agreement for Assignment of Lease relating to Unit 1
Littler's Point, Second Avenue, Trafford Park, Greater Manchester
dated 21st March 2000 made between Konica Business Machines (UK)
Limited (1) and Group 4 Total Security Limited (2);
(iii) Licence to Assign and Deed of Variation dated 28th April
2000 made between Crankshaft Limited (1) Konica Business Machines
(UK) Limited (2) and Group 4 Total Security Limited (3);
(iv) Assignment relating to Unit 1 Littler's Point, Second
Avenue, Trafford Park, Greater Manchester dated 28th April 2000
made between Konica Business Machines (UK) Limited (1) and Group
4 Total Security Limited (2);
(v) Receipted Notice of Assignment dated 4th May 2000;
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(vi) Licence to carry out works relating to Unit 1 Littler's
Point, Trafford Park, Greater Manchester dated 28th April 2000
made between Crankshaft Limited (1) and Group 4 Total Security
Limited (2);
(vii) Licence to carry out works relating to Unit 1 Littler's
Point, Trafford Park, Greater Manchester dated 28th August 2001
made between Crankshaft Limited (1) and Group 4 Total Security
Limited (2);
(viii) Copy letter from Matthews & Goodman Property Advisors to
Group 4 Total Security Limited dated 24 September 2003 regarding
proposed review of lease rent together with receipted copy;
(ix) Copy letter from Matthews & Goodman Property Advisors to
Group 4 Total Security Limited dated 11 February 2004 regarding
proposed review of lease rent; and
(x) Copy invoice from Crankshaft Limited in respect of Service
Charge and Rent from 29 September 2004 - 24 December 2004.
(f) the following documents in respect of the Edinburgh Premises (as
defined in Schedule 1:
(i) Copy Lease between Legal and General Assurance (Pensions
Management) Limited and The Burton Group Public Limited Company
registered in the Books of Council and Session on 16th December
1983;
(ii) Copy Rent Review Memorandum between Legal and General
Assurance Society Limited and The Burton Group Public Limited
registered in the Books of Council and Session on 30th August
1993;
(iii) Copy Minute of Variation between Scottish Metropolitan
Property PLC, The Burton Group Public Limited Company and EDI
(Industrial) Limited registered in the Books of Council and
Session on 24th February 1998;
(iv) Copy Assignation by The Burton Group Public Limited
Company and Burton Group Properties Limited in favour of
Debenhams Retail plc dated 12th December 1997 and registered
in the Books of Council and Session on 15th January 1998;
(v) Copy Assignation by Debenhams Retail plc in favour of
Group 4 Total Security Limited registered in the Books of
Council and Session on 8th September 1998;
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(vi) Copy Letter of Consent to Assignation from McGrigor Donald
on behalf of The Scottish Metropolitan Property plc addressed to
Brodies dated 28th July 1998;
(vii) Copy Letter from McGrigor Donald on behalf of The Scottish
Metropolitan Property plc accepting the terms of EDI (industrial)
Limited's consent to assignation addressed to Shepherd &
Wedderburn dated 28 July 1998;
(viii) Copy Lease betweenThe City of Edinburgh District Council
and Melville, Dundas & Whitson Limited recorded in the Division
of the General Register of Sasines applicable to the County of
Midlothian on 27th February 1980 and also registered in the Books
of Council and Session for preservation execution on 16th July
1982;
(ix) Copy Assignation by Melville, Dundas & Whitson in favour
of Legal and General Assurance (Pensions Management) Limited
recorded in the said Division of the General Register of Sasines
on 9th January 1981;
(x) Copy Minute of Amendment of Lease between The City of
Edinburgh Council and Legal and General Assurance Society Limited
recorded in the said Division of the General Register of Sasines
on 15th December 1992;
(xi) Copy Assignation by Legal and General Assurance Society
Limited in favour of Scottish Metropolitan Property PLC recorded
in the said Division of the General Register of Sasines on 9th
September 1994;
(xii) Copy Letter from CB Richard Ellis addressed to Group Four
Total Security Limited dated 28 May 2004 enclosing copy Schedule
of Dilapidations on behalf of Meadowfield Investments Limited
dated 10th May 2004;
(xiii) Copy Letter from CB Richard Ellis addressed Stephen
Armitage of Dunlop Heywood Lorenz dated 17 December 2004
enclosing copy Schedule of Dilapidations on behalf of Meadowfield
Investments Limited dated 14th December 2004; and
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(xiv) Copy Letter from Stephen Armitage addressed to A McFarlane
of DM Hall & Son dated 24th December 2004.
(g) the following documents in respect of Yard A:
Copy Licence to Occupy between CNC Regis Limited in favour of
Group 4 containing incomplete designation of "the Tenant"
apparently signed on behalf of Group 4 Falck, not witnessed or
signed on behalf of the Landlord. The Licence to Occupy does not
identify the property.
(h) the following documents in respect of Yard G:
Copy Licence to Occupy between CNC Regis Limited in favour of
Group 4 containing incomplete designation of "the Tenant"
apparently signed on behalf of Group 4 Falck, not witnessed or
signed on behalf of the Landlord. The Licence to Occupy does not
identify the property.
(i) the following documents in respect of the Inverness Premises:
Copy Lease comprising Missives of Let by T.S.H. Burns & Son on
behalf of MacGregor Properties Limited addressed to McClure
Naismith on behalf of Group 4 Falck Cash Services UK Limited
registered in the Books of Council and Session on 10th September
2004.
(j) the following documents in respect of the Dumbarton Road
Premises:
(i) Copy Land Certificate Title Number GLA100684;
(ii) Copy Lease between The Corporation of the City of Glasgow
and Factoryguards Limited recorded in the Division of the General
Register of Sasines applicable to the County of the Barony and
Regality of Glasgow on 6th October 1971;
(iii) Copy letter of intimation addressed to City Estates
Surveyor dated 30th July 1993;
(iv) Copy letter addressed to Bird Semple Fyfe Ireland
acknowledging receipt dated 4th August 1993;
(v) Copy Licence by Group 4 Cash-In-Transit (Scotland) Limited
in favour of The University Court of the University of Glasgow
signed but undated; and
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(vi) Miscellaneous consents as detailed in the Inventory
annexed thereto by Brodies to McClure Naismith dated 13th July
1998.
5.2.2 At Completion the Seller shall provide to the Buyer evidence of:
(a) repayment of, or instructions given to bankers for the repayment
of, the Company's overdraft to Barclays Bank plc; and
(b) discharge of any inter-group liabilities owing to and/or from the
Company, by means of the production of a funds flow chart, a copy
of which will have been shown to the Buyer in advance of
Completion for consultation.
5.2.3 At Completion the Buyer shall transfer the Purchase Price to the
Seller in accordance with Clause 3.2.
5.3 The Seller will provide the Completion Statement to the Buyer within
two weeks of Completion.
5.4 The Buyer and the Seller shall, as from Completion, comply with the
provisions of Schedule 1.
5.5 Following Completion the Company will procure for the Seller the
production of a VAT return in respect of the Company's business
prepared to cover the period since the last filed VAT return and up
until the date of Completion. The Parties acknowledge that such VAT
return can only be prepared with the provision of the Transitional
Services by the Seller.
6. CONDITIONS PRECEDENT AND OPTION NOT TO PURCHASE
-----------------------------------------------
6.1 This Agreement, including but not limited to the provisions of Clause
8.3, shall automatically terminate without liability on the part of
the Buyer or the Seller on the earlier of:
6.1.1 the date that a formal decision is given by the European Commission
that Clearance will not be given;
6.1.2 subject to any extension of time agreed between the Buyer and the
Seller, on 30 June 2005 if Clearance has not been obtained by that
date;
6.1.3 the termination of either of the Transactions pursuant to Clause 6.2.
of the relevant sale agreement;
SAVE THAT the confidentiality provisions contained in the Confidentiality
Agreement shall continue in full force and effect.
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6.2 The Buyer and the Seller will have the option upon giving the other
written notice not to purchase or sell (as the case may be) the Sale
Shares if prior to Completion:
(a) there has been a decision from a legal or administrative
authority prohibiting or modifying the acquisition of the Sale
Shares or imposing conditions on the Transactions in such a way
as to make such Transactions materially more onerous or
restrictive;
(b) the Seller or the Buyer (as the case may be) has not complied
with its obligations under this Agreement;
(c) the representations and warranties of the Seller or the Buyer (as
the case may be) contained in this Agreement or the content of
the Schedules are incorrect or incomplete in such a way as to
cause significant detriment to the Buyer or the Seller as the
case may be, save for events having occurred in the ordinary
course of business;
(d) the information contained in the Schedules changes in such a way
as to cause significant detriment to the Buyer or the Seller as
the case may be, other than for reasons within the ordinary
course of business; or
(e) a Material Adverse Change has occurred between the date of this
Agreement and the Date of Completion.
6.3 The Seller and the Buyer shall use all reasonable endeavours (so far
as lies within their respective powers) to procure that Clearance is
obtained as soon as practicable and in any event no later than :
(a) 6pm (CET) on 30th June 2005; or
(b) at such later time and date as may be agreed in writing by the
Seller and the Buyer
6.4 The Buyer and the Seller shall co-operate fully in all actions
necessary to procure the Clearance including, but not limited to, the
provision by all Parties of all information reasonably necessary to
make any notification or filing or as requested by an relevant
authority, keeping all parties informed of the progress of any
notification or filing and providing such assistance as may reasonably
be required.
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Section II - Warranties And Representations
-------------------------------------------
7. WARRANTIES AND REPRESENTATIONS OF THE SELLER
--------------------------------------------
The Seller warrants and represents that at the date of this Agreement as well as
at Completion, the warranties and representations set out in this Clause 7 and
the information set out in the Schedules including the Disclosure Schedule are
true and complete except as qualified by any matter fairly disclosed in the
Disclosure Schedule.
7.1 Capacity of the Seller
7.1.1 The Seller has full capacity to enter into this Agreement, to perform
its obligations under this Agreement and to benefit from the rights
contained herein.
7.1.2 The Seller has not been and is not subject to any reorganisation,
bankruptcy or liquidation procedure and there are no grounds for
making the Seller subject to such procedure.
7.1.3 There exists no consent, authorisation or judicial decision which is
necessary for the Seller to execute and to perform its obligations
under this Agreement and which has not yet been obtained.
7.1.4 This Agreement validly binds the Seller in accordance with its terms.
7.2 Incorporation of the Company
7.2.1 The Company has been duly incorporated and a copy of its current
Memorandum and Articles of Association are attached in Schedule 4.
7.2.2 The Company operates in accordance with the laws and regulations which
are applicable to it. The statutory registers of the Company have been
and are regularly maintained and are true and accurate.
7.3 Share capital
7.3.1 The Seller is the sole shareholder in the Company.
7.3.2 The Sale Shares make up all of the issued share capital of the
Company. The Sale Shares are freely transferable and are the only
moveable financial assets issued by the Company. The Sale Shares have
never been quoted on any regulated or non-regulated stock exchange.
7.3.3 The Sale Shares are free from all Encumbrances.
7.3.4 There is no agreement or contract in respect of the Sale Shares
binding the Seller.
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7.4 Participation - Profit sharing agreements
7.4.1 The Company is not and has never been the owner of any direct or
indirect interest of whatever amount in any subsidiary or any other
company
7.4.2 The Company is not bound nor has it undertaken to be bound by any
contract or agreement seeking to share all or part of its profits with
any third party.
7.5 Accounts
7.5.1 The Accounts of the Company as at the Last Accounting Date, set out in
Schedule 5 or as substituted by the Accounts provided to the Buyer by
the Seller prior to Completion, have been prepared in accordance with
the Accounting Methods and Principles and are in accordance with those
methods and principles used by the Company to date. The Accounts are
true and accurate and give a fair view of the financial situation and
of the assets and liabilities of the Company as at the Last Accounting
Date as well as the operating result for the financial period to which
they relate.
7.5.2 The Management Accounts have been prepared in good faith and with due
diligence in accordance with the same accounting policies adopted in
the preparation of the Accounts and on bases and principles which are
consistent with those used in the preparation of previous management
accounts of the Company.
7.6 Liabilities
7.6.1 All the material liabilities of the Company, whether or not
contingent, are duly reflected in the Accounts and/or the Completion
Statement and are adequately provided for.
7.6.2 The Company has not granted any security, charge, guarantee,
encumbrance or letter of comfort for the performance of contractual
undertakings either by third parties or by the Company or by the
Seller or one of the Seller's Group Affiliates.
7.6.3 The Seller and/or the Seller's Group Affiliates have not given any
security, charge, guarantee, pledge for the performance of any of the
undertakings of the Company.
7.6.4 There exist no material off-balance sheet liabilities other than those
listed in Schedule 6.
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7.7 Personnel and corporate officers of the Company
7.7.1 The list of employees and officers of the Company set out in Schedule
7 contains true and complete details of their age, seniority, and job
title as the case may be, as well as their remuneration (including all
bonuses and benefits in kind).
All amounts due or accrued for all remuneration of any kind relating
to employees and corporate officers, as well as former employees, of
the Company have been calculated and paid in due time in conformity
with their respective contract of employment and with any other
applicable legal and tax rules. The Company has no debt or liability
whatsoever towards the employees.
Except for any increase rendered mandatory pursuant to any collective
agreement or an employment agreement, the Company is under no
obligation to increase the current rates of remuneration or grant any
bonus or any benefit to any of its employees at any future date.
7.7.2 Schedule 8 defines for the Company the applicable collective
agreements and details in respect of the Company and for each distinct
entity:
(a) The collective agreements and the applicable internal agreements;
(b) The systems of remuneration including bonuses, commissions, and
benefits in kind in favour of all personnel or certain categories
of salaried employees;
(c) Profit sharing or share option agreements;
(d) The customs and practices giving rise to supplementary collective
benefits and those arising out of law or the collective
agreements.
There is no pension, pre-retirement, post-retirement or profit sharing
scheme, life insurance policy, medical insurance scheme or any other
contract for the benefit of any of the Company's employees other than
as set forth in Schedule 9.
7.7.3 Set out in Schedule 10 for the Company are true and complete copies
of:
(a) contracts of employment of all employees;
(b) All undertakings, other than those contained in the agreements
referred to in (a) above, given to employees concerning
supplementary benefits and those provided for by law or
collective agreements in relation to notices, termination of
redundancy payments or other similar undertakings.
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<PAGE>
The terms and conditions of the work contracts binding the Company to
its employees comply with the legal and regulatory provisions and the
collective agreements applying to the Company and, consequently, do
not contain any provision contrary to the usual legal dispositions or
customary practices, in particular, but not limited to, any retirement
or departure benefits.
7.7.4 The Company has at all times completely and faithfully complied with
all applicable employment laws, including but not limited to the
statutory requirements relating to trade unions.
7.7.5 The corporate officers or managers of the Company do not benefit from
any employment contract, service contract with the Company or from any
particular benefit given by the Company. Similarly, no corporate agent
has collected any remuneration on behalf of the Company.
7.7.6 Schedule 11 sets out the current litigation in relation to employees
and details the parties who are subject to such proceedings, the
subject-matter of the litigation, the stage of the proceedings, the
sums claimed from the Company as well as the amount of the provision
made in good faith for such proceedings in the Accounts.
The Company is not liable to make any payment to any of its employees
or any former employee for damages or compensation for loss of office
or employment or for redundancy or dismissal.
There are no employee disputes (including without limitation, any
grievances or arbitration) or strikes, existing or - to the best of
the knowledge of Seller - threatened adversely affecting or
potentially affecting the financial situation or operations of the
Company.
7.7.7 All employees are qualified and trained to exercise the activities
they have been employed for and have obtained all the authorisations,
permits and licenses necessary to exercise such activities. These
authorisations, permits and licenses are in full force and effect and
the activities of the Company are carried out in accordance with such
authorisations, permits and licenses.
Schedule 12 contains a complete list of the employee authorisations
and permits.
7.8 Manchester and Edinburgh Premises
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For the purposes of this Clause 7 "Premises" shall mean the Manchester Premises
and the Edinburgh Premises both of which have the meaning as set out In Schedule
1.
7.8.1 The particulars of the Premises shown in Schedule 1 are true, complete
and accurate.
7.8.2 G4TS have a good and m arketable title to the Premises for the estate
or interest stated in Schedule 1.
7.8.3 The title deeds to the Premises are in G4TS's possession free from any
Encumbrance.
Rights enjoyed with the Premises
7.8.4 So far as the Company and G4TS are aware, there are appurtenant to the
Premises all rights and reasonably necessary for its present use and
enjoyment.
7.8.5 The Company is in occupation of the whole of the Premises and no other
person or corporate body other than G4TS has any right (actual or
contingent) to possession or occupation of the Premises, or any
interest in it.
7.8.6 The use of the Premises as stated in the Lease corresponds as to the
use to which it is in fact put,
Matters affecting the Premises
7.8.7 So far as the Company and G4TS are aware, without having made
investigations of any third party or other corporate or statutory body
in relation to the same, the Manchester Premises are not affected by
any of the following matters:
7.8.7.1 any matter which conflicts with the present use of the
Premises, or which would otherwise restrict its continued
possession and enjoyment, for the purposes set out in the
respective leases;
7.8.7.2 any outstanding breach or alleged breach of covenant or
obligation or of any other restriction or condition, or any
dispute or complaint within the three years prior to the date
of this Agreement, whether actual or threatened;
7.8.7.3 any outstanding notice, order, demand, resolution, proposal,
complaint or requirement issued or made, or to the knowledge
of the Company intended to be issued or made, by any local or
other competent authority or body.
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7.8.8 So far as the Company and G4TS are aware, without having made
investigations of any third party or other corporate or statutory body
in relation to the same, there are no closing, demolition or clearance
orders, enforcement notices or stop notices affecting the Premises
nor, to the best of the G4TS's knowledge, information and belief, are
there any circumstances likely to lead to any being made.
7.8.9 There are no disputes with any adjoining or neighbouring owners with
respect to boundary walls and fences or with respect to any easement,
right or means of access to the Premises.
Outgoings
7.8.10 The Premises are not subject to any outgoings (other than uniform
business rates, water charges and other standard payments to the
relevant water company and, in the case of leasehold property, rent,
service charge and insurance premiums under the lease) whether of a
periodically recurring nature or otherwise, and whether payable by the
owner or occupier of the Premises.
Compliance with statutes and planning obligations
7.8.11 G4TS has received no notices of breach and is not aware of any breach
of the permitted user pursuant to current planning legislation in
respect of the use of the Premises.
7.9 Scottish Leasehold Premises
7.9.1
(a) The particulars of the Scottish Leasehold Premises shown in
Clause 1 are true, complete and accurate.
(b) The Company has a good and marketable title to the Scottish
Leasehold Premises for the estate or interest stated in Clause 1.
(c) The title deeds to the Scottish Leasehold Premises are in the
Company's possession free from any Encumbrance.
(d) Save for the Edinburgh Premises and the Manchester Premises, the
Company does not own, is not in occupation of and is not entitled
to any estate or interest in any heritable or leasehold property
other than the Scottish Leasehold Premises. The Company is not
party to any uncompleted agreement to acquire or dispose of any
heritable, freehold or leasehold property.
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(e) Except in relation to the Scottish Leasehold Premises, the
Company has no liability (whether actual, potential or
contingent) in relation to any heritable or leasehold property
and in particular the Company has never assumed any liability
under a lease (whether as landlord, tenant, guarantor or
otherwise) other than any leases stated in Clause 1.
7.9.2 Rights enjoyed with the Scottish Leasehold Premises
So far as the Company is aware, there are appurtenant to the Scottish
Leasehold Premises all rights and servitudes necessary for its present
use and enjoyment.
7.9.3 Occupation and use of the Scottish Leasehold Premises
(a) Except for any leases, tenancies or other rights of occupation to
which the Scottish Leasehold Premises are subject, as stated in
Schedule 1, the Company is in occupation of the whole of the
Scottish Leasehold Premises and no other person has any right
(actual or contingent) to possession or occupation of the
Scottish Leasehold Premises, or any interest in it.
(b) The use of the Scottish Leasehold Premises as stated in the
appropriate leases corresponds to the use to which it is in fact
put.
7.9.4 Matters affecting the Scottish Leasehold Premises
(a) So far as the Company is aware, without having made
investigations of any third party or other corporate or statutory
body in relation to the same, the Scottish Leasehold Premises,
are not affected by any of the following matters:
(i) any matter which conflicts with the present use of the
Scottish Leasehold Premises, or which would otherwise
restrict its continued possession and enjoyment, for the
purposes set out in the appropriate leases;
(ii) any outstanding breach or alleged breach of covenant or
obligation or of any other restriction or condition, or any
dispute or complaint within the three years prior to the
date of this Agreement, whether actual or threatened which
has not been remedied;
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<PAGE>
(iii) any outstanding notice, order, demand, resolution,
proposal, complaint or requirement issued or made, or to
the knowledge of the Company intended to be issued or made,
by any local or other competent authority or body;
(b) So far as the Company is aware, without having made
investigations of any third party or other corporate or statutory
body in relation to the same, there are no demolition or
clearance orders, enforcement notices or stop notices affecting
the Scottish Leasehold Premises nor, to the best of the Company's
knowledge, information and belief, are there any circumstances
likely to lead to any being made.
(c) There are no disputes with any adjoining or neighbouring owners
with respect to boundary walls and fences or with respect to any
servitude, right or means of access to the Scottish Leasehold
Premises.
7.9.5 Outgoings
The Scottish Leasehold Premises are not subject to any outgoings
(other than uniform business rates, water charges and other standard
payments to the relevant water company and, in the case of leasehold
property, rent, service charge and insurance premiums under the lease)
whether of a periodically recurring nature or otherwise, and whether
payable by the owner or occupier of the Scottish Leasehold Premises.
7.9.6 Compliance with statutes and planning obligations
The Company has received no notices of breach and is not aware of any
breach of the permitted user pursuant to current planning legislation
in respect of the use of the Scottish Leasehold Premises.
7.10 Assets
The Company has good title to all the Assets used in its activities
except those Assets which it uses and which are subject to lease or
hire. The Assets are free from any Encumbrance or third party rights.
None of the assets which are either rented or leased by the Company
have been repossessed by their owners and the Company has committed no
breach which would allow the owner of the said assets to repossess
them.
7.11 Vehicles
The Company has good title to all the Vehicles (listed in Schedule 14)
used in its activities except the Rented Vehicles (listed in Schedule
15) which it uses and which are subject to lease or hire. The Vehicles
and the Rented Vehicles are free from any Encumbrance or third party
rights.
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The Vehicles listed in Schedules 14 and 15 are in good state of
maintenance and repair, taking into consideration usual wear and tear
and have passed their MOT (if relevant).
None of the Vehicles which are either rented or leased by the Company
have been repossessed by their owners and the Company has committed no
breach which would allow the owner of the said Vehicles to repossess
them.
7.12 Intellectual property rights
7.12.1 Subject to the licences referred to in Clause 7.11.3 the Company is
without restriction the legitimate owner of the Intellectual Property
Rights that it uses in carrying out its activities. A list of
Intellectual Property Rights indicating their place of registration is
set out in Schedule 16. These registrations are valid and enforceable
and the Seller has no knowledge of any matter which could lead to such
Intellectual Property Rights being the subject of opposition.
7.12.2 The Company does not use any Intellectual Property Right belonging to
third parties and has never been informed of any claim in this
respect.
7.12.3 The Company has not given to any third party any licence or other
authorisation to use the Intellectual Property Rights and has never
been informed of any use by a third party of such rights.
7.12.4 The Company benefits from licences in respect of the Intellectual
Property Rights set out in Schedule 17. These licences are valid, have
been validly granted to the Company and the Company has complied with
all its obligations in this respect. The Company has not granted any
sub-licence.
7.12.5 The Company is entitled to use without payment all material know how
and other material technical information used by it in connection with
its business or businesses and all information concerning the methods
and processes used by the Company, and no rights to disclosure or use
of any material know how or material technical information used by the
Company has been granted to or claimed by any third party.
7.12.6 None of the processes, products of the Company, know how or technical
or other information used by the Company infringes, to the best of the
Seller's knowledge and belief, any intellectual property or any right
of any other person, relating in particular to intellectual property,
or involves the unlicensed use of confidential information disclosed
to the Company by any person in circumstances which might entitle that
person to make a claim against the Company.
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7.12.7 There are no outstanding claims against the Company for infringement
of any intellectual property or of any rights relating to it used (or
which has been used) by the Company and no such claims have been
settled by the giving of any undertakings which remain in force. The
Company has not received any actual or threatened claim that any of
the Intellectual Property Rights is invalid.
7.12.8 Confidential information, including know-how and trade secrets used by
the Company are kept strictly confidential. The Company has not
disclosed any of its confidential information to any other person save
where a legally binding and of full force and effect confidentiality
agreement in respect of such disclosure is in place. The Seller and
the Company are not aware of any such confidentiality having been
breached.
7.12.9 Schedule 18 details the computer software used by the Company and sets
out, whether such computer software belongs to the Company or whether
the Company has a licence in respect of it. The Company has not
granted a licence to any third party in respect of the computer
software belonging to it and it has no knowledge of any use of such
computer software by any third party. The Company does not use without
authorisation, computer software belonging to third parties and has
not been informed of any claim in this respect.
7.12.10 The computer software owned by the Company or in respect of which the
Company has been granted a license is sufficient and appropriate to
enable the Company to exercise its present activities.
7.12.11 So far as the Seller is aware disaster recovery plans are in effect
and are adequate to ensure that the computer hardware, computer
software and/or data can be replaced or substituted without material
disruption to the business of the Company.
7.12.12 So far as the Seller is aware the Company has adequate procedures to
ensure internal and external security of the computer hardware,
computer software and data, including (without limitation) procedures
for preventing unauthorised access, preventing the introduction of a
virus, taking and storing on-site and off-site back-up copies of the
computer software and data.
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7.12.13 The computer hardware and the computer software have not in the period
of 12 months immediately prior to Completion been unduly interrupted
or hindered the running or operation of the Company's business.
7.13 Insurance
7.13.1 The Company has at all times maintained insurance coverage of a type
and level reasonably appropriate to the businesses carried out by it
in respect of, in particular but not limited to, its Assets and
Vehicles, whether owned or rented, Leasehold Premises, activities and
operations.
7.13.2 Schedule 19 lists the insurance policies entered into by the Company
and which will be available after the Completion together with the
insurance policies entered into by the Company and which will not be
available after Completion.
7.13.3 These policies extend to all risks which have to be or are normally
insured against in respect of the activities carried out by the
Company, and more particularly all loss of opportunity or any other
liability resulting from the products.
7.13.4 Schedule 20 sets out the incidents for the previous three (3)
accounting periods in respect of which the Company has made claims
under the policies set out in Schedule 19 together with the amount of
payments made under such policies.
7.13.5 The Company is up-to-date with the payment of its premiums in respect
of the policies mentioned in Schedule 19 and has complied with all
formalities and contractual clauses contained in such policies; the
Company has not been informed by the insurance companies concerned of
their intention to increase the premiums, or to terminate the policies
or not to renew them.
7.14 Environment
7.14.1 The Company has complied with and is not in violation of the UK
legislation in place in relation to environmental matters in respect
of protection of the environment and nature, waste, water, soil and
sub-soil pollution, storing, labelling, packaging and transport of
hazardous, radioactive or carcinogenic materials, substances,
preparations and products.
7.14.2 To the Seller's and the Company's knowledge there are no hazardous
materials contained in the soil, groundwater or buildings of the
Leasehold Premises which could lead to a danger, material
disadvantage, nuisance to individuals or the public or otherwise
requiring instantly to be removed or otherwise cured pursuant to any
presently existing mandatory law or any existing or threatened
governmental or municipal order.
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7.15 Litigation
7.15.1 The Company is not subject to any claim from third parties,
contentious or non-contentious, in respect of any default in
performance of its obligations resulting from contracts, agreements or
undertakings signed by it.
7.15.2 The Company is not subject to any litigation, legal proceedings,
investigation or administrative proceedings or arbitration, and there
is no fact or event which suggests that such proceedings may arise.
7.15.3 The Company is not, and has not been, parties to or concerned by any
agreement, decision or practice by Article 81 of the Treaty of Rome,
nor is it abusing nor has it abused, a dominant position as prohibited
by Article 82 of the Treaty of Rome.
7.16 Customers and suppliers
7.16.1 Schedule 21 contains a list of the twenty (20) main customers of the
Company.
7.16.2 Schedule 22 contains a list of the top five (5) suppliers of the
Company.
7.17 Contracts
7.17.1 Schedule 23 contains a list of the contracts entered into by the
Company:
(a) with its customers and involving an amount of seventy thousand
pounds ((pound)70,000) or more per annum;
(b) with its suppliers and involving an amount of thirty-five
thousand pounds ((pound)35,000) or more per annum.
7.17.2 The Contracts referred to in Clause 7.17.1 (the "Material Contracts")
are sufficiently legally documented to enable the Company to exercise
its rights thereunder. The Material Contracts are in full force and
effect and are not subject to any contentious or non-contentious
claim. The Company has complied with its contractual obligations and
the Seller has no knowledge of any event which may exist which may
give rise to termination or render the contracts void or which may
authorise a third party to demand prompt payment or give rise to any
liability on the part of the Company or its officers or employees.
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7.17.3 Neither the execution of this Agreement nor the performance of the
Agreement contemplated herein will violate or conflict with the
constitutional documents of the Company, or violate or constitute a
default under any material contract, agreement, mortgage, or other
instrument or order, judgement or ruling of any governmental authority
to which the Company is a party or to which any of its property is
bound.
7.17.4 There exists no contract or undertaking containing a termination
clause or a prompt payment clause or a modification to the provisions
in the event of a change of owner of the Company.
7.18 Tax Regulations
7.18.1 The Company has paid all Taxes owing under any Tax Regulations
(whether or not reflected on any tax return), and has withheld and
paid all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, independent contractor,
creditor, shareholder, or other party, and has collected and paid all
Taxes required to have been collected and paid in connection with
amounts charged to customers or other parties, and adequate provisions
have been made in the Accounts for all future Taxation relating to the
period before Completion. For purposes of determining whether adequate
provisions have been made in the Accounts, Tax items shall be
apportioned between pre-Completion activities and post-Completion
activities based upon a closing of the books and records of the
Company as of Completion (or, if an actual closing is not feasible, on
an equitable pro forma basis that has a comparable economic result to
the result that would have been obtained had an actual closing
occurred).
7.18.2 The Company has satisfied all filing requirements for tax returns or
other declarations required by the Tax Regulations in the form
required within the necessary time limit.
7.18.3 The Company has complied with all applicable Tax Regulations of the
UK.
7.18.4 The Company is not subject to any current or proposed tax examination,
enquiry or investigation in relation to Taxes and the Company is not
aware, directly or indirectly, of any tax examination, enquiry or
investigation in respect of Taxes or any enquiry instigated by an
administrative authority leading, or likely to lead to the payment of
a Tax or an assessment of any Tax . The Company has not received any
notice of assessment which remains to be discharged, nor has it
otherwise been informed (in writing or orally) by any administrative
authority of its intention to issue any assessment whatsoever. The
Company is not and does not expect to be involved in any dispute
relating to Tax.
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7.18.5 The Company has not entered into any agreement, transaction,
arrangement, or scheme which might be reassessed, rejected or
re-qualified on the grounds that the Company has attempted to evade,
circumvent or reduce its Tax obligations or that of another person.
7.18.6 The Company has not entered into any agreement, transaction,
arrangement, or scheme or obtained any concession, allowance or
abatement in respect of a Tax, with any administrative or political
authority whatsoever that is not based on a strict application of the
Tax Regulations.
7.18.7 The Company is incorporated under the laws of England and Wales and
has always been exclusively resident in Scotland and England for the
purpose of Taxes, and has no permanent establishments or other taxable
presence for the purpose of or as defined by Tax Regulations, in any
country outside of Scotland and England.
7.18.8 The Company maintains its accounts and records for a minimum period of
7 years.
7.18.9 No liens for Taxes are imposed upon the Company's assets.
7.18.10 There are no outstanding rulings of, or requests for rulings with, any
taxing authority addressed to the Company that are, or if issued would
be, binding upon the Company for any period following Completion.
7.18.11 The Company has not agreed to the extension of time with respect to
the filing of any tax return or other declaration, the payment of any
Taxes, or any limitation period regarding the assessment or collection
of any Taxes.
7.18.12 No item of income or gain reported for Tax purposes in any
pre-Completion tax period will be required to be included in taxable
income for any post-Completion tax period.
7.18.13 The Company has not within the period of six years ending on the date
of this Agreement paid or become liable to pay any penalty, fine,
surcharge or interest in connection with any Tax.
7.18.14 The amount of Tax chargeable on the Company during any accounting
period ending on or within the six years before Completion has not
depended on any concessions, agreements or other formal or informal
arrangements with any taxing authority.
7.18.15 All applications for clearance or consent by the Company or on its
behalf or affecting the Company has been made and obtained on the
basis of full and accurate disclosure to the relevant taxing authority
of all relevant material facts and considerations; and for any
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transaction for which clearance or consent was required, such
clearance or consent and the relevant transaction was carried into
effect only in accordance with the terms of the relevant clearance or
consent.
7.18.16 The Company has filed all requests, forms and applications to get a
Tax refund, a Tax reduction, credit for Taxes paid or accrued, input
tax relief, tax loss carry forwards or any other Tax benefit in a
timely manner.
7.18.17 No liability to national insurance contributions or obligation to
account for income tax could fall on the Company as a result of a
chargeable event (within the meaning of Part 7 Income Tax (Earnings
and Pensions) Act 2003) before, at or after Completion in respect of
securities and interests in securities made available or securities
options granted to an employee or director prior to Completion and no
share incentive scheme in which employees or directors of the Company
participate has been established by the Company, the Seller or any
Seller's Group Affiliate.
7.18.18 The Company is not, nor will it become, liable to pay, or make
reimbursement or indemnity in respect of, any Taxes (or amounts
corresponding to any Taxes) payable by or chargeable on or
attributable to any other person, whether in consequence of the
failure by that person to discharge that Tax within any specified
period or otherwise, where such Tax relates to a profit, income or
gain, transaction, event, omission or circumstance arising, occurring
or deemed to arise or occur (whether wholly or partly) on or prior to
Completion.
7.18.19 The Company does not own any asset which, as a result of the sale of
the Shares pursuant to this Agreement, will give rise to a charge
under section 179 Taxation of Chargeable Gains Act 1992.
7.18.20 The Company has not claimed relief from stamp duty or stamp duty land
tax in circumstances where such relief could be withdrawn (whether by
reason of the sale of the Shares under this Agreement or otherwise).
7.18.21 The Company has not entered into any group payment arrangements under
the provisions of section 36 Finance Act 1998.
7.18.22 The Company has not undertaken, or agreed to undertake, any
transaction or made any provision which is otherwise than on fully
arm's length terms and there are no circumstances which could cause
any taxation authority to make or require to be made any adjustment to
the terms on which such transactions are or such provision is treated
as taking place. Documentation is available to demonstrate the
criteria taken into account in determining arm's length terms for
transactions to the extent required by law.
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7.19 Bank accounts, delegations of power, etc.
7.19.1 Schedule 24 lists the bank accounts and safety deposits in the name of
the Company and sets out the authorised signatories as well as the
required conditions, in particular in relation to joint signatories,
for the operation of the accounts and access to the safety deposits.
7.19.2 Schedule 25 contains a list of all nominated signatories, delegations
of power, proxies and authorisations of whatever nature and form
granted by the Company to any person for other purposes than the
operation of bank accounts.
7.20 Authorisations and other permits
The Company has all the Authorisations necessary to exercise its
present activities. These Authorisations are in full force and effect
and the activities of the Company are carried out in accordance with
such authorisations and permits.
7.21 Effect of the transfer of the Sale Shares
The transfer of the Sale Shares to the Buyer will not affect in an
adverse way the legal situation of the Company and will have no effect
on the rights and obligations of the Company in respect of any person;
in particular, the transfer of the Sale Shares will not give rise to
any event of default or termination of any of the contracts to which
the Company is a party.
7.22 Material adverse change
Since the Last Accounting Date:
(a) There has been no distribution to shareholders, nor any
depreciation, increase or reduction in capital in the respect
of the Company;
(b) No undertaking or obligation has been entered into which is
outside the usual business of the Company or has been entered
into in unusual circumstances;
(c) The activities of the Company have been carried out in the
ordinary and normal course of business in such a way as to ensure
their continuity;
(d) The Company has not amended the Accounting Methods and Principles
and has not revalued any assets, nor written-off any debt in
excess of five thousand pounds ((pound)5,000).
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7.23 Representations, Warranties and Schedules true and correct
The representations and warranties contained herein, as well as the
Schedules attached, are true, exact and complete as of the date of
this Agreement.
There is no undisclosed fact, agreement or document which, if it had
been disclosed, would be reasonably expected to have caused the Buyer
not to enter into this Agreement or to enter into this Agreement on
materially different terms.
8. OTHER OBLIGATIONS OF THE SELLER
-------------------------------
8.1 Management of the Company up to Completion
8.1.1 The Seller warrants and represents that from the Date of this
Agreement until Completion:
(a) No decision will be taken by the Company which affects or could
affect in a material and adverse way the financial assets and
liabilities the situation or the profitability of the Company;
(b) No decision on the declaration or payment of dividends or any
other distribution to shareholders, nor any depreciation,
increase or reduction in capital will be taken in respect of the
Company;
(c) No undertaking or obligation will be entered into outside the
usual business of the Company or subject to unusual conditions;
(d) The activities of the Company will be managed in the ordinary and
normal course of business and in such a way as to ensure its
continuity;
(e) The Company will use its commercially reasonable efforts to
preserve its relationship with its customers, suppliers and
others having a business relationship with the Company;
(f) The Company will not modify in any way the Accounting Methods and
Principles and will not revalue any assets, nor write-off any
debt.
8.1.2 Without limitation to the general character of Clause 8.1.1 above, the
following decisions will require the prior written consent of the
Buyer but so long as such consent is given, will not constitute a
breach of Clause 8.1.1 provided that the Buyer may not unreasonably
withhold such consent if the Seller demonstrates that such decision is
necessary to ensure the full viability, marketability or
competitiveness of the Company:
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(a) A single payment exceeding in total (pound)35,000 (thirty-five
thousand pounds), with the exception of reimbursements previously
made by the Seller and of which the Buyer is aware and payments
in respect of salaried employees, Taxes and rents;
(b) The granting of, or application by the Company for a loan, credit
or monetary facility;
(c) The granting of, or application by the Company for a guarantee,
charge, pledge or other encumbrance and the execution of any
letter of intent or letter of comfort;
(d) The entering into of any agreement with corporate officers or
employees of the Company and any increase in remuneration not
imposed by law or a contract in force at the date of this
Agreement, as well as the granting of any benefit whatsoever;
(e) The recruitment of all salaried employees having a gross annual
remuneration in excess of (pound)21,000 (twenty one thousand
pounds), or the negotiation of any agreement whatsoever in
relation to collective agreements of employees of the Company;
(f) Salary increases of employees having a gross annual remuneration
in excess of (pound)21,000 (twenty-one thousand pounds);
(g) The entering into new employment contracts that would have a
material impact or materially modify the terms and conditions of
the current employment agreements;
(h) The launching of new activities or new products;
(i) The entering into of all contracts in excess of a sum of
(pound)35,000 (thirty-five thousand pounds) or with a fixed
duration exceeding twelve (12) months;
(j) The termination by the Company of all contracts in excess of a
sum of (pound)21,000 (twenty-one thousand pounds)or with a fixed
duration exceeding twelve (12) months;
(k) All changes in the activity or in the Memorandum or Articles of
Association of the Company; and
(l) Transfer of any assets of the Company.
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8.1.3 From the date of this Agreement until the Date of Completion, the
Seller will notify the Buyer (i) of any emergency or material change
in the normal conduct of the Company and (ii) of the threat or the
initiation of any litigation against the Company, and will keep Buyer
fully informed of developments with respect to such events and afford
Buyer's representatives full access to all materials in its possession
relating thereto.
8.2 Situation at Completion
8.2.1 The Seller warrants that all the representations and warranties
contained in Clause 7 and the information set out in the Schedules
including the Disclosure Schedule will, be true and complete at
Completion as if such representations and warranties had been given
and granted as that date.
8.2.2 The Seller may update the Schedules of this Agreement in order to take
into account changes arising prior to Completion or matters in
relation to which the Buyer has given its consent. The Seller shall
notify the Buyer of all changes to the Schedules and wherever
reasonably practicable the changes to the Schedules shall be made and
notified to the Buyer at least 48 hours prior to Completion.
8.3 Non-competition, non-solicitation and confidentiality undertaking
8.3.1 Except as provided in Clause 8.4.2 or as compelled by law or legal
authority, with effect from the Date of this Agreement and for a
period of three years from the date of Completion, the Seller
undertakes that neither the Seller nor Seller's Group Affiliates for
whom the Seller is responsible, shall at any time directly or
indirectly by themselves or in conjunction with any other party or
venture, unless first authorised by the Buyer in writing, utilize or
disclose to any third party any commercial secret, know-how or
confidential information belonging to the Company or its activities.
Notwithstanding the foregoing, save as compelled by law or legal
authority, in no circumstances may such information be utilised or
disclosed for a period of 6 months following Completion.
8.3.2 From the Date of this Agreement and for a period of six months from
the date of Completion, the Seller undertakes that neither the Seller
nor the Sellers' Group Affiliates for whom it is responsible, shall at
any time directly or indirectly by themselves or in conjunction with
any other party or venture, canvass or solicit orders for the supply
of services substantially similar to or otherwise competing with those
supplied by the Company as at Completion in the normal course of
business from any person who was a customer of the Company as at 28
May 2004 or is a customer at the date of Completion, or induce or seek
to induce any such person to cease being a customer of the Company.
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8.3.3 From the Date of this Agreement and for a period of two years from the
date of Completion, the Seller undertakes that neither the Seller nor
the Sellers' Group Affiliates for whom it is responsible, shall at any
time directly or indirectly by themselves or in conjunction with any
other party or venture, solicit any of the employees of the Company
whose names are listed below to leave their present or future
functions within the Company or employ directly or indirectly such
employees. The employees in respect of whom these provisions apply
are:
o Fiona Burke
o Denise McNeill
o Ken Barnes
o Malcolm Young
o Carol Moloney
o Claire Peck
8.4 Undertaking of exclusivity
8.4.1 Except as provided in Clause 8.4.2 the Seller undertakes neither to
transfer Sale Shares to a third party, nor to grant any third party
any rights over the Sale Shares nor to take any steps nor to engage in
any negotiation in relation to acquiring any interest in the capital
of the Company, nor take any action, whether directly or indirectly,
with the intention of impeding or preventing the Buyer from purchasing
the Sale Shares, until Completion, or until termination of this
Agreement.
8.4.2 It is understood that the Seller shall not be precluded from advancing
discussions with prospective alternative buyers of the Company
provided however that the Seller shall:
(i) enter into all necessary and appropriate legally binding
confidentiality undertakings with all such other prospective
alternative buyers;
(ii) fully coordinate all discussions with, and hold such discussions
only with, the Monitoring Trustee approval. Any action or
disclosure of information shall be limited to what the the
Monitoring Trustee deems permissible, with a view to:
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(a) ensuring that no information is provided that is commercially
sensitive or that could endanger the viability and stability of
the Business; and
(b) preserving the current and future competitiveness of the
Business;
(iii) inform all alternative buyers of the fact that the Seller has
entered into a legally binding and confidential agreement for
the sale of the Shares to the Buyer, subject only to EU
Commission approval. Accordingly, all prospective alternative
buyers shall be made specifically aware that their engagement in
the sale process is only as an alternative in the event that the
Transactions with the Buyer fail to close;
(iv) be precluded from providing prospective alternative buyers
access to management and employees of the Company and Company
site visits;
(v) not develop or discuss any potential transaction with an
alternative buyer beyond a stage that could reasonably be
characterised as preliminary drafting based on the first draft
Sale and Purchase Agreement provided initially to the Buyer. For
the avoidance of doubt, no final documents shall be agreed or
exchanged, regardless of whether or not they are legally
binding.
(vi) together with the Buyer, use their respective best endeavours to
coordinate and promptly take any action that is deemed
reasonably necessary or advisable by the parties to facilitate
the EU Commission approval of the Seller's submission and
request for approval of this Transaction; and
(vii) refer prospective alternative buyers only to Graham Foster and
S0ren Lundsberg-Nielsen both of G4S plc, who shall be the only
authorised individuals to deal with any prospective alternative
buyers.
8.5 Transitional period and services
8.5.1 The Company shall be authorised, subject to its entering into a trade
mark licence in the form set out in Schedule 26, during a maximum
period of six months from the date of Completion, to continue to use
all patents, trademarks, service marks, trade names, logos, company
names, designs and models, know-how, copyrights and industrial
property rights which are currently registered in the name of the
Company or used by the Company, including the stationery and uniforms,
but only in the same manner and for the same purposes as they were
used prior to the date of Completion
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For the avoidance of doubt, no other rights whatsoever are granted to
the Company or the Buyer in respect of the names "Securicor", "Group
4" "Group 4 Falck" or "Falck" or any associated trademarks.
8.5.2 The Seller has committed to provide the Company with necessary and
adequate transitional services for up to 6 months post Completion as
reasonably requested by the Buyer and reasonably sufficient to enable
the Company to be fully functional in relation to its business as
conducted prior to Completion. The Buyer will use its best efforts to
make the transition as short as possible and cease the use of the
services as soon as possible within the 6 month period. The outline of
the main services currently being provided to the Company is specified
in Document 18 referred to in Schedule 2, Part (b). Prior to
Completion the parties will use their best efforts to develop and
agree a comprehensive Transitional Services Agreement ("TSA")
specifying the services to a degree necessary for the practical
implementation of the services. The transitional services shall be
provided by the Seller at no cost to the Buyer or the Company.
8.5.2.1 The Seller shall provide the following transitional services
to the Company:
(a) Collect, compile, analyse and present the monthly management
accounts consistent with past practice, subject to the
information being provided by the Company in a timely manner
meeting the same reporting deadlines as prior to divestment.
(b) Continue to provide management information consistent with past
practice and provide the same availability as prior to the
divestment.
(c) Making available appropriate and agreed procurement and
purchasing systems and information and provide necessary and
relevant supervision of actual procurement.
(d) Making available appropriate and agreed invoicing and credit
control systems and information and provide necessary and
relevant supervision of actual invoicing and credit control.
(e) Making available an appropriate and agreed payroll system and
providing the necessary and relevant supervision for the actual
handling of the payroll.
(f) HR support comprising general advice and guidance, mainly
provided by phone and e-mail as a back office hot line service.
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(g) Contract management comprising general advice and guidance,
mainly provided by phone and e-mail as a back office hot line
service.
(h) Support for supervising and maintaining the IT systems with the
aim of preserving the same availability and functionality as pre
Completion. Further, necessary support and supervision to
facilitate migration of IT systems to be operated on a stand
alone basis and/or provide the integration into and connection to
the Buyer's IT Systems.
(i) To the extent that the Company prior to Completion as part of its
ordinary operation was utilising services provided by the Seller
or a Seller's Group Affiliate, which is not adequately covered as
part of sub-clauses (a) to (h) above, then such additional
service shall continue to be provided by Seller as a transitional
service consistent with past practice.
(j) All equipment utilised by the Company, as part of its ordinary
operation prior to Completion shall be deemed as an asset
belonging to the Company, regardless of whether the Company has
title or other legal entitlement to use such asset, with the
effect that the Seller or a Seller's Group Affiliate cannot claim
a right to take possession of such equipment. However, should the
Seller intend to take possession of any such asset then the
Seller shall give the Buyer reasonable prior notice before taking
any such action.
8.5.2.2 The Seller shall supply such specified transitional service
on the following main conditions:
(a) Seller is providing the services at its own cost and shall not
invoice any cost to the Buyer or the Company.
(b) Seller has the management control over by whom and how such
services will be provided.
(c) Seller shall not undertake any liabilities for the provision of
services or liability for the services or lack of same beyond
what liabilities a non-related outsourcing provider would
normally be expected to accept to undertake.
(d) If Buyer requests service beyond the 6 month period and Seller
agrees to provide such service, Seller reserves to do this on an
arms length charging basis.
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9. REPRESENTATIONS AND WARRANTIES OF THE BUYER
-------------------------------------------
9.1 The Buyer represents and warrants to the Seller that the Buyer is a
company which is duly incorporated and registered, that it validly
exists under the laws of England and Wales, is not in administration
proceedings and is not subject to a voluntary liquidation procedure;
the Buyer represents and warrants equally that it is not subject to
any proceedings whether or not criminal which restricts the Buyer from
purchasing the Sale Shares in accordance with the terms of this
Agreement and that its directors and other corporate officers are not
subject to any criminal proceedings restricting them from exercising
the powers or functions they may exercise on behalf of the Buyer. The
Buyer represents and warrants that the signing of this Agreement has
been duly authorised by its corporate bodies and that this Agreement
constitutes for it an agreement which is binding in accordance with
its terms.
9.2 In order to ensure full and complete information, the Seller has
delivered to the Buyer and its advisors, the documents and information
listed in Schedule 27, such documents and information contain legal,
financial, accounting and commercial data. It is on the basis of these
documents and this information delivered to and reviewed by the Buyer
that the Buyer has decided to purchase the Sale Shares in accordance
with the terms of this Agreement.
It has been expressly agreed between the Parties that the
representations and warranties of the Buyer in this Agreement will
have no effect on the scope of the representations and warranties of
the Seller contained in Clause 7 and, save for the warranty given in
Clause 9.3, on the effectiveness of the claims procedures contained in
this Agreement and in particular in Clause 10. Only the information
contained in this Agreement or in its Schedules attached (as it exists
of the Date of this Agreement or which is updated in accordance with
Clause 8.2.2 may release the Seller from its liability in accordance
with Clause 10.
9.3 The Buyer hereby warrants to the Seller that it has no actual
knowledge of a breach of or inconsistency with any of the warranties
or representations set out in Clause 7, except for matters set out in
the Disclosure Schedule and except for the fact that the Company has
historically claimed Industrial Buildings Allowances until 2001;
notwithstanding the foregoing, to the extent that this fact may be a
breach or inconsistency with any of the warranties and
representations, the Buyer would have a claim.
9.4 The Buyer acknowledges that it has not been induced to enter into this
Agreement by, nor has it relied upon, anything other than the entirety
of this Agreement, including but not limited to the representations
and warranties set out in Clause 7.
41
<PAGE>
SECTION III - INDEMNIFICATION
-----------------------------
10. INDEMNIFICATION
---------------
10.1 Principle
10.1.1 The Seller undertakes to indemnify the Buyer, or any other person
nominated by the Buyer, against:
(a) any Loss that the Company or the Buyer may suffer by virtue of a
reduction in the value of an item of assets or an increase in the
value of an item of liabilities resulting from a liability not
being specifically accounted for or insufficient provision being
made for it in the Accounts, as long as the cause or origin of
this reduction in assets or increase in liabilities arises prior
to Completion;
(b) any Loss that the Company or the Buyer suffer as a result of any
breach, inaccuracy or omission in the representations and
warranties contained in Clause 7 or of the non-performance by the
Seller of any of its obligations under this Agreement, as long as
such Loss has not been indemnified in full by the provisions of
Clause 10.1.1 (a) above;
(c) any Loss that the Company suffers in respect of Taxes in relation
to a period prior to Completion which has not been accounted or
provided for in the Accounts;
(d) any Loss that the Company suffers in respect of value added tax,
whether such Loss arises in respect of matters occurring before
or after Completion, where the liability in question relates to
supplies made by any company (other than the Company) which is or
was a member of the same value added tax group as the Company on
or before Completion.
10.1.2 The obligation to indemnify applies as well to all events which occur
between the Date of this Agreement and Completion and which have the
effect of rendering the representations, warranties and undertakings
contained in Section II incorrect or incomplete whether or not the
Loss suffered could not be ascertained or was not ascertained until
after Completion.
10.1.3 If the Loss to which the provisions of Clause 10.1.1 applies relates
to Taxes, the undertaking of the Seller under Clause 10.1.1 to
indemnify the Buyer is agreed to be an undertaking to pay to the Buyer
an amount equal to the liability to Taxes.
42
<PAGE>
10.2 Net Loss
The Seller is only liable to indemnify the net Loss. In this respect,
the total indemnity under this clause will be calculated taking into
account the following factors:
(a) If the event which forms the basis of a request for an indemnity
for Loss has given rise to the making of a provision in the
Accounts, the amount of the indemnifiable Loss will be reduced by
the amount of the provision in the Accounts specifically booked
to cover such Loss;
(b) If the event gives rise to an insurance claim and recovery paid
to the Company or to the Buyer, the amount of the Seller's
liability shall be reduced by such payment;
(c) Any tax adjustment which has the sole effect of transferring an
expense or an income from one financial year to the next
financial year will only be taken into account in respect of
interest and late payment penalties on the transfer of such
expenditures or income;
(d) All amounts paid by the Seller or the Buyer, as the case may be,
under the terms hereof shall be treated to the extent permitted
under applicable tax law as adjustments to the Purchase Price for
all Tax purposes, and to the extent not so permitted, the amount
of any such payment shall be increased to take into account the
Tax, if any, resulting from the receipt of such payment.
10.3 Limitations of Liability
10.3.1 The Seller shall not be liable to the Buyer pursuant to Clause 10.1 or
for a breach of the warranties or representations set out in Clause 7:
10.3.1.1 to the extent that the claim relates to any matters disclosed
in the Disclosure Schedule.
10.3.1.2 to the extent that a claim arises:-
(a) wholly or partly from an act or omission occurring at the request
of or with the written consent of the Buyer or (on or after the
date of Completion) the Company;
(b) wholly or partly from an act or omission since the last Accounts
Date compelled by law;
43
<PAGE>
(c) wholly or partly as a result of any increase in rates of taxation
since the Last Accounting Date;
(d) wholly or partly as a result of the passing after Completion of
an enactment or other government regulation with retrospective
effect.
10.3.1.3 to the extent that the subject of the claim:
(a) has been or is made good or is otherwise compensated for without
cost to the Buyer or the Company; or
(b) is or but for this Agreement would be recoverable by the Company
by insurance in place at Completion, or would have been so
recoverable but for any change in the terms of insurance since
the date of Completion.
10.4 Where the Buyer and/or the Company are at any time entitled to recover
from some other person any sum in respect of any matter giving rise to
a claim under Clause 10.1 or under any of the other provisions of this
Agreement the Buyer shall and shall procure that the Company shall
undertake all reasonable steps to enforce such a recovery prior to
taking any action (other than notifying the Seller of the claim)
against the Seller and in the event that the Buyer or the Company
shall recover any amount from such other person the amount of the
claim against the Seller shall be reduced by the amount recovered
PROVIDED THAT
(i) the costs and expenses of such action are paid for by the Seller;
and
(ii) time for bringing a claim against the Seller pursuant to Clauses
12.1 or 12.2 is extended to a period of three months following
cessation of such third party claim.
10.5 If the Seller pays at any time to the Buyer or to the Company any
amount pursuant to a claim pursuant to Clause 10.1 and the Buyer or
the Company subsequently becomes entitled to recover from some other
person any sum in respect of any matter giving rise to such claim the
Buyer shall procure that the Company shall take all necessary steps to
enforce such a recovery and shall forthwith repay to the Seller so
much of the amount paid by them to the Buyer or the Company as does
not exceed the sum recovered from such other person less all costs,
charges and expenses incurred by the Buyer or the Company in
recovering that sum from such other person.
44
<PAGE>
10.6 The Buyer shall be liable to the Seller in respect of any Loss that
the Seller suffers as a result of any breach, inaccuracy or omission
in the representations and warranties contained in Clause 9 or of the
non-performance by the Buyer of any of its obligations under this
Agreement.
10.7 The Buyer accepts that it has a general duty to mitigate its Loss.
11. FLOOR THRESHOLD AND CEILING
---------------------------
11.1 Floor
The Seller will only be liable to the Buyer under Clause 9 or Clause
10 if an individual Loss giving rise to a claim under this Agreement
exceeds the sum of (pound)7,000 (seven thousand pounds).
11.2 Ceiling
The total amount for which the Seller may be liable under this
Agreement shall not exceed an amount which is equal to 100% of the
Purchase Price.
11.3 Exception
The floor and ceiling in this Clause 11 will not apply :
(a) in the case of fraudulent or intentional conduct of the Seller in
the context of the operations set out in this Agreement;
(b) to claims arising from a violation of Clause 7.17 (Tax) of this
Agreement;
(c) to claims arising from a violation of Clause 7.13 (Environment)
of this Agreement, where the ceiling for such claim shall not
exceed an amount equal to 50% of the Purchase Price;
(d) to claims arising from any customers of the Company alleging a
loss or shortfall in the Customer Accounts.
(e) in the case of the warranty provided in Clause 7.5.1 where this
refers to the Accounts as at 31 December 2004.
12. DURATION OF INDEMNIFICATION
---------------------------
12.1 Requests for Indemnification pursuant to this Agreement in respect to
Taxes must be received before the expiration of a period of seven
years (save where the relevant limitation period applicable to Taxes
is longer than seven years or increased beyond seven years with
retrospective effect, in which case such increased period shall be
applicable) plus three (3) months, from the date of Completion.
45
<PAGE>
12.2 Save as otherwise specifically provided any other requests for
indemnification pursuant to this Agreement must be received before the
expiration of a period of eighteen (18) months from the Date of
Completion. Claims under Clause 8.3 of this Agreement are not subject
to this limitation on the period during which such claims may be
brought.
12.3 The Buyer shall not lose its right to indemnification at the
expiration of the limitation periods referred to above as long as the
requests pursuant to this Agreement (or the events which may give rise
to a claim) are notified before the expiration of such periods
PROVIDED THAT the liability of the Seller for any claim shall
absolutely cease (unless the amount payable in respect of a claim has
been agreed by the Seller within 6 months of the date of written
notice given pursuant to Clause 12.1 or Clause 12.2 (as the case may
be)) if legal proceedings have not been instituted in respect of such
claim within 6 months of the date of written notice given pursuant to
Clause 12.1 or Clause 12.2 (as the case may be)(or such later date as
the Buyer and Seller may agree).
13. PENSIONS INDEMNITY
------------------
13.1 The Seller shall continue to bear full responsibility for the
provision of all benefits whatsoever (whether through a group pension
scheme or schemes or otherwise) on retirement or death for all
employees of the Company in respect of the period to Completion. The
Seller shall indemnify the Buyer in full against any costs or expenses
incurred by the Buyer or the Company on or from Completion arising
from any obligation of the Company, including any failure by the
Company to comply with any such obligation, in respect of any
arrangement (including any oral promise or any obligation which has
developed from custom and practice) for the provision of all benefits
on retirement or death in respect of the period to Completion. If the
Buyer requests the Seller to provide it with any information which it
requires with a view to establishing pension arrangements for the
employees of the Company following Completion, the Seller shall, as
soon as practicable after such request, provide the Buyer with such of
the information requested which it is reasonable for the Buyer to
request and which it is practicable for the Seller to provide.
46
<PAGE>
13.2 For a period of 6 months following the date of Completion, no notices,
invitations and announcements relating to the pension arrangements
made available to, or to be made available to, the employees of the
Company will be issued by the Buyer or the Seller without the prior
written agreement of the other party (such agreement not to be
unreasonably withheld or delayed).
13.3 For the avoidance of doubt the indemnity provided for under this
Clause 13 shall not be subject to any disclosures, qualifications or
limitations (as to time or amount) which are set out in any other
provision of this Agreement and in particular in Clauses 10, 11 and
12.
14. NOTIFICATION PROCEDURE AND PAYMENT OF THE INDEMNITY
---------------------------------------------------
14.1 Principle
14.1.1 Any event capable of giving rise to an obligation to indemnify must be
notified in writing by the Buyer to the Seller forthwith upon the
Buyer becoming aware of the same, specifying full details of the
reasons for which the Buyer requests indemnification from the Seller
as well as the sum of the indemnifiable Loss incurred, if
determinable.
14.1.2 Except in the event that written objection is sent by the Seller to
the Buyer within two (2) months of the receipt by the Seller of the
notification above, and save where a claim is being made against a
third party in accordance with Clause 10.4, the indemnification
requested shall be considered due and shall give rise to interest
accruing after the date of reception by the Seller of the request for
indemnity by the Buyer (the interest being payable at the same time as
the indemnity). The relevant interest rate shall be 5% per annum.
14.1.3 If on the contrary, the Seller notifies an objection to the Buyer in
the time-limits set out above, the dispute shall be settled pursuant
to Clause 14.11.
14.2 Third party requests
14.2.1 In the event of any legal or administrative action filed by a third
party against the Company as well as of a tax assessment issued
against the Company, which would give rise to a request by the Buyer
to the Seller, the Buyer or the Company shall give written notice to
the Seller as soon as is reasonably practicable following the Company
becoming aware of such action. It is expressly understood that any
delay by the Buyer or the Company in informing the Seller will only
give rise to the payment of damages to the Seller in an amount equal
to the loss suffered by the latter, but such limitation of the Buyer's
47
<PAGE>
liability shall be applicable only if the Buyer's or the Company's
delay in providing notification significantly compromised the Seller's
ability to participate in the defence of such action and the Seller
was otherwise entitled to participate in the defence under the terms
of this Agreement.
14.2.2 In the event the Seller does not notify in writing the Buyer of its
intentions in respect of the conduct of the legal action referred to
above within 30 (thirty) Working Days of receipt of the notification
referred to above, the Seller shall be deemed to have decided not to
take part in the defence of the Company against the third party claim.
14.2.3 It is expressly agreed the Buyer shall be authorised to commence any
urgent action to defending the Company's interests without consulting
the Seller, if the Seller's advice cannot be reasonably obtained
considering the nature of the legal action to be conducted and/or the
time-limits for response set out by the third party.
14.2.4 In the event of a disagreement on the strategy to be implemented, or
if the Seller chooses not to intervene in the defence of the Company,
the Company will keep ultimate management of its defence for its own
benefit and that of interested parties as is set out above.
14.2.5 Subject to the second sentence of this Clause 14.2.5, the Company
shall control any audits, disputes, administrative, judicial or other
proceedings related to Taxes imposed upon the Company. In the event an
adverse determination would result in the Seller having responsibility
for any amount of Taxes, the Seller shall be entitled to participate,
through the Buyer or the Company, in that portion of the proceedings
relating to the Taxes with respect to which it may incur liability.
Neither the Buyer nor the Company shall settle or agree to settle any
Tax liability or compromise any claim with respect to Taxes, which
settlement or compromise may affect the liability of the Seller for
Taxes, without the Seller's consent (which consent shall not be
unreasonably withheld or delayed). Any amended Tax return or claim for
Tax refund for any period shall be filed, or caused to be filed, only
by the Buyer, who shall not be obligated to make (or cause to be made)
such filing.
14.2.6 The Seller on the one hand, and the Buyer and the Company on the
other, shall cooperate with each other and with each other's agents in
connection with Tax matters related to the Company, including making
all relevant Tax information and documents in its possession available
to the other party and including in connection with any transfer
pricing enquiry.
14.3 Beneficiary of indemnification
48
<PAGE>
The obligation to indemnify shall remain in force in the case of any
winding up, absorption, contribution or disposal of all or any assets
of the Company.
SECTION IV - MISCELLANEOUS
--------------------------
15. MISCELLANEOUS
-------------
15.1 Substitution - Transfer and Survival of Warranties and Representations
The provisions of Sections II and III will remain in force even though
the Company or its assets concerned are assigned or transferred by a
Company or the Buyer after Completion, in particular if the Buyer or a
Company as part of the transfer gives to the transferee of a Company
(or of its assets) representations, warranties or undertakings.
15.2 Entire Agreement and Assignment
15.2.1 This Agreement represents the entire agreement between the Parties as
do the provisions of the recitals and the Schedules attached.
15.2.2 This Agreement supersedes and replaces all letters of intent,
agreements or other arrangements between the Parties entered into
prior to the date of this Agreement.
15.2.3 No Party may assign, or grant any Encumbrance or security interest
over, any of its rights under this Agreement.
15.3 Further Assurance
Each of the Parties will do, or procure the doing of, all acts and
things and execute, or procure the execution of, all documents as the
other party reasonably considers necessary to give full effect to the
terms of this Agreement.
15.4 Amendments
The parties agree that the Agreement shall be amended only in writing
such amendment to be signed by the parties or by their duly authorised
representatives. Neither Party will be deemed to have waived a right
unless expressly specified in accordance with this Agreement.
15.5 Confidentiality
49
<PAGE>
This Agreement is confidential between the Parties. Consequently, the
Parties agree to keep this Agreement confidential (except for the
specific disclosure permitted by Clause 8.4.2 (iii)) and more
generally not to disclose any information directly or indirectly in
relation to this Agreement, unless the disclosure is required by law
or by regulations or in order to preserve its rights. Without
prejudice to the generality of this clause, the provisions of the
Confidentiality Agreement shall remain in force notwithstanding the
execution of this Agreement.
15.6 Announcement
15.6.1 Any announcement or press release in respect of this Agreement or to
the content of this Agreement will not be issued without prior mutual
written consent between the Buyer and the Seller not to be
unreasonably withheld.
15.6.2 If the announcement or the press release is required by law or
applicable administrative procedure including, without limitation, any
regulation of any stock exchange upon which the shares of any party or
any of their respective affiliates are traded, the consent from the
other party is not required, it being understood that the existence of
said requirement shall be notified to the other party within a
reasonable time and the content of such announcement or press release
shall be discussed by reference to this Article.
15.7 Notices
15.7.1 All notices required in respect to this Agreement or to the related
operations shall be either delivered by hand personally with
acknowledgement of receipt or sent by registered mail or special mail;
the notice may be faxed on the condition that a confirmatory hard copy
is sent by registered mail with acknowledgement of receipt or by
special mail (at the latest one business day after the fax).
15.7.2 All notices shall be addressed to the parties at the following
addresses:
(a) To the Buyer : Brink's Limited
Arnold House
36/41 Holywell Lane
London
EC2A 3LB
50
<PAGE>
For the attention of : General Manager
Fax n :
With a copy to : Brink's, Incorporated
1801 Bayberry Court
P O Box 18100
Richmond, VA 23226-8100
U.S.A.
For the attention of : Chief Financial Officer
Fax n : 001 804 289 9761
and to : Brink's EMEA S.A.S.
15 rue La Fayette
75009 Paris
France
For the attention of : Vice President Finance
Fax n : 00 33 (0) 155 07 99 21
(b) To the Seller : Group 4 Securicor plc
The Manor
Manor Royal
Crawley
West Sussex RH10 9UN
UK
For the attention : Group General Counsel
Fax n 44 1293 554500
15.7.3 The Buyer and the Seller will be authorised to amend at any time their
relevant address, addressee or fax number above subject to informing
the other party in accordance with this Article.
51
<PAGE>
15.8 Costs and Expenses
15.8.1 Any registration fees and stamp duties payable on the execution of
this Agreement shall be borne by the Buyer.
15.8.2 Each Party shall bear the fees, costs and commissions of its own legal
advisers and agents.
15.9 Language
The Parties acknowledge that the negotiations have been conducted and
the drafts of the Agreement have been written in English.
15.10 Severability
Should any provisions of this Agreement be declared invalid, illegal
or unenforceable, such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of the
remaining provisions of this Agreement, which shall remain in full
force and effect.
This Agreement may only be amended by a written instrument executed by
all the Parties hereto. Therefore the tolerance also reiterated of any
defaults or delayed performance of this Agreement shall not be
interpreted as a tacit revocation of the provisions hereto.
15.11 Implementation and survival on Completion
15.11.1 The Parties agree to provide any information and documents required
for the performance of this Agreement and to sign this Agreement.
15.11.2 This Agreement (other than obligations that have already been fully
performed) remains in force after Completion.
15.12 Applicable law and settlement of disputes and Third Parties
15.12.1 This Agreement shall be governed and construed in accordance with the
law of England and Wales.
15.12.2 The Parties hereby submit to the non-exclusive jurisdiction of the
English Courts.
52
<PAGE>
15.12.3 Except as expressly provided in this Agreement, a person who is not a
party to this Agreement shall have no rights under the Contracts
(Rights of Third Parties) Act 1999 to rely upon or enforce any term of
this Agreement provided that this does not affect any right or remedy
of the third party which exists or is available apart from that Act.
15.13 Counterparts
This Agreement may be executed in any number of counterparts, each of
which is an original and which together have the same effect as if
each party had signed the same document.
53
<PAGE>
This Agreement has been made in London, executed and signed in as many original
copies as there are parties, at the date mentioned at the beginning of this
Agreement.
/s/ Soren Lundsberg Nielsen /s/ B. Dumoulin
- ----------------------------------- -------------------------------
Group 4 Securitas Holdings Limited Brink's Limited
By: S0ren Lundsberg-Nielsen By: Bernard Dumoulin
Capacity: Authorised under Power of Capacity: Authorised Signatory
Attorney
54
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>exhibit10bb.txt
<DESCRIPTION>EXHIBIT 10(BB)
<TEXT>
<PAGE>
EXHIBIT 10(bb)
February 2, 2005
------------------------------
SHARE TRANSFER AGREEMENT
------------------------------
BETWEEN
GROUP 4 SECURICOR HOLDINGS LIMITED
SECURICOR INTERNATIONAL BV
AND
BRINK'S LUXEMBOURG S.A.
AND
BRINK'S, INCORPORATED
<PAGE>
CONTENT
-------
1. DEFINITIONS AND INTERPRETATION............................................4
2. SALE AND PURCHASE OF SALE SHARES..........................................8
3. PURCHASE PRICE............................................................9
4. PRE-COMPLETION ACTIONS....................................................9
5. COMPLETION...............................................................11
6. CONDITIONS PRECEDENT AND OPTION NOT TO PURCHASE..........................12
7. WARRANTIES AND REPRESENTATIONS OF THE WARRANTORS.........................13
8. OTHER OBLIGATIONS OF THE WARRANTORS......................................28
9. REPRESENTATIONS AND WARRANTIES OF THE BUYER..............................33
10. INDEMNIFICATION..........................................................34
11. FLOOR THRESHOLD AND CEILING..............................................37
12. DURATION OF INDEMNIFICATION..............................................38
13. NOTIFICATION PROCEDURE AND PAYMENT OF THE INDEMNITY......................39
14. MISCELLANEOUS............................................................41
2
<PAGE>
SHARE TRANSFER AGREEMENT
------------------------
This agreement is made on February 2, 2005
BETWEEN:
1. Group 4 Securicor Holdings Limited, with an authorised share capital of
(pound)50,000,000 - (divided into ordinary shares of 5 pence each all of which
such authorised shares have been issued) - registered in England and Wales under
number 05026978, having its registered office at The Manor, Manor Royal,
Crawley, West Sussex RH10 9UN, represented by S0ren Lundsberg Nielsen, duly
authorised for the purposes hereof by a resolution of the Board of Directors
dated 28 January 2005, a copy of which is set forth in Schedule1,
(hereinafter "G4S") and
2. Securicor International BV, with an authorised share capital of EUR
90,756.04.- (of which EUR 36,801.58.- has been issued), registered with the
Chamber of Commerce of Rotterdam, The Netherlands under the number 33292199,
having its registered office at Bovendijk 132, 3045 PC Rotterdam, represented by
Nigel Griffiths duly authorised for the purposes hereof by a resolution of the
Board of Directors dated 31 January 2005, a copy of which is set forth in
Schedule 2,
(hereinafter the "Seller")
ON THE FIRST HAND
AND:
3. Brink's Luxembourg S.A., a societe anonyme with a share capital of EUR
372,000, registered with the Companies and Commercial Registry of Luxembourg
under the number B 43.970, having its registered office at Zone Industrielle,
L-8287, represented by Mr. Bernard Dumoulin, duly authorised for the purposes
hereof by a resolution of the Board of Directors dated 31 January 2005 , a copy
of which is set forth in Schedule 3,
(hereinafter the "Buyer") and
4. Brink's, Incorporated, a company organised under the laws of the State of
Delaware with its principle office at 1801 Bayberry Court, Richmond, VA 23226,
USA and represented by Mrs. Mari Jo Flanagan, Vice President and Secretary, as
indicated in the officer's certificate delivered by Elizabeth C. Restivo,
Assistant Secretary, dated 24 January 2005, a copy of which is set forth in
Schedule 4,
(hereinafter "BI").
ON THE SECOND HAND
3
<PAGE>
WHEREAS:
(A) The share capital of the Company is divided into 23,000.- shares of EUR
24.79.- each, all of which are owned by the Seller.
(B) The Seller is a Subsidiary of G4S.
(C) The principal activity of the Company and its Subsidiary is the provision
of security services.
(D) The Seller has agreed to transfer its shareholding in the Company in
accordance with the conditions and with the giving of the warranties
and undertakings set out below, which for the Buyer, have an essential
and determining influence on its undertaking to purchase the Company.
IT IS HEREBY AGREED AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
------------------------------
1.1 Definitions In this Agreement:
"Accounts" means the annual accounts (balance sheets, profit and loss accounts
and annexes) of each of the Companies as at 30 September 2004;
"Accounting Methods and Principles" means the generally accepted accounting
methods and principles in Luxembourg or such other international body as is
appropriate;
"Agreement" means this document and the Schedules hereto;
"Assets" means the raw materials, assets, movable goods, installations and
equipment used by the Companies in the carrying out of their activities
including those assets specified in the Seller's commitments to the Europe
Commission;
"Authorisations" means all authorisations, licences, permits, certificates,
approvals or other documents delivered to the Companies, by an administrative
authority or any other authority or by a professional entity set-up in one of
the countries where the Companies carry on their activities or are owners of
assets at any given time;
"Business Day" means a day other than a Saturday or Sunday or public holiday in
Luxembourg;
"Buyer" has the meaning given to it above;
"Clauses" means the clauses of this Agreement;
4
<PAGE>
"Clearance" means the formal confirmation by the European Commission that the
Transactions fulfil the obligations of Group 4 Falck A/S and Securicor plc,
pursuant to their written commitments to the European Commission dated 28 May
2004, to enter into final binding sale and purchase agreements for the sale of
the Securicor Luxembourg Divestment Business and the UK CIT Divestment Business,
as such terms are defined in the said commitments;
"Companies" means the Company and the Subsidiaries or any one of them according
to the context;
"Company" means Securicor Luxembourg S.A. registered in Luxembourg under Number
B10427;
"Completion" means completion of the transfer of the Sale Shares in accordance
with Clause 5;
"Completion Statement" means a statement showing the turnover and profit or
loss, for the period from the Last Accounting Date to Completion and the assets
and liabilities of the Companies as at Completion in the same format as the
current "monthly reporting pack" produced by the Companies in the ordinary
course of their business, such Completion Statement being prepared in accordance
with Accounting Methods and Principles and with all available supporting
documents;
"Confidentiality Agreement" means the confidentiality agreement dated 2
September 2004 between G4S and Brink's EMEA S.A.S;
"Customers' Accounts" means all customer funds held by the Company/ies
immediately prior to Completion;
"Date of this Agreement" means the date on which this Agreement is signed;
"Disclosure Schedule" means the Seller's disclosures to the warranties and
representations set out in Schedule 6;
"Encumbrance" means all liens, sureties, interest, charges, restrictions,
options, promises or third party right or interest;
"G4S plc" means Group 4 Securicor plc;
"Intellectual Property Rights" means trademarks, patents, designs, models and
author's rights and generally all the rights giving their owner the exclusive
rights of use, together with all trading names, registered names, know-how and
processes used by the Companies in the carrying out of their activities;
"Last Accounting Date" means 30 September 2004, the financial year end of the
Accounts;
5
<PAGE>
"Loss" means all losses, costs, expenses, penalties and any other damage of
whatever nature, including all professional and advisory fees;
"Management Accounts" means the last available monthly management accounts of
the Company prior to Completion;
"Material Adverse Change" means any event, fact, deed, action or circumstance of
whatsoever nature which, individually or in the aggregate, (i) fundamentally
affects or endangers the Companies, their operation or profitability, such as,
but not limited to, (a) the loss of one or several Material Contracts except if
such loss results from the normal expiry or the customer's decision not renew
the Material Contract at its expiry date, (b) the loss of the Vehicles fleet,
(c) the loss of the Premises, (d) any material condition imposed by an
administrative or judicial authority with a view to the closing of this
Agreement; or which (ii) fundamentally affects or endangers the due fulfilment
by the Warrantors of any of their obligations under this Agreement, such as any
insolvency proceedings affecting the Warrantors; or a material difference of an
adverse nature in the assets or liabilities of the Companies as from the Date of
this Agreement to the date of Completion as found in the Management Accounts.
"Material Contracts" have the meaning given to them in Clause 7.16.2;
"Monitoring Trustee" means the trustee monitoring the compliance of the merging
parties, Group 4 Falck A/S and Securicor plc, with their commitments under the
European Commission's ruling of 28th May 2004;
"Parties" means collectively G4S, the Seller, the Buyer and BI, and "Party"
means one or the other of the aforesaid;
"Premises" means the premises over which the Companies have possession by virtue
of real property leases with an option to purchase;
"Purchase Price" means the sum of EUR 27,500,000 (Twenty Seven Million Five
Hundred Thousand Euros);
"Real Property" means the buildings owned by the Companies;
"Rented Premises" means the premises over which the Companies have possession by
virtue of leases;
"Rented Vehicles" means the vehicles over which the Companies have possession by
virtue of leases with or without an option to purchase;
"Sale Shares" means 23,000.-. shares comprising the whole of the share capital
of the Company (a Sale Share being one of the Sale Shares);
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"Schedule" means each Schedule to this Agreement, and "Schedules" means all and
every Schedule;
"Seller" has the meaning given to it above;
"Shares" means the Sale Shares and the Subsidiaries' Securities;
"Subsidiaries" means the subsidiary company or companies, as the context
requires, directly or indirectly controlled by the Company and which are more
fully described in Schedule 7, the term "control" being construed in accordance
with article 309 (1) of the Company Law of 10th August, 1915 on commercial
companies as amended;
"Subsidiaries' Securities" means the securities comprising all or part,
accordingly, of the share capital of the Subsidiaries and which are held
directly or indirectly by the Company;
"Taxes" or "Impositions" means all direct or indirect taxes including, without
limitation, income, gross receipts, capital gains, net worth, capital duty,
franchise, property, value added, employment, and withholding taxes, stamp or
registration duties, fiscal, contributions, customs and excise duties, licence
fees and social security contributions, for which the Companies are liable under
all laws and regulations applicable to them, whatever the basis for recovering
the fee or the entity responsible for recovering such fee and generally all
additional amounts imposed with respect to the foregoing, including all
interest, fines, penalties, and other charges relating to it, and including any
transferee or secondary liability in respect of the foregoing (whether by law,
contractual agreement or otherwise);
"Tax Regulations" means all legislation with respect to Taxes as well as any
applicable regulation or other official pronouncement of the applicable rules in
a country having taxing jurisdiction over the Companies, as well as any
international treaty (including directives, regulations or other applicable
treaties in the relevant country), and any other binding authority applicable in
a taxing jurisdiction;
"Transactions" means the sale by the Seller to the Buyer of the Sale Shares
pursuant to this Agreement and the sale by Group 4 Securitas Holdings Limited to
Brink's Limited of the whole of the issued share capital of Group 4 Falck Cash
Services UK Limited pursuant to an agreement of even date with this Agreement;
"Vehicles" means the vehicles owned by the Companies;
"Warrantors" means G4S and the Seller.
"Warrantors' Group Affiliate" means an entity directly or indirectly controlled
by the Warrantors or which directly or indirectly controls the Warrantors or
which is directly or indirectly controlled by one or several undertakings
controlled by the Warrantors, and "control" is to be construed in accordance
with article 309 (1) of the Law of 10th August, 1915 on commercial companies as
amended and "Warrantors' Group Affiliates" means all of such affiliates of the
Warrantors;
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1.2 Clause and schedule headings do not affect the interpretation of this
Agreement.
1.3 A person includes a corporate or unincorporated body.
1.4 Words in the singular include the plural and in the plural include the
singular.
1.5 A reference to one gender includes a reference to the other gender.
1.6 A reference to a statute or statutory provision is a reference to it
as it is in force for the time being taking account of any amendment,
extension, or re-enactment and includes any subordinate legislation
for the time being in force made under it.
SECTION I - SALE AND PURCHASE
-----------------------------
2. SALE AND PURCHASE OF SALE SHARES
--------------------------------
2.1 Subject to the provisions of Clause 6, the Seller agrees to sell to
the Buyer, and the Buyer agrees to purchase from the Seller, the Sale
Shares at Completion.
2.2 At Completion the Seller owns and will transfer to the Buyer with full
title guarantee, the Sale Shares, free of any Encumbrance.
2.3 At Completion, the Buyer will have the retrospective right in
respect of the period following the Last Accounting Date to all
dividends, interim dividends and other distributions payable in
respect of the Sale Shares in respect of the period since the Last
Accounting Date (other than any dividend required in order to ensure
that the Companies are cash free in accordance with Clause 2.4), and
will benefit from subscription and allocation rights attached to the
Sale Shares from this same date. For the avoidance of doubt the Buyer
shall have no right to the dividend paid in 2004 in respect of the
financial year ended 30 September 2004.
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2.4 At Completion, the Companies shall be cash free and shall be free from
inter company loans, bank or other third party loans or finance (save
for lease agreements or finance in the ordinary course of business)
and lines of credit.
3. PURCHASE PRICE
--------------
3.1 It has been agreed that the Sale Shares will be transferred to the
Buyer in consideration for a sum equal to the Purchase Price, in other
words, the total sum of EUR 27,500,000 (Twenty Seven Million Five
Hundred Thousand Euros).
3.2 The Buyer shall pay the Purchase Price by means of a transfer into the
following bank account:
Account Name : Group 4 Securicor plc
Account Number: 76962522
Bank : Barclays Bank plc
Fleet Street
London EC4
Sort Code : 20-30-19
SWIFT : BARCGB22
IBAN : GB36BARC20301976962522
4. PRE-COMPLETION ACTIONS
----------------------
4.1 Notification to Authorities
The Seller shall forthwith after the date of execution of this
Agreement notify this Agreement to the European Commission requesting
Clearance prior to the Date of Completion.
4.2 Cash and Coin Inventory
4.2.1 On the Date of Completion, but immediately preceding Completion, a
joint inspection team composed of representatives of the Seller and
the Buyer will, in a process to be jointly agreed prior to Completion
("the Reconciliation Process"), conduct a physical count of the total
cash and coin inventory (to include any overage account) maintained by
the Company and will compare the result of the physical count
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referred to in this Clause 4.2.1 (the "Physical Inventory") with sum
of all individual Customers' Account balances announced to the
relevant Customers on the Date of Completion pursuant to Clause 4.2.2
(the "Administrative Inventory"). Any discrepancy between the Physical
Inventory and the Administrative Inventory will be agreed by the joint
inspection team but no payment will be made by the Buyer to the
Seller, or vice versa, in respect of such discrepancy except in
accordance with Clause 4.2.3.
4.2.2 On the date of Completion, the Company shall inform each of its
customers, where relevant, of its Customer's Account balance and other
inventory held by the Company on behalf of such customer and request
that the customer confirm its Customer Account balance to the Company.
4.2.3 If following completion of the Reconciliation Process there is any
claim by a customer with respect to such customer's account balance as
referred to in Clause 4.2.1, then that claim shall be the sole
responsibility f the Seller. The Seller shall indemnify and hold
harmless the Buyer from and against any liabilities resulting from
such claims by customers, provided, however, that neither the Buyer,
nor the Seller, nor the Company shall settle nor agree to settle or
compromise any such claim, without the other's consent (which consent
shall not be unreasonably withheld or delayed) In the event of any
such claim by a customer, the Seller shall have full and unrestricted
access to the relevant documents and records of the Company and the
Buyer shall procure that the relevant employees shall p rovide
reasonable assistance to the Seller in order to investigate the
customer's complaint.
The Seller shall only be liable to indemnify the Buyer under this
Clause 4.2.3 if, and to the extent that, the aggregate of all claims
brought under this Clause 4.2.3 exceeds the amount of any overage
account held by the Company at Completion. The amount of the overage
will be clearly shown in any schedules comprising the Reconciliation
Process on Completion.
4.2.4 In respect of the period prior to Completion, the Buyer shall have no
obligation and no responsibility for the Customers Accounts and the
Seller shall hold the Buyer harmless from all complaints, claims and
suits of customers with respect to such Customer Accounts in respect
of such period.
4.2.5 Any claims made by customers relating to Losses incurred following
Completion will be the sole responsibility of the Buyer.
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5. COMPLETION
----------
5.1 Date and location of Completion
5.1.1 Subject to the provisions of Clauses 6.1,and 6.2, Completion will take
place within two weeks from the date upon which Clearance is obtained,
such Completion to take place on such date within that period as the
Buyer and the Seller agree, or failing such agreement, to take place
on the fourteenth day following the date of such Clearance, such date
being a Business Day or, if such day is not a Business Day, the first
Business Day following the expiry of the fourteen day period.
5.1.2 Completion will take place at the offices of the Company, or in any
other location agreed to in writing between the Buyer and the Seller.
5.2 Operation of Completion
5.2.1 At Completion, the Seller shall give to the Buyer the shareholders'
registers of the Company showing the transfer of the Sale Shares.
5.2.2 At Completion the Seller shall provide to the Buyer evidence of:
(a) discharge of any intergroup liabilities owing to and/or from the
Company, by means of the production of a funds flow chart, a copy
of which will have been shown to the Buyer in advance of
Completion for consultation; and
(b) evidence of satisfaction of a debt owed to Dexia-BIL.
5.2.3 At Completion, the Buyer shall transfer the Purchase Price to the
Seller in accordance with Clause 3.2.
5.2.4 At Completion, the Buyer and the Seller grant a special power of
attorney to to an appropriate individual or firm whose name will be
notified to the Buyer to update the shareholders' register of the
Company and to register the Buyer as shareholder of the Company
according to Article 40 of the Company Law dated August 10, 1915 as
amended and to Article 1690 of the Civil Code.
5.3 The Seller will provide the Completion Statement to the Buyer within
two weeks of Completion.
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6. CONDITIONS PRECEDENT AND OPTION NOT TO PURCHASE
-----------------------------------------------
6.1 This Agreement, including but not limited to the provisions of
Clause 8.3, shall automatically terminate without liability on the
part of the Buyer or the Seller on the earliest of :
6.1.1 the date that a formal decision is given by the European Commission
that Clearance will not be given;
6.1.2 subject to any extension of time agreed between the Buyer and the
Seller, on 30 June 2005 if Clearance has not been obtained by that
date;
6.1.3 the termination of either of the Transactions pursuant to Clause 6.2.
of the relevant sale agreement;
SAVE THAT upon such termination the confidentiality provisions
contained in the Confidentiality Agreement shall continue in full
force and effect.
6.2 The Buyer and the Seller will have the option upon giving the other
written notice not to purchase or sell (as the case may be) the Sale
Shares if prior to Completion:
(a) there has been a decision from a legal or administrative
authority prohibiting or modifying the acquisition of the Sale
Shares or imposing conditions on the Transactions in such a way
as to make such Transactions materially more onerous or
restrictive;
(b) the Seller or the Buyer (as the case may be) has not complied
with its obligations under this Agreement;
(c) the representations and warranties of the Warrantors, the Buyer
or BI (as the case may be) contained in this Agreement or the
content of the Schedules are incorrect or incomplete in such a
way as to cause significant detriment to the Buyer or the Seller
as the case may be save for events having occurred in the
ordinary course of business;
(d) the information contained in the Schedules changes in such a way
as to cause significant detriment to the Buyer or the Seller
as the case may be other than for reasons within the ordinary
course of business; or
(e) A Material Adverse Change has occurred between the date of this
Agreement and the Date of Completion.
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6.3 The Seller and the Buyer shall use all reasonable endeavours (so far
as lies within their respective powers) to procure that the Clearance
is obtained as soon as practicable and in any event:
(a) no later than 6.00pm (CET) on 30 June 2005; or
(b) at such later time and date as may be agreed in writing by the
Seller and the Buyer
6.4 The Buyer and the Seller shall co-operate fully in all actions
necessary to procure the Clearance including, but not limited to, the
provision by all Parties of all information reasonably necessary to
make any notification or filing or as requested by any relevant
authority, keeping all parties informed of the progress of any
notification or filing and providing such assistance as may reasonably
be required.
SECTION II - WARRANTIES AND REPRESENTATIONS
-------------------------------------------
7. WARRANTIES AND REPRESENTATIONS OF THE WARRANTORS
------------------------------------------------
The Warrantors warrant and represent that at the Date of this
Agreement as well as at Completion the warranties and representations
set out in this Clause 7 and the information set out in the Schedules
including the Disclosure Schedule are true and complete except as
qualified by any matter fairly disclosed in the Disclosure Schedule.
7.1 Capacity of the Warrantors
7.1.1 The Warrantors have full capacity to enter into this Agreement, to
perform their obligations under this Agreement and to benefit from the
rights contained herein.
7.1.2 The Warrantors have not been and are not subject to any reorganisation
("gestion controlee"), bankruptcy ("faillite") or liquidation
procedure and there are no grounds for making the Warrantors subject
to such procedure.
7.1.3 There exists no consent, authorisation or judicial decision which is
necessary for the Warrantors to execute and to perform its obligations
under this Agreement and which has not yet been obtained.
7.1.4 This Agreement validly binds the Warrantors in accordance with its
terms.
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7.2 Incorporation of the Companies
7.2.1 The Companies have been duly incorporated and their by-laws are
up-to-date, copies of which are attached in Schedule 9.
7.2.2 The corporate bodies of the Companies operate in accordance with the
laws and regulations which are applicable to them and all corporate
decisions have been made and published in accordance with applicable
regulations. All the registers, books and documents of each of the
Companies have been and are regularly maintained and truly and
correctly reflect the activities of each of the Companies and the
corporate decisions made by each of them to the extent that the
regulations and legislation in force require. The documents, notably
in relation to accounting matters, and written correspondence, have
been maintained by the Companies for a period of at least ten years
and are archived in such a way that they can be easily and quickly
retrieved, if need be.
7.3 Share capital
7.3.1 An up to date list of the shareholders of each of the Companies as at
the date of this Agreement is set out in Schedule 10.
7.3.2 The Sale Shares make up all of the share capital of the Companies.
The Sale Shares are freely transferable and are the only moveable
financial assets issued by the Company. The Sale Shares have never
been quoted on any regulated or non-regulated stock exchange.
7.3.3 The Sale Shares are free from all Encumbrances.
7.3.4 There is no agreement or contract in respect of the Sale Shares
binding the shareholders or partners of the Companies.
7.4 Participation - Profit sharing agreements
7.4.1 The Company is the owner of the Subsidiaries.
7.4.2 Except for the Subsidiaries and interests set out in Schedule 11, the
Companies are not the owners of any direct or indirect interest of
whatever amount in a company or in an entity where the partner's
liability is indefinite and have never been partners or shareholders
of entities of this nature in respect of which they may still be
liable.
7.4.3 The Companies are not bound nor have they undertaken to be bound by
any contract or agreement seeking to share all or part of their
profits with any third party.
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7.5 Accounts
7.5.1 The Accounts of the Companies as at the Last Accounting Date, set out
in Schedule 12, have been prepared in accordance with the Accounting
Methods and Principles and are in accordance with those methods and
principles used by the Companies to date. The Accounts are true and
accurate and give a fair view of the financial situation and of the
assets and liabilities of the Companies as at the Last Accounting Date
as well as the operating result for the financial period to which they
relate. The Accounts as of 30 September 2004 are certified by the
statutory auditors of the Companies notwithstanding the absence of a
specific statement of such certification.
7.5.2 The Management Accounts have been prepared in good faith and with due
diligence in accordance with the same accounting policies adopted in
the preparation of the Accounts and on bases and principles which are
consistent with those used in the preparation of previous management
accounts of the Company.
7.6 Liabilities
7.6.1 All material liabilities, whether or not contingent, of the
Companies are duly reflected in the Accounts and/or the Completion
Statement and are adequately provided for.
7.6.2 The Companies have not granted any security, charge, guarantee,
encumbrance r letter of comfort for the performance of contractual
undertakingseither by third parties or by the Companies or by the
Warrantors or one of the Warrantors' Group Affiliates.
7.6.3 The Warrantors and/or the Warrantors' Group Affiliates have not given
any security, charge, guarantee, pledge for the performance of any of
the undertakings of the Companies.
7.6.4 There exist no material off-balance sheet liabilities other than those
listed in Schedule 14.
7.7 Personnel and corporate officers of the Companies
7.7.1 The list of salaried employees and corporate officers of the
Companies set out in Schedule 15 contains true and complete details of
their age, seniority, category and classification as the case may be,
as well as their remuneration (including all bonuses and benefits in
kind).
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<PAGE>
All amounts due or accrued for all remuneration of any kind, including
but not limited to salary remuneration for over-time work or work
performed at night, on Sundays or legal holidays, relating to
employees and corporate officers, as well as former employees, of the
Companies have been calculated and paid in due time in conformity with
their respective contract of employment, collective agreements and
with any other applicable legal and tax rules. The Companies have no
debt or contingent liability whatsoever towards the employees.
Except for any increase rendered mandatory pursuant to any collective
agreement or an employment agreement, the Companies are under no
obligation to increase the current rates of remuneration or grant any
bonus or any advantage to any of its employees at any future date.
7.7.2 Schedule 16 defines for each of the Companies the applicable
collective agreements and details in respect of each Company and for
each distinct entity:
(a) The collective agreements and the applicable internal agreements;
(b) The systems of remuneration including bonuses, commissions, and
benefits in kind in favour of all personnel or certain categories
of salaried employees;
(c) Participation agreements, profit sharing and saving-plan
agreements;
(d) The customs and practices giving rise to supplementary collective
benefits and those arising out of law or the collective
agreements.
There is no pension, pre-retirement, post-retirement or profit sharing
scheme, life insurance policy, medical insurance scheme or any other
contract for the benefit of any of the Company's employees other than
as set forth in Schedule 16.
7.7.3 Set out in Schedule 17 for each of the Companies are true and
complete copies of:
(a) Standard work contracts of employees;
(b) Work contracts of salaried executives;
(c) Agreements signed with the salaried employees and corporate
officers of the Companies;
(d) All undertakings, other than those contained in the agreements
referred to in (c) above, given to salaried employees concerning
supplementary benefits and those provided for by law or
collective agreements in relation to notices, termination of
redundancy payments or other similar undertakings.
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<PAGE>
The terms and conditions of the work contracts binding the Companies
to their employees comply with the legal and regulatory provisions and
the collective agreements (conventions collectives) applying to the
Companies and, consequently, do not contain any provision contrary to
the usual legal dispositions or customary practices, in particular,
but not limited to, any retirement or departure benefits.
7.7.4 The Companies have at all times completely and faithfully complied
with all applicable employment laws, including but not limited to the
statutory requirements relating to works councils (comite
d'entreprise), trade unions and employee representation in general.
7.7.5 The corporate officers or managers of the Companies do not benefit
from any employment contract, service contract with any one of the
Companies or from any particular benefit given by any of the
Companies. Similarly, no corporate agent has collected any
remuneration on behalf of any of the Companies.
7.7.6 Schedule 18 sets out the current litigation in relation to personnel
and details the parties who are subject to such proceedings, the
subject-matter of the litigation, the stage of the proceedings, the
sums claimed from the Company or the Subsidiaries concerned, as well
as the amount of the provision made in good faith for such proceedings
in the Accounts.
The Companies are not liable to make any payment to any of their
employees or any former employee for damages or compensation for loss
of office or employment or for redundancy or dismissal other than
those contained in Schedule 18.
There are no labour troubles (including without limitation, any
grievances or arbitration) or strikes, existing or - to the best of
the knowledge of Warrantors - threatened adversely affecting or
potentially affecting the financial situation or operations of the
Companies.
7.7.7 All employees are fully qualified and trained to exercise the
activities they have been employed for and hav obtained all the
authorisations, permit and licenses necessary to exercise such
activities. These authorisations, permits and licenses are in full
force and effect and the activities of the Companie are carried out in
accordance with such authorisations, permit and licenses.
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7.8 Real Property
7.8.1 The Companies have full and complete ownership of the Real Property
set out in Schedule 19. The Real Property is not subject to any
restriction on title such as restrictions on the transfer of ownership
or on the use or the destination of the Real Property, options to
sell, pre-emption rights, limitations of use, resolutions, proposals
or decisions for compulsory acquisition (expropriation), emphyteusis,
building rights (superficie), usage rights or other rights in rem. The
rights of ownership of the Companies over the Real Property are not
capable of being successfully challenged by any third party.
The Real Property is not subject to any encroachment (above or under
the surface) onto neighbouring properties or vice versa.
The Real Property is not subject to any easements or neighbourhood
agreements other than the one listed in Schedule 19 Agreement dated 29
January 2001 with Mr Roger Balthazar.
7.8.2 The Companies have not entered into any lease or right of occupation
over the Real Property and no interest of this nature has been given
or agreed to by the Companies.
7.8.3 The Real Property is not subject to any statutory or conventional
mortgage or charge. The Companies are not bound to register any new
mortgage.
7.8.4 The Real Property and its use by the Companies, are in accordance
with the applicable planning rules and regulations. The Real Property
is fully connected to road and media access, such as water, waste
water and electricity. All parking spaces required in accordance with
the applicable planning rules and regulations and/or building permits
are available.
7.8.5 All required operating permits (commodo-incommodo) for the
construction of the buildings on the Real Property and the use of the
Real Property have been obtained and are in force. The Real Property
complies in all substantial aspects with the commodo-incommodo permits
and regulations.
The Warrantors guarantee that in case the reception of the facilities
as imposed by the commodo-incommodo permits is not fully accomplished,
they will undertake at their cost the steps necessary to proceed with
a final and satisfactory reception. In particular, the Warrantors will
bear any costs associated with remedying works necessary to bring the
facilities in compliance or any costs associated with requesting
amendments to the existing commodo-incommodo permits.
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7.8.6 The Companies occupy the Premises of which a list is set out in
Schedule 20 by virtue of financial leases or by contracts containing
an option to purchase. The Companies will validly be able to exercise
at the appropriate date the options that they hold in accordance with
the terms of the financial leases or contracts containing a purchase
option and which relate to the Premises.
7.8.7 The Companies are tenants of the Rented Premises listed in Schedule 21
by virtue of the lease agreement attached in Schedule 22. Such lease
agreement is valid, legally binding and enforceable. Neither the
landlord, nor the Companies are in breach or default of any material
provision of this agreement. The Companies have not given, nor have
they received, any notice of ordinary or extraordinary termination;
all payments of rental and service charges have been made. No oral
amendments to this agreement have been concluded. The lease agreement
has been duly registered with the Administration de l'Enregistrement
et des Domaines and all registration duties have been paid.
7.8.8 The Real Property, the Premises and the Rented Premises constitute all
the real property necessary for the Companies to carry out their
activities whatever such activities may be and there is no other
lease, financial lease or other title of occupation in respect of the
fixed assets other than the Real Property, the Premises and the Rented
Premises.
7.9 Assets
The Companies have good title to all the Assets used in their activity
except those Assets which they use and which are subject to lease or
hire. The Assets are free from any Encumbrance or third party rights.
None of the assets which are either rented or leased by the Companies
have been repossessed by their owners and the Companies have committed
no breach which would allow the owner of the said assets to repossess
them.
7.10 Vehicles
The Companies have good title to all the Vehicles (listed in Schedule
23) used in their activity except the Rented Vehicles (listed in
Schedule 24) which they use and which are subject to lease or hire.
The Vehicles and the Rented Vehicles are free from any Encumbrance or
third party rights.
The Vehicles listed in Schedules 23 and 24 are in good state of
maintenance and repair, taking into consideration usual wear and tear
and have passed all technical controls required for their use.
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<PAGE>
None of the Vehicles which are either rented or leased by the
Companies have been repossessed by their owners and the Companies have
committed no breach which would allow the owner of the said Vehicles
to repossess them.
7.11 Intellectual property rights, know how, technical and confidential
information, trade secrets and computer hardware and software
7.11.1 The Companies are without restriction legitimate owners of the
Intellectual Property Rights that they use in carrying out their
activities and which are free of any encumbrances. A list of
Intellectual Property Rights indicating their registration in
Luxembourg, overseas and internationally and when such registration is
required by the applicable legislation, is set out in Schedule 25.
These registrations are valid and enforceable and, to the best of the
Seller's knowledge and belief, cannot be the subject of opposition.
7.11.2 The Companies do not use any Intellectual Property Right belonging to
third parties and have never been informed of any claim in this
respect.
7.11.3 The Companies have not given to any third party any licence or
other authorisation to use the Intellectual Property Rights and have
never been informed of any use by a third party of such rights.
7.11.4 The Companies benefit from licences in respect of the Intellectual
Property Rights set ou t in Schedule 26. These licences are valid,
have been validly granted to the Companies and the Companies have
complied with all their obligations in this respect. The Companies
undertake that these licences have also been validly registered with
the competent authorities in compliance with the relevant applicable
laws. The Companies have not granted any sub-licence.
7.11.5 The Companies are entitled to use without payment all material know
how and other material technical information used by it in connection
with its business or businesses and all information concerning the
methods and processes used by the Companies, and no rights to
disclosure or use of any material know how or material technical
information used by the Companies have been granted to or claimed by
any third party.
7.11.6 None of the processes, products of the Companies, know how or
technical or other information used by the Companies infringes, to the
best of the Seller's knowledge and belief, any intellectual property
or any right of any other person, relating in particular to
intellectual property, or involves the unlicensed use of confidential
information disclosed to the Companies by any person in circumstances
which might entitle that person to make a claim against the Companies.
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<PAGE>
7.11.7 There are no outstanding claims against the Company for
infringement of any intellectual property or of any rights relating to
it used (or which has been used) by the Companies and no such claims
have been settled by the giving of any undertakings which remain in
force. The Companies have not received any actual or threatened claim
that any of the Intellectual Property Rights is invalid.
7.11.8 Confidential information, including know-how and trade secrets used by
the Companies are kept strictly confidential. The Companies have not
disclosed any of their confidential information to any other person
save where a legally binding and of full force and effect
confidentiality agreement in respect of such disclosure is in place.
The Sellers and the Companies are not aware of any such
confidentiality having been breached.
7.11.9 The computer software owned by the Companies or in respect of which
the Companies have been granted a license is sufficient and
appropriate to enable the Companies to exercise their present
activities.
7.11.10 The computer hardware has been satisfactorily maintained and
supported and has the benefit of an appropriate maintenance and
support agreement.
7.11.11 Disaster recovery plans are in effect and are adequate to ensure that
the computer hardware, computer software and/or data can be replaced
or substituted without material disruption to the business of the
Companies.
7.11.12 The Companies have adequate procedures to ensure internal and external
security of the computer hardware, computer software and data,
including (without limitation) procedures for preventing unauthorised
access, preventing the introduction of a virus, taking and storing
on-site and off-site back-up copies of the computer software and data.
7.11.13 The computer hardware and the computer software have not in the
period of 12 months immediately prior to Completion been unduly
interrupted or hindered the running or operation of the Companies'
business.
7.12 Insurance
7.12.1 The Companies have at all times maintained insurance coverage of a
type and level reasonably appropriate to the businesses carried out by
them in respect of, in particular but not limited to, their Real
Property, Assets and Vehicles, whether owned or rented, Rented
Premises, Premises, activities and operations.
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7.12.2 Schedule 27 lists the insurance policies entered into by the
Companies and which will be available after the Completion together
with the insurance policies entered into by the Companies and which
will not be available after Completion.
7.12.3 These policies cover all the normal conditions of the property and
extend to all risks which have to be or are normally insured against
in respect of the activities carried out by the Companies.
7.12.4 Schedule 28 sets out the incidents for the previous three (3)
accounting periods in respect of which the Companies have made claims
under the policies set out in Schedule 27 together with the amount of
payments made under such policies.
7.12.5 The Companies are up-to-date with the payment of their premiums in
respect of the policies mentioned in Schedule 27 and have complied
with all formalities and contractual clauses contained in such
policies; none of the Companies has been informed by the insurance
companies concerned of their intention to increase the premiums, or to
terminate the policies or not to renew them.
7.13 Environment
The Companies have complied with and are not in violation of the
Luxembourg regulations in respect of classified facilities, protection
of the environment and nature, waste, water, soil and sub-soil
pollution, storing, labelling, packaging and transport of hazardous,
radioactive or carcinogenic materials, substances, preparations and
products.
To the Sellers and the Companies' knowledge there are no hazardous
materials contained in the soil, groundwater, or buildings of the Real
Property which could lead to a danger, material disadvantage, nuisance
to individuals or the public or otherwise requiring instantly to be
removed or otherwise cured pursuant to any presently existing
mandatory law or any existing or threatened governmental or municipal
order.
7.14 Litigation
7.14.1 None of the Companies are subject to any claim from third parties,
contentious or non-contentious, in respect of any default in
performance of its obligations resulting from contracts, agreements or
undertakings signed by it.
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7.14.2 The Companies are not subject to any litigation, legal proceedings,
investigation or administrative proceedings or arbitration, and there
is no fact or event which suggests that such proceedings may arise.
7.14.3 The Companies are not currently party to any proceedings in any
judicial or arbitral jurisdiction or otherwise relating to an amount
in excess of ten thousand euro (EUR 10,000) and have not, as at the
date hereof, received any writ, summons, citation or notification,
informing either of them that such proceedings have or will be
instituted against it, nor to the best of the Companies' knowledge, is
any such proceeding threatened.
7.14.4 The Companies are not, and have not been, parties to or concerned by
any agreement, decision or practice by Article 81 of the Treaty of
Rome, nor is it abusing nor has it abused, a dominant position as
prohibited by Article 82 of the Treaty of Rome.
7.15 Customers and suppliers
7.15.1 Schedule 29 contains a list of the twenty (20) main customers of the
Companies.
7.15.2 Schedule 30 contains a list of the twenty (20) main suppliers of the
Companies.
7.16 Contracts
7.16.1 Schedule 31 contains a list of the contracts entered into by the
Companies
(a) with their customers and involving an amount of one hundred
thousand euro (EUR 100,000) or more per annum;
(b) with their suppliers and involving an amount of fifty thousand
euro (EUR 50,000) or more per annum.
7.16.2 The Contracts referred to in Clause 7.16.1 (the "Material
Contracts") are sufficiently legally documented to enable the
Companies to exercise their rights hereunder. The Material Contracts
are in full force and effect and are not subject to any contentious or
non-contentious claim. The Companies have complied with their
contractual obligations and to the Seller's knowledge, there exists no
event which may give rise to termination or render the contracts void
or which may authorise a third party to demand prompt payment or give
rise to any liability on the part of the Companies or their officers,
directors or employees.
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7.16.3 Neither the execution of this Agreement nor the performance of the
Agreement contemplated herein will violate or conflict with the
constitutional documents of the Companies, or violate or constitute a
default under any material contract, agreement, mortgage, or other
instrument or order, judgement or ruling of any governmental authority
to which the Companies are a party or to which any of their property
is bound.
7.16.4 There exists no contract or undertaking containing a termination
clause or a prompt payment clause or a modification to the provisions
in the event of a change of direct or indirect control, as defined in
article 309 (1) of the Law of 10th August, 1915 on commercial
companies as amended, within the Companies.
7.17 Tax Regulations
7.17.1 The Companies have paid all Taxes owing under any Tax Regulations
(whether or not reflected on any tax return), and have withheld and
paid all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, independent contractor,
creditor, shareholder, or other party, and have collected and paid all
Taxes required to have been collected and paid in connection with
amounts charged to customers or other parties, and adequate provisions
have been made in the Accounts for all future Taxation relating to the
period before Completion. For purposes of determining whether adequate
provisions have been made in the Accounts, Tax items shall be
apportioned between pre-Completion activities and post-Completion
activities based upon a closing of the books and records of the
Companies as of Completion (or, if an actual closing is not feasible,
on an equitable pro forma basis that has a comparable economic result
to the result that would have been obtained had an actual closing
occurred).
7.17.2 The Companies have satisfied all filing requirements for tax returns
or other declarations required by the Tax Regulations in the form
required within the necessary time limit.
7.17.3 The Companies have always complied with all applicable Tax
Regulations whether Luxembourg or foreign.
7.17.4 The Companies are not subject to any current or proposed tax
examination in relation to Taxes and the Companies are not aware,
directly or indirectly, of any tax examination in respect of Taxes or
any enquiry instigated by an administrative authority leading, or
likely to lead to the payment of a Tax or a reassessment of any Tax
basis. The Companies have not received any notice of reassessment nor
have they otherwise been informed (in writing or orally) by any
administrative authority of its intention to carry out any
reassessment whatsoever. The Companies are not and do not expect to be
involved in any dispute relating to Tax.
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7.17.5 The Companies have not entered into any agreement, transaction,
arrangement, or scheme which might be reassessed, rejected or
re-qualified on the grounds that the Companies have attempted to
evade, circumvent or reduce its Tax obligations or that of another
person.
7.17.6 The Companies have not entered into any agreement, transaction,
arrangement, or scheme or obtained any concession, allowance or
abatement in respect of a Tax, with any administrative or political
authority whatsoever that is not based on a strict application of the
Tax Regulations.
7.17.7 The Companies incorporated under the laws of Luxembourg are and
have always been exclusively resident in Luxembourg for the purpose of
Taxes, and have no permanent establishments, as defined by Tax
Regulations, in any country outside of Luxembourg.
7.17.8 The Companies possess all documents evidencing their decisions in
respect of the application of the Tax Regulations and comply with
their obligations in respect of the time periods for maintaining the
documents as such time periods are defined by the commercial
regulations.
7.17.9 No liens for Taxes (other than for current Taxes not yet due and
payable) are imposed upon the Companies' assets.
7.17.10 There are no outstanding rulings of, or requests for rulings with,
any taxing authority addressed to the Companies that are, or if issued
would be, binding upon the Companies for any period following
Completion.
7.17.11 The Companies have not agreed to the extension of time with respect
to the filing of any tax return or other declaration, the payment of
any Taxes, or any limitation period regarding the assessment or
collection of any Taxes.
7.17.12 No item of income or gain reported for Tax purposes in any
pre-Completion tax period will be required to be included in taxable
income for any post-Completion tax period, including any item of
income or gain related to the Companies' change in its election to
file consolidated Tax returns.
7.17.13 The Companies have not within the period of six years ending on
the date of this Agreement paid or become liable to pay any penalty,
fine, surcharge or interest in connection with any Tax.
7.17.14 The amount of Tax chargeable on the Companies during any accounting
period ending on or within the six years before Completion has not
depended on any concessions, agreements or other formal or informal
arrangements with any taxing authority.
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7.17.15 All applications for clearance or consent by the Companies or on
their behalf or affecting the Companies has been made and obtained on
the basis of full and accurate disclosure to the relevant taxing
authority of all relevant material facts and considerations; and for
any transaction for which clearance or consent was required, such
clearance or consent and the relevant transaction was carried into
effect only in accordance with the terms of the relevant clearance or
consent.
7.17.16 The Companies have filed all requests, forms and applications to get a
Tax refund, a Tax reduction, credit for Taxes paid or accrued, input
tax relief, tax loss carry forwards or any other Tax benefit in a
timely manner.
7.17.17 The Company has not undertaken, or agreed to undertake, any
transaction or made any provision which is otherwise than on fully
arm's length terms and there are no circumstances which could cause
any taxation authority to make or require to be made any adjustment to
the terms on which such transactions are or such provision is treated
as taking place. Documentation is available to demonstrate the
criteria taken into account in determining arm's length terms for
transactions to the extent required by law.
7.18 Bank accounts, delegations of power, etc.
7.18.1 Schedule 32 lists the bank accounts and safety deposits in the name of
the Companies and sets out the authorised signatories as well as the
required conditions, in particular in relation to joint signatories,
for the operation of the accounts and access to the safety deposits.
7.18.2 Schedule 33 contains a list of all nominated signatories, delegations
of power, proxies and authorisations of whatever nature and form
granted by the Companies to any person for other purposes than the
operation of bank accounts.
7.19 Authorisations and other permits
The Companies have all the Authorisations necessary to exercise their
present activities and all Authorisations for valid ownership of their
assets. These Authorisations are in full force and effect and the
activities of the Companies are carried out in accordance with such
authorisations and permits. The Companies undertake that they have
made all required notifications to the competent authorities,
including, but not limited to, all notifications to the National
Commission for Data Protection, as required by the law.
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7.20 Effect of the transfer of the Sale Shares
The transfer of the Sale Shares to the Buyer will not affect in an
adverse way the legal situation of the Companies and will have no
effect on the rights and obligations of the Companies in respect of
any person; in particular, the transfer of the Sale Shares will not
give rise to any event of default or termination of any of the
contracts to which the Companies are a party.
7.21 Material adverse change
Since the Last Accounting Date:
(a) Other than for purposes of Section 2.4, there has been no
distribution to shareholders, nor any depreciation, increase
or reduction in capital in the respect of the Companies;
(b) The Companies have been managed in a reasonable way ("en bon pere
de famille") and no undertaking or obligation has been entered
into which is outside the usual management of the Companies or
has been entered into in unusual circumstances;
(c) The activities of the Companies have been carried out in the
ordinary and normal course of business in such a way as to
ensure their continuity;
(d) The Companies have in no way amended the Accounting Methods and
Principles and have not revalued any assets, nor written-off any
debt in excess of seven thousand five hundred Euros
((euro)7,500).
7.22 Representations, Warranties and Schedules true and correct
The representations and warranties contained herein, as well as the
Schedules attached, are true, exact and complete as of the Date of
this Agreement.
There is no undisclosed fact, agreement or document which, if it had
been disclosed, would be reasonably expected to have caused the Buyer
not to enter into this Agreement or to enter into this Agreement on
materially different terms.
7.23 G4S warrants that it is the parent of substantially all of the
operating businesses of the Group 4 Securicor group of companies and
in the event that it ceases to be so prior to the expiry of the period
referred to in Clause 12.1 and Clause 12.2, it will procure that its
obligations hereunder shall be assumed by another member of such group
which is, at the relevant time, the parent of substantially all such
businesses.
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8. OTHER OBLIGATIONS OF THE WARRANTORS
-----------------------------------
8.1 Management of the Companies up to Completion
8.1.1 The Warrantors warrant and represent that from the Date of this
Agreement until Completion:
(a) No decision will be taken by the Companies which affects or could
affect in a material and adverse way the financial assets and
liabilities the situation or the profitability of the Companies;
(b) No decision on the declaration or payment of dividends or any
other distribution to shareholders, nor any depreciation,
increase or reduction in capital will be taken in respect of the
Companies;
(c) The Companies will be managed in a reasonable way ("en bon pere
de famille") and no undertaking or obligation will be entered
into outside the usual management of the companies subject to
unusual conditions;
(d) The activities of the Companies will be managed in the ordinary
and normal course of business and in such a way as to ensure
their continuity;
(e) The Companies will use their commercially reasonable efforts to
preserve their relationship with their customers, suppliers and
others having a business relationship with the Companies;
(f) The Companies will not modify in any way the Accounting Methods
and Principles and will not revalue any assets, nor write-off any
debt.
8.1.2 Without limitation to the general character of Clause 8.1.1 above, the
following decisions will require the prior written consent of the
Buyer but so long as such consent is given, will not constitute a
breach of Clause 8.1.1 provided that the Buyer may not unreasonably
withhold such consent if the Seller demonstrates that such decision is
necessary to ensure the full viability, marketability or
competitiveness of the Company:
(a) A single payment exceeding in total EUR 50,000- (Fifty thousand
Euros), with the exception of reimbursements previously made by
the Seller and of which the Buyer is aware and excluding payments
in respect of salaried employees, Taxes and rents;
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(b) The granting of or application by the Companies for a loan,
credit or money facility;
(c) The granting of or application by the Companies for a guarantee,
charge, pledge or other encumbrance and the execution of any
letter of intent or letter of comfort;
(d) The entering into of any agreement with corporate officers or
salaried employees of the Companies and any increase in
remuneration not imposed by law or a contract in force at the
Date of this Agreement, as well as the granting of any benefit
whatsoever;
(e) The recruitment of all management and indirect employees (such
term having the same meaning as in the Information Memorandum
relating to the Companies issued in August 2004) and of CIT
employees (whether direct or indirect), or the negotiation of any
agreement whatsoever in relation to collective agreements of
salaried employees of the Companies;
(f) Salary increases of salaried employees having a gross annual
remuneration in excess of EUR 30,000- (Thirty thousand Euros);
(g) The entering into new employment contracts that would have a
material impact or materially modify the terms and conditions of
the current employment agreements;
(h) The launching of new activities or new products;
(i) The entering into of all contracts in excess of a sum of EUR
50,000- (Fifty thousand Euros) or with a fixed duration exceeding
twelve (12) months;
(j) The termination by the Companies of all contracts in excess of a
sum of EUR 50,000- (Fifty thousand Euros) or with a fixed
duration exceeding twelve (12) months;
(k) All changes in the activity or in the by-laws of the Companies;
and
(l) Transfer of any assets of the Companies.
8.1.3 From the date of this Agreement until the Date of Completion, the
Warrantors will notify the Buyer (i) of any emergency or material
change in the normal conduct of the Companies and (ii) of the threat
or the initiation of any litigation against the Companies, and will
keep the Buyer fully informed of developments with respect to such
events and afford the Buyer's representatives full access to all
materials in its possession relating thereto.
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8.2 Situation at Completion
8.2.1 The Warrantors warrant that all the representations and warranties
contained in Clause 7 and the information set out in the Schedules
including the Disclosure Schedule will be true and complete at
Completion as if such representations and warranties had been given
and granted as that date.
8.2.2 The Warrantors may update the Schedules of this Agreement in order to
take into account changes arising prior to Completion or matters in
relation to which the Buyer has given its consent. The Warrantors
shall notify the Buyer of all changes to the Schedules and wherever
reasonably practicable the changes to the Schedules shall be made and
notified to the Buyer at least 48 hours prior to Completion.
8.3 Non-competition, non-solicitation and confidentiality undertaking
8.3.1 Except as provided in Clause 8.4.2 or as compelled by law or legal
authority, with effect from the Date of this Agreement and for a
period of three years from the date of Completion, the Warrantors
undertake that neither the Warrantors nor the Warrantors' Group
Affiliates for whom they are responsible, shall at any time directly
or indirectly by themselves or in conjunction with any other party or
venture, unless first authorised by the Buyer, utilize or disclose to
any third party any commercial secret, know-how or confidential
information belonging to the Companies or their activities.
Notwithstanding the foregoing, save as compelled by law or legal
authority, in no circumstances may such information be utilised or
disclosed for a period of 6 months following Completion.
8.3.2 From the Date of this Agreement and for a period of six months from
the date of Completion, the Warrantors undertake that neither the
Warrantors nor the Warrantors' Group Affiliates for whom they are
responsible, shall at any time directly or indirectly by themselves or
in conjunction with any other party or venture, canvass or solicit
orders for the supply of services substantially similar to or
otherwise competing with those supplied by the Companies as at
Completion in the normal course of business from any person who was a
customer of the Companies as at 28 May 2004 or is a customer at the
date of Completion, or induce or seek to induce any such person to
cease being a customer of the Companies.
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8.3.3 From the Date of this Agreement and for a period of two years from the
date of Completion, the Warrantors undertake that neither the
Warrantors nor the Warrantors' Group Affiliates for whom they are
responsible, shall at any time directly or indirectly by themselves or
in conjunction with any other party or venture, solicit any of the
employees of the Companies whose names are listed below to leave their
present or future functions within the Companies or employ directly or
indirectly such employees. The employees in respect of whom these
provisions apply are:
G. Wagner
C. Weisen
A. Eschenbrenner
D. Douret
A. Kubiak
A. Kurt
V. Adam
P. Collignon
J. Resibois
M. Folignioni
8.4 Undertaking of exclusivity
8.4.1 Except as provided in Clause 8.4.2 the Seller undertakes neither to
transfer Sale Shares to a third party, nor to grant any third party
any rights over the Sale Shares nor to take any steps nor to engage in
any negotiation in relation to acquiring any interest in the capital
of the Companies, nor take any action, whether directly or indirectly,
with the intention of impeding or preventing the Buyer from purchasing
the Sale Shares, until Completion, or until termination of this
Agreement.
8.4.2 It is understood that the Seller shall not be precluded from advancing
discussions with prospective alternative buyers of the Company
provided however that the Seller shall:
(i) enter into all necessary and appropriate legally binding
confidentiality undertakings with all such other prospective
alternative buyers;
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(ii) fully coordinate all discussions with, and hold such discussions
only with, the Monitoring Trustee approval. Any action or
disclosure of information shall be limited to what the the
Monitoring Trustee deems permissible, with a view to:
(a) ensuring that no information is provided that is
commercially sensitive or that could endanger the viability and
stability of the Business; and
(b) preserving the current and future competitiveness of the
Business;
(iii) inform all alternative buyers of the fact that the Seller has
entered into a legally binding and confidential agreement for
the sale of the Shares to the Buyer, subject only to EU
Commission approval. Accordingly, all prospective alternative
buyers shall be made specifically aware that their engagement
in the sale process is only as an alternative in the event
that the Transactions with the Buyer fail to close;
(iv) be precluded from providing prospective alternative buyers
access to management and employees of the Company and
Company site visits;
(v) not develop or discuss any potential transaction with an
alternative buyer beyond a stage that could reasonably be
characterised as preliminary drafting based on the first draft
Sale and Purchase Agreement provided initially to the Buyer. For
the avoidance of doubt, no final documents shall be agreed or
exchanged, regardless of whether or not they are legally
binding.
(vi) together with the Buyer, use their respective best endeavours to
coordinate and promptly take any action that is deemed
reasonably necessary or advisable by the parties to facilitate
the EU Commission approval of the Seller's submission and
request for approval of this Transaction; and
(vii) refer prospective alternative buyers only to Graham Foster and
S0ren Lundsberg-Nielsen both of G4S plc, who shall be the
only authorised individuals to deal with any prospective
alternative buyers.
8.5 Transitional period for use of name
The Companies shall be authorised, subject to their entering into a
trade mark licence in the form set out in Schedule 34, during a
maximum period of six months from the date of Completion, to continue
to use all patents, trademarks, service marks, trade names, logos,
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company names, designs and models, know-how, copyrights and industrial
property rights which are currently registered in the name of the
Companies or used by the Companies, including the stationery and
uniforms, but only in the same manner and for the same purposes as
they were used prior to the date of Completion.
For the avoidance of doubt, no other rights whatsoever are granted to
the Company or the Buyer in respect of the names "Securicor", "Group
4" or any associated trademarks.
Neither the Warrantor nor any Warrantors' Group Affiliate shall be
authorised to use the name "Securicor" in the Grand Duchy of
Luxembourg (i) as a combined name for a period of 12 months from the
Date of Completion or (ii) as a stand alone name for a period of 2
years from the Date of Completion.
9. REPRESENTATIONS AND WARRANTIES OF THE BUYER
-------------------------------------------
9.1 The Buyer represents and warrants to the Seller that the Buyer is a
company which is duly incorporated and registered, that it validly
exists under Luxembourg law, is not in administration proceedings and
is not subject to a voluntary liquidation procedure; the Buyer
represents and warrants equally that it is not subject to any
proceedings whether or not criminal which restricts the Buyer from
purchasing the Sale Shares in accordance with the terms of this
Agreement and that its directors and other corporate officers are not
subject to any criminal proceedings restricting them from exercising
the powers or functions they may exercise on behalf of the Buyer. The
Buyer represents and warrants that the signing of this Agreement has
been duly authorised by its corporate bodies and that this Agreement
constitutes for it an agreement which is binding in accordance with
its terms.
9.2 In order to ensure full and complete information, the Seller has
delivered to the Buyer and its advisors, the documents and information
listed in Schedule 35, such documents and information contain legal,
financial, accounting and commercial data. It is on the basis of these
documents and this information delivered to and reviewed by the Buyer
that the Buyer has decided to purchase the Sale Shares in accordance
with the terms of this Agreement.
It has been expressly agreed between the Parties that the
representations and warranties of the Buyer in this Agreement will
have no effect on the scope of the representations and warranties of
the Warrantors contained in Clause 7 and, save for the warranty given
in Clause 9.3, on the effectiveness of the indemnification procedures
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contained in this Agreement and in particular in Clause 10. Only the
information contained in this Agreement or in its Schedules attached
(as it exists of the Date of this Agreement or which is updated in
accordance with Clause 8.2.2 may release the Warrantors from their
liability in accordance with Clause 10.
9.3 The Buyer and BI hereby warrant to the Seller that they have no actual
knowledge of a breach of or inconsistency with any of the warranties
or representations set out in Clause 7, except for matters set out in
the Disclosure Schedule and except for the fact that the Company has
not charged VAT on certain cash processing services; to the extent
that this fact may be a breach or inconsistency with any of the
warranties and representations, the Buyer would have a claim.
9.4 The Buyer acknowledges that it has not been induced to enter into this
Agreement, nor has it relied upon anything other than the entirety of
this Agreement; including but not limited to, the representations or
warranties set out in this Agreement.
SECTION III - INDEMNIFICATION
-----------------------------
10. INDEMNIFICATION
---------------
10.1 Principle
10.1.1 The Warrantors undertake to jointly and severally indemnify the Buyer,
or any other person nominated by the Buyer, against:
(a) any Loss that the Companies or the Buyer may suffer by virtue of
a reduction in the value of an item of assets or an increase in
the value of an item of liabilities resulting from a liability
not being specifically accounted for or insufficient provision
being made for it in the Accounts, as long as the cause or origin
of this reduction in assets or increase in liabilities arises
prior to Completion;
(b) any Loss that the Companies or the Buyer suffer as a result of
any inaccuracy or omission in the representations and warranties
contained in Clause 7 or of the non-performance by the Warrantors
of any of their obligations under this Agreement, as long as such
loss has not been indemnified in full by the provisions of Clause
10.1.1 (a) above.
(c) any Loss that the Companies suffer in respect of Taxes (including
a Loss arising out of the fact that the Company has not charged
VAT on certain cash processing services) following any enquiry or
adjustment applying to a period prior to Completion which has not
been accounted or provided for in the Accounts.
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10.1.2 The obligation to indemnify applies as well to all events which occur
between the Date of this Agreement and Completion and which have the
effect of rendering the representations, warranties and undertakings
contained in Section II incorrect or incomplete whether or not the
Loss suffered could not be ascertained or was not ascertained until
after Completion.
10.1.3 If the Loss to which the provisions of Clause 10.1.1 applies relates
to Taxes, the undertaking of the Seller under Clause 10.1.1 to
indemnify the Buyer is agreed to be an undertaking to pay to the Buyer
an amount equal to the liability to Taxes.
10.2 Net loss
The Warrantors are only liable to indemnify the net Loss. In this
respect, the total indemnity under this clause will be calculated
taking into account the following factors:
(a) If the event which forms the basis of a request for an indemnity
of loss has given rise to the making of a provision in the
Accounts, the amount of the indemnifiable Loss will be reduced by
the amount of the provision in the Accounts specifically booked
to cover such Loss;
(b) If the event gives rise to an insurance claim and recovery paid
to any of the Companies or to the Buyer, the amount of
indemnifiable Loss shall be reduced by such payment;
(c) Any tax adjustment which has the sole effect of transferring an
expense or an income from one financial year to the next
financial year will only be taken into account in respect of
interest and late payment penalties on the transfer of such
expenditures or income.
(d) All amounts paid by the Warrantors to the Buyer, as the case may
be, under the terms hereof shall be treated to the extent
permitted under applicable tax law as adjustments to the Purchase
Price for all Tax purposes, and to the extent not so permitted,
the amount of any such payment shall be increased to take into
account the Tax, if any, resulting from the receipt of such
payment.
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10.3 Limitations of Liability
10.3.1 The Warrantors shall not be liable to indemnify the Buyer pursuant
to Clause 10.1 or for a breach of the warranties or representations
set out in Clause 7;
10.3.1.1 To the extent that the claim relates to any matter disclosed
in the Disclosure Schedule;
10.3.1.2 To the extent that a claim arises:-
(a) wholly or partly from an act or omission occurring at the request
of or with the written consent of the Buyer or (on or after the
Date of Completion) the Company;
(b) wholly or partly from an act or omission since the Last
Accounting Date compelled by law;
(c) wholly or partly as a result of any increase in rates of taxation
since the Last Accounting Date;
(d) wholly or partly as a result of the passing after Completion of
an enactment or other government regulation with retrospective
effect.
10.3.1.3 to the extent that the subject of the claim:
(a) has been or is made good or is otherwise compensated for without
cost to the Buyer or the Company; or
(b) is, or but for this Agreement would be, recoverable by any of the
Companies by insurance in place at Completion, or would have been so
recoverable but for any change in the terms of insurance since the
date of Completion.
10.4 Where the Buyer and/or the Company are at any time entitled to recover
from some other person any sum in respect of any matter giving rise to
a claim under Clause 10.1 or under any of the other provisions of this
Agreement the Buyer shall and shall procure that the Company shall
undertake all reasonable steps to enforce such a recovery and in the
event that the Buyer or the Company shall recover any amount from such
other person the amount of the claim against the Warrantors shall be
reduced by the amount recovered PROVIDED THAT:
36
<PAGE>
(i) the costs and expenses of such action are paid for by the Seller;
and
(ii) time for bringing a claim against the Seller pursuant to Clauses
12.1 or 12.2 is extended to a period of three months
following cessation of such third party claim.
10.5 If the Warrantors pay at any time to the Buyer or to the Company any
amount pursuant to a claim pursuant to Clause 10.1 and the Buyer or
the Company subsequently recovers from some other person any sum in
respect of any matter giving rise to such claim the Buyer shall
procure that the Company shall forthwith repay to the Warrantors so
much of the amount paid by them to the Buyer or the Company as does
not exceed the sum recovered from such other person less all costs,
charges and expenses incurred by the Buyer or the Company in
recovering that sum from such other person.
10.6 Each of the Buyer and BI undertakes to indemnify the Warrantors
against any Loss that the Warrantors suffers as a result of any
breach, inaccuracy or omission in the representations and warranties
contained in Clause 9 or of the non-performance by the Buyer or BI of
any of their obligations under this Agreement.
10.7 The Buyer accepts that it has a general duty to mitigate its Loss.
11. FLOOR THRESHOLD AND CEILING
---------------------------
11.1 Floor
The Warrantors will only be liable to indemnify under Clause 9 or 10
if an individual indemnifiable Loss under this Agreement exceeds the
sum of EUR 10,000 (ten thousand euro).
11.2 Threshold
The Warrantors will only be liable to indemnify under Clause 9 or 10
if the cumulative total of indemnifiable Loss under this Agreement
exceeds the sum of EUR 100,000 (one hundred thousand euro).
11.3 Ceiling
The total indemnity for which the Warrantors may be liable under this
Agreement shall not exceed an amount which is equal to 35% of the
Purchase Price.
11.4 Exception
The floor, threshold and ceiling in this Clause 11 will not apply:
37
<PAGE>
(a) in the case of fraudulent or intentional conduct of the
Warrantors in the context of the operations set out in this
Agreement;
(b) to claims arising from a violation of Clause 7.17 (Tax) of this
Agreement;
(c) to claims arising from a violation of Clause 7.13 (Environment)
of this Agreement, where the ceiling for such claim shall not
exceed an amount equal to 50% of the Purchase Price;
(d) to claims arising from customers of the Company alleging a loss
or shortfall in the Customer Accounts.
12. DURATION OF INDEMNIFICATION
---------------------------
12.1 Requests for indemnification pursuant to this Agreement in respect to
Taxes must be received before the expiration of a period of five years
(save where the relevant limitation period applicable to Taxes is
increased beyond five years with retrospective effect, in which case
such increased period shall be applicable) plus three (3) months, from
the date of Completion.
12.2 Save as otherwise specifically provided any other requests for
indemnification pursuant to this Agreement must be received before the
expiration of a period of eighteen (18) months from the Date of
Completion. Claims under Clause 8.3 of this Agreement are not subject
to this limitation on the period during which such claims may be
brought.
12.3 The Buyer shall not lose its right to indemnification at the
expiration of the limitation periods referred to above as long as the
requests pursuant to this Agreement (or the events which may give rise
to a claim for indemnification) are notified before the expiration of
such periods PROVIDED THAT the liability of the Warrantors for any
claim shall absolutely cease (unless the amount payable in respect of
a claim has been agreed by the Warrantors within 6 months of the date
of written notice given pursuant to Clause 12.1 or Clause 12.2 (as the
case may be)) if legal proceedings have not been instituted in respect
of such claim within 6 months of the date of written notice given
pursuant to Clause 12.1 or Clause 12.2 (as the case may be)(or such
later date as the Buyer and Seller may agree).
38
<PAGE>
13. NOTIFICATION PROCEDURE AND PAYMENT OF THE INDEMNITY
---------------------------------------------------
13.1 Principle
13.1.1 Any event capable of giving rise to an obligation to indemnify in
accordance with this Agreement must be notified in writing by the
Buyer to either of the Warrantors forthwith upon the Buyer becoming
aware of the same, specifying the reasons for which the Buyer requests
indemnification from the Warrantors as well as the sum of the
indemnifiable Loss incurred, if determinable.
13.1.2 Except in the event that written objection is sent by the Warrantors
to the Buyer within two (2) months of the receipt by the Warrantors of
the notification above, and save where a claim is being made against a
third party in accordance with Clause 10.4, the indemnification
requested shall be considered due and shall give rise to interest
accruing after the date of reception by the Warrantors of the request
for indemnity by the Buyer (the interest being payable at the same
time as the indemnity). The relevant interest rate shall be 5% per
annum.
13.1.3 If on the contrary, the Warrantors notify an objection to the Buyer in
the time-limits set out above, the dispute shall be settled pursuant
to Clause 14.11.
13.2 Third party requests
13.2.1 In the event of any legal or administrative action filed by a third
party against either of the Companies as well as of a tax reassessment
issued against the Companies, which would give rise to a request by
the Buyer to the Seller, the Buyer or the Companies shall give written
notice to the Seller as soon as is reasonably practicable following
either of the Companies becoming aware of such action. It is expressly
understood that any delay by the Buyer or the Companies in informing
the Seller will only give rise to the payment of damages to the Seller
in an amount equal to the loss suffered by the latter, but such
limitation of the Buyer's liability shall be applicable only if the
Buyer's or the Companies' delay in providing notification
significantly compromised the Seller's ability to participate in the
defence of such action and the Seller was otherwise entitled to
participate in the defence under the terms of this Agreement.
13.2.2 In the event the Seller does not notify in writing the Buyer of its
intentions in respect of the conduct of the legal action referred to
above within 30 (thirty) Working Days of receipt of the notification
referred to above, the Seller shall be deemed to have decided not to
take part in the defence of the Companies against the third party
claim.
39
<PAGE>
13.2.3 It is expressly agreed that the Buyer shall be authorised to commence
any urgent action to defending the Companies' interests without
consulting the Seller, if the Seller's advice cannot be reasonably
obtained considering the nature of the legal action to be conducted
and/or the time-limits for response set out by the third party.
13.2.4 In the event of a disagreement on the strategy to be implemented, or
if the Seller chooses not to intervene in the defence of the
Companies, the Companies will keep ultimate management of their
defence for their own benefit and that of interested parties as is set
out above.
13.2.5 Subject to the second sentence of this Clause 13.2.5, the Companies
shall control any audits, disputes, administrative, judicial or other
proceedings related to Taxes imposed upon the Companies. In the event
an adverse determination would result in the Seller having
responsibility for any amount of Taxes, the Seller shall be entitled
to participate, through the Buyer or the Companies, in that portion of
the proceedings relating to the Taxes with respect to which it may
incur liability. Neither the Buyer nor the Companies shall settle or
agree to settle any Tax liability or compromise any claim with respect
to Taxes, which settlement or compromise may affect the liability of
the Seller for Taxes, without the Seller's consent (which consent
shall not be unreasonably withheld or delayed). Any amended Tax return
or claim for Tax refund for any period shall be filed, or caused to be
filed, only by the Buyer, who shall not be obligated to make (or cause
to be made) such filing.
13.2.6 The Seller on the one hand, and the Buyer and the Companies on the
other, shall cooperate with each other and with each other's agents in
connection with Tax matters related to the Companies, including making
all relevant Tax information and documents in its possession available
to the other party and including in connection with any transfer
pricing inquiry.
13.3 Beneficiary of indemnification
The obligation to indemnify shall remain in force in the case of any
winding up, absorption, contribution or disposal of all or any assets
of the Companies.
40
<PAGE>
SECTION IV - MISCELLANEOUS
--------------------------
14. MISCELLANEOUS
-------------
14.1 Substitution - Transfer and Survival of Warranties and Representations
The provisions of Sections II and III will remain in force even though
the Company/Companies or their assets concerned are assigned or
transferred by a Company or the Buyer after Completion, in particular
if the Buyer or a Company as part of the transfer gives to the
transferee of a Company (or of its assets) representations, warranties
or undertakings.
14.2 Entire Agreement
14.2.1 This Agreement represents the entire agreement between the Parties as
do the provisions of the recitals and the Schedules attached.
14.2.2 This Agreement supersedes and replaces all letters of intent,
agreements or other arrangements between the Parties entered into
prior to the date of this Agreement.
14.2.3 No party may assign, or grant any Encumbrance or security interest
over, any of its rights under this Agreement.
14.3 Further Assurance
Each of the Parties will do, or procure the doing of, all acts and
things and execute, or procure the execution of, all documents as any
other party reasonably considers necessary to give full effect to the
terms of this Agreement.
14.4 Amendments
The Parties agree that this Agreement shall be amended only in writing
such amendment to be signed by the parties or by their duly authorised
representatives. Neither Party will be deemed to have waived a right
unless expressly specified in accordance with this Agreement.
14.5 Confidentiality
This Agreement is confidential between the Parties. Consequently, the
Parties agree to keep this Agreement confidential (except for the
specific disclosure permitted by Clause 8.4.2 (iii)) and more
generally not to disclose any information directly or indirectly in
relation to this Agreement, unless the disclosure is required by law
or by regulations or in order to preserve its rights. Without
prejudice to the generality of this clause, the provisions of the
Confidentiality Agreement shall remain in force notwithstanding the
execution of this Agreement.
41
<PAGE>
14.6 Announcement
14.6.1 Any announcement or press release in respect of this Agreement or to
the content of this Agreement will not be issued without prior mutual
written consent between the Buyer and the Warrantors not to be
unreasonably withheld.
14.6.2 If the announcement or the press release is required by law or
applicable administrative procedure including, without limitation, any
regulation of any stock exchange upon which the shares of any party or
any of their respective affiliates are traded, the consent from the
other party is not required, it being understood that the existence of
said requirement shall be notified to the other party within a
reasonable time and the content of such announcement or press release
shall be discussed by reference to this Article.
14.7 Notices
14.7.1 All notices required in respect to this Agreement or to the related
operations shall be either delivered by hand personally with
acknowledgement of receipt or sent by registered mail or special mail;
the notice may be faxed on the condition that a confirmatory hard copy
is sent by registered mail with acknowledgement of receipt or by
special mail (at the latest one business day after the fax).
14.7.2 All notices shall be addressed to the parties at the following
addresses:
(a) To the Buyer : Brink's Luxembourg S.A.
Zone Industrielle
L-8287 Kehlen
Luxembourg
For the attention of : General Manager
Fax n : + (352) 30 54 39
With a copy to : Brink's, Incorporated
1801 Bayberry Court
P O Box 18100
Richmond, VA 23226-8100
U.S.A.
42
<PAGE>
For the attention of : Chief Financial Officer
Fax n : + 804 289 9761
and : Brink's EMEA S.A.S.
15, Rue Lafayette
Paris, 75009
France
For the attention of : Vice President Finance
Fax n : +33 1 55 07 99 21
(b) To the Seller and/or G4S : Group 4 Securicor plc
The Manor
Manor Royal
Crawley
West Sussex RH10 9UN
UK
For the attention : Group General Counsel
Fax n : 00 44 1293 554500
14.7.3 The Buyer and the Warrantors will be authorised to amend at any time
their relevant address, addressee or fax number above subject to
informing the other party in accordance with this Article.
14.8 Costs and Expenses
14.8.1 Any registration fees and stamp duties payable on the execution of
this Agreement shall be borne by the Buyer.
14.8.2 Each Party shall bear the fees, costs and commissions of its own legal
advisers and agents.
43
<PAGE>
14.9 Language
The Parties acknowledge that the negotiations have been conducted and
the drafts of the Agreement have been written in English (except for
the Schedules, which shall be in English or French, respectively
followed by an English or French translation in case of originals
drafted in a different language).
14.10 Severability
Should any provisions of this Agreement be declared invalid, illegal
or unenforceable, such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of the
remaining provisions of this Agreement, which shall remain in full
force and effect.
This Agreement may only be amended by a written instrument executed by
all the Parties hereto. Therefore the tolerance also reiterated of any
defaults or delayed performance of this Agreement shall not be
interpreted as a tacit revocation of the provisions hereto.
14.11 Implementation
14.11.1 The Parties agree to provide any information and documents required
for the performance of this Agreement and to sign this Agreement.
14.11.2 This Agreement (other than obligations that have already been fully
performed) remains in force after Completion.
14.12 Applicable law and settlement of disputes
14.12.1 This Agreement shall be governed and construed in accordance with
Luxembourg law.
14.12.2 Any disputes concerning the validity, interpretation or enforceability
of this Agreement which may arise from this Agreement may be finally
settled by arbitration in accordance with the Rules of Arbitration of
the International Chamber of Commerce applicable at the time of
arbitration except that termination as a result of failure to obtain
Clearance shall not be the subject of arbitration. The arbitral
tribunal shall be composed of three arbitrators appointed in
accordance with such rules. The arbitration shall take place in
Luxembourg. The arbitrators shall be fluent in English and French, and
documents may be submitted in English and French without any
translation. The above-mentioned arbitration provisions do not
preclude the Parties from exercising their right to request
provisional relief or protective measures before any competent court.
44
<PAGE>
14.13 Counterparts
This Agreement may be executed in any number of counterparts, each of
which is an original and which together have the same effect as if
each party had signed the same document.
45
<PAGE>
This Agreement has been made in London, executed and signed in as many original
copies as there are parties, at the date mentioned at the beginning of this
Agreement.
/s/ N. Griffiths /s/ B. Dumoulin
- ----------------------------------- -------------------------------
Securicor International BV Brink's Luxembourg S.A.
By: Nigel Griffiths By: Bernard Dumoulin
Capacity: Managing Director Capacity: Authorized signatory
/s/ Soren Lundsberg Nielsen /s/ Mari Jo Flanagan
- ----------------------------------- -------------------------------
Group 4 Securicor Holdings Limited Brink's Incorporated
By: S0ren Lundsberg Nielsen By: Mari Jo Flanagan
Capacity: Authorised under Power of Capacity: Authorized signatory
Attorney
46
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>4
<FILENAME>exhibit13.txt
<DESCRIPTION>EXHIBIT 13
<TEXT>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
The Brink's Company
Executive Overview
The Brink's Company (along with its subsidiaries, the "Company") has three
operating segments within its "Business and Security Services" businesses:
o Brink's, Incorporated ("Brink's") Brink's offers services globally
including armored car transportation,
automated teller machine ("ATM")
replenishment and servicing, currency
and deposit processing including its
"Cash Logistics" operations, coin
sorting and wrapping, arranging the
secure air transportation of valuables
("Global Services") and the deploying
and servicing of safes and safe
control devices, including its
patented CompuSafe(R) service.
o Brink's Home Security, Inc. ("BHS") BHS offers monitored security services
in North America primarily for owner-
occupied, single-family residences. To
a lesser extent, BHS offers security
services for commercial and
multi-family properties. BHS typically
installs and owns the on-site security
systems, and charges fees to monitor
and service the systems.
o BAX Global Inc. ("BAX Global") BAX Global provides freight
transportation and supply chain
management services on a global basis,
specializing in the heavy freight
market for business-to-business
shipping.
Management's approach to its three businesses is similar, with a focus on
service, its brands, risk management and a patient and disciplined approach to
its markets. Each business strives to be a premium provider of services in the
markets that it serves. The Company's marketing and sales efforts are enhanced
by its brands so it seeks to protect their value. Since the Company's services
focus on the handling, transportation, and protection of valuables, its
employees strive to understand and manage risk. Overlaying all of this is an
understanding that the Company's employees must be disciplined and patient
enough to charge fair prices which reflect the value provided, the risk assumed
and the need for an adequate return for the Company's investors.
22
<PAGE>
The business environments in which the Company's business units operate around
the world are constantly changing. Management must continually adapt to changes
in the competitive landscapes, economies in different parts of the world and
even the individual customer's level of business. To be successful, management
must be able to balance requirements of local laws and regulations, risk, and
the effect of changing demand on the utilization of its resources. As a result,
the Company operates largely on a decentralized basis so local management can
adjust operations to its unique circumstances.
For the same reasons that the Company operates on a decentralized basis, short
term forecasts of performance are difficult to make with precision. As a result,
the Company does not provide detailed forecasts of earnings.
The Company measures its financial performance on a long-term basis. The key
financial factors on which it focuses are:
o Growth in revenues and earnings
o Generation of cash flow
o Building of value through solid returns on capital
These and similar measures are critical components of incentive compensation
programs and performance evaluations.
The Company also has significant liabilities associated with its former coal
operations. Since these liabilities are expected to generate ongoing expense and
require significant cash outflows, the Company considers liability management
and funding to be an important activity along with the management of its three
businesses.
Information about the Company's liabilities and assets related to its former
coal business is contained in a number of sections of this report, including:
o Retained Liabilities and Assets of Former Natural Resource Operations
o Application of Critical Accounting Policies
Disclosures in the first section show five-year projections for estimated
ongoing payments and expense associated with the retained obligations of its
former coal business and reconcile a Company-defined measure of its retained
obligations, "Legacy Value," to corresponding measures under U.S. generally
accepted accounting principles ("GAAP"). The second section discusses critical
estimates used and provides a sensitivity analysis for these estimates.
23
<PAGE>
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Overview of Results
<TABLE>
<CAPTION>
Years Ended December 31, % change
- ----------------------------------------------------------------------------------------------------------
(In millions) 2004 2003 2002 2004 2003
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Income (loss) from:
Continuing operations $ 100.6 18.2 69.4 200+ (74)
Discontinued operations 20.9 11.2 (43.3) 87 NM
- ----------------------------------------------------------------------------------------------------------
Net income $ 121.5 29.4 26.1 200+ 13
==========================================================================================================
</TABLE>
The income (loss) items in the above table are reported after tax.
Continuing Operations
2004
Income from continuing operations in 2004 was higher than in 2003 primarily due
to a $90.1 million increase in operating profit as a result of improvements in
each of the business segments. In addition, $23.6 million of lower expenses
related to former coal operations, and the return to a more normal effective tax
rate in 2004 contributed to the improved results. The 2003 tax rate was higher
due primarily to the recording of valuation allowances related to deferred tax
assets for certain state and foreign tax jurisdictions.
Partially offsetting the effect of improved performance in each of the
businesses was an $18.1 million increase in corporate expenses primarily due to
costs related to the internal controls documentation and testing work mandated
by section 404 of the Sarbanes-Oxley Act of 2002. Costs related to incentive
compensation were also higher in 2004 than in 2003. In addition, 2003 included a
one-time $10.4 million pretax gain on the sale of an equity interest in a
natural resource business.
2003
Income from continuing operations in 2003 was lower than 2002 primarily due to
the inclusion within continuing operations of $50.3 million of higher expenses
related to former coal operations in 2003 (recorded in discontinued operations
through 2002) and a higher effective tax rate in 2003 as noted above. In
addition, BAX Global's operating profit declined by $14.6 million from 2002 to
2003.
Business Segments
Brink's and BHS reported improved operating profit in both 2004 and 2003 over
prior-year periods. Although profitable in each of the last three years, BAX
Global's operating profit has been more volatile and more affected by economic
cycles as compared to operating profits at Brink's and BHS.
Brink's. Revenues and operating profit in both 2004 and 2003 improved from the
prior-year periods on higher international earnings as a result of improving
economies and higher volumes. The effects of the weaker U.S. dollar also
benefited revenues and earnings. Staff reductions in various European countries
in late 2002 and the first half of 2003 improved profitability in the last half
of 2003 and in 2004. Staffing levels prior to this were higher due to special
euro currency processing and transportation work performed in 2001 and early
2002. Operating profit in South America was also stronger in 2004 and 2003
compared to the weak 2002 which resulted from economic and political turmoil in
several South American countries and some industry consolidation that occurred
in 2004.
BHS. Strong growth in operating profit in 2004 (13%) and 2003 (17%) resulted
primarily from the subscriber growth over the last two years and improving
efficiency. The average number of subscribers increased 10% in 2004 over 2003
and 8% in 2003 over 2002.
24
<PAGE>
BAX Global. Operating profit in 2004 was much higher than in 2003 as a result of
much stronger volume through BAX Global's lntra-American transportation network.
Operating profit in 2003 was below 2002 primarily as a result of lower shipments
through the Intra-America transportation network due to soft demand for air
freight services in 2002 and in the first nine months of 2003 as a result of
slow economic growth.
Former Natural Resource Operations
Expenses related to former coal operations were $23.6 million lower in 2004
compared to 2003 due to the recording of a benefit from enactment of the
Medicare reform bill in December 2003, the benefit from the recording of
projected investment income from the Company's Voluntary Employees' Beneficiary
Association ("VEBA") trust after the assignment of the VEBA to pay certain
retiree medical benefit obligations, and a reduction in coal-related
administration and other expenses.
With the exit from the coal business in late 2002, the Company in 2004 and 2003
reported coal-related expenses within continuing operations. Coal-related
expenses include expenses for employee benefits, administration and other
charges related to retained liabilities. These types of costs were recorded
within discontinued operations in 2002. These costs will continue to affect
results of continuing operations in the future.
In 2002, the Company recorded a $19.2 million pretax charge within continuing
operations related to impairment and other charges associated with coal
properties which were shut down and prepared for sale. Most of these properties
were sold in 2003.
In 2003, the Company recorded a $10.4 million pretax gain on the sale of shares
that it held in an Australian gold and nickel exploration and mining company.
Income Taxes
The Company's effective tax rate was 38% in 2004, 75% in 2003 and 37% in 2002.
The effective tax rate varied from statutory rates in these periods primarily
due to changes in valuation allowances for deferred tax assets. The Company
assesses its ability to realize deferred tax assets for subsidiaries which have
a recent history of losses. If the Company concludes that the probability of
realizing tax assets for a particular tax jurisdiction does not meet the
more-likely-than-not threshold, a valuation allowance is recorded as tax
expense. Once an operation is identified for valuation allowances, valuation
allowances will continue to be recorded on subsequent year's tax losses unless
the operation returns to sustainable profitability. Valuation allowance
adjustments of approximately $10 million were recorded in 2004, primarily
related to certain European operations. Valuation allowance adjustments, net, of
$28 million were recorded in 2003 for deferred tax assets primarily related to
two international operations and certain states.
There could be further valuation allowances required in the future. On the other
hand, if operations in affected jurisdictions return to profitability, the
Company may reverse all or a portion of the valuation allowances in future
years.
The effective tax rate in future periods will not include the potential benefit
of any losses for entities that have a valuation allowance unless the Company
Fconcludes it is more likely than not these benefits will be realized. The
Company currently estimates its effective tax rate for 2005 will approximate
40%. The actual tax rate could be materially different from the Company's
estimate.
Discontinued Operations
The Company sold or otherwise disposed of its natural resource businesses in the
last several years, the biggest being its former coal operations. The Company
recognized a significant loss on the sale of its coal business, although most of
the loss was recognized in 2000, a period not presented in this report. In
addition to the loss on sale, the Company has accrued significant liabilities
related to benefits for former coal employees. Revisions to estimated amounts
related to some of these liabilities, including those related to obligations
under the Coal Industry Retiree Health Benefit Ac of 1992 ("the Health Benefit
Act") obligations and multi-employer pension plan withdrawal liabilities, are
recorded in discontinued operations and were significant in each of the last
three years. In 2002, significant coal operating losses were also included in
discontinued operations.
25
<PAGE>
Besides the coal operations, the Company's income (loss) from discontinued
operations includes gains and losses from the sale of the Company's other former
natural resource businesses and their operating results through the date of the
sale.
o Natural gas business - sold in August 2003 for a $56.2 million pretax
gain
o Timber business - sold a small portion in December 2003 and completed
the sale in early 2004 for a $25.5 million pretax gain ($4.8 million
recognized in 2003 and $20.7 million in 2004)
o Gold business - sold in early 2004 for a pretax loss of $0.9 million.
Pretax impairment losses were recognized in 2003 ($1.7 million) and
2002 ($5.7 million).
Value-added taxes and customs duties
One of the Company's non-U.S. Brink's, Incorporated business units has not paid
foreign customs duties and value-added taxes with respect to the importation of
certain goods and services. The Company has been advised that there could be
civil and criminal penalties asserted for the non-payment of these custom duties
and value-added taxes. The business unit has commenced discussions with the
appropriate governmental authorities in the affected jurisdiction regarding this
matter. To date no penalties have been asserted.
As a result of its investigation, the Company recorded charges in 2004 of $1.1
million to operating profit and $0.7 million to interest expense. A summary of
the impact of this situation on earnings is provided below.
Year Ended
(In millions) December 31, 2004
- --------------------------------------------------------------------------------
Penalties on unpaid value-added taxes $ 0.4
Duties 0.7
- --------------------------------------------------------------------------------
Amount charged to operating expenses 1.1
Interest expense on unpaid value-added taxes and customs duties 0.7
- --------------------------------------------------------------------------------
$ 1.8
================================================================================
The Company evaluates many factors to determine whether it should recognize or
disclose a loss contingency, including the probability of an unfavorable outcome
and the ability to make a reasonable estimate of the amount of loss. The Company
believes that the range of probable penalties related to unpaid value-added
taxes is between $0.4 million and $3 million and that no amount within that
range is a better estimate than any other amount within the range. Accordingly,
the Company has accrued $0.4 million for these penalties.
The Company has concluded that a loss related to penalties on unpaid customs
duties is not probable. The Company believes that the range of reasonably
possible losses related to customs duties penalties is between $0 and
approximately $35 million. The Company believes that the assertion of these
penalties would be excessive and would vigorously defend against any such
assertion.
The Company intends to diligently pursue the timely resolution of this matter
and, accordingly, the Company's estimate of the potential losses could change
materially in future periods. The assertion of potential penalties may be
material to the Company's financial position and results of operations. These
penalties could be asserted at any time. Although the Company has accrued $0.7
million of interest on the unpaid value-added taxes and customs duties, the
Company does not expect to be assessed interest charges in connection with any
penalties that may be asserted.
The Company has implemented measures designed to prevent similar situations in
the future. The Company believes that the circumstances giving rise to this
matter are isolated to this particular business unit.
26
<PAGE>
Consolidated Review
<TABLE>
<CAPTION>
Revenues Operating Profit
- --------------------------------------------------------------------------------------------------------------
Years Ended December 31, % change Years Ended December 31, % change
- --------------------------------------------------------------------------------------------------------------
(In millions) 2004 2003 2002 2004 2003 2004 2003 2002 2004 2003
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Business Segments
Brink's $ 1,931.9 1,689.0 1,579.9 14 7 $ 144.7 112.5 96.1 29 17
BHS 345.6 310.4 282.4 11 10 80.8 71.2 60.9 13 17
BAX Global 2,440.6 1,999.2 1,871.5 22 7 56.2 3.0 17.6 200+ (83)
- --------------------------------------------------------------------------------------------------------------
Business segments 4,718.1 3,998.6 3,733.8 18 7 281.7 186.7 174.6 51 7
Corporate - - - - (45.9) (27.8) (23.1) 65 20
Gain on sale of equity
interest - - - - - 10.4 - (100) NM
Former coal operations - - - - (45.9) (69.5) (19.2) 34 (200+)
- --------------------------------------------------------------------------------------------------------------
$ 4,718.1 3,998.6 3,733.8 18 7 $ 189.9 99.8 132.3 90 (25)
==============================================================================================================
</TABLE>
Revenues in 2004 were 18% higher than 2003 because of growth in all segments and
changes in currency exchange rates. Operating profit increased 90% in 2004 due
to improved operating performance by the Company's business segments,
particularly at BAX Global, and lower expenses related to former coal
operations. These improvements were partially offset by higher corporate
expenses and the nonrecurrence of the 2003 gain on the sale of an equity
investment.
Revenues in 2003 were 7% higher than 2002 because of growth in all business
segments and changes in currency exchange rates. Operating profit in 2003 was
25% lower than in the prior year primarily because the cost of retiree and other
benefits and other costs related to the former coal business were classified
within former coal operations in continuing operations. Prior to 2003, these
expenses were recorded within discontinued operations. Operating profit was
stronger at Brink's and BHS on growth in these businesses, offset by lower
profits at BAX Global primarily due to the effects of soft demand for air
freight services for most of 2003. Demand for air freight services began to
improve in the fourth quarter of 2003. This trend has continued through 2004.
For subsidiaries outside the U.S., U.S. dollar revenue growth rates include the
effect of changes in currency exchange rates. On occasion in this report, the
change in revenue versus the prior year has been disclosed using constant
exchange rates in order to provide information about growth rates without the
impacts of changing foreign currency exchange rates. Relative to most other
currencies relevant to the Company, the U.S. dollar weakened in 2004 and 2003
compared to the respective prior-year periods, so growth at constant-currency
exchange rates was lower than growth computed using actual currency exchange
rates. Changes in currency exchange rates did not materially affect
period-to-period comparisons of segment operating profit for the periods
presented herein.
27
<PAGE>
Brink's, Incorporated
Executive Overview
Brink's provides multiple services related to cash and other valuables to the
financial community, retailers and other businesses. These services vary from
secure transportation and handling of valuable assets to currency and deposit
processing to the increasingly important preparation and transmittal of related
information.
The Company believes that Brink's has significant competitive advantages
including:
o Brand name and reputation for high quality service
o Broad geographic coverage
o Proprietary processing and information systems
o Financial strength and risk management capabilities.
Because of the emphasis on managing the risks inherent in handling valuables and
the high level of service provided, Brink's believes that it spends more than
its competitors on training and retaining its people and on the facilities and
processes needed to provide quality services to its customers.
As a result of its emphasis on high-quality services and risk management,
Brink's focuses its marketing and selling efforts on customers who appreciate
the value and breadth of the services delivered, the information capabilities
and the financial strength underlying the Brink's approach to the business.
In order to earn an adequate return on the capital employed in the business,
Brink's focuses on the effective and efficient use of its resources and the
adequacy of pricing. First, Brink's attempts to maximize the amount of business
which flows through its branches, vehicles and systems in order to obtain the
lowest costs possible without compromising safety, security or service. Due to
its higher costs of people and processes, Brink's generally charges higher
prices than its competitors which may not provide the same level of service and
risk management. The Company believes that Brink's operations are capable of
generating profit margins above 7% on an annual basis. This level is necessary
to earn a reliable return on its cost of capital.
The industries to which Brink's provides services have been consolidating. As a
result, the strength of the customers in these industries has been increasing.
Customers are seeking suppliers with broader geographic solutions, more
sophisticated outsourcing capabilities and financial strength.
Operationally, Brink's performance may vary from period to period. Since
revenues are generated from charges per service performed as well as on an ad
valorem basis, revenues can be affected by the level of activity in an economy
and the level of business for specific customers. In addition, contracts
generally run for one or more years and there are costs which must be incurred
to prepare to service a new customer or to transition away from one. Further,
Brink's level of operation and related revenues are generally higher in the
second half of the year, and in particular in the fourth quarter, because of the
generally higher economic activity then. As a result, margins are typically
lower in the first half of the year than in the second half.
28
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, % change
- -------------------------------------------------------------------------------------------------------
(In millions) 2004 2003 2002 2004 2003
- -------------------------------------------------------------------------------------------------------
<S> <C>
Revenues
North America (a) $ 733.7 716.2 694.9 2 3
International 1,198.2 972.8 885.0 23 10
- -------------------------------------------------------------------------------------------------------
$ 1,931.9 1,689.0 1,579.9 14 7
=======================================================================================================
Operating Profit
North America (a) $ 55.2 53.4 52.2 3 2
International 89.5 59.1 43.9 51 35
- -------------------------------------------------------------------------------------------------------
$ 144.7 112.5 96.1 29 17
=======================================================================================================
Cash Flow Information
Depreciation and amortization $ 81.0 70.6 61.3 15 15
Capital expenditures 76.2 80.9 79.3 (6) 2
=======================================================================================================
</TABLE>
(a) U.S. and Canada.
2004
Overview
Revenues and operating profit in 2004 increased modestly in North America and
more significantly in the International region compared to 2003.
Internationally, improvements occurred in both Europe and South America.
European operating profit in 2004 improved because of higher local currency
revenues as a result of improved economic performance and also as a result of
operational changes made last year. European operating profit in the first half
of 2003 reflected reduced volumes of business due to the effects of generally
slow economies and the buildup to the conflict in the Middle East along with
approximately $4.7 million in severance costs. Operating profit in South America
in the first half of 2003 was depressed due to poor economic and political
conditions. In 2004, operating performance benefited from improved conditions.
International operating profit in 2004 included approximately $3.1 million of
operating expenses related to adjustments to non-income tax accruals, including
$1.1 million of operating expenses related to unpaid value-added taxes and
customs duties. The Company anticipates an increase in expenses related to
safety and security costs in 2005.
North America
Revenue increased in North American operations in 2004 primarily due to
increased revenues from Global Services and Canadian armored transportation and
ATM services, offset by lower U.S. armored transportation and ATM revenue.
Operating profit increased in 2004 primarily due to improved performance in coin
wrapping services, cash logistics services, and Canadian armored transportation
operations, partially offset by a lower contribution from the U.S. armored car
transportation operations. In 2003, a $5.5 million gain on the sale of operating
assets was largely offset by severance and other costs related to the transfer
of its headquarters operation from Connecticut to Richmond, Virginia and Dallas,
Texas. Defined benefit plan costs will increase in 2005 over 2004.
International
Revenues in 2004 increased 23% over 2003 (16% on a constant currency basis). The
increase in International revenues and operating profit was primarily due to
better performance in South America and Europe.
29
<PAGE>
Europe. Revenues increased 26% in 2004 (15% on a constant currency basis) due to
increased volumes in armored transportation, ATM servicing, currency processing
and Global Services operations. Operating profit improved due to higher volumes
as a result of improved business conditions and competitor difficulties,
particularly in France, and the impact of an acquisition of security operations
in Greece and the recently held Olympic Games. Revenues in 2003, particularly in
the first quarter, were adversely affected by a generally weak economy and
uncertainty related to the then-impending conflict in the Middle East. In
addition, European operating results began to improve in the last half of 2003
partially as a result of management changes and workforce reductions made to
align resources to business needs.
South America. South American revenues and operating profits in 2004 improved
due to better operating performance throughout the region and particularly in
Venezuela. This improved operating performance was primarily due to higher
volumes of armored transportation business, which was driven in part by the exit
of competitors from the market. Improved operating performance in Brazil was the
result of increased volumes as well as the benefit of cost reductions taken in
late 2003. However, the operating environment in Brazil remains highly
competitive.
Asia-Pacific. Asia-Pacific revenues and operating profits in 2004 were above the
prior year reflecting improved results, particularly in Australia and Hong Kong.
Other. As discussed in "Value-added taxes and customs duties" above and in note
23 to the consolidated financial statements, the Company recorded operating
expense of approximately $1.1 million in 2004 related to unpaid value-added
taxes and customs duties, including an estimate of the penalties. At any time,
the Company could be assessed penalties materially in excess of those accrued.
International operating profit in 2004 also included $2.0 million of higher
expense as a result of unfavorable determinations in Brazil and Mexico related
to non-income tax issues.
2003
Overview
Improved revenues and operating profit in 2003 over 2002 reflected much better
results in the International region. International operating profit increased
over 2002, despite the higher profit levels achieved in the first quarter of
2002 associated with special euro currency processing and transportation work.
Most of the improvement in the International region occurred in South America
where performance was weak in 2002.
North America
North American operating profit was 2% higher in 2003 over the prior year on a
3% increase in revenues (2% increase in revenues on a constant currency basis).
The slightly higher operating profit in North America was primarily due to
improved performance in the Cash Logistics operations and Global Services,
mostly offset by higher employee benefit expenses. A $5.5 million gain on the
sale of operating assets was largely offset by severance and other costs.
In 2003, management closed its Brink's corporate headquarters in Darien,
Connecticut and relocated employees to either Brink's U.S. headquarters in
Coppell, Texas, or to The Brink's Company headquarters in Richmond, Virginia. As
a result, approximately $5.4 million of severance and other costs were incurred
in the U.S. during 2003.
An increase in employee benefit costs in 2003 included $4.8 million higher
expense from the Company's primary U.S. pension plan and higher health care
costs for active employees.
30
<PAGE>
International
International operating profit for 2003 was 35% higher than 2002 on a 10%
increase in revenues (3% increase in revenues on a constant currency basis).
Improvements in revenues and operating profit on a constant currency basis in
South America and Asia-Pacific were offset by lower European revenues and
operating profit, as discussed below.
Europe. European revenues and operating profit in the first quarter of 2002
benefited from the currency processing and transportation work associated with
the introduction of the euro on January 1, 2002. However, the cost of staffing
levels, which remained high after the euro work was completed, negatively
affected the last nine months of 2002 and, to a lesser degree, the first half of
2003.
Europe's revenues and operating profit in 2003 were below the prior year on a
constant currency basis primarily because of the absence of the euro work
performed in the first quarter of 2002. There was also approximately $4.7
million of higher severance expense associated with workforce reductions.
Revenues on a constant currency basis were higher in the second half of 2003
compared to the same 2002 period due to better performance and, to a lesser
extent, due to additional revenues associated with a first-quarter 2003
acquisition in Belgium. Operating profit in the second half of 2003 also
improved compared to the same period in 2002 reflecting improvements in a number
of countries, and the benefits of management and operational changes,
particularly in France.
South America. In South America, operating profit in 2003 was higher than the
prior year reflecting better performance in Venezuela, partially offset by lower
operating performance in Brazil. Favorable market conditions and lower labor
costs as a percentage of revenue benefited Venezuela's performance in 2003.
Venezuela is Brink's largest operation in South America. Brazil, Brink's second
largest operation in South America, did not perform as well in 2003 compared to
2002 as a result of the continuing difficult economic and operating conditions
there. Brazil's operating results improved in the fourth quarter of 2003 over
the same period a year earlier primarily due to improved profitability of ATM
and Cash Logistics services, partially offset by lower armored transportation
profitability.
Asia-Pacific. Asia-Pacific revenues and operating profit in 2003 was higher than
last year primarily due to improved results in Australia. In addition, Global
Services business improved in Hong Kong and Korea.
31
<PAGE>
Brink's Home Security
Executive Overview
Brink's Home Security has reported strong growth in revenues and earnings over
the last few years. Key factors in this performance are continuing to attract
and retain customers through quality service and the reputation of the brand
while operating as efficiently as possible consistent with the desired level of
service.
In order to achieve higher efficiency and effectiveness, BHS focuses on
controlling initial marketing and installation costs by matching sales
representative staffing with the number of sales opportunities and the size of
the technician workforce with the available installation volume. BHS then
strives to keep customer service and monitoring costs as low as possible without
disturbing its high quality service levels.
The Company believes customer retention is driven by customer selection and high
customer service levels. In order to obtain customers who are less likely to
disconnect, the Company seeks to attract customers with solid credit scores and
the willingness to pay reasonable up-front fees. Once there is agreement to
install an alarm system, the Company strives to provide a high quality
installation followed up with continuing high quality customer service and alarm
monitoring. BHS believes its disconnect rate is helped by consistently following
the above policy.
The Company believes that the level of economic activity in the U.S. may affect
the performance of BHS. However, this effect is not as significant as it is for
industries with close ties to economic performance. In addition, there is some
seasonality in performance since disconnect expenses can impact operating
earnings. Since more household moves take place during the second and third
quarters of each year, the disconnect rate and related expenses are typically
higher in those quarters than in the first and fourth quarters.
<TABLE>
<CAPTION>
Years Ended December 31, % change
- -----------------------------------------------------------------------------------------------------------
(In millions) 2004 2003 2002 2004 2003
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Revenues $ 345.6 310.4 282.4 11 10
===========================================================================================================
Operating Profit
Recurring services (a) 147.8 125.9 109.5 17 15
Investment in new subscribers (b) (67.0) (54.7) (48.6) (22) (13)
- -----------------------------------------------------------------------------------------------------------
$ 80.8 71.2 60.9 13 17
===========================================================================================================
Monthly recurring revenues (c) $ 26.1 23.3 21.1 12 10
===========================================================================================================
Cash Flow Information
Depreciation and amortization (d) $ 51.5 47.9 43.9 8 9
Impairment charges from subscriber
disconnects 38.4 34.3 32.3 12 6
Amortization of deferred revenue (e) (26.1) (25.0) (23.9) 4 5
Deferred subscriber acquisition costs
(current year payments) (19.5) (18.4) (17.7) 6 4
Deferred revenue from new subscribers
(current year receipts) 34.6 28.2 27.1 23 4
Capital expenditures 117.6 98.0 86.9 20 13
===========================================================================================================
</TABLE>
(a) Reflects operating profit generated from the existing subscriber base
including the amortization of deferred revenues.
(b) Primarily marketing and selling expenses, net of the deferral of direct
selling expenses (primarily a portion of sales commissions), incurred in
the acquisition of new subscribers.
(c) This measure is reconciled below under the caption "Reconciliation of
Non-GAAP Measures."
(d) Includes amortization of deferred subscriber acquisition costs.
(e) Includes amortization of deferred revenue related to active subscriber
accounts as well as acceleration of amortization of deferred revenue
related to subscriber disconnects.
32
<PAGE>
Overview
Operating profit comprises recurring services minus the cost of the investment
in new subscribers. Recurring services reflects the monthly monitoring and
service earnings generated from the existing subscriber base, including the
amortization of deferred revenues. Impairment charges from subscriber
disconnects and depreciation and amortization expenses, including the
amortization of previously deferred direct costs from installations, are also
charged to recurring services. Recurring services is affected by the size of the
subscriber base, the amount of operational costs including depreciation, the
level of subscriber disconnect activity and changes in the average monitoring
fee per subscriber.
Investment in new subscribers is the net expense (primarily marketing and
selling expenses) incurred in adding to the subscriber base every year. The
amount of the investment in new subscribers charged to income may be influenced
by several factors, including the growth rate of new subscriber installations
and the level of costs incurred in attracting new subscribers. As a result,
increases in the rate of investment (the addition of new subscribers) may have a
negative effect on current segment operating profit but a positive impact on
long-term operating profit, cash flow and economic value.
Capital expenditures are primarily the equipment, labor and related overhead
costs associated with system installations for new subscribers.
Subscriber Activity
<TABLE>
<CAPTION>
Years Ended December 31, % change
- ------------------------------------------------------------------------------------------
(Subscriber data in thousands) 2004 2003 2002 2004 2003
- ------------------------------------------------------------------------------------------
<S> <C>
Number of subscribers:
Beginning of period 833.5 766.7 713.5
Installations 146.0 121.9 105.8 20 15
Disconnects (58.1) (55.1) (52.6) (5) (5)
- ------------------------------------------------------------------------------------------
End of period 921.4 833.5 766.7 11 9
==========================================================================================
Average number of subscribers 875.5 797.5 739.0 10 8
Disconnect rate (a) 6.6% 6.9% 7.1%
==========================================================================================
</TABLE>
(a) The disconnect rate is a ratio, the numerator of which is the gross number
of customer cancellations during the period and the denominator of which is
the average number of customer subscribers for the period. The gross number
of customer cancellations is reduced for customers who cancel service at one
location but continue service at a new location, customer accounts acquired
from dealers that cancel during a specified contractual term that allows the
account to be charged back to the dealers, and inactive sites that return to
active service during the period.
Installations increased 20% for 2004 and 15% for 2003 as compared to the
prior-year periods primarily as a result of growth in Company-owned branches as
well as the growing dealer network. BHS believes its 2004 and 2003 disconnect
rates improved over the respective prior-year periods largely due to the
cumulative effect of having improved its subscriber selection and retention
processes in recent years and its high quality customer service. Since a certain
number of disconnects cannot be prevented, including, for example, disconnects
that occur because customers move, the disconnect rate may not materially
improve in the future.
2004
Revenues increased 11% in 2004 primarily due to a 10% larger average subscriber
base, as well as higher average monitoring rates, higher revenues from home
builders and higher service revenues. The slight increase in average monitoring
rates was primarily due to new customers initiating service at higher average
monitoring rates than the average rates being paid by existing customers. These
factors also contributed to a 12% increase in monthly recurring revenues as
measured at year end.
Operating profit for 2004 increased 13% as higher profit from recurring services
was partially offset by an increased investment in new subscribers. Higher
profit from recurring services was primarily due to increased monitoring and
service revenues resulting from a larger average subscriber base and to a lesser
extent from improved service margins. These increases were partially offset by
increased depreciation and other costs associated with the larger subscriber
base. Investment in new subscribers increased 22% on 20% higher installations
during 2004, reflecting an investment in additional sales and branch
infrastructure to support expansion of installation services offered across most
lines of business, partially offset by more cost-effective marketing efforts.
33
<PAGE>
BHS intends to expand its presence in commercial alarm installation and
monitoring. As a result, the investment in new subscribers may continue to grow
faster than installations as BHS develops the resources needed to achieve its
objectives. BHS intends to add a second monitoring center which may slow the
growth in profit from recurring services in the near term. Both of these
initiatives are expected to have a positive impact on future growth and
productivity.
2003
The increase in BHS's revenues for 2003 versus 2002 was primarily due to an 8%
larger average subscriber base, as well as a higher average monitoring rate,
higher revenue from home builders and higher service revenues. The slight
increase in average monitoring rates was primarily due to higher average
monitoring rates for new customers initiating service compared to the average
rate being paid by existing customers. The above factors also contributed to a
10% increase in monthly recurring revenues as measured at year end.
Operating profit increased 17% in 2003 from 2002 as higher profit from recurring
services was partially offset by an increased investment in new subscribers.
Higher profit from recurring services was primarily due to increased monitoring
revenues from the larger average subscriber base as well as improved service
margins, partially offset by higher depreciation and other costs associated with
the larger subscriber base. Investment in new subscribers increased 13% on 15%
higher installations during 2003 reflecting more effective marketing and
installation efforts partially offset by an investment in additional sales
infrastructure to support expansion of installation services offered to home
builders.
Other
Police departments in several U.S. cities are not required to respond to calls
from alarm companies unless an emergency has been visually verified. If more
police departments in the future refuse to automatically respond to calls from
alarm companies without visual verification, this could have an adverse effect
on future results of operations for BHS. In cities that have stopped providing
police response to burglar alarms, BHS has offered its customers the option of
receiving private guard response from guard companies who in most cases have
contracted with BHS.
Reconciliation of Non-GAAP Measures - Monthly Recurring Revenues
The purpose of this table is to reconcile monthly recurring revenues, a non-GAAP
measure, to its closest GAAP counterpart, BHS' total revenues.
Years Ended December 31,
(In millions) 2004 2003 2002
- -------------------------------------------------------------------------------
Monthly recurring revenues ("MRR") (a) $ 26.1 23.3 21.1
Amounts excluded from MRR:
Amortization of deferred revenue 2.1 2.0 2.0
Other revenues (b) 1.8 2.4 1.2
- -------------------------------------------------------------------------------
Revenues on a GAAP basis:
December 30.0 27.7 24.3
January - November 315.6 282.7 258.1
- -------------------------------------------------------------------------------
January - December $ 345.6 310.4 282.4
===============================================================================
(a) MRR is calculated based on the number of subscribers at period end
multiplied by the average fee per subscriber received in the last month
of the period for contracted monitoring and maintenance services.
(b) Revenues that are not pursuant to monthly contractual billings.
The Company believes the presentation of MRR is useful to investors because the
measure is widely used in the industry to assess the amount of recurring
revenues from subscriber fees that a security business produces.
34
<PAGE>
BAX Global
Executive Overview
BAX Global helps its customers move heavy weight freight and provides supply
chain management services. BAX Global's business model is different in the U.S.
than in the other countries in which it operates.
In the U.S., BAX Global operates as both an integrator and a freight
forwarder/supply chain management ("SCM") provider. As an integrator, BAX Global
operates its own network of planes and trucks with a freight sorting hub. This
network permits the Company to offer to its customers a full range of reliable
services ranging from expedited to deferred deliveries. Accordingly, management
focuses on the resources needed to ensure that the BAX Global network maintains
reliable service levels. The hub and planes commit BAX Global to a higher level
of fixed costs and capital than freight forwarders, making volume throughput and
pricing important to financial performance.
Freight forwarders and supply chain management companies arrange to use the
assets of others while providing services similar to those provided by
integrators. As a result, their level of fixed costs and capital employed are
usually lower than for integrators. However, since they do not control the
resources used, it is more difficult for freight forwarders to meet all
customers' needs with the same reliability as an integrator.
Since 1999, BAX Global has significantly reduced the resources employed in the
U.S. as an integrator by focusing only on areas where it expects to match
customer needs. At the same time, it has expanded its offering of less capital
intensive freight forwarding and SCM. Because this should make financial
performance in the U.S. less subject to fluctuation solely on the basis of
volume throughput, management expects to continue to expand its freight
forwarding and SCM operations.
In its non-U.S. operations, BAX Global functions as a SCM/freight forwarder.
Management believes its operations in Asia perform well and are well positioned
for growth there. In particular, BAX Global is focused on expanding its already
significant presence in China. Operations in Europe have not performed as well
so management is focused on growing revenue with acceptable margins and reducing
resources where they may not match up with customers' needs.
Performance at BAX Global has been and will continue to be affected by the
economy. Absent changes in market share, BAX Global will perform better in a
growing economy. In addition, the velocity of shipments and manufacturing will
affect the ability of shippers to choose deferred versus expedited freight. The
higher the velocity of an economy, usually the more expedited, higher-margined
freight is used. BAX Global's performance will also be affected by the relative
performance of the customers and industries it focuses its resources upon.
35
<PAGE>
There is also a seasonal factor in BAX Global's performance. In a normal year,
demand for BAX Global's services is highest in the third and fourth quarters of
the year and weakest in the first and second quarters. Of course, trends in the
economy can impact normal seasonality.
<TABLE>
<CAPTION>
Years Ended December 31, % change
- -----------------------------------------------------------------------------------------------------
(In millions) 2004 2003 2002 2004 2003
- -----------------------------------------------------------------------------------------------------
<S> <C>
Revenues
Americas (a) $ 1,161.8 976.0 989.9 19 (1)
International (b) 1,366.6 1,098.3 951.7 24 15
Eliminations (87.8) (75.1) (70.1) (17) (7)
- -----------------------------------------------------------------------------------------------------
$ 2,440.6 1,999.2 1,871.5 22 7
=====================================================================================================
Operating Profit (Loss)
Americas (a) $ 22.6 (30.9) (15.1) NM (105)
International (b) 49.5 41.2 43.8 20 (6)
Corporate and other (15.9) (7.3) (11.1) (118) 34
- -----------------------------------------------------------------------------------------------------
$ 56.2 3.0 17.6 200+ (83)
=====================================================================================================
Cash Flow Information
Depreciation and amortization $ 41.8 47.0 44.4 (11) 6
Capital expenditures 25.4 23.6 27.1 8 (13)
=====================================================================================================
Operating Statistics
Intra-America revenue $ 554.5 464.6 468.6 19 (1)
Worldwide expedited freight services:
Revenues $ 1,847.4 1,501.0 1,452.4 23 3
Weight in pounds 1,805.3 1,568.0 1,530.3 15 2
=====================================================================================================
</TABLE>
(a) U.S., Mexico, Latin America and Canada.
(b) Europe-Middle East-Africa ("EMEA") and Asia-Pacific.
Profits are shared among the origin and destination subsidiaries on most export
volumes. Performance in BAX Global's U.S. business, the region with the largest
domestic and export volume, significantly affects the results of worldwide
expedited freight services. Eliminations revenues primarily reflect intercompany
revenue eliminations on shared services.
BAX Global's revenues and operating profits are affected by the seasonal nature
of customers' businesses. BAX Global generally recognizes more revenue and
operating profit in the last half of the year compared to the first half. The
relative strength of the worldwide economies may have a larger effect on BAX
Global's results as compared to seasonal forces.
36
<PAGE>
BAX Global operates throughout most of the world. Revenues in all regions
include both expedited and nonexpedited freight services.
BAX Global's Products
- ---------------------
Region offered
Heavy Freight Services: --------------
Expedited
---------
o Overnight delivery Worldwide
o Second-day delivery Worldwide
o Wholesale freight forwarding Americas
o Air import and export delivery Worldwide
Nonexpedited
------------
o BAXSaver Suite of deferred delivery products
(various deferred delivery terms) Americas
o Customs brokerage services Worldwide
o Aircraft charter services Worldwide
o Ocean delivery Worldwide
Supply Chain Management Services Worldwide
2004
Overview
Operating profit in 2004 was $53.2 million above last year on a 22% increase in
revenues (19% increase in revenues on a constant currency basis). Revenue was
significantly higher in the Americas, higher in Asia, and higher in Europe,
where it would have been slightly lower except for the effect of currency
changes. Operating profit increased as a result of higher volumes in the
Intra-America network. Volumes and revenue were higher in the Intra-America
network because of the effects of a strengthening U.S. economy and increased air
export volumes. Freight forwarding and supply chain management activity grew in
Asia-Pacific due to the strong economy there.
Americas
Americas revenues increased 19% in 2004 as compared to 2003 as the strengthening
economy led to higher volumes across the board. Revenues in the United States
were up about 19% due to the higher volume of both domestic and export freight.
The rest of the Americas benefited similarly. In addition, flying under contract
for the U.S. government and other charter activity for both the government and
commercial customers grew at a similar pace.
Operating profit in the Americas was over $53 million higher in 2004 as compared
to 2003. Performance was up largely as the result of the impact on resource
utilization and yields of the increase in volume. Operating profit in the
Americas for 2004 includes a $5.0 million impairment charge to cover the
abandonment of capitalized transportation logistics software.
The impact of higher market fuel costs in 2004 was not significant to the
performance of BAX Global primarily as a result of the Company's ability to pass
through a portion of higher fuel costs to customers through fuel surcharge
adjustments to billings. The fuel surcharge represents approximately 6.5% of
revenues in the Americas region for 2004. The Company is relying less on
financial derivatives to hedge fuel costs because fuel surcharges are widely
accepted within the industry and are reasonably effective at hedging increases
in fuel prices.
International
In 2004, International revenues increased 24% and operating profit increased 20%
as compared to 2003. On a constant currency basis, revenues were 19% higher than
2003, with a 30% increase in Asia-Pacific and a 1% decrease in Europe, Middle
East and Africa ("EMEA"). The increase in Asia-Pacific was primarily due to
improved economic conditions and new business in several Asia-Pacific countries,
primarily associated with the high technology industry. In the EMEA region, the
increase in operating profit for 2004 as compared to 2003 was the result of
improved air exports volumes.
37
<PAGE>
BAX Global Corporate and Other
The increase in BAX Global's corporate and other expense in 2004 as compared to
2003 was primarily due to higher incentive-based compensation expense and
foreign currency translation losses.
2003
Overview
Operating profit in 2003 was $14.6 million below 2002 despite a 7% increase in
revenues (3% increase in revenues on a constant currency basis). Revenue was
lower in the Americas, higher in Asia, and higher in Europe, where it would have
been lower except for the effect of currency changes. Operating profit was lower
as a result of lower volumes in the Intra-America network. Volumes and revenue
were lower in the Intra-America network because of the effects of a weak U.S.
economy and a shift from expedited to deferred products. Partially offsetting
this were the effects on revenue and earnings of increased air export volumes
and supply chain management activity in Asia-Pacific.
Americas
BAX Global's 2003 operating loss in the Americas region was $15.8 million higher
than 2002 on a 1% decrease in revenues. A decrease in operating profit due to
lower Intra-America volumes of higher-yielding overnight and second-day
products, more than offset an increase in operating profit due to higher volumes
for deferred products and volumes related to BAX Global's new wholesale freight
forwarding product. Although volumes, in total, were lower in 2003 compared to
2002, volumes in the fourth quarter of 2003 were above the prior-year quarter.
U.S. air export revenues reflect the benefit of being able to pass through to
customers a portion of the surcharges charged by airlines for high fuel costs,
security and other reasons. U.S. air export volumes were slightly higher in 2003
over 2002, while revenue per pound, excluding surcharges, declined in 2003 as
compared to 2002. Growth in the U.S. supply chain management business increased
revenues by $14.4 million in 2003 as compared to 2002 due to the addition of new
customers as well as increased activity with existing customers. Revenues and
operating results in 2003 were adversely affected by lower third-party aircraft
charter activity compared to the prior year period.
The 2003 operating loss in the Americas includes higher expense from the
Company's primary U.S. pension plan as well as higher health care costs in the
2003 periods. Heavy maintenance expense was $9.3 million lower in 2003 compared
to 2002 primarily due to a reduction in flight hours as a result of a decrease
in third-party aircraft charter activity. Adjustments made in the first half of
2003 in conjunction with the renegotiation of certain return provisions of its
aircraft lease agreements and the completion of a study of the lease agreements
also reduced heavy maintenance expense.
International
International operating profits decreased 6% in 2003 compared to 2002 on a 15%
increase in revenues (7% increase in revenues on a constant currency basis). A
decrease in operating profits in the EMEA region was partially offset by
improved profits in Asia-Pacific. Reduced demand and competitive market
pressures in the EMEA region continued due to the combined effect of the
strengthening currencies and the weak European economy resulting in lower export
volumes and flat import volumes compared with 2002. Revenues and operating
profit for 2003 benefited from an increase in air export volumes within the
Asia-Pacific region and from Asia-Pacific to the U.S. In addition,
Asia-Pacific's results benefited from growth in supply chain management
operations, including the effects of an expansion of operations in China during
2003, as well as increased activity from existing customers.
BAX Global Corporate and Other
BAX Global's corporate and other expense decreased $3.8 million in 2003 versus
the prior-year period due to foreign currency exchange transaction gains and
lower administrative costs.
38
<PAGE>
Corporate Expense - The Brink's Company
Years Ended December 31, % change
- ------------------------------------------------------------------------------
(In millions) 2004 2003 2002 2004 2003
- ------------------------------------------------------------------------------
Corporate expense $ 45.9 27.8 23.1 65 20
==============================================================================
Corporate expenses were $18.1 million higher in 2004 primarily as a result of
approximately $9 million higher professional fees related to the Company's
documentation and testing of its internal controls as required by Section 404 of
the Sarbanes-Oxley Act of 2002, and due to approximately $4 million higher long
term incentive-based compensation expense. The Section 404 costs are expected to
be lower in 2005 compared to 2004. The increase in corporate expense in 2003
primarily reflected increases in benefit-related expenses as well as additional
costs related to the implementation of Section 404.
Retained Liabilities and Assets of Former Natural Resource Operations
Executive Overview
The Company retains obligations which arose during its long history of operating
within the coal industry. Since these obligations require significant annual
cash outflows and the recording of significant annual expenses, management
believes it is important to closely monitor and manage these obligations and
address the related financial effects.
Of the various obligations, several have shorter terms and lesser values
(reclamation, advance minimum royalties, workers' compensation and the
multi-employer pension plan withdrawal liability). The Company expects the cash
payments for these to be concentrated over the next few years and then end or
decline significantly.
The other three obligations (retiree medical benefit plan, Health Benefit Act
and Black Lung) are longer in term and higher in estimated cost. Payments
associated with each liability are projected to be made over the next 60 years
or more. Each liability is largely medical benefits-related, so medical
inflation is an important consideration. Each obligation covers a pool of
individuals which is essentially capped since the Company no longer operates
within the coal industry. Further, such individuals are, for the most part,
above or near normal retirement age. Accordingly, these obligations should see a
steady decrease in number of participants and beneficiaries over time. The only
exception to this is the potential exposure to an increased share of the
unassigned obligation under the Health Benefit Act.
The net present value of these obligations is a valuable tool for assessing
their fair value as of a point in time. However, such values will fluctuate over
time solely due to changes in market interest rates. The critical factor in each
obligation is the cash flow needed to satisfy it.
The Company employs a team of employees, along with third parties, to monitor
and control these liabilities with a primary goal of reducing future cash
out-flows. The primary activities of this group are to verify eligibility of
participants, design and implement plans which provide the required benefit at
the lowest cost and verify costs charged to these plans.
The Company has also taken the step of establishing a VEBA in order to help
manage the financial impact of the obligations. The VEBA is used as a tax
efficient way to fund the obligations related to the retiree medical benefit
plan. A second VEBA could be set up to help fund the Health Benefit Act
obligations. A funded VEBA or VEBAs will help insulate the Company's assets, and
eventually its cash flow, from the obligations. The Company currently plans to
fund the VEBA over time to a range of $300 to $400 million.
Legacy Liabilities and Assets
The Company refers to its various long-term liabilities and assets related to
the former coal operations as its "legacy" liabilities and assets. Some of the
Company's legacy liabilities and assets are not fully recorded on the balance
sheet because certain losses have been deferred in accordance with GAAP. In
addition under GAAP, some of these liabilities are discounted to reflect a
present value, while others are not discounted.
39
<PAGE>
To facilitate an understanding of the total estimated present value of these
liabilities and assets as of December 31, 2004, the following table presents a
Company-defined amount, a "Legacy Value," for the Company's legacy liabilities
and assets. Some of the Legacy Values are considered non-GAAP measures because
they exclude GAAP deferred loss adjustments, or reflect discounts to a present
value for liabilities with extended payment dates that are not recorded at
present value under GAAP. The table reconciles each non-GAAP Legacy Value to its
GAAP counterpart.
The liabilities and assets in the table are based on a variety of estimates,
including actuarial assumptions, as are described in the Application of Critical
Accounting Policies and in the notes to the consolidated financial statements.
These estimated liabilities and assets will change in the future to reflect
payments made, investment returns, annual actuarial revaluations, periodic
revaluations of reclamation liabilities and other changes in estimates. Actual
amounts could differ materially from the estimated amounts.
<TABLE>
<CAPTION>
December 31, 2004
Add Back Amounts Not
Legacy Present-Value Yet Recognized GAAP
(In millions) Value Effect Under GAAP Amount
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Legacy liabilities:
Company-sponsored retiree medical (a):
Before Medicare subsidy and VEBA $ 676.5 - (375.6) 300.9
Medicare subsidy value (58.8) - 53.0 (5.8)
VEBA (172.4) - 8.0 (164.4)
- ------------------------------------------------------------------------------------------------------------------------
Company-sponsored retiree medical 445.3 - (314.6) 130.7
Health Benefit Act (b) 104.1 81.4 - 185.5
Black lung (c) 55.2 - (13.7) 41.5
Multi-employer pension plans withdrawal liability (d) 36.6 - - 36.6
Workers' compensation 30.2 - - 30.2
Advance minimum royalties 13.0 - - 13.0
Reclamation 4.6 - - 4.6
- ------------------------------------------------------------------------------------------------------------------------
Legacy liabilities $ 689.0 81.4 (328.3) 442.1
========================================================================================================================
Legacy assets:
Other assets (e) $ 15.5 - - 15.5
Deferred tax assets (f) 261.7 28.5 (133.4) 156.8
========================================================================================================================
</TABLE>
(a) Company-sponsored retiree medical liabilities are accounted for in
accordance with Statements of Financial Accounting Standards ("SFAS") No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." SFAS No. 106 requires a liability be recorded for the present
value of future obligations; however, under the provisions of SFAS No. 106,
actuarial gains and losses are deferred. Actuarial gains and losses occur
when actual events differ from assumptions (for example, when the actual
health care inflation rate differs from the assumed inflation rate or when
the actual return on investments is different than the estimated return) or
when changes are made to assumptions used to estimate the liability,
including the discount rate used to compute the present value (5.75% at
December 31, 2004), expected health care inflation rates, expected life
expectancy rates, asset returns and the effect of the Medicare subsidy.
Actuarial gains and losses are not immediately recognized in earnings
because SFAS No. 106 allows employers to defer these gains and losses and
then amortize these gains and losses into earnings in future periods if the
total unrecognized net gains and losses exceed 10% of the greater of the
accumulated postretirement benefit obligation or plan assets as of the
beginning of the year. As a result, the Company's balance sheet does not
reflect these liabilities at the full present value of the ultimate
projected obligations at the end of the year. The Legacy Value in the table
reflects the Company's liability had the Company's total projected
obligations been fully accrued at the end of the year. The Company
discloses the projected amount of its obligation before the deferral of
unrecognized gains and losses as "funded status" in note 4 to the
consolidated financial statements.
In December 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") was signed into law. The Act provides
for the payment of subsidies to sponsors of retiree medical benefit plans
for a portion of the pharmaceutical expenses as long as the plan meets
certain regulations. The $58.8 million Legacy Value in the table above
reflects an estimate of the current value of such payments over the life of
the plan.
In January 2004, the Company designated the VEBA to pay future benefits of
the Company-sponsored medical plans. Accordingly, it is now accounted for
as a reduction to the liability value of such plans.
40
<PAGE>
(b) Health Benefit Act liabilities are accounted for in accordance with EITF
No. 92-13, "Accounting for Estimated Payments in Connection with the Coal
Industry Retiree Health Benefit Act of 1992," and, accordingly, the Company
has accrued the undiscounted estimate of its projected obligation. The
Company uses various assumptions to estimate its liability to The United
Mine Workers of America Combined Fund (the "Combined Fund") for future
annual premiums, including the number of assigned and unassigned
beneficiaries in future periods, medical inflation, and the amount of
funding of the Combined Fund to be provided from the Abandoned Mine
Reclamation Fund in future periods. The estimated annual payments are
expected to gradually decline over time as the beneficiary population
declines, and the Company expects payments will be made over the next 60 to
70 years. To determine the Legacy Value of these assets, the Company's
actuaries discounted the estimated future cash flows to a present value
amount using a discount rate of 5.75%. The Company's estimates of annual
payments may change materially due to changes in future assumptions.
Changes to the 1992 law under which benefits are paid also could materially
affect the Company's estimate of its liability. The estimation of the
Legacy Value should not be considered a precise estimate because of the
many variables that have been used to determine the estimate, including the
discount rate and the amount of expected annual cash flows. There are many
factors that may change and cause the amount recorded in the balance sheet
to not be representative of the amount the Company may actually pay.
(c) Actuarial gains and losses resulting from changes in estimates of the
Company's black lung obligations are deferred and amortized into earnings
in future periods. As a result, the Company's balance sheet does not report
these liabilities as if the projected obligation had been fully accrued at
the end of the year. The Legacy Value in the table reflects the Company's
projected obligations had it been fully accrued at the end of the year. Of
the Company's $55.2 million of present value of self-insured black lung
benefit obligations at December 31, 2004, approximately $41.5 million had
been recognized on the balance sheet, with the difference relating to
deferred unrecognized actuarial losses. See note 4 to the consolidated
financial statements for further information.
(d) The Company participates in two coal-related multi-employer pension plans
and believes that it is likely that a withdrawal will occur during the plan
year ending June 30, 2005. A withdrawal would require the Company to pay
its pro rata share of the underfunded position of the plans as of June 30,
2004. The payments to settle these obligations may be made in 2005, and the
estimated amounts have been classified as a current liability.
(e) "Other Assets" in the table is primarily a receivable from the state of
Virginia related to tax benefits earned because of coal produced in prior
years. The Company expects to receive approximately $5 million in each of
2005 and 2006; $3 million in 2007 and $1 million in each of 2008 and 2009.
(f) The Company has not yet taken deductions in its tax returns for most of
the retained liabilities associated with the former coal business, and has
recorded a deferred tax asset for this future benefit for these temporary
differences in book and tax bases. The Company's deferred tax benefit on a
Legacy Value basis is different from its GAAP counterpart because the
Company's temporary differences were based on the Legacy Values of the
various coal-related liabilities and assets. In other words, if the Company
had recorded the higher net Legacy Value of the liabilities on its balance
sheet, it would have also recognized a larger deferred tax asset. The
$133.4 million reconciling item represents the additional hypothetical tax
benefit related to the Company-sponsored retiree medical and black lung
obligations. The $28.5 million reconciling item represents the associated
decrease to the deferred tax asset if the Health Benefit Act liability were
recorded on a discounted basis.
Under the Health Benefit Act, the Company and various subsidiaries are jointly
and severally liable for approximately $440 million, at Legacy Value, of
postretirement medical and Health Benefit Act obligations in the above table.
Projected Payments and Expenses of Retained Coal Liabilities and Administrative
Costs
The following tables include the actual cash payments and expense (continuing
operations only) related to the Company's former coal liabilities for 2003 and
2004 and those projected for the next five years.
The projected payments and expenses are estimated based on the assumptions used
in determining the estimated Legacy Value and GAAP counterparts at December 31,
2004; the actual amount of payments and expense in future periods may be
materially different than amounts presented. The amounts paid or expensed in the
future will be dependent on many factors, including inflation in health care and
other costs, the ultimate impact of the recently enacted Medicare reform bill,
discount rates, the market value of postretirement benefits plan assets, the
level of contributions to and the performance of the VEBA, the number of
participants in various benefit programs, and the level of administrative costs
needed to manage the retained liabilities.
41
<PAGE>
Cash Payments
<TABLE>
<CAPTION>
(In millions) Actual Payments Projected Payments
- ----------------------------------------------------------------------------------------------------------------
Years Ending December 31, 2003 2004 2005 2006 2007 2008 2009
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Postretirement benefits other than pensions:
Company-sponsored medical plans (a):
Before Medicare subsidy $ 30 35 $ 38 41 44 46 47
Estimated effect of Medicare subsidy - - - - (3) (3) (3)
- ----------------------------------------------------------------------------------------------------------------
Subtotal 30 35 38 41 41 43 44
Health Benefit Act 8 9 9 12 11 11 10
Black lung 8 7 5 5 5 5 5
Withdrawal liability - - 37 - - - -
Workers' compensation 8 5 4 4 3 2 2
Advance minimum royalties 1 1 1 3 2 2 1
Reclamation and inactive mine costs 5 3 3 1 1 - -
Administration and other 18 8 5 5 4 4 4
Cash proceeds and receipts (3) (6) - - - - -
- ----------------------------------------------------------------------------------------------------------------
Total $ 75 62 $ 102 71 67 67 66
================================================================================================================
VEBA contributions (a) $ 82 50 $ - - - - -
================================================================================================================
</TABLE>
(a) The Company has contributed cash to a VEBA to be used to make future
payments of the Company's retiree medical plans. The Company intends to
continue to contribute to the VEBA, depending on tax and other
considerations such as alternative uses of capital, until the VEBA holds
between $300 million and $400 million. The Company reevaluates its
contribution policy annually and is not obligated to fund the VEBA. The
Company may elect at any time to use either these assets or its cash from
operations to pay benefits for its retiree medical plans. Estimated
payments in the table have not been reduced to reflect the use of assets
held by the VEBA since there are no plans to do so within the five years
projected.
Expenses in Continuing Operations
<TABLE>
<CAPTION>
(In millions) Actual Expense Projected Expense
- ----------------------------------------------------------------------------------------------------------------
Years Ending December 31, 2003 2004 2005 2006 2007 2008 2009
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Postretirement benefits other than pensions:
Company-sponsored medical plans (a):
Before Medicare subsidy and VEBA $ 50 52 $ 59 58 58 57 56
Estimated effect of Medicare subsidy - (6) (7) (7) (7) (7) (7)
Estimated investment income in VEBA (a) - (9) (15) (16) (18) (19) (21)
- ----------------------------------------------------------------------------------------------------------------
Subtotal 50 37 37 35 33 31 28
Black lung 6 5 4 4 4 4 4
Pension (b) (1) 2 4 4 3 1 1
Administrative, legal and other coal expenses, net 18 9 7 6 5 5 5
Other income, net (c) (3) (7) - - - - -
- ----------------------------------------------------------------------------------------------------------------
Total $ 70 46 $ 52 49 45 41 38
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Beginning in 2004, the Company has accounted for the VEBA as a plan asset
of Company-sponsored medical plans in accordance with SFAS No. 106 and has
recognized a lower amount of amortization of previously unrecognized losses
due to the effects of the 2003 medical subsidy legislation. The above
projection does not assume that any further contributions will be made to
the VEBA. To the extent contributions are made, projected investment income
will be increased to reflect the long-term rate of return on such
contributions.
(b) The above projection does not assume that any pension contributions will be
made. If voluntary or required contributions are made, projected expenses
from that year forward would be reduced by the expected long-term return on
those contributions.
(c) The Company has not recognized an approximate $6 million gain related to
the 2003 coal property sale since the purchaser has not yet fully assumed
certain liabilities contractually transferred in the sale.
42
<PAGE>
Following are comments covering the more significant legacy liabilities in the
above tables. For additional information, please see note 4 to the consolidated
financial statements. Each of these liabilities and assets are affected by
estimates and judgments. More information on this is available at "Application
of Critical Accounting Policies" later in this Management's Discussion and
Analysis.
Company-Sponsored Retiree Medical Benefits Obligations and VEBA
The Company provides postretirement health care benefits to eligible former coal
miners and their dependents. With the assistance of actuaries, the Company
annually reevaluates the estimated future cash flows, expenses and current
values of the obligations. Projected payments are expected to increase each year
for the next five years as a result of medical inflation and as eligible
participants attain retirement age. This will be partially offset by reductions
in the number of participants through mortality.
The Legacy Value, which equals the funded status at December 31, 2004 decreased
to $445 million from $526 million at December 31, 2003. Most of this decrease
was due to the assignment of the VEBA to the plan. The Company restricted the
use of the VEBA in 2004 to pay only Company-sponsored retiree medical benefits
and the VEBA in 2004 is considered a plan asset. Partially offsetting this were
the effects of reducing the discount rate by 50 basis points to 5.75% and an
increase in the assumed medical inflation rate.
The VEBA was established by the Company under Internal Revenue Code Section
501(c)(9). In general, a contribution made to the VEBA becomes deductible for
federal income tax purposes in the year in which it is made. Investment earnings
within the VEBA are not subject to federal income tax. Distributions from the
VEBA to pay designated benefits or to reimburse the Company for designated
benefit payments are nontaxable. The Company can determine the timing and size
of any payment from the VEBA to cover expenses of eligible participants.
The Company intends to increase over time the amount of the assets within the
VEBA to approximately $300 million to $400 million. The increase is expected to
come from investment returns and contributions, after taking into consideration
the Company's levels of cash and debt, tax position and growth needs.
Contributions to the VEBA along with investment earnings amounted to about $18
million through December 31, 2002. The Company contributed $82 million to the
VEBA in 2003 and the VEBA generated $5 million in investment returns, leaving a
balance of $105 million at December 31, 2003. In 2004 the Company contributed
approximately $50 million to the VEBA and the VEBA generated $17 million in
investment returns, leaving a balance of $172 million at December 31, 2004. The
Company has not finalized its plans for contributions, if any, in 2005 and
beyond.
The VEBA's assets are allocated among active investment managers of equities and
fixed income securities. Approximately 70% of the trust assets are invested in
equities, with 30% invested in fixed income securities. The VEBA is being
invested in a similar fashion to the Company's primary U.S. pension plan, and
the Company has estimated the same expected long-term rate of return of 8.75%
per annum.
Health Benefit Act Obligations
In October 1992, The Coal Industry Retiree Health Benefit Act of 1992 (the
"Health Benefit Act") was enacted as part of the Energy Policy Act of 1992. The
Health Benefit Act established rules for the payment of future health care
benefits for thousands of retired union mine workers and their dependents. The
Health Benefit Act established a trust fund, The United Mine Workers of America
Combined Benefit Fund (the "Combined Fund"), to which "signatory operators" and
"related persons," including The Brink's Company and certain of its subsidiaries
(collectively, the "Brink's Companies"), are jointly and severally liable to pay
annual premiums for those beneficiaries directly assigned to a signatory
operator and its related persons, on the basis set forth in the Health Benefit
Act.
In addition, the Health Benefit Act provides that assigned companies, including
the Brink's Companies, are required to fund, pro rata according to the total
number of assigned beneficiaries, a portion of the health benefits for
unassigned beneficiaries if these benefits are not funded from other designated
sources. To date, almost all of the funding for unassigned beneficiaries has
been provided from transfers from the Abandoned Mine Reclamation Fund (the "AML
Fund") or other government sources.
43
<PAGE>
The Company's liability for Health Benefit Act obligations is equal to the
undiscounted estimated amount of future annual premiums the Company expects to
pay to the Combined Fund. The Company's estimated annual premium is equal to the
total number of beneficiaries (including assigned beneficiaries and an allocated
percentage of the total unassigned beneficiaries) at October 1, the beginning of
the plan year, multiplied by the premium per beneficiary for that year. The
Company expects to pay annual premiums over the next 60 to 70 years, but it
expects these annual premiums to gradually decline over time as the number of
beneficiaries decreases.
Since the passing of the Health Benefit Act, the vast majority of the costs for
unassigned beneficiaries have been paid with transfers of cash from the AML Fund
or other government sources. From the inception of the Combined Benefit Fund
through December 31, 2004, the Company has paid only $0.6 million to the
Combined Benefit Fund for benefits in the unassigned pool. The Company expects
to pay an additional $0.5 million in 2005.
The authority for continued transfers from the AML Fund may expire in June 2005.
Since the continued transfers of funds are not sufficiently assured, the
Company's current estimate of its obligations assumes that no transfers beyond
2005 will be made. There may be a legislative or regulatory extension to the
transfer authority. If the transfer authority is extended, the Company may
decrease its estimate of the probable liability for future premiums payments by
a material amount.
Moreover, the Company's estimate of its contingent liability for unassigned
beneficiaries could increase materially in the future if other responsible coal
operators become insolvent. This liability could also change materially if the
percentage of unassigned beneficiaries that are allocated to the Company changes
due to relative mortality rates of the Company's assigned beneficiaries compared
to the total assigned beneficiaries.
The Company believes that Legacy Value information is useful to investors and
creditors as an estimate of the fair value of a series of payments to be made
over an extended period of time for these obligations.
<TABLE>
<CAPTION>
Legacy Add-Back GAAP
Value Present-Value basis
(discounted) Effect (undiscounted)
- ---------------------------------------------------------------------------------------------
(in millions) 2004 2003 2004 2003 2004 2003
- ---------------------------------------------------------------------------------------------
<S> <C>
Assigned and other $ 67 71 53 61 120 132
Unassigned 37 35 29 31 66 66
- ---------------------------------------------------------------------------------------------
Total $ 104 106 82 92 186 198
=============================================================================================
</TABLE>
The Legacy Value (representing the present value of the obligation) of the
Company's Health Benefit Act obligations at December 31, 2004, was slightly
lower than the $106 million of a year earlier. The Company made $9 million of
payments in 2004. In addition, a slightly lower number of beneficiaries were
assigned to the Brink's Companies than was projected last year. Both of these
factors explain the decrease in the GAAP basis measurement, which is
undiscounted. In addition, the Legacy Value was unfavorably affected by a
reduction in the discount rate used by 50 basis points to 5.75%, and the
accretion of interest for 2004.
Payments related to the Health Benefit Act are projected to rise in 2006 to
reflect the current assumption that the previous sources of funding for the
unassigned pool will not continue beyond 2005. If future funding of all of the
unassigned benefits becomes available through the AML Fund or other sources,
projections for 2006 and later years may be reduced by up to $4 million per
year.
Any changes to expected future obligations determined during annual
reevaluations are recorded as expenses or benefits within discontinued
operations.
Black Lung Obligations
The Company makes payments to former miners who have been determined to have
pneumoconiosis (black lung disease). Such payments primarily cover disability
payments and condition-related medical expenses. These payments stretch out over
many years and have been discounted to a net present value. Actuarial gains and
losses are deferred and amortized into expense over the average remaining life
expectancy of all participants (approximately 10 years).
44
<PAGE>
The Legacy Value, which equals the accumulated projected benefit obligation, of
the black lung obligations decreased to $55.2 million in 2004 from $63.0 million
in 2003 largely due to actuarial gains related to a reduction in the number of
pending claims against the Company and $7.0 million of cash benefit payments
made in 2004. This was partially offset by the effect of reducing the discount
rate by 50 basis points to 5.75% as of December 31, 2004.
Future cash payments are expected to gradually decline over time as the number
of participants declines through mortality. Future expense levels are also
expected to decline as the remaining value of obligations declines over time.
Withdrawal Liabilities
The Company participates in the United Mine Workers of America ("UMWA") 1950 and
1974 pension plans. The Company believes that it is likely that it will withdraw
from the plans prior to June 30, 2005, the plan's year end. A withdrawal from
the plans occurs when there is a significant reduction in or elimination of the
hours worked by employees working under UMWA labor agreements. Upon withdrawal
from these coal-related plans, the Company will become obligated to pay the
plans a portion of the underfunded status of the plans as of the beginning of
the plan year in which a withdrawal occurs, as determined by the plan agreements
and by law. The Company expects to become obligated to pay a $36.6 million
withdrawal liability during 2005 based on the funded status of the plans at June
2004. The obligation could change materially if the Company does not withdraw
prior to June 30, 2005.
Discontinued Operations
<TABLE>
<CAPTION>
Years Ended December 31,
(In millions) 2004 2003 2002
- -------------------------------------------------------------------------------------------------
<S> <C>
Gain (loss) on sale of
Timber $ 20.7 4.8 -
Gold (0.9) - -
Natural Gas - 56.2 -
Coal 5.0 - 13.2
Results from operations
Timber (0.5) (0.2) (1.0)
Gold (1.2) (4.1) (7.6)
Natural Gas - 11.2 9.0
Coal - - (28.1)
Adjustments to contingent liabilities of former operations
Health Benefit Act liabilities 3.2 (31.3) (24.0)
Withdrawal liabilities 15.4 (17.0) (26.8)
Reclamation liabilities (0.1) (3.2) -
Workers' compensation liabilities (4.9) 0.2 -
Recovery of environmental costs - 5.3 -
Other (3.3) (2.7) -
- -------------------------------------------------------------------------------------------------
Income (loss) from discontinued operation before income taxes 33.4 19.2 (65.3)
Income tax benefit (expense) (12.5) (8.0) 22.0
- -------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations $ 20.9 11.2 (43.3)
=================================================================================================
</TABLE>
Gain (loss) on Sale
The Company sold a portion of its timber business for $5.4 million in cash in
2003 and recognized a $4.8 million pretax gain. In 2004, the Company received an
additional $33.7 million for the remaining portion of its timber business. After
deducting the book value of related assets and the payment of $6.2 million in
2004 to purchase equipment formerly leased, the Company recognized a $20.7
million pretax gain in 2004.
45
<PAGE>
In February 2004, the Company sold its gold operations for approximately $1.1
million in cash plus the assumption of liabilities and recognized a $0.9 million
loss.
In August 2003, the Company sold its natural gas business and received $81.2
million in cash and recognized a $56.2 million gain.
During 2000 and 2001, the Company recorded charges of $101.8 million to reflect
the estimated loss on the sale of the coal business. A $13.2 million reversal of
the previously estimated loss on sale was recorded during 2002 to reflect the
amount of actual proceeds and values of assets and liabilities at the dates of
sale. The assets disposed of in 2002 primarily consisted of operations including
coal reserves, property, plant and equipment, the Company's economic interest in
Dominion Terminal Associates and inventory. Certain liabilities, primarily
reclamation costs related to properties disposed of, were assumed by the
purchasers.
In February 2005, the Company received additional cash proceeds from the
previous sale of its coal business in Virginia; the related gain of $5 million
was recorded in 2004.
Results from Operations
The operating results of the coal, natural gas, timber and gold operations have
been reclassified to discontinued operations for all periods presented.
The results of operations of the former natural gas operations in the eight
months prior to the 2003 sale improved over the full year of 2002 as a result of
higher natural gas prices. The Company recognized impairment losses related to
its gold business of $1.7 million in 2003 and $5.7 million in 2002.
The Company accounted for the disposition of its coal operations under
Accounting Principles Bulletin No. 30, ("APB No. 30") "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
Under APB No. 30, estimated losses of the coal operation expected to be incurred
through the end of the disposal period were accrued at the measurement date of
December 31, 2000. Accordingly, operating losses (including significant ongoing
expenses related to Company-sponsored pension and postretirement benefit
obligations and black lung obligations) were recognized within discontinued
operations in different periods than they would have been recorded if coal were
a continuing operation. Total recorded charges for Company-sponsored pension and
postretirement benefit obligations and black lung obligations were approximately
$2 million in 2002 representing the difference between the estimated amount of
expenses relating to 2002 that were accrued in 2001 and the amount actually
incurred in 2002. Beginning in January of 2003 expenses related to
Company-sponsored pension, postretirement and black lung obligations are
recorded in continuing operations.
The Company had recorded its estimate of operating losses during the expected
disposal period prior to the end of 2001. The Company recorded an additional
$28.1 million of operating losses during 2002, primarily reflecting
worse-than-expected price, volume and costs per ton of coal as a result of
adverse coal market conditions during that year.
Adjustments to Contingent Liabilities of Former Operations
Health Benefit Act Liabilities. The Company has obligations under the Coal
Industry Retiree Health Benefit Act of 1992 (the "Health Benefit Act"), as
described in note 4 to the consolidated financial statements. The estimated
liability is reduced each year as payments are made. In addition, the Company
reduced the estimated liability by $3.2 million in 2004 and increased the
estimated liability by $31.3 million in 2003 and $24.0 million in 2002 to
reflect changes in the estimates of the undiscounted liability. This estimated
liability will be adjusted in future periods as assumptions change.
The $3.2 million reduction in the liability in 2004 is primarily related to a
slight decrease in the number of beneficiaries assigned to the Company at
October 1, 2004 compared to the amount estimated at the end of 2003. As a
result, the estimate of assigned beneficiaries in future periods was also lower.
46
<PAGE>
The $31.3 million charge in 2003 is primarily related to the assumed increase in
the number of unassigned beneficiaries allocated to the Company. The increased
allocation was due to two factors. First, the Company increased its allocation
percentage because of a change in the way the Company interprets the statute
governing the allocation, based on findings of court cases that year. Second,
other coal operations became insolvent during the period and their assigned
beneficiaries were transferred to the unassigned pool. These actions reduced the
denominator (the total assigned pool) in the computation of the allocation
percentage, increasing the Company's allocation assumption, and increased the
unassigned pool.
The $24.0 million charge in 2002 primarily resulted from the Company's being
able to obtain and use Company-specific information regarding the age of the
beneficiaries covered by the Health Benefit Act rather than using averages
relating to the entire population of beneficiaries covered, slightly higher
per-beneficiary health care premiums, and slightly lower mortality than was
estimated at the end of 2001 for the plan year ended September 30, 2002.
Withdrawal Liabilities. The Company participates in the United Mine Workers of
America ("UMWA") 1950 and 1974 pension plans. The Company believes that it is
likely that it will withdraw from the plans prior to June 30, 2005, the plan's
year end. A withdrawal from the plans occurs when there is a significant
reduction in or elimination of the hours worked by employees working under UMWA
labor agreements. Upon withdrawal from these coal-related plans, the Company
will become obligated to pay the plans a portion of the underfunded status of
the plans as of the beginning of the plan year in which a withdrawal occurs, as
determined by the plan agreements and by law. The Company expects to become
obligated to pay a $36.6 million withdrawal liability during 2005 based on the
funded status of the plans at June 2004. The obligation could change materially
if the Company does not withdraw prior to June 30, 2005.
The Company's estimate of the obligation in each year is based on the funded
status of the multi-employer plans for the most recent measurement date. The
change in the Company's estimated liability in the last three years was largely
due to changes in the UMWA plans' unfunded liabilities.
Other. In 2004 the Company settled certain legal and other contingencies related
to its former coal operations and recognized $3.3 million of additional expense.
In 2003, the Company and a third party reached an agreement that establishes the
allocation of past costs related to the recovery of environmental costs, and as
a result, recognized a $5.3 million pretax gain. The matter relates to the
remediation of the Company's formerly owned petroleum terminal facility in
Jersey City, New Jersey.
Sale of Other Natural Resources Assets
In October 2003, the Company sold its 23.3% equity interest in MPI Mines Ltd.,
an Australian minerals exploration and development Company with interests in
gold and nickel, for $18.8 million in cash and recognized a $10.4 million pretax
gain in continuing operations.
In November 2003, the Company sold substantially all of its remaining
coal-related assets for $14 million in cash plus the assumption of reclamation
and other liabilities for total proceeds of $28.8 million. A gain of up to $6
million may be recognized in 2005 as liabilities related to reclamation are
formally transferred to the buyer.
47
<PAGE>
Other operating income, net
Other operating income, net, is a component of the operating segments'
previously discussed operating profits.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Years Ended December 31, % change
(In millions) 2004 2003 2002 2004 2003
- ----------------------------------------------------------------------------------------------------
<S> <C>
Gains on sale of operating assets, net $ 5.9 7.7 - (23) NM
Impairment loss (5.8) (1.3) - 200+ NM
Foreign currency transaction gains, net 2.2 3.2 2.0 (31) 60
Royalty income 1.6 1.7 1.3 (6) 31
Share in earnings of equity affiliates 1.0 0.3 1.2 200+ (75)
Penalties on unpaid value-added taxes (0.4) - - NM NM
Other 4.6 4.0 0.7 15 200+
- ----------------------------------------------------------------------------------------------------
Total $ 9.1 15.6 5.2 (42) 200
====================================================================================================
</TABLE>
Other operating income in 2004 included $5.9 million of gains on sale of
operating assets, net, which were primarily the result of disposing of residual
assets of the Company's former coal operations. The impairment loss in 2004
primarily relates to BAX Global's decision to abandon the development and
installation of software. Other operating income in 2003 was higher than 2002
due primarily to $7.7 million of gains on the sale of operating assets,
including a $5.5 million gain on the sale of operating assets of Brink's and
$2.2 million in gains from the sale of residual assets of the former coal
operations partially offset by losses on sales of other property and equipment.
Nonoperating Income and Expense
Interest Income
Years Ended December 31, % change
- ------------------------------------------------------------------------------
(In millions) 2004 2003 2002 2004 2003
- ------------------------------------------------------------------------------
Interest income $ 4.6 6.2 3.1 (26) 100
==============================================================================
Interest earned in the VEBA was only included in Interest Income in 2003.
Interest income declined from 2003 to 2004 primarily as a result of the
Company's decision to restrict the VEBA to only pay certain expenses in early
2004. Because of this, investment income of the VEBA is now treated as an offset
to postretirement medical benefit expense. Interest income increased in 2003 as
compared to 2002 primarily due to the interest earned on the VEBA's investments,
as well as interest income on receivables related to the former coal operations.
Interest earned in the VEBA was classified within discontinued operations in
2002.
Interest Expense
Years Ended December 31, % change
- ------------------------------------------------------------------------------
(In millions) 2004 2003 2002 2004 2003
- ------------------------------------------------------------------------------
Interest expense $ 22.9 25.4 23.0 (10) 10
==============================================================================
Interest expense was lower in 2004 compared to 2003 primarily due to lower
average borrowings and interest rates.
48
<PAGE>
Interest expense increased in 2003 as compared to 2002 primarily due to the
inclusion of interest expense related to Dominion Terminal Associates ("DTA") in
the 2003 period. In conjunction with the disposal of its coal operations, the
Company transferred its interest in the operations of DTA, a coal terminal in
Newport News, Virginia, but retained contingent obligations of bond-related
debt. Since the Company no longer has an interest in DTA, its related $43.2
million guarantee of the underlying debt was reclassified to long-term debt from
noncurrent liabilities at December 31, 2002. In prior periods, the cost
associated with the bonds was included in discontinued operations. In addition,
2003 interest expense was higher due to the accretion of interest related to
former coal operations' retained leases and advance minimum royalty agreements,
partially offset by a decrease in U.S. borrowings and lower interest rates.
Stabilization Act Compensation
Years Ended December 31, % change
- --------------------------------------------------------------------------------
(In millions) 2004 2003 2002 2004 2003
- --------------------------------------------------------------------------------
Stabilization Act compensation $ - - 5.9 NM NM
================================================================================
Stabilization Act compensation of $5.9 million in 2002 represents amounts
received by the Company from the U.S. Government pursuant to the Air
Transportation Safety and System Stabilization Act.
Other Income (Expense), Net
<TABLE>
<CAPTION>
Years Ended December 31, % change
- ------------------------------------------------------------------------------------------------------
(In millions) 2004 2003 2002 2004 2003
- ------------------------------------------------------------------------------------------------------
<S> <C>
Gain (loss) on sale of marketable securities $ 4.3 (0.2) 0.8 NM NM
Discounts and other fees of accounts receivable
securitization program (1.7) (1.7) (1.6) - 6
Gain on monetization of coal royalty agreement - 2.6 - (100) NM
Other, net 0.2 1.6 (4.4) (88) NM
- ------------------------------------------------------------------------------------------------------
Total $ 2.8 2.3 (5.2) 22 NM
======================================================================================================
</TABLE>
Upon the assignment of the VEBA to pay benefits under the postretirement medical
plans of the Company, unrealized gains of over $4 million were recorded as
income in 2004.
Minority Interest
Years Ended December 31, % change
- -----------------------------------------------------------------------------
(In millions) 2004 2003 2002 2004 2003
- -----------------------------------------------------------------------------
Minority Interest $ 12.9 9.0 3.3 43 173
=============================================================================
Changes in minority interest in the last three years are primarily due to
variations in the earnings of the Company's partially owned Venezuelan
subsidiary of Brink's. The Venezuelan subsidiary incurred losses in 2002, and
returned to strong profitability in 2003 and 2004.
49
<PAGE>
Share-Based Compensation
The Company maintains a stock option plan and an employee stock purchase plan to
provide incentives for its employees and to encourage employees to own stock in
order to enhance the link between their interests and those of its non-employee
shareholders.
The Company believes that SFAS No. 123R, "Share-Based Payment," will require the
recording of expenses under both plans beginning in the third quarter of 2005.
Based on current estimates, the Company believes that it will record after-tax
expense of approximately $2 million in the last half of 2005. Such expense could
be roughly double in 2006.
The Company may amend or terminate its plans. If so, the above estimate could
change.
Income Taxes
<TABLE>
<CAPTION>
Income tax expense (benefit) Effective tax rate
- -----------------------------------------------------------------------------------------------
Years Ended December 31, 2004 2003 2002 2004 2003 2002
- -----------------------------------------------------------------------------------------------
(in millions) (in percentages)
<S> <C>
Continuing operations $ 60.9 55.7 40.4 37.7% 75.4% 36.8%
Discontinued operations 12.5 8.0 (22.0) 37.4 % 41.7% 33.7%
===============================================================================================
</TABLE>
Overview
The Company's effective tax rate has fluctuated in the past three years from
statutory rates due to various factors, including:
o changes in valuation allowances, and
o state taxes, changes in the expected geographical mix of earnings.
The Company establishes or reverses valuation allowances for deferred tax assets
depending on all available information including historical and expected future
operating performance of its subsidiaries. Changes in judgment about the future
realization of deferred tax assets can result in significant adjustments to the
valuation allowances. Based on the Company's historical and future expected
taxable earnings, management believes it is more likely than not that the
Company will realize the benefit of the deferred tax assets, net of valuation
allowances.
Continuing Operations
2004
The effective income tax rate on continuing operations in 2004 was higher than
the 35% U.S. statutory tax rate primarily as a result of the recording of $9.9
million of net valuation allowance adjustments, mostly related to certain
European operations.
2003
The effective income tax rate for continuing operations in 2003 was higher than
the 35% U.S. statutory tax rate primarily due to $28.4 million of net additional
valuation allowance adjustments for certain state and foreign deferred tax
assets.
2002
The effective income tax rate in 2002 was higher than the 35% U.S. statutory tax
rate primarily due to foreign income taxes and the recording of $1.5 million of
valuation allowances.
Adjustments to income tax expense
The Company has recorded adjustments in each of the last three years based on an
ongoing analysis of its U.S. and non-U.S. current and deferred income tax asset
and liability accounts. The Company has included in current earnings, the effect
of these adjustments because they did not aggregate to a material amount in any
individual year. The income tax expense (benefit) related to these adjustments
was ($0.3) million in 2004, $3.3 million in 2003, and $1.6 million in 2002.
50
<PAGE>
Discontinued Operations
Discontinued operations includes the income (loss) before taxes and the related
tax provision or benefit associated with the Company's former natural resource
businesses. The effective tax rate in 2004 was higher than the 35% U.S.
statutory tax rate due to state income tax expense. The effective tax rate in
2003 was higher than the U.S. statutory rate due to additional accruals made in
2003 for tax contingencies related to the natural resource business. In 2002,
tax benefits from percentage depletion of coal production were reflected in the
effective tax rate of discontinued operations.
As discussed in note 23 to the consolidated financial statements, up to $27
million in tax benefits could be recognized in discontinued operations upon the
favorable resolution of a tax contingency.
Other
As of December 31, 2004, the Company has not recorded U.S. federal deferred
income taxes on $340.7 million of undistributed earnings of its foreign
subsidiaries and equity affiliates. With the exception of amounts discussed
below, it is expected that these earnings will be permanently reinvested in
operations outside the U.S. It is not practical to compute the estimated
deferred tax liability on these earnings.
The Company does not expect to be able to complete its evaluation of the
repatriation provision of the new American Jobs Creation Act of 2004 until after
Congress passes statutory technical corrections and the Treasury Department
issues further guidance on key elements of the provision. In January 2005, the
Treasury Department began to issue the first of a series of clarifying guidance
documents related to this provision. The Company expects to complete its
evaluation of the effects of the repatriation provision within the first two
fiscal quarters of 2005, provided Congress and the Treasury Department issue
guidance by that time. The range of possible amounts that the Company is
considering for repatriation under this provision is between zero and $150
million. While the Company estimates that the related potential range of
additional income tax payments is between zero and $10 million, this estimate
may change based on the passage of technical correction legislation.
Foreign Operations
A portion of the Company's financial results is derived from activities in over
100 countries, each with a local currency other than the U.S. dollar. Because
the financial results of the Company are reported in U.S. dollars, they are
affected by changes in the value of various foreign currencies in relation to
the U.S. dollar. Changes in exchange rates may also affect transactions which
are denominated in currencies other than the functional currency. The diversity
of foreign operations helps to mitigate a portion of the impact that foreign
currency fluctuations in any one country may have on the translated results.
The Company, from time to time, uses foreign currency forward contracts to hedge
transactional risks associated with foreign currencies. (See "Market Risk
Exposures" below.)
Brink's Venezuelan subsidiaries ("Brink's Venezuela") were considered to be
operating in a highly inflationary country in 2002. However, at January 1, 2003,
Brink's Venezuela was no longer treated as highly inflationary. The Company
estimates that had Brink's Venezuela not been treated as highly inflationary
effective January 1, 2002, revenues in 2002 would have decreased by $1.1
million, operating profit would have increased by $2.4 million and pretax income
would have increased by $1.9 million. Additionally on March 3, 2005, Venezuela's
central bank devalued the local currency by approximately 12%. The effect of
this devaluation on the Company's December 31, 2004 net assets in Brink's
Venezuela would have been a decrease in net assets of approximately $3.7
million. It is possible that Venezuela may be considered highly inflationary
again at some time in the future.
The Company is exposed to certain risks when it operates in highly inflationary
economies, including the risk that
o the rate of price increases for services will not keep pace with cost
inflation;
o adverse economic conditions in the highly inflationary country may
discourage business growth which could affect demand for the
Company's services; and
o the devaluation of the currency may exceed the rate of inflation and
reported U.S dollar revenues and profits may decline.
The Company is also subject to other risks customarily associated with doing
business in foreign countries, including labor and economic conditions,
political instability, controls on repatriation of earnings and capital,
nationalization, expropriation and other forms of restrictive action by local
governments. The future effects, if any, of these risks on the Company cannot be
predicted.
51
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
Overview
Over the last four years, the Company has used the cash it has generated from
operations and the divestiture of natural resources to strengthen its balance
sheet by reducing debt and making contributions to the VEBA and its primary U.S.
pension plan. Net cash proceeds from the sale of natural resource businesses
totaled $216 million over the last three years. With the sale of the coal
business, the Company is no longer subject to the volatility in cash flows
caused by the fluctuations in coal markets.
Debt repayments, net, aggregated $158 million over the last three years. In
addition to debt reduction, the Company has contributed $132 million to the VEBA
and $66 million to the primary U.S. pension plan over the last three years. The
Company also elected to reduce the funds provided from the sale of accounts
receivable by $44 million since 2001.
The Company expects to make significant investments in 2005 with capital
expenditures projected to increase $60 to $70 million from the 2004 level of
spending. Acquisitions in 2005 by Brink's through the middle of March have
exceeded $40 million. In addition, the Company believes it will have to pay a
withdrawal liability currently estimated to be $37 million. As a result, it is
likely that debt and funding from the sale of receivables will increase in 2005.
Summary of Cash Flow Information
<TABLE>
<CAPTION>
Years Ended December 31, $ change
- ---------------------------------------------------------------------------------------------------------------------------
(In millions) 2004 2003 2002 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities
Continuing operations:
Before changes in operating assets and liabilities $ 322.0 264.8 276.6 $ 57.2 (11.8)
Changes in assets and liabilities, including working capital (42.1) 16.8 21.1 (58.9) (4.3)
Discontinued operations:
Natural gas, timber and gold 0.2 19.2 10.2 (19.0) 9.0
Coal - - (66.6) - 66.6
- ---------------------------------------------------------------------------------------------------------------------------
Operating activities 280.1 300.8 241.3 (20.7) 59.5
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Continuing operations:
Capital and aircraft heavy maintenance expenditures (245.4) (226.6) (224.4) (18.8) (2.2)
Net proceeds from:
Disposal of former natural resource interests 28.6 119.4 42.3 (90.8) 77.1
Notes receivable and settlement of royalty agreement - 26.0 - (26.0) 26.0
- ---------------------------------------------------------------------------------------------------------------------------
Subtotal of natural resource cash proceeds 28.6 145.4 42.3 (116.8) 103.1
Contributions to VEBA (a) - (82.0) - 82.0 (82.0)
Acquisitions (14.8) (8.1) (0.1) (6.7) (8.0)
Other 9.9 17.9 4.4 (8.0) 13.5
Discontinued operations:
Natural gas, timber and gold (0.8) (8.8) (10.9) 8.0 2.1
Coal - - (19.7) - 19.7
- ---------------------------------------------------------------------------------------------------------------------------
Investing activities (222.5) (162.2) (208.4) (60.3) 46.2
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows before financing activities $ 57.6 138.6 32.9 $ (81.0) 105.7
===========================================================================================================================
</TABLE>
(a) In 2004, the VEBA was restricted to pay coal related retiree medical
benefits, as a result the Company began to account for the VEBA as an
offset to the postretirement obligation (see note 4 to the consolidated
financial statements). Accordingly, $50 million of net cash contributions
in 2004 have been classified within operating activities. In 2003, $82
million of contributions were classified within investing activities.
52
<PAGE>
Operating Activities
2004
Cash flows provided by operating activities decreased by $20.7 million in 2004
from the prior period primarily as a result of a $50 million net contribution to
the VEBA in 2004; contributions to the VEBA were classified as investing
activities in 2003. Partially offsetting this was improved cash flow from
operating activities provided by the Company's business segments. The Company's
discontinued operations generated less cash in 2004 since the natural resource
businesses were sold in 2003 and early 2004.
2003
Cash provided by operating activities was $59.5 million higher in 2003 compared
to 2002 primarily due to outflows in 2002 related to former coal operations
while they were still operating. Cash provided by operating activities was also
higher due to an increase in the amount of cash provided by operating activities
at Brink's and BHS, partially offset by lower amounts provided by BAX Global. In
addition, the Company contributed $15 million more to its primary U.S. pension
plan in 2002 than it did in 2003.
Coal-related cash outflows were classified as discontinued operations in the
2002 statements of cash flows, including approximately $60.6 million (before
current tax benefit) related to obligations the Company ultimately retained. In
2003, cash outflows of $59.6 million for these retained obligations are included
in continuing operations. In addition to the payments related to retained
obligations, the Company's former coal operations used cash in 2002 largely due
to the poor performance of its operations in the face of difficult industry
conditions.
Investing Activities
Proceeds from Disposition of Assets and Investments
Investing activities in 2004 included $28.6 million of proceeds from the sale of
natural resource businesses. Investing activities in 2003 included $119.4
million of cash proceeds from the sale of natural resource businesses and equity
interests and the realization in 2003 of $26.0 million of cash related to the
monetization of noncash proceeds from the 2002 sale of the Company's former
Virginia coal operations. Proceeds from dispositions of assets and investments
in 2002 included $42.3 million of cash associated with the disposal of a portion
of the Company's former coal operations.
Capital and Aircraft Heavy Maintenance Expenditures
<TABLE>
<CAPTION>
Years Ended December 31, $ change
- --------------------------------------------------------------------------------------------------
(In millions) 2004 2003 2002 2004 2003
- --------------------------------------------------------------------------------------------------
<S> <C>
Capital Expenditures
Brink's $ 76.2 80.9 79.3 $ 4.7 (1.6)
BHS 117.6 98.0 86.9 (19.6) (11.1)
BAX Global 25.4 23.6 27.1 (1.8) 3.5
Corporate and other 1.1 0.2 0.1 (0.9) (0.1)
- --------------------------------------------------------------------------------------------------
Capital expenditures $ 220.3 202.7 193.4 $(17.6) (9.3)
==================================================================================================
Aircraft heavy maintenance expenditures $ 25.1 23.9 31.0 $ (1.2) 7.1
==================================================================================================
</TABLE>
Higher capital expenditures at BHS in both 2004 and 2003 as compared to the
prior-year periods were primarily due to an increase in subscriber
installations.
Capital expenditures in 2005 are currently expected to range from $280 million
to $290 million. Expected capital expenditures for 2005 reflect an increase in
customer installations at BHS and information technology spending at Brink's and
BAX Global. In addition, BHS's capital expenditures in 2005 are expected to
include approximately $25 million to purchase facilities, including BHS's
headquarters facility, currently occupied under an operating lease, and the
development of a second monitoring center.
Aircraft heavy maintenance expenditures vary as a result of the number of
airplanes leased and owned, the amount of flight time and the timing of
regularly scheduled maintenance for airplanes. The Company expects to spend
between $25 million and $30 million on aircraft heavy maintenance in 2005.
53
<PAGE>
VEBA
The Company made $82 million of contributions to its VEBA in 2003, which, as
noted above, were classified as an investing activity. The Company classified
the $50 million of net contributions in 2004 as an operating activity.
Other Investing Activities
Acquisitions in 2003 and 2004 were made primarily by Brink's. In the first
quarter of 2005, the Company announced agreements by Brink's to acquire two
operations in Europe for approximately $43 million.
In comparison to 2002, investing activities in 2003 reflected approximately $13
million of increased proceeds from the sale of operating assets, primarily at
Brink's.
Business Segment Cash Flows
The Company's cash flows before financing activities for each of the operating
segments are presented below.
<TABLE>
<CAPTION>
Years Ended December 31, $ change
- -----------------------------------------------------------------------------------------------------------------------
(In millions) 2004 2003 2002 2004 2003
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows before financing activities
Continuing operations:
Business segments:
Brink's $ 103.7 63.6 57.6 $ 40.1 6.0
BHS 47.6 28.8 26.3 18.8 2.5
BAX Global 10.6 4.0 13.4 6.6 (9.4)
- -----------------------------------------------------------------------------------------------------------------------
Subtotal of business segments 161.9 96.4 97.3 65.5 (0.9)
Corporate and former operations:
Proceeds from sale of natural resource interests 28.6 145.4 42.3 (116.8) 103.1
Contributions to the VEBA, net (50.0) (82.0) - 32.0 (82.0)
Contributions to primary U.S. pension plan (11.0) (20.0) (35.1) 9.0 15.1
Other, including payments for coal-related
obligations in 2004 and 2003 (71.3) (11.6) 15.4 (59.7) (27.0)
- -----------------------------------------------------------------------------------------------------------------------
Subtotal of continuing operations 58.2 128.2 119.9 (70.0) 8.3
Discontinued operations:
Natural gas, timber and gold (0.6) 10.4 (0.7) (11.0) 11.1
Coal - - (86.3) - 86.3
- -----------------------------------------------------------------------------------------------------------------------
Cash flows before financing activities $ 57.6 138.6 32.9 $ (81.0) 105.7
=======================================================================================================================
</TABLE>
Overview
Cash flows before financing activities from the Company's business segments have
averaged over $100 million per year over the last three years. Sales of natural
resource interests also provided significant cash over that period. Using this
cash flow, the Company made almost $200 million in voluntary contributions to
its VEBA and primary U.S. pension plan over the last three years. The Company's
cash flow also allowed it to make significant cash payments over the last three
years covering the regular annual payments associated with retained liabilities
of the former coal operations. 2002 also had significant cash outflows
associated with the final year of operation of the coal business and poor market
conditions.
Brink's
Cash before financing activities increased in 2004 over 2003 primarily due to
higher operating profit partially offset by an increase in cash used for
acquisitions.
54
<PAGE>
Cash flows before financing activities at Brink's increased in 2003 over 2002
due to higher operating profit, offset by a year-over-year increase in the
amount of cash used for working capital needs and costs to relocate its
headquarters. In addition, $10 million in higher proceeds from the sale of
operating assets in 2003 were partially offset by $7 million in cash outflows
primarily related to a 2003 acquisition in Belgium.
BHS
The year-over-year increase in cash flows before financing activities at BHS in
both 2004 and 2003 is primarily due to higher operating results partially offset
by an increase in capital expenditures reflecting growth in installations of
security systems.
BAX Global
Cash flow before financing activities at BAX Global improved in 2004, reflecting
much better operating results versus 2003. This improvement was largely offset
by the effect of the sale of $52 million less of accounts receivable at year end
2004 versus the prior year as a result of the Company's overall cash flow in
2004.
Cash flows before financing activities at BAX Global in 2003 decreased $9.4
million from 2002 reflecting lower operating results in 2003. Partially
offsetting 2003's lower operating results was a reduction in the amount of cash
used to cover working capital needs and lower capital and aircraft heavy
maintenance expenditures.
Corporate and Former Operations
The Company received $216 million in net proceeds during the last three years
from the sale of substantially all of its natural resource interests. In the
last three years, the Company contributed $132 million to its VEBA and $66
million to its primary U.S. pension plan. The $59.7 increase in other cash
outflows reflects higher corporate expenses in 2004 and the collection of
remaining receivables of the coal business during 2003. The increase in other
cash outflows for 2003 compared to 2002 reflects cash spent in 2003 associated
with retained liabilities of the former coal operations (these types of payments
were included in discontinued operations in 2002). The Company expects to pay
approximately $37 million in 2005 associated with the anticipated withdrawal
from the 1950 and 1974 multiemployer pension plans.
Discontinued Operations
Cash flow from discontinued operations, which includes cash from operations and
capital expenditures of the former natural resource businesses, was lower in
2004 as a result of the sale of the businesses in 2003 and early 2004. Higher
natural gas prices improved the natural gas business' cash flows in 2003
compared to 2002. Discontinued operations' cash flow before financing activities
for 2002 reflected cash spent associated with retained liabilities and operating
losses resulting from weak coal market conditions; spending associated with
retained liabilities was included in continuing operations in 2003.
Financing Activities
<TABLE>
<CAPTION>
Summary of Financing Activities Years Ended December 31,
- -------------------------------------------------------------------------------------
(In millions) 2004 2003 2002
- -------------------------------------------------------------------------------------
<S> <C>
Short-term debt $ (9.1) (15.1) 9.1
Revolving Facility (12.5) (98.1) (7.2)
Senior Notes - - 20.0
Other (17.5) (5.6) (22.2)
- -------------------------------------------------------------------------------------
Net borrowings (repayments) of debt (39.1) (118.8) (0.3)
Repurchase of stock - - (11.1)
Dividends (5.4) (5.3) (5.7)
Proceeds from exercise of stock options and other 22.4 1.1 0.4
- -------------------------------------------------------------------------------------
Cash flows from financing activities $ (22.1) (123.0) (16.7)
=====================================================================================
</TABLE>
55
<PAGE>
The Company's day-to-day operating liquidity needs are typically financed by
short-term debt, the Company's accounts receivable securitization facility, and
the Company's Revolving Facility and Letter of Credit Facility, both of which
are described below.
Under a share repurchase program authorized by the Board, the Company redeemed
all its outstanding shares of Convertible Preferred Stock for $10.8 million in
2002.
The Company paid quarterly dividends on its common stock at an annual rate of
$0.10 per share in each of the last three years. Dividends paid on common stock
totaled $5.4 million in 2004, $5.3 million in 2003 and $5.2 million in 2002.
Dividends paid on the Convertible Preferred Stock amounted to $0.5 million in
2002.
Future dividends are dependent on the earnings, financial condition, cash flow
and business requirements of the Company, as determined by the Board. In January
2005, the Board declared a quarterly cash dividend of $0.025 per share of common
stock, payable on March 1, 2005 to shareholders of record on February 8, 2005.
Capitalization
The Company uses a combination of debt, off-balance sheet instruments and equity
to capitalize its operations. As of December 31, 2004, debt as a percentage of
capitalization (total debt and shareholders' equity) was 27% compared to 36% at
December 31, 2003. The reduction resulted from a combination of $178 million of
higher equity and $30 million of lower debt. Equity increased in 2004 primarily
as a result of net income ($121.5 million). The issuance of shares related to
employee benefit plans also was a factor in the increase.
Summary of Debt, Equity and Other Liquidity Information
<TABLE>
<CAPTION>
Amount available
under credit facilities Outstanding Balance
- --------------------------------------------------------------------------------------------------------
December 31, December 31,
(In millions) 2004 2004 2003 $ change (b)
- --------------------------------------------------------------------------------------------------------
<S> <C>
Debt:
Short-term debt:
Multi-currency revolving facility
and other committed facilities (a) $ 37 $ 27.5 35.8 $ (8.3)
Long-term debt:
Revolving Facility 382 18.4 30.9 (12.5)
Letter of Credit Facility 43 - - -
Senior Notes 95.0 95.0 -
Dominion Terminal
Associates ("DTA") bonds 43.2 43.2 -
Other 60.1 69.6 (9.5)
- --------------------------------------------------------------------------------------------------------
Debt $ 462 $ 244.2 274.5 $ (30.3)
========================================================================================================
Shareholders' equity $ 674.0 495.6 $ 178.4
========================================================================================================
Other Liquidity Information:
Cash and cash equivalents $ 169.0 128.7 $ 40.3
Amount sold under accounts receivable
securitization facility 25.0 77.0 (52.0)
Net Debt (c) 75.2 145.8 (70.6)
Net Financings (c) 100.2 222.8 (122.6)
========================================================================================================
</TABLE>
(a) The Company also had $111.0 million in available credit under uncommitted
cash facilities at December 31, 2004.
(b) In addition to cash borrowings and repayments, the change in the debt
balance also includes changes in currency exchange rates and borrowings
under new capital leases.
(c) These are Non-GAAP measures. Net Debt is equal to short-term debt plus the
current and noncurrent portion of long-term debt, ("Debt" in the tables),
less cash and cash equivalents. Net Financings are equal to Net Debt plus
the amount sold under the accounts receivable securitization facility. See
reconciliation below.
56
<PAGE>
Reconciliation of Net Debt and Net Financings to GAAP Measures
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------------
(In millions) 2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------
<S> <C>
Short-term debt $ 27.5 35.8 41.8 27.8 51.0
Long-term debt 216.7 238.7 317.5 270.1 345.8
DTA bonds - - - 43.2 43.2
- ----------------------------------------------------------------------------------------------------
Debt 244.2 274.5 359.3 341.1 440.0
Less cash and cash equivalents (169.0) (128.7) (102.3) (86.7) (97.8)
- ----------------------------------------------------------------------------------------------------
Net Debt 75.2 145.8 257.0 254.4 342.2
Amounts sold under accounts receivable
securitization facility 25.0 77.0 72.0 69.0 85.0
- ----------------------------------------------------------------------------------------------------
Net Financings $ 100.2 222.8 329.0 323.4 427.2
====================================================================================================
</TABLE>
The Company believes the presentation of Net Debt and Net Financings are useful
measures of the Company's financial leverage.
Debt
During October 2004, the Company entered into a new unsecured $400 million
revolving bank credit facility with a syndicate of banks to replace the existing
$350 million facility which was due to expire in 2005. The new facility allows
the Company to borrow (or otherwise satisfy credit needs) on a revolving basis
over a five-year term ending in October 2009. Both the old and new facility are
referred to herein as the "Revolving Facility." At December 31, 2004, $381.6
million was available under the Revolving Facility.
During November 2004, the Company also entered into an unsecured $150 million
credit facility with a bank to provide letters of credit and other borrowing
capacity over a five-year term ending in December 2009 (the "Letter of Credit
Facility"). The costs of such letters of credit are expected to be approximately
the same as borrowings under its $400 million facility discussed above. The
Company intends to use the Letter of Credit Facility to replace surety bonds and
other letters of credit needed to support its activities. As of December 31,
2004, $106.7 million was utilized under this revolving credit facility. The
Revolving Facility and the multi-currency revolving credit facilities described
below are also used for the issuance of letters of credit and bank guarantees.
The Company has three unsecured multi-currency revolving bank credit facilities
with a total of $105 million in available credit at December 31, 2004, of which
$37.0 million was available. When rates are favorable, the Company also borrows
from other banks under short-term uncommitted agreements. Various foreign
subsidiaries maintain other secured and unsecured lines of credit and overdraft
facilities with a number of banks. Amounts borrowed under these agreements are
included in short-term borrowings.
At December 31, 2004, the Company had $95.0 million of Senior Notes outstanding
that are scheduled to be repaid in 2005 through 2008, including $18.3 million
which was paid as scheduled in January 2005. Interest on each series of the
Senior Notes is payable semiannually, and the Company has the option to prepay
all or a portion of the Notes prior to maturity with a prepayment penalty. The
Senior Notes are unsecured.
The Company's Brink's, BHS, and BAX Global subsidiaries have guaranteed the
Revolving Facility, the Letter of Credit Facility and the Senior Notes. The
Revolving Facility, the Letter of Credit Facility, the agreement under which the
Senior Notes were issued and the multi-currency revolving bank credit facilities
each contain various financial and other covenants. The financial covenants,
among other things, limit the Company's total indebtedness, provide for minimum
coverage of interest costs, and require the Company to maintain a minimum level
of net worth. If the Company were not to comply with the terms of its various
loan agreements, the repayment terms could be accelerated. An acceleration of
the repayment terms under one agreement could trigger the acceleration of the
repayment terms under the other loan agreements. The Company was in compliance
with all financial covenants at December 31, 2004.
57
<PAGE>
In 2003, at the Company's request, the Peninsula Ports Authority of Virginia
issued a new series of bonds to replace the previous bonds related to Dominion
Terminal Associates, a deep water coal terminal in which the Company no longer
has an interest.
The Company continues to pay interest on and guarantee payment of the $43.2
million principal of the new bonds and ultimately will have to pay for the
retirement of the new bonds in accordance with the terms of the guarantee. The
new bonds bear a fixed interest rate of 6.0% (versus a fixed interest rate of
7.375% for the previous bonds) and mature in 2033. The new bonds may mature
prior to 2033 upon the occurrence of certain specified events such as the
determination that the bonds are taxable or the failure of the Company to abide
by the terms of its guarantee.
The Company believes it has adequate sources of liquidity to meet its near-term
requirements.
Equity
At December 31, 2004, the Company had 100 million shares of common stock
authorized and 56.7 million shares issued and outstanding. Of the outstanding
shares at December 31, 2004, 1.1 million shares were held by The Brink's Company
Employee Benefit Trust and have been accounted for in a manner similar to
treasury stock for earnings per share purposes. The Company has the authority to
issue up to 2.0 million shares of preferred stock, par value $10 per share.
The Company has the authority to repurchase up to 1.0 million shares of common
stock with an aggregate purchase price limitation of $19.1 million. The Company
made no repurchases under this program during 2004.
Off Balance Sheet Arrangements
The Company has various off-balance sheet arrangements that are described in the
notes to the consolidated financial statements. See note 14 for the accounts
receivable securitization program and note 15 for operating leases that have
residual value guarantees or other terms that cause the agreement to be
considered a variable interest. The Company uses these off-balance sheet
arrangements to lower its cost of financings. The Company believes its
off-balance sheet arrangements are an important component of its capital
structure.
In December 2000, the Company entered into a five year agreement to sell a
revolving interest in BAX Global U.S. domestic accounts receivable through a
commercial paper conduit program. The primary purpose of the agreement was to
obtain access to a lower cost source of funds. The Company expects to renew or
replace this agreement prior to its expiration in December 2005.
58
<PAGE>
Contractual Obligations
The following table includes the contractual obligations of the Company.
<TABLE>
<CAPTION>
Estimated Payments Due by Period
- ----------------------------------------------------------------------------------------------------------------
Later
(In millions) 2005 2006 2007 2008 2009 Years Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Contractual obligations
Long-term debt obligations $ 24.3 38.4 27.2 28.8 19.3 46.7 184.7
Capital lease obligations 10.8 7.2 4.4 3.1 4.0 2.5 32.0
Operating lease obligations 130.9 100.6 78.9 59.1 43.7 139.3 552.5
Purchase obligations:
Service contracts 6.9 6.9 1.5 1.4 1.2 0.6 18.5
Other 20.7 0.1 - - - - 20.8
Other long-term liabilities reflected on the
Company's balance sheet under GAAP:
Aircraft lease turnback obligations (a) 52.2 - - - - - 52.2
Non-coal related workers compensation
and other claims 33.6 15.3 8.1 4.9 3.4 7.2 72.5
- ----------------------------------------------------------------------------------------------------------------
Subtotal 279.4 168.5 120.1 97.3 71.6 196.3 933.2
Legacy liabilities (b) 97.0 66.0 63.0 63.0 62.0 1,457.0 1,808.0
- ----------------------------------------------------------------------------------------------------------------
Total $ 376.4 234.5 183.1 160.3 133.6 1,653.3 2,741.2
================================================================================================================
</TABLE>
(a) Most of the Company's lease agreements for aircraft require payments be
made for heavy maintenance at the end of the lease term.
(b) The projected payments for liabilities related to former coal operations
(legacy liabilities) are discussed in "Results of Operations - Former Coal
and Other Natural Resource Operations." A portion of the projected payments
will ultimately be paid by the VEBA. Estimated payments above exclude
Administration and other payments.
Primary U.S. Pension Plan
The Company maintains a noncontributory defined benefit pension plan covering
substantially all non-union employees in the U.S. who meet certain requirements.
Using actuarial assumptions as of December 31, 2004, this plan had an
accumulated benefit obligation ("ABO") of approximately $662 million and a
projected benefit obligation ("PBO") of $742 million. The ABO is an estimate of
the benefits earned through December 31, 2004. The difference between the ABO
and PBO is essentially the expected changes in the value of the benefits due to
projected increases in future compensation of plan participants.
59
<PAGE>
The ABO and PBO are net present values of expected future cash flows discounted
to December 31, 2004 by 5.75%. The Company selects a discount rate for its
pension liabilities after reviewing published long-term yield information for a
small number of high-quality fixed-income securities (Moody's AA bond yields)
and yields for the broader range of long-term high-quality securities.
Accordingly, as market interest rates fluctuate, the net present value of the
Company's obligations will change. The impact of a one percentage point (100
basis point) change in the discount rate used at December 31, 2004 would have
been as follows:
Discount Rates
- -------------------------------------------------------------
Increased Decreased
(In millions) by 1.0% by 1.0%
- -------------------------------------------------------------
Increase (decrease) in:
ABO at December 31, 2004 $ (89) $ 112
PBO at December 31, 2004 (106) 136
2005 expense (16) 21
At December 31, 2004, the fair value of the plan's assets approximated $595
million. The Company uses a long-term rate of return assumption to determine
annual income from plan assets. Such expected income reduces plan expense. The
Company's current expected long-term rate of return is 8.75%. If the Company
were to use a different long-term rate of return assumption it would affect
annual pension expense.
The historical and projected benefit payments and expense for the U.S. plan are
set out in the table below. The projected benefits and expense reflect
assumptions used in the valuation at year end 2004. These assumptions are
reviewed annually, and it is likely that they will change in future years.
(In millions) Actual Projected
- ------------------------------------------------------------------------------
Years Ending December 31, 2003 2004 2005 2006 2007
- ------------------------------------------------------------------------------
Benefits (paid from plan trust) $ 23 25 26 28 29
Expense 18 27 40 42 37
As can be noted from reviewing the above tables, changes in the amount of
expense are significantly affected by discount rates. The level of expense has
increased largely due to the effects of the reduction in the discount rate used
as a result of the decrease in market interest rates over the last several
years. Also contributing to the increase in expense has been the poor
performance of investment markets from 2000 to 2002, although this has been
moderated by the performance in 2003 and 2004. The above expense amounts are
charged to the business segments in approximately the following proportions :
Brink's - 50%, BHS - 15%, BAX - 25%, former natural resources businesses - 10%.
The amount of cash the Company may have to contribute in the future for the
Company's primary U.S. pension plan is determined using a different set of
assumptions than is used for financial accounting purposes.
Based on December 31, 2004 data, assumptions and funding regulations, the
Company is not required to make a contribution to the plan for the 2005 plan
year. Under existing regulations and using the same assumptions for 2005
activity, a contribution of approximately $26 million could be required for the
2006 plan year but the actual payment could be delayed until as late as
September 2007. Up to $79 million could be required for the 2007 plan year.
60
<PAGE>
The above estimated contributions are likely to change. Congress and the
Executive Branch of the Federal government are expected to evaluate changes to
pension funding requirements. As part of this evaluation they may adopt changes
to the definition of the discount rate to be used for funding purposes. Such
rate has changed substantially since the discontinuance of the sale of 30-year
Treasury bonds. In the past, Congress has provided temporary relief from
distortions caused by the discontinuance of the sale of 30-year Treasury bonds.
The current relief expires this year. Any changes to the discount rate used for
funding through an extension of the current relief is expected to reduce
required contributions. In addition, actual investment returns and interest
rates are likely to differ from those assumed at December 31, 2004. Further, the
Company may elect to contribute to the plan in 2005 and/or 2006. Voluntary
contributions have the effect of reducing and potentially delaying later
required contributions. The Company has made voluntary contributions aggregating
$66 million over the last three years.
The pension plan's benefits will be earned and paid out over an extended period
of time. Accordingly, the Company takes a long-term approach to funding levels
and contribution policies. Historically, long-term returns on assets invested
have significantly exceeded the discount rate for pension liabilities so it is
expected that a portion of the future liability will be funded by investment
returns. As a result, the Company's funding target over the medium-term is to
cover the ABO, essentially the obligations already earned as of a given
measurement date. Under