UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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(Mark One) |
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the Quarterly Period Ended September 30, 2016March 31, 2017 |
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OR |
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the Transition Period from to |
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Commission file number 1-13045 |
IRON MOUNTAIN INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
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Delaware (State or other Jurisdiction of Incorporation or Organization) | 23-2588479 (I.R.S. Employer Identification No.) |
One Federal Street, Boston, Massachusetts 02110
(Address of Principal Executive Offices, Including Zip Code)
(617) 535-4766
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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| | | | | | | | |
Large accelerated filer ý | | Accelerated filer o | | Non-accelerated filer o (Do(Do not check if a smaller reporting company) | | Smaller reporting company o | | Emerging growth company o |
If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Number of shares of the registrant's Common Stock outstanding at October 28, 2016: 263,447,840April 21, 2017: 264,116,522
IRON MOUNTAIN INCORPORATED
Index
Part I. Financial Information
Item 1. Unaudited Consolidated Financial Statements
IRON MOUNTAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In Thousands, except Share and Per Share Data)
(Unaudited)
| | | December 31, 2015 | | September 30, 2016 | December 31, 2016 | | March 31, 2017 |
ASSETS | |
| | |
| |
| | |
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Current Assets: | |
| | |
| |
| | |
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Cash and cash equivalents | $ | 128,381 |
| | $ | 458,128 |
| $ | 236,484 |
| | $ | 295,628 |
|
Accounts receivable (less allowances of $31,447 and $41,636 as of December 31, 2015 and September 30, 2016, respectively) | 564,401 |
| | 700,238 |
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Deferred income taxes | 22,179 |
| | 11,075 |
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Accounts receivable (less allowances of $44,290 and $40,690 as of December 31, 2016 and March 31, 2017, respectively) | | 691,249 |
| | 721,030 |
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Prepaid expenses and other | 142,951 |
| | 169,988 |
| 184,374 |
| | 181,979 |
|
Assets held for sale (see Note 10) | — |
| | 127,912 |
| |
Total Current Assets | 857,912 |
| | 1,467,341 |
| 1,112,107 |
| | 1,198,637 |
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Property, Plant and Equipment: | |
| | |
| |
| | |
|
Property, plant and equipment | 4,744,236 |
| | 5,574,805 |
| 5,535,783 |
| | 5,662,272 |
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Less—Accumulated depreciation | (2,247,078 | ) | | (2,408,277 | ) | (2,452,457 | ) | | (2,550,532 | ) |
Property, Plant and Equipment, Net | 2,497,158 |
| | 3,166,528 |
| 3,083,326 |
| | 3,111,740 |
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Other Assets, Net: | |
| | |
| |
| | |
|
Goodwill | 2,360,978 |
| | 3,861,810 |
| 3,905,021 |
| | 3,957,058 |
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Customer relationships and customer inducements | 603,314 |
| | 1,306,011 |
| 1,252,523 |
| | 1,276,929 |
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Other | 31,225 |
| | 103,226 |
| 133,823 |
| | 127,770 |
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Total Other Assets, Net | 2,995,517 |
| | 5,271,047 |
| 5,291,367 |
| | 5,361,757 |
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Total Assets | $ | 6,350,587 |
| | $ | 9,904,916 |
| $ | 9,486,800 |
| | $ | 9,672,134 |
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LIABILITIES AND EQUITY | |
| | |
| |
| | |
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Current Liabilities: | |
| | |
| |
| | |
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Current portion of long-term debt | $ | 88,068 |
| | $ | 121,203 |
| $ | 172,975 |
| | $ | 421,227 |
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Accounts payable | 219,590 |
| | 233,971 |
| 222,197 |
| | 239,894 |
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Accrued expenses | 351,061 |
| | 447,413 |
| 450,257 |
| | 533,647 |
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Deferred revenue | 183,112 |
| | 202,171 |
| 201,128 |
| | 223,701 |
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Liabilities held for sale (see Note 10) | — |
| | 19,269 |
| |
Total Current Liabilities | 841,831 |
| | 1,024,027 |
| 1,046,557 |
| | 1,418,469 |
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Long-term Debt, Net of Current Portion | 4,757,610 |
| | 6,338,024 |
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Long-term Debt, net of current portion | | 6,078,206 |
| | 5,922,748 |
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Other Long-term Liabilities | 71,844 |
| | 88,794 |
| 99,540 |
| | 86,583 |
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Deferred Rent | 95,693 |
| | 111,035 |
| 119,834 |
| | 121,938 |
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Deferred Income Taxes | 55,002 |
| | 192,782 |
| 151,295 |
| | 151,314 |
|
Commitments and Contingencies (see Note 8) |
|
| |
|
|
|
| |
|
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Redeemable Noncontrolling Interests | | 54,697 |
| | 67,308 |
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Equity: | |
| | |
| |
| | |
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Iron Mountain Incorporated Stockholders' Equity: | |
| | |
| |
| | |
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Preferred stock (par value $0.01; authorized 10,000,000 shares; none issued and outstanding) | — |
| | — |
| — |
| | — |
|
Common stock (par value $0.01; authorized 400,000,000 shares; issued and outstanding 211,340,296 shares and 263,425,012 shares as of December 31, 2015 and September 30, 2016, respectively) | 2,113 |
| | 2,634 |
| |
Common stock (par value $0.01; authorized 400,000,000 shares; issued and outstanding 263,682,670 shares and 264,110,388 shares as of December 31, 2016 and March 31, 2017, respectively) | | 2,636 |
| | 2,641 |
|
Additional paid-in capital | 1,623,863 |
| | 3,506,913 |
| 3,489,795 |
| | 3,491,936 |
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(Distributions in excess of earnings) Earnings in excess of distributions | (942,218 | ) | | (1,246,408 | ) | (1,343,311 | ) | | (1,430,613 | ) |
Accumulated other comprehensive items, net | (174,917 | ) | | (138,446 | ) | (212,573 | ) | | (161,239 | ) |
Total Iron Mountain Incorporated Stockholders' Equity | 508,841 |
| | 2,124,693 |
| 1,936,547 |
| | 1,902,725 |
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Noncontrolling Interests | 19,766 |
| | 25,561 |
| 124 |
| | 1,049 |
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Total Equity | 528,607 |
| | 2,150,254 |
| 1,936,671 |
| | 1,903,774 |
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Total Liabilities and Equity | $ | 6,350,587 |
| | $ | 9,904,916 |
| $ | 9,486,800 |
| | $ | 9,672,134 |
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The accompanying notes are an integral part of these consolidated financial statements.
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)
| | | Three Months Ended September 30, | Three Months Ended March 31, |
| 2015 | | 2016 | 2016 | | 2017 |
Revenues: | |
| | |
| |
| | |
|
Storage rental | $ | 460,052 |
| | $ | 576,465 |
| $ | 461,211 |
| | $ | 572,279 |
|
Service | 286,477 |
| | 366,357 |
| 289,479 |
| | 366,597 |
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Total Revenues | 746,529 |
| | 942,822 |
| 750,690 |
| | 938,876 |
|
Operating Expenses: | |
| | |
| |
| | |
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Cost of sales (excluding depreciation and amortization) | 317,663 |
| | 429,808 |
| 326,105 |
| | 426,707 |
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Selling, general and administrative | 215,693 |
| | 252,944 |
| 207,766 |
| | 240,166 |
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Depreciation and amortization | 86,492 |
| | 124,670 |
| 87,204 |
| | 124,707 |
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(Gain) Loss on disposal/write-down of property, plant and equipment (excluding real estate), net | (141 | ) | | (54 | ) | (451 | ) | | (459 | ) |
Total Operating Expenses | 619,707 |
| | 807,368 |
| 620,624 |
| | 791,121 |
|
Operating Income (Loss) | 126,822 |
| | 135,454 |
| 130,066 |
| | 147,755 |
|
Interest Expense, Net (includes Interest Income of $1,132 and $2,118 for the three months ended September 30, 2015 and 2016, respectively) | 65,135 |
| | 83,300 |
| |
Other Expense (Income), Net | 35,246 |
| | 23,302 |
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Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes and Gain on Sale of Real Estate | 26,441 |
| | 28,852 |
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Interest Expense, Net (includes Interest Income of $1,287 and $2,293 for the three months ended March 31, 2016 and 2017, respectively) | | 67,062 |
| | 86,055 |
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Other (Income) Expense, Net | | (11,937 | ) | | (6,364 | ) |
Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes | | 74,941 |
| | 68,064 |
|
Provision (Benefit) for Income Taxes | 3,774 |
| | 23,418 |
| 11,900 |
| | 9,220 |
|
Gain on Sale of Real Estate, Net of Tax | (850 | ) | | (325 | ) | |
Income (Loss) from Continuing Operations | 23,517 |
| | 5,759 |
| 63,041 |
| | 58,844 |
|
Income (Loss) from Discontinued Operations, Net of Tax | — |
| | 2,041 |
| |
(Loss) Income from Discontinued Operations, Net of Tax | | — |
| | (337 | ) |
Net Income (Loss) | 23,517 |
| | 7,800 |
| 63,041 |
| | 58,507 |
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Less: Net Income (Loss) Attributable to Noncontrolling Interests | 407 |
| | 720 |
| 267 |
| | 382 |
|
Net Income (Loss) Attributable to Iron Mountain Incorporated | $ | 23,110 |
| | $ | 7,080 |
| $ | 62,774 |
| | $ | 58,125 |
|
Earnings (Losses) per Share—Basic: | |
| | |
| |
| | |
|
Income (Loss) from Continuing Operations | $ | 0.11 |
| | $ | 0.02 |
| $ | 0.30 |
| | $ | 0.22 |
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Total Income (Loss) from Discontinued Operations, Net of Tax | $ | — |
| | $ | 0.01 |
| $ | — |
| | $ | — |
|
Net Income (Loss) Attributable to Iron Mountain Incorporated | $ | 0.11 |
| | $ | 0.03 |
| $ | 0.30 |
| | $ | 0.22 |
|
Earnings (Losses) per Share—Diluted: | |
| | |
| |
| | |
|
Income (Loss) from Continuing Operations | $ | 0.11 |
| | $ | 0.02 |
| $ | 0.30 |
| | $ | 0.22 |
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Total Income (Loss) from Discontinued Operations, Net of Tax | $ | — |
| | $ | 0.01 |
| $ | — |
| | $ | — |
|
Net Income (Loss) Attributable to Iron Mountain Incorporated | $ | 0.11 |
| | $ | 0.03 |
| $ | 0.30 |
| | $ | 0.22 |
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Weighted Average Common Shares Outstanding—Basic | 210,912 |
| | 263,269 |
| 211,526 |
| | 263,855 |
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Weighted Average Common Shares Outstanding—Diluted | 211,917 |
| | 264,502 |
| 212,471 |
| | 264,810 |
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Dividends Declared per Common Share | $ | 0.4751 |
| | $ | 0.4852 |
| $ | 0.4853 |
| | $ | 0.5504 |
|
The accompanying notes are an integral part of these consolidated financial statements.
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2015 | | 2016 |
Revenues: | |
| | |
|
Storage rental | $ | 1,380,133 |
| | $ | 1,576,358 |
|
Service | 875,416 |
| | 1,000,902 |
|
Total Revenues | 2,255,549 |
| | 2,577,260 |
|
Operating Expenses: | | |
|
|
Cost of sales (excluding depreciation and amortization) | 965,600 |
| | 1,151,562 |
|
Selling, general and administrative | 627,992 |
| | 737,787 |
|
Depreciation and amortization | 259,992 |
| | 326,896 |
|
Loss (Gain) on disposal/write-down of property, plant and equipment (excluding real estate), net | 707 |
| | (1,131 | ) |
Total Operating Expenses | 1,854,291 |
| | 2,215,114 |
|
Operating Income (Loss) | 401,258 |
| | 362,146 |
|
Interest Expense, Net (includes Interest Income of $2,777 and $5,549 for the nine months ended September 30, 2015 and 2016, respectively) | 196,120 |
| | 225,228 |
|
Other Expense (Income), Net | 59,599 |
| | 37,006 |
|
Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes and Gain on Sale of Real Estate | 145,539 |
| | 99,912 |
|
Provision (Benefit) for Income Taxes | 27,126 |
| | 46,157 |
|
Gain on Sale of Real Estate, Net of Tax | (850 | ) | | (325 | ) |
Income (Loss) from Continuing Operations | 119,263 |
| | 54,080 |
|
Income (Loss) from Discontinued Operations, Net of Tax | — |
| | 3,628 |
|
Net Income (Loss) | 119,263 |
| | 57,708 |
|
Less: Net Income (Loss) Attributable to Noncontrolling Interests | 1,727 |
| | 1,822 |
|
Net Income (Loss) Attributable to Iron Mountain Incorporated | $ | 117,536 |
| | $ | 55,886 |
|
Earnings (Losses) per Share—Basic: | |
| | |
|
Income (Loss) from Continuing Operations | $ | 0.57 |
| | $ | 0.22 |
|
Total Income (Loss) from Discontinued Operations, Net of Tax | $ | — |
| | $ | 0.02 |
|
Net Income (Loss) Attributable to Iron Mountain Incorporated | $ | 0.56 |
| | $ | 0.23 |
|
Earnings (Losses) per Share—Diluted: | |
| | |
|
Income (Loss) from Continuing Operations | $ | 0.56 |
| | $ | 0.22 |
|
Total Income (Loss) from Discontinued Operations, Net of Tax | $ | — |
| | $ | 0.02 |
|
Net Income (Loss) Attributable to Iron Mountain Incorporated | $ | 0.55 |
| | $ | 0.23 |
|
Weighted Average Common Shares Outstanding—Basic | 210,616 |
| | 240,394 |
|
Weighted Average Common Shares Outstanding—Diluted | 212,081 |
| | 241,520 |
|
Dividends Declared per Common Share | $ | 1.4250 |
| | $ | 1.4886 |
|
The accompanying notes are an integral part of these consolidated financial statements.
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
(Unaudited)
|
| | | | | | | |
| Three Months Ended September 30, |
| 2015 | | 2016 |
Net Income (Loss) | $ | 23,517 |
| | $ | 7,800 |
|
Other Comprehensive (Loss) Income: | |
| | |
|
Foreign Currency Translation Adjustments | (34,594 | ) | | 11,304 |
|
Market Value Adjustments for Securities | (134 | ) | | — |
|
Total Other Comprehensive (Loss) Income | (34,728 | ) | | 11,304 |
|
Comprehensive (Loss) Income | (11,211 | ) | | 19,104 |
|
Comprehensive (Loss) Income Attributable to Noncontrolling Interests | (384 | ) | | 1,181 |
|
Comprehensive (Loss) Income Attributable to Iron Mountain Incorporated | $ | (10,827 | ) | | $ | 17,923 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2017 |
Net Income (Loss) | $ | 63,041 |
| | $ | 58,507 |
|
Other Comprehensive Income (Loss): | |
| | |
|
Foreign Currency Translation Adjustments | 23,978 |
| | 50,784 |
|
Market Value Adjustments for Securities | (734 | ) | | — |
|
Total Other Comprehensive Income (Loss) | 23,244 |
| | 50,784 |
|
Comprehensive Income (Loss) | 86,285 |
| | 109,291 |
|
Comprehensive Income (Loss) Attributable to Noncontrolling Interests | 754 |
| | (168 | ) |
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated | $ | 85,531 |
| | $ | 109,459 |
|
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2015 | | 2016 |
Net Income (Loss) | $ | 119,263 |
| | $ | 57,708 |
|
Other Comprehensive (Loss) Income: | |
| | |
|
Foreign Currency Translation Adjustments | (89,769 | ) | | 38,071 |
|
Market Value Adjustments for Securities | (111 | ) | | (734 | ) |
Total Other Comprehensive (Loss) Income | (89,880 | ) | | 37,337 |
|
Comprehensive Income (Loss) | 29,383 |
| | 95,045 |
|
Comprehensive Income (Loss) Attributable to Noncontrolling Interests | 503 |
| | 2,688 |
|
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated | $ | 28,880 |
| | $ | 92,357 |
|
The accompanying notes are an integral part of these consolidated financial statements.
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY
(In Thousands, except Share Data)
(Unaudited)
| | | | | Iron Mountain Incorporated Stockholders' Equity | | | | | Iron Mountain Incorporated Stockholders' Equity | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Additional Paid-in Capital | | (Distributions in Excess of Earnings) Earnings in Excess of Distributions | | | | Noncontrolling Interests | | | Common Stock | | Additional Paid-in Capital | | (Distributions in Excess of Earnings) Earnings in Excess of Distributions | | | | Noncontrolling Interests | | |
| Total | | Shares | | Amounts | | Accumulated Other Comprehensive Items, Net | Total | | Shares | | Amounts | | Accumulated Other Comprehensive Items, Net | | Redeemable Noncontrolling Interests |
Balance, December 31, 2014 | $ | 869,955 |
| | 209,818,812 |
| | $ | 2,098 |
| | $ | 1,588,841 |
| | $ | (659,553 | ) | | $ | (75,031 | ) | | $ | 13,600 |
| |
Issuance of shares under employee stock purchase plan and option plans and stock-based compensation, including tax benefit of $323 | 24,627 |
| | 1,264,935 |
| | 13 |
| | 24,614 |
| | — |
| | — |
| | — |
| |
Balance, December 31, 2015 | | $ | 528,607 |
| | 211,340,296 |
| | $ | 2,113 |
| | $ | 1,623,863 |
| | $ | (942,218 | ) | | $ | (174,917 | ) | | $ | 19,766 |
| | | $ | — |
|
Issuance of shares under employee stock purchase plan and option plans and stock-based compensation | | 5,114 |
| | 552,458 |
| | 6 |
| | 5,108 |
| | — |
| | — |
| | — |
| | | — |
|
Parent cash dividends declared | (302,658 | ) | | — |
| | — |
| | — |
| | (302,658 | ) | | — |
| | — |
| (103,088 | ) | | — |
| | — |
| | — |
| | (103,088 | ) | | — |
| | — |
| | | — |
|
Foreign currency translation adjustments | (89,769 | ) | | — |
| | — |
| | — |
| | — |
| | (88,545 | ) | | (1,224 | ) | |
Foreign currency translation adjustment | | 23,978 |
| | — |
| | — |
| | — |
| | — |
| | 23,491 |
| | 487 |
| | | — |
|
Market value adjustments for securities | (111 | ) | | — |
| | — |
| | — |
| | — |
| | (111 | ) | | — |
| (734 | ) | | — |
| | — |
| | — |
| | — |
| | (734 | ) | | — |
| | | — |
|
Net income (loss) | 119,263 |
| | — |
| | — |
| | — |
| | 117,536 |
| | — |
| | 1,727 |
| 63,041 |
| | — |
| | — |
| | — |
| | 62,774 |
| | — |
| | 267 |
| | | — |
|
Noncontrolling interests equity contributions | | 1,299 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,299 |
| | | — |
|
Noncontrolling interests dividends | (1,530 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1,530 | ) | (579 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (579 | ) | | | — |
|
Balance, September 30, 2015 | $ | 619,777 |
| | 211,083,747 |
| | $ | 2,111 |
| | $ | 1,613,455 |
| | $ | (844,675 | ) | | $ | (163,687 | ) | | $ | 12,573 |
| |
Purchase of noncontrolling interests | | 3,506 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,506 |
| | | — |
|
Balance, March 31, 2016 | | $ | 521,144 |
| | 211,892,754 |
| | $ | 2,119 |
| | $ | 1,628,971 |
| | $ | (982,532 | ) | | $ | (152,160 | ) | | $ | 24,746 |
| | | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Iron Mountain Incorporated Stockholders' Equity | | |
| | | | | | | | | | | |
| | | Common Stock | | Additional Paid-in Capital | | (Distributions in Excess of Earnings) Earnings in Excess of Distributions | | | | Noncontrolling Interests |
| Total | | Shares | | Amounts | | | | Accumulated Other Comprehensive Items, Net |
Balance, December 31, 2015 | $ | 528,607 |
| | 211,340,296 |
| | $ | 2,113 |
| | $ | 1,623,863 |
| | $ | (942,218 | ) | | $ | (174,917 | ) | | $ | 19,766 |
|
Issuance of shares under employee stock purchase plan and option plans and stock-based compensation, including tax benefit of $91 | 48,545 |
| | 1,851,304 |
| | 19 |
| | 48,526 |
| | — |
| | — |
| | — |
|
Issuance of shares in connection with the acquisition of Recall Holdings Limited (see Note 4) | 1,835,026 |
| | 50,233,412 |
| | 502 |
| | 1,834,524 |
| | — |
| | — |
| | — |
|
Parent cash dividends declared | (360,076 | ) | | — |
| | — |
| | — |
| | (360,076 | ) | | — |
| | — |
|
Foreign currency translation adjustments | 38,071 |
| | — |
| | — |
| | — |
| | — |
| | 37,205 |
| | 866 |
|
Market value adjustments for securities | (734 | ) | | — |
| | — |
| | — |
| | — |
| | (734 | ) | | — |
|
Net income (loss) | 57,708 |
| | — |
| | — |
| | — |
| | 55,886 |
| | — |
| | 1,822 |
|
Noncontrolling interests equity contributions | 1,299 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,299 |
|
Noncontrolling interests dividends | (1,698 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1,698 | ) |
Purchase of noncontrolling interests | 3,506 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,506 |
|
Balance, September 30, 2016 | $ | 2,150,254 |
| | 263,425,012 |
| | $ | 2,634 |
| | $ | 3,506,913 |
| | $ | (1,246,408 | ) | | $ | (138,446 | ) | | $ | 25,561 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Iron Mountain Incorporated Stockholders' Equity | | | | | |
| | | | | | | | | | | | | | |
| | | Common Stock | | Additional Paid-in Capital | | (Distributions in Excess of Earnings) Earnings in Excess of Distributions | | | | Noncontrolling Interests | | | |
| Total | | Shares | | Amounts | | | | Accumulated Other Comprehensive Items, Net | | | Redeemable Noncontrolling Interests |
Balance, December 31, 2016 | $ | 1,936,671 |
| | 263,682,670 |
| | $ | 2,636 |
| | $ | 3,489,795 |
| | $ | (1,343,311 | ) | | $ | (212,573 | ) | | $ | 124 |
| | | $ | 54,697 |
|
Issuance of shares under employee stock purchase plan and option plans and stock-based compensation | 2,453 |
| | 427,718 |
| | 5 |
| | 2,448 |
| | — |
| | — |
| | — |
| | | — |
|
Change in value of redeemable noncontrolling interests | (307 | ) | | — |
| | — |
| | (307 | ) | | — |
| | — |
| | — |
| | | 307 |
|
Parent cash dividends declared | (145,427 | ) | | — |
| | — |
| | — |
| | (145,427 | ) | | — |
| | — |
| | | — |
|
Foreign currency translation adjustment | 51,405 |
| | — |
| | — |
| | — |
| | — |
| | 51,334 |
| | 71 |
| | | (621 | ) |
Net income (loss) | 58,350 |
| | — |
| | — |
| | — |
| | 58,125 |
| | — |
| | 225 |
| | | 157 |
|
Noncontrolling interests equity contributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | | 13,230 |
|
Noncontrolling interests dividends | (214 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (214 | ) | | | (462 | ) |
Purchase of noncontrolling interests | 843 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 843 |
| | | — |
|
Balance, March 31, 2017 | $ | 1,903,774 |
| | 264,110,388 |
| | $ | 2,641 |
| | $ | 3,491,936 |
| | $ | (1,430,613 | ) | | $ | (161,239 | ) | | $ | 1,049 |
| | | $ | 67,308 |
|
The accompanying notes are an integral part of these consolidated financial statements.
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
| | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2015 | | 2016 | 2016 | | 2017 |
Cash Flows from Operating Activities: | |
| | |
| |
| | |
|
Net income (loss) | $ | 119,263 |
| | $ | 57,708 |
| $ | 63,041 |
| | $ | 58,507 |
|
(Income) loss from discontinued operations | — |
| | (3,628 | ) | |
Loss (Income) from discontinued operations | | — |
| | 337 |
|
Adjustments to reconcile net income (loss) to cash flows from operating activities: | |
| | |
| |
| | |
|
Depreciation | 226,497 |
| | 267,280 |
| 75,390 |
| | 99,592 |
|
Amortization (includes deferred financing costs and bond discount of $6,443 and $9,241, for the nine months ended September 30, 2015 and 2016, respectively) | 39,938 |
| | 68,857 |
| |
Amortization (includes amortization of deferred financing costs and discount of $2,749 and $3,907 for the three months ended March 31, 2016 and 2017, respectively) | | 14,563 |
| | 29,022 |
|
Revenue reduction associated with amortization of permanent withdrawal fees | | 2,943 |
| | 3,158 |
|
Stock-based compensation expense | 20,936 |
| | 21,870 |
| 6,885 |
| | 6,549 |
|
(Benefit) Provision for deferred income taxes | (10,317 | ) | | (22,196 | ) | (6,012 | ) | | (7,386 | ) |
Loss on early extinguishment of debt, net | 2,156 |
| | 9,283 |
| |
(Gain) Loss on disposal/write-down of property, plant and equipment, net (including real estate) | (352 | ) | | (1,490 | ) | (451 | ) | | (459 | ) |
Anticipated loss on disposal of assets held for sale | — |
| | 14,000 |
| |
Foreign currency transactions and other, net | 39,006 |
| | 24,006 |
| (11,477 | ) | | (786 | ) |
Changes in Assets and Liabilities (exclusive of acquisitions): | |
| | |
| |
| | |
|
Accounts receivable | 11,096 |
| | (6,996 | ) | (8,151 | ) | | (8,971 | ) |
Prepaid expenses and other | 2,687 |
| | (642 | ) | 30,297 |
| | (24,826 | ) |
Accounts payable | (23,977 | ) | | (39,073 | ) | (30,934 | ) | | 5,869 |
|
Accrued expenses and deferred revenue | (105,538 | ) | | 39,553 |
| (55,494 | ) | | (36,112 | ) |
Other assets and long-term liabilities | (1,300 | ) | | (9,580 | ) | 518 |
| | (2,320 | ) |
Cash Flows from Operating Activities - Continuing Operations | 320,095 |
| | 418,952 |
| 81,118 |
| | 122,174 |
|
Cash Flows from Operating Activities - Discontinued Operations | — |
| | 3,640 |
| — |
| | (337 | ) |
Cash Flows from Operating Activities | 320,095 |
| | 422,592 |
| 81,118 |
| | 121,837 |
|
Cash Flows from Investing Activities: | |
| | |
| |
| | |
|
Capital expenditures | (202,581 | ) | | (246,029 | ) | (80,852 | ) | | (73,202 | ) |
Cash paid for acquisitions, net of cash acquired | (27,975 | ) | | (276,371 | ) | (19,340 | ) | | (12,187 | ) |
Decrease in restricted cash | 33,860 |
| | — |
| |
Acquisition of customer relationships | (20,208 | ) | | (24,756 | ) | (6,132 | ) | | (17,132 | ) |
Customer inducements | (14,955 | ) | | (16,099 | ) | (1,126 | ) | | (4,271 | ) |
Net proceeds from divestments (see Note 10) | — |
| | 53,950 |
| |
Net proceeds from Iron Mountain Divestments (see Note 10) | | — |
| | 2,423 |
|
Proceeds from sales of property and equipment and other, net (including real estate) | 2,032 |
| | 2,197 |
| 169 |
| | 66 |
|
Cash Flows from Investing Activities - Continuing Operations | (229,827 | ) | | (507,108 | ) | (107,281 | ) | | (104,303 | ) |
Cash Flows from Investing Activities - Discontinued Operations | — |
| | (12 | ) | — |
| | — |
|
Cash Flows from Investing Activities | (229,827 | ) | | (507,120 | ) | (107,281 | ) | | (104,303 | ) |
Cash Flows from Financing Activities: | |
| | |
| |
| | |
|
Repayment of revolving credit, term loan and bridge facilities and other debt | (8,539,577 | ) | | (11,560,385 | ) | |
Proceeds from revolving credit, term loan and bridge facilities and other debt | 8,142,443 |
| | 11,427,389 |
| |
Net proceeds from sales of senior notes | 985,000 |
| | 925,443 |
| |
Repayment of revolving credit and term loan facilities and other debt | | (2,384,215 | ) | | (2,682,348 | ) |
Proceeds from revolving credit and term loan facilities and other debt | | 2,509,845 |
| | 2,714,783 |
|
Debt financing and equity contribution from noncontrolling interests | — |
| | 1,299 |
| 1,299 |
| | 13,230 |
|
Debt repayment and equity distribution to noncontrolling interests | (1,260 | ) | | (1,305 | ) | (414 | ) | | (2,562 | ) |
Parent cash dividends | (303,712 | ) | | (360,462 | ) | (104,931 | ) | | (2,060 | ) |
Net proceeds (payments) associated with employee stock-based awards | 13,988 |
| | 26,374 |
| |
Excess tax benefit (deficiency) from stock-based compensation | 323 |
| | 91 |
| |
Net (payments) proceeds associated with employee stock-based awards | | (1,975 | ) | | (4,308 | ) |
Excess tax (deficiency) benefits from stock-based compensation | | (348 | ) | | — |
|
Payment of debt financing and stock issuance costs | (11,665 | ) | | (17,107 | ) | — |
| | (73 | ) |
Cash Flows from Financing Activities - Continuing Operations | 285,540 |
| | 441,337 |
| 19,261 |
| | 36,662 |
|
Cash Flows from Financing Activities - Discontinued Operations | — |
| | — |
| — |
| | — |
|
Cash Flows from Financing Activities | 285,540 |
| | 441,337 |
| 19,261 |
| | 36,662 |
|
Effect of Exchange Rates on Cash and Cash Equivalents | (8,842 | ) | | (27,062 | ) | (3,534 | ) | | 4,948 |
|
Increase (Decrease) in Cash and Cash Equivalents | 366,966 |
| | 329,747 |
| |
(Decrease) Increase in Cash and Cash Equivalents | | (10,436 | ) | | 59,144 |
|
Cash and Cash Equivalents, Beginning of Period | 125,933 |
| | 128,381 |
| 128,381 |
| | 236,484 |
|
Cash and Cash Equivalents, End of Period | $ | 492,899 |
| | $ | 458,128 |
| $ | 117,945 |
| | $ | 295,628 |
|
Supplemental Information: | |
| | |
| |
| | |
|
Cash Paid for Interest | $ | 218,863 |
| | $ | 226,770 |
| $ | 83,942 |
| | $ | 99,022 |
|
Cash Paid for Income Taxes, Net | $ | 33,411 |
| | $ | 49,776 |
| |
(Refund Received) Cash Paid for Income Taxes, Net | | $ | (3,211 | ) | | $ | 30,422 |
|
Non-Cash Investing and Financing Activities: | |
| | |
| |
| | |
|
Capital Leases | $ | 28,598 |
| | $ | 45,997 |
| $ | 18,005 |
| | $ | 24,395 |
|
Accrued Capital Expenditures | $ | 29,626 |
| | $ | 47,900 |
| $ | 42,205 |
| | $ | 63,655 |
|
Dividends Payable | $ | 5,123 |
| | $ | 5,193 |
| $ | 3,736 |
| | $ | 148,992 |
|
Fair Value of Stock Issued for Recall Transaction (see Note 4) | $ | — |
| | $ | 1,835,026 |
| |
The accompanying notes are an integral part of these consolidated financial statements.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(1) General
The interim consolidated financial statements are presented herein and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair presentation. Interim results are not necessarily indicative of results for a full year. Iron Mountain Incorporated, a Delaware corporation ("IMI"), and its subsidiaries ("we" or "us") store records, primarily physical records and data backup media, and provide information management services in various locations throughout North America, Europe, Latin America, Asia Pacific and Africa. We have a diversified customer base consisting of commercial, legal, banking,financial, healthcare, accounting, insurance, life sciences, energy, business services, entertainment and government organizations.
The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to those rules and regulations, but we believe that the disclosures included herein are adequate to make the information presented not misleading. The Consolidated Financial Statements and Notes thereto, which are included herein, should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended December 31, 20152016 included in our Annual Report on Form 10-K filed with the SEC on February 26, 201623, 2017 (our "Annual Report").
We have been organized and have operatedoperating as a real estate investment trust for United States federal income tax purposes ("REIT") effective for our taxable year beginning January 1, 2014.
On May 2, 2016 (Sydney, Australia time), we completed the acquisition of Recall Holdings Limited ("Recall") pursuant to the Scheme Implementation Deed, as amended, with Recall (the "Recall Transaction"). At the closing of the Recall Transaction, we paid approximately $331,800 and issued 50,233,412 shares of our common stock which, based on the closing price of our common stock as of April 29, 2016 (the last day of trading on the New York Stock Exchange ("NYSE") prior to the closing of the Recall Transaction) of $36.53 per share, resulted in a total purchase price to Recall shareholders of approximately $2,166,900. See Note 4.
(2) Summary of Significant Accounting Policies
This Note 2 to Notes to Consolidated Financial Statements provides information and disclosure regarding certain of our significant accounting policies and should be read in conjunction with Note 2 to Notes to Consolidated Financial Statements included in our Annual Report, which may provide additional information with regard to the accounting policies set forth herein and other of our significant accounting policies.
a. Foreign Currency
Local currencies are the functional currencies for our operations outside the United States, with the exception of certain foreign holding companies and our financing centers in Europe, whose functional currency is the United States dollar. In those instances where the local currency is the functional currency, assets and liabilities are translated at period-end exchange rates, and revenues and expenses are translated at average exchange rates for the applicable period. Resulting translation adjustments are reflected in the accumulated other comprehensive items, net component of Iron Mountain Incorporated Stockholders' Equity, Redeemable Noncontrolling Interests and Noncontrolling Interests in the accompanying Consolidated Balance Sheets. The gain or loss on foreign currency transactions, calculated as the difference between the historical exchange rate and the exchange rate at the applicable measurement date, including those related to (1) our previously outstanding 63/4% Euro Senior Subordinated Notes due 2018 (the "63/4% Notes"), (2)(i) borrowings in certain foreign currencies under our Revolving Credit Facility (as defined in Note 5) and (3)(ii) certain foreign currency denominated intercompany obligations of our foreign subsidiaries to us and between our foreign subsidiaries, which are not considered permanently invested, are included in Other (Income) Expense, (Income), Net, in the accompanying Consolidated Statements of Operations.
Total (gain) loss on foreign currency transactions for the three months ended March 31, 2016 and 2017 is as follows:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2017 |
Total (gain) loss on foreign currency transactions | $ | (12,542 | ) | | $ | (4,164 | ) |
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
Total loss on foreign currency transactions for the three and nine months ended September 30, 2015 and 2016 is as follows:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | |
| 2015 | | 2016 | | 2015 | | 2016 | |
Total loss on foreign currency transactions | $ | 32,539 |
| | $ | 10,685 |
| | $ | 56,461 |
| | $ | 15,336 |
| |
b. Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangible assets
Goodwill is not amortized but is reviewed annually for impairment, or more frequently if impairment indicators arise. We have selected October 1 as our annual goodwill impairment review date. We performed our most recent annual goodwill impairment review as of October 1, 20152016 and concluded there was no impairment of goodwill at such date. As of December 31, 2015,2016 and March 31, 2017, no factors were identified that would alter our October 1, 20152016 goodwill analysis. While several of our reporting units were impacted by our acquisition of Recall, no factors were identified as of September 30, 2016 that would indicate an impairment of goodwill.analysis. In making this assessment, we considered a number of factors including operating results, business plans, anticipated future cash flows, transactions and marketplace data. There are inherent uncertainties related to these factors and our judgment in applying them to the analysis of goodwill impairment. When changes occur in the composition of one or more reporting units, the goodwill is reassigned to the reporting units affected based on their relative fair values.
Refer to our Annual Report for information regarding the composition of ourOur reporting units as of December 31, 2015. The carrying value of goodwill, net for each of our reporting units as of December 31, 2015 was as follows:
|
| | | |
| Carrying Value as of December 31, 2015 |
North American Records and Information Management(1) | $ | 1,342,723 |
|
North American Secure Shredding(1) | 73,021 |
|
North American Data Management(2) | 369,907 |
|
Adjacent Businesses - Data Centers(3) | — |
|
Adjacent Businesses - Consumer Storage(3) | 4,636 |
|
Adjacent Businesses - Fine Arts(3) | 21,550 |
|
UKI(4) | 260,202 |
|
Continental Western Europe(4) | 63,442 |
|
Emerging Markets - Europe(5) | 87,378 |
|
Latin America(5) | 78,537 |
|
Australia(5) | 47,786 |
|
Southeast Asia(5) | 5,683 |
|
India(5) | 6,113 |
|
Total | $ | 2,360,978 |
|
| |
(1) | This reporting unit is included in the North American Records and Information Management Business segment. |
| |
(2) | This reporting unit is included in the North American Data Management Business segment. |
| |
(3) | This reporting unit is included in the Corporate and Other Business segment. |
| |
(4) | This reporting unit is included in the Western European Business segment. |
| |
(5) | This reporting unit is included in the Other International Business segment. |
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
In the third quarter of 2016 as a result of changesare described in the management of our businessesdetail in Note 2.h. to Notes to Consolidated Financial Statements included in our Western European Business segment, we reassessedAnnual Report. During the first three months of 2017, there were no changes to the composition of our reporting units. As a result of this reassessment, we determined that the businesses included in our former UKI reporting unit were now being managed in conjunction with the businesses included in our former Continental Western Europe reporting unit. As a result, as of September 30, 2016, we have concluded that our Western European Business segment consists of one reporting unit, which is referred to herein as the Western Europe reporting unit.
The acquisition of Recall, which is more fully disclosed in Note 4, impacted our reporting units as of September 30, 2016 as follows:
North American Records and Information Management - includes the goodwill associated with acquisitions completed during the records and information management businessesfirst three months of Recall in the United States and Canada.
North American Secure Shredding - includes the goodwill associated with the secure shredding businesses of Recall in the United States and Canada.
North American Data Management - includes the goodwill associated with the data management businesses of Recall in the United States and Canada.
Western Europe - includes the goodwill associated with the operations of Recall in Belgium, France, Germany, Spain, Switzerland and the United Kingdom as well as the goodwill associated with the document management solutions (“DMS”) operations of Recall in Sweden.
Northern and Eastern Europe - this reporting unit consists of our former Emerging Markets - Europe reporting unit (as2017 (which are described in our Annual Report), and includes the goodwill associated with the operations of Recall in Denmark, Finland and Norway, as well as the goodwill associated with the records and information management operations of Recall in Sweden. This reporting unit is included in the Other International Business segment.
Latin America - includes the goodwill associated with the operations of Recall in Brazil and Mexico.
Australia and New Zealand - this reporting unit consists of the goodwill associated with the Australia Retained Business (as defined in Note 4), which was a component of has been incorporated into our former Australiaexisting reporting unit, as well as the operations of Recall in Australia and New Zealand. This reporting unit is included in the Other International Business segment.
Southeast Asia - includes the goodwill associated with the operations of Recall in China, Hong Kong, Malaysia, Singapore, Taiwan and Thailand.
Africa and India - includes the goodwill associated with the operations of Recall in India.units.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
The carrying value of goodwill, net for each of our reporting units as of September 30, 2016 is as follows:
|
| | | |
| Carrying Value as of September 30, 2016 |
North American Records and Information Management | $ | 2,058,150 |
|
North American Secure Shredding | 148,905 |
|
North American Data Management | 499,644 |
|
Adjacent Businesses - Data Centers | — |
|
Adjacent Businesses - Consumer Storage | 4,636 |
|
Adjacent Businesses - Fine Arts | 22,911 |
|
Western Europe | 454,531 |
|
Northern and Eastern Europe(1) | 142,285 |
|
Latin America | 180,664 |
|
Australia and New Zealand | 152,387 |
|
Southeast Asia | 177,512 |
|
Africa and India(2) | 20,185 |
|
Total | $ | 3,861,810 |
|
(1) Included in this reporting unit at September 30, 2016 is the goodwill associated with our March 2016 acquisition of Archyvu Sistemos as more fully disclosed in Note 4.
(2) Included in this reporting unit at September 30, 2016 is the goodwill associated with our March 2016 acquisition of Docufile Holdings Proprietary Limited as more fully disclosed in Note 4.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
The changes in the carrying value of goodwill attributable to each reportable operating segment for the ninethree months ended September 30, 2016March 31, 2017 are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| North American Records and Information Management Business | | North American Data Management Business | | Western European Business | | Other International Business | | Corporate and Other Business | | Total Consolidated |
Gross Balance as of December 31, 2015 | $ | 1,620,425 |
| | $ | 423,606 |
| | $ | 381,149 |
| | $ | 225,626 |
| | $ | 26,186 |
| | $ | 2,676,992 |
|
Deductible goodwill acquired during the year | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Non-deductible goodwill acquired during the year | 790,250 |
| | 128,669 |
| | 161,005 |
| | 474,576 |
| | 215 |
| | 1,554,715 |
|
Goodwill reclassified as assets held for sale (see Note 10) | (3,332 | ) | | — |
| | — |
| | (40,089 | ) | | — |
| | (43,421 | ) |
Fair value and other adjustments(1) | (157 | ) | | — |
| | — |
| | (486 | ) | | 1,146 |
| | 503 |
|
Currency effects | 4,921 |
| | 1,161 |
| | (30,939 | ) | | 13,462 |
| | — |
| | (11,395 | ) |
Gross Balance as of September 30, 2016 | $ | 2,412,107 |
| | $ | 553,436 |
| | $ | 511,215 |
| | $ | 673,089 |
| | $ | 27,547 |
| | $ | 4,177,394 |
|
Accumulated Amortization Balance as of December 31, 2015 | $ | 204,681 |
| | $ | 53,699 |
| | $ | 57,505 |
| | $ | 129 |
| | $ | — |
| | $ | 316,014 |
|
Currency effects | 371 |
| | 93 |
| | (821 | ) | | (73 | ) | | — |
| | (430 | ) |
Accumulated Amortization Balance as of September 30, 2016 | $ | 205,052 |
| | $ | 53,792 |
| | $ | 56,684 |
| | $ | 56 |
| | $ | — |
| | $ | 315,584 |
|
Net Balance as of December 31, 2015 | $ | 1,415,744 |
| | $ | 369,907 |
| | $ | 323,644 |
| | $ | 225,497 |
| | $ | 26,186 |
| | $ | 2,360,978 |
|
Net Balance as of September 30, 2016 | $ | 2,207,055 |
| | $ | 499,644 |
| | $ | 454,531 |
| | $ | 673,033 |
| | $ | 27,547 |
| | $ | 3,861,810 |
|
Accumulated Goodwill Impairment Balance as of December 31, 2015 | $ | 85,909 |
| | $ | — |
| | $ | 46,500 |
| | $ | — |
| | $ | — |
| | $ | 132,409 |
|
Accumulated Goodwill Impairment Balance as of September 30, 2016 | $ | 85,909 |
| | $ | — |
| | $ | 46,500 |
| | $ | — |
| | $ | — |
| | $ | 132,409 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| North American Records and Information Management Business | | North American Data Management Business | | Western European Business | | Other International Business | | Corporate and Other Business | | Total Consolidated |
Gross Balance as of December 31, 2016 | $ | 2,485,806 |
| | $ | 559,443 |
| | $ | 405,571 |
| | $ | 743,126 |
| | $ | 25,922 |
| | $ | 4,219,868 |
|
Deductible goodwill acquired during the year | 672 |
| | — |
| | — |
| | 387 |
| | 717 |
| | 1,776 |
|
Non-deductible goodwill acquired during the year | — |
| | — |
| | — |
| | 4,311 |
| | — |
| | 4,311 |
|
Fair value and other adjustments(1) | 5,548 |
| | 525 |
| | 2,818 |
| | 2,802 |
| | — |
| | 11,693 |
|
Currency effects | 1,569 |
| | 448 |
| | 4,649 |
| | 27,801 |
| | — |
| | 34,467 |
|
Gross Balance as of March 31, 2017 | $ | 2,493,595 |
| | $ | 560,416 |
| | $ | 413,038 |
| | $ | 778,427 |
| | $ | 26,639 |
| | $ | 4,272,115 |
|
Accumulated Amortization Balance as of December 31, 2016 | $ | 204,895 |
| | $ | 53,753 |
| | $ | 56,150 |
| | $ | 49 |
| | $ | — |
| | $ | 314,847 |
|
Currency effects | 58 |
| | 15 |
| | 125 |
| | 12 |
| | — |
| | 210 |
|
Accumulated Amortization Balance as of March 31, 2017 | $ | 204,953 |
| | $ | 53,768 |
| | $ | 56,275 |
| | $ | 61 |
| | $ | — |
| | $ | 315,057 |
|
Net Balance as of December 31, 2016 | $ | 2,280,911 |
| | $ | 505,690 |
| | $ | 349,421 |
| | $ | 743,077 |
| | $ | 25,922 |
| | $ | 3,905,021 |
|
Net Balance as of March 31, 2017 | $ | 2,288,642 |
| | $ | 506,648 |
| | $ | 356,763 |
| | $ | 778,366 |
| | $ | 26,639 |
| | $ | 3,957,058 |
|
Accumulated Goodwill Impairment Balance as of December 31, 2016 | $ | 85,909 |
| | $ | — |
| | $ | 46,500 |
| | $ | — |
| | $ | — |
| | $ | 132,409 |
|
Accumulated Goodwill Impairment Balance as of March 31, 2017 | $ | 85,909 |
| | $ | — |
| | $ | 46,500 |
| | $ | — |
| | $ | — |
| | $ | 132,409 |
|
| |
(1) | Total fair value and other adjustments primarily include $11,693 in net adjustments of $685primarily related to property, plant and equipment and customer relationship intangible assets partially offset by $182 of cash received related(which represent adjustments within the applicable measurement period to certain acquisitions completedprovisional amounts recognized in 2015.purchase accounting). |
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
Finite-lived intangible assets
Customer relationship intangible assets, which are acquired through either business combinations or acquisitions of customer relationships, are amortized over periods ranging from 10eight to 30 years.years and are included in depreciation and amortization in the accompanying Consolidated Statements of Operations. The value of customer relationship intangible assets is calculated based upon estimates of their fair value utilizing an income approach based on the present value of expected future cash flows.
Costs related to the acquisition of large volume accounts are capitalized. Free intake costs to transport boxes to one of our facilities, which include labor and transportation chargescosts ("Move Costs"), are amortized over periods ranging from oneeight to 30 years and are included in depreciation and amortization in the accompanying Consolidated Statements of Operations. Payments that are made to a customer's current records management vendor in order to terminate the customer's existing contract with that vendor, or direct payments to a customer ("Permanent Withdrawal Fees"), are amortized over periods ranging from onethree to 15 years and are included in storage and service revenue in the accompanying Consolidated Statements of Operations. Move Costs and Permanent Withdrawal Fees are collectively referred to as "Customer Inducements". If the customer terminates its relationship with us, the unamortized carrying value of the Customer Inducement intangible asset is charged to expense or revenue. However, in the event of such termination, we generally collect, and record as income, permanent removal fees that generally equal or exceed the amount of the unamortized Customer Inducement intangible asset.
Other finite-lived intangible assets, including trade names, noncompetition agreements and trademarks, are capitalized and amortized over periods ranging from fivethree to 10 years.years and are included in depreciation and amortization in the accompanying Consolidated Statements of Operations.
The components of our finite-lived intangible assets as of December 31, 20152016 and September 30, 2016March 31, 2017 are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2015 | | September 30, 2016 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer relationship intangible assets and Customer Inducements | $ | 937,174 |
| | $ | (333,860 | ) | | $ | 603,314 |
| | $ | 1,684,891 |
| | $ | (378,880 | ) | | $ | 1,306,011 |
|
Core Technology(1) | 3,370 |
| | (3,370 | ) | | — |
| | 1,625 |
| | (1,625 | ) | | — |
|
Trademarks and Non-Compete Agreements(1) | 7,741 |
| | (4,955 | ) | | 2,786 |
| | 24,448 |
| | (6,985 | ) | | 17,463 |
|
Total | $ | 948,285 |
| | $ | (342,185 | ) | | $ | 606,100 |
| | $ | 1,710,964 |
| | $ | (387,490 | ) | | $ | 1,323,474 |
|
| |
(1) | Included in Other, a component of Other Assets, Net in the accompanying Consolidated Balance Sheets. |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 | | March 31, 2017 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer relationship intangible assets and Customer Inducements | $ | 1,604,020 |
| | $ | (351,497 | ) | | $ | 1,252,523 |
| | $ | 1,650,854 |
| | $ | (373,925 | ) | | $ | 1,276,929 |
|
Other finite-lived intangible assets (included in other assets, net) | 24,788 |
| | (7,989 | ) | | 16,799 |
| | 24,225 |
| | (10,478 | ) | | 13,747 |
|
Total | $ | 1,628,808 |
| | $ | (359,486 | ) | | $ | 1,269,322 |
| | $ | 1,675,079 |
| | $ | (384,403 | ) | | $ | 1,290,676 |
|
Amortization expense associated with finite-lived intangible assets and deferred financing costsrevenue reduction associated with the amortization of Permanent Withdrawal Fees for the three and nine months ended September 30, 2015March 31, 2016 and 2016 is2017 are as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2016 | | 2015 | | 2016 |
Amortization expense associated with finite-lived intangible assets and deferred financing costs | $ | 13,094 |
| | $ | 29,899 |
| | $ | 39,939 |
| | $ | 68,857 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2017 |
Amortization expense associated with finite-lived intangible assets | $ | 11,814 |
| | $ | 25,115 |
|
Revenue reduction associated with amortization of Permanent Withdrawal Fees | 2,943 |
| | 3,158 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
c. Stock-Based Compensation
We record stock-based compensation expense, utilizing the straight-line method, for the cost of stock options, restricted stock units ("RSUs"), performance units ("PUs") and shares of stock issued under our employee stock purchase plan ("ESPP") (together, "Employee Stock-Based Awards").
Stock-based compensation expense for Employee Stock-Based Awards included in the accompanying Consolidated Statements of Operations for the three and nine months ended September 30, 2015March 31, 2016 and 2017 was $6,159$6,885 ($4,5024,914 after tax or $0.02 per basic and diluted share) and $20,936$6,549 ($14,9154,585 after tax or $0.07 per basic and diluted share), respectively. Stock-based compensation expense for Employee Stock-Based Awards for the three and nine months ended September 30, 2016 was $5,957 ($4,245 after tax or $0.02 per basic and diluted share) and $21,870 ($16,170 after tax or $0.07 per basic and diluted share), respectively.
Stock-based compensation expense for Employee Stock-Based Awards included in the accompanying Consolidated Statements of Operations is as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2015 | | 2016 | | 2015 | | 2016 | 2016 | | 2017 |
Cost of sales (excluding depreciation and amortization) | $ | 65 |
| | $ | 28 |
| | $ | 156 |
| | $ | 80 |
| $ | 27 |
| | $ | 28 |
|
Selling, general and administrative expenses | 6,094 |
| | 5,929 |
| | 20,780 |
| | 21,790 |
| 6,858 |
| | 6,521 |
|
Total stock-based compensation | $ | 6,159 |
| | $ | 5,957 |
| | $ | 20,936 |
| | $ | 21,870 |
| $ | 6,885 |
| | $ | 6,549 |
|
The benefits associated with the tax deductions in excess of recognized compensation cost are required to be reported as financing activities in the accompanying Consolidated Statements of Cash Flows. This requirement impacts reported operating cash flows and reported financing cash flows. As a result, net financing cash flows included $323 and $91 for the nine months ended September 30, 2015 and 2016, respectively, from the benefit of tax deductions compared to recognized compensation cost. The tax benefit of any resulting excess tax deduction increases the Additional Paid-in Capital ("APIC") pool. Any resulting tax deficiency is deducted from the APIC pool.
Stock Options
A summary of our stock options outstanding as of September 30, 2016March 31, 2017 by vesting terms is as follows:
|
| | | | | |
| September 30, 2016 |
| Stock Options Outstanding | | % of Stock Options Outstanding |
Three-year vesting period (10 year contractual life) | 2,826,698 |
| | 76.3 | % |
Five-year vesting period (10 year contractual life) | 622,057 |
| | 16.8 | % |
Ten-year vesting period (12 year contractual life) | 255,255 |
| | 6.9 | % |
| 3,704,010 |
| | |
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
|
| | | | | |
| March 31, 2017 |
| Stock Options Outstanding | | % of Stock Options Outstanding |
Three-year vesting period (10 year contractual life) | 3,597,671 |
| | 83.4 | % |
Five-year vesting period (10 year contractual life) | 626,204 |
| | 14.5 | % |
Ten-year vesting period (12 year contractual life) | 90,754 |
| | 2.1 | % |
| 4,314,629 |
| | 100.0 | % |
The weighted average fair value of stock options granted for the ninethree months ended September 30, 2015March 31, 2016 and 20162017 was $4.88$2.49 and $2.55$4.26 per share, respectively. These values were estimated on the date of grant using the Black-Scholes stock option pricing model. The weighted average assumptions used for grants in the respective periodperiods are as follows:
| | | | Nine Months Ended September 30, | | Three Months Ended March 31, |
Weighted Average Assumptions | | 2015 | | 2016 | | 2016 | | 2017 |
Expected volatility | | 28.4 | % | | 27.2 | % | | 27.2 | % | | 25.8 | % |
Risk-free interest rate | | 1.70 | % | | 1.32 | % | | 1.32 | % | | 1.96 | % |
Expected dividend yield | | 5 | % | | 7 | % | | 7 | % | | 6 | % |
Expected life | | 5.5 years |
| | 5.6 years |
| | 5.6 years |
| | 5.0 years |
|
Expected volatility is calculated utilizing daily historical volatility over a period that equates to the expected life of the stock option. The risk-free interest rate was based on the United States Treasury interest rates whose term is consistent with the expected life (estimated period of time outstanding) of the stock options. Expected dividend yield is considered in the stock option pricing model and represents our current annualized expected per share dividends over the current trade price of our common stock. The expected life of the stock options granted is estimated using the historical exercise behavior of employees.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
A summary of stock option activity for the ninethree months ended September 30, 2016March 31, 2017 is as follows:
| | | Stock Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Average Intrinsic Value | Stock Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Average Intrinsic Value |
Outstanding at December 31, 2015 | 3,688,814 |
| | $ | 27.79 |
| | | | |
| |
Outstanding at December 31, 2016 | | 3,451,698 |
| | $ | 31.79 |
| | | | |
|
Granted | 1,435,879 |
| | 34.02 |
| | | | |
| 1,007,224 |
| | 36.89 |
| | | | |
|
Exercised | (1,373,290 | ) | | 24.12 |
| | | | |
| (136,739 | ) | | 22.24 |
| | | | |
|
Forfeited | (35,927 | ) | | 32.43 |
| | | | |
| (5,773 | ) | | 28.21 |
| | | | |
|
Expired | (11,466 | ) | | 30.50 |
| | | | |
| (1,781 | ) | | 38.83 |
| | | | |
|
Outstanding at September 30, 2016 | 3,704,010 |
| | $ | 31.51 |
| | 7.08 | | $ | 26,628 |
| |
Options exercisable at September 30, 2016 | 1,553,980 |
| | $ | 26.08 |
| | 4.54 | | $ | 19,208 |
| |
Outstanding at March 31, 2017 | | 4,314,629 |
| | $ | 33.29 |
| | 7.57 | | $ | 17,780 |
|
Options exercisable at March 31, 2017 | | 2,126,229 |
| | $ | 30.09 |
| | 5.84 | | $ | 15,685 |
|
Options expected to vest | 2,025,402 |
| | $ | 35.44 |
| | 8.91 | | $ | 7,020 |
| 2,022,212 |
| | $ | 36.41 |
| | 9.24 | | $ | 1,955 |
|
The aggregate intrinsic value of stock options exercised for the three and nine months ended September 30, 2015March 31, 2016 and 20162017 is as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2016 | | 2015 | | 2016 |
Aggregate intrinsic value of stock options exercised | $ | 1,985 |
| | $ | 5,433 |
| | $ | 7,868 |
| | $ | 16,792 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2017 |
Aggregate intrinsic value of stock options exercised | $ | 1,433 |
| | $ | 1,912 |
|
Restricted Stock Units
Under our various equity compensation plans, we may also grant RSUs. Our RSUs generally have a vesting period of between three and five years from the date of grant. However, RSUs granted to our non-employee directors in 2015 and thereafter vest immediately upon grant.
All RSUs accrue dividend equivalents associated with the underlying stock as we declare dividends. Dividends will generally be paid to holders of RSUs in cash upon the vesting date of the associated RSU and will be forfeited if the RSU does not vest. The fair value of RSUs is the excess of the market price of our common stock at the date of grant over the purchase price (which is typically zero).
Cash dividends accrued and paid on RSUs for the three months ended March 31, 2016 and 2017 are as follows:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2017 |
Cash dividends accrued on RSUs | $ | 631 |
| | $ | 683 |
|
Cash dividends paid on RSUs | 1,635 |
| | 1,855 |
|
The fair value of RSUs vested during the three months ended March 31, 2016 and 2017 is as follows:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2017 |
Fair value of RSUs vested | $ | 14,978 |
| | $ | 14,026 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
Cash dividends accrued and paid on RSUs for the three and nine months ended September 30, 2015 and 2016 are as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2016 | | 2015 | | 2016 |
Cash dividends accrued on RSUs | $ | 616 |
| | $ | 620 |
| | $ | 1,917 |
| | $ | 1,867 |
|
Cash dividends paid on RSUs | 270 |
| | 129 |
| | 2,570 |
| | 1,960 |
|
The fair value of RSUs vested during the three and nine months ended September 30, 2015 and 2016 is as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2016 | | 2015 | | 2016 |
Fair value of RSUs vested | $ | 2,377 |
| | $ | 1,486 |
| | $ | 21,561 |
| | $ | 19,271 |
|
A summary of RSU activity for the ninethree months ended September 30, 2016March 31, 2017 is as follows:
| | | RSUs | | Weighted- Average Grant-Date Fair Value | RSUs | | Weighted- Average Grant-Date Fair Value |
Non-vested at December 31, 2015 | 1,217,597 |
| | $ | 33.68 |
| |
Non-vested at December 31, 2016 | | 1,163,393 |
| | $ | 33.21 |
|
Granted | 671,385 |
| | 32.36 |
| 525,328 |
| | 36.90 |
|
Vested | (575,875 | ) | | 33.47 |
| (438,091 | ) | | 32.02 |
|
Forfeited | (59,627 | ) | | 33.74 |
| (11,597 | ) | | 34.65 |
|
Non-vested at September 30, 2016 | 1,253,480 |
| | $ | 33.07 |
| |
Non-vested at March 31, 2017 | | 1,239,033 |
| | $ | 35.18 |
|
Performance Units
Under our various equity compensation plans, we may also make awards of PUs. For the majority of outstanding PUs, the number of PUs earned is determined based on our performance against predefined targets of revenue and return on invested capital ("ROIC"). The number of PUs earned may range from 0% to 200% of the initial award. The number of PUs earned is determined based on our actual performance as compared to the targets at the end of a three-year performance period. Certain PUs that we grant will be earned based on a market condition associated with the total return on our common stock in relation to either (i) a subset of the Standard & Poor's 500 Index (for certain PUs granted prior to 2017), or (ii) a subset of the MSCI United States REIT Index (for certain PUs granted in 2017), rather than the revenue and ROIC targets noted above. The number of PUs earned based on thisthe applicable market condition may range from 0% to 200% of the initial award.
All of our PUs will be settled in shares of our common stock and are subject to cliff vesting three years from the date of the original PU grant. PUs awarded to employees who terminate their employment during the three-year performance period and on or after attaining age 55 and completing 10 years of qualifying service are eligible for pro-rated vesting, subject to the actual achievement against the predefined targets or a market condition as discussed above, based on the number of full years of service completed following the grant date (but delivery of the shares remains deferred). As a result, PUs are generally expensed over the three-year performance period.
All PUs accrue dividend equivalents associated with the underlying stock as we declare dividends. Dividends will generally be paid to holders of PUs in cash upon the settlement date of the associated PU and will be forfeited if the PU does not vest.
Cash dividends accrued and paid on PUs for the three months ended March 31, 2016 and 2017 are as follows:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2017 |
Cash dividends accrued on PUs | $ | 262 |
| | $ | 324 |
|
Cash dividends paid on PUs | 645 |
| | 205 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
Cash dividends accrued and paid on PUs forDuring the three and nine months ended September 30, 2015 and 2016 are as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2016 | | 2015 | | 2016 |
Cash dividends accrued on PUs | $ | 222 |
| | $ | 264 |
| | $ | 647 |
| | $ | 789 |
|
Cash dividends paid on PUs | — |
| | — |
| | 1,015 |
| | 645 |
|
During the nine months ended September 30, 2016,March 31, 2017, we issued 230,052229,692 PUs. The majority of our PUs are earned based on our performance against revenue and ROIC targets during their applicable performance period; therefore, we forecast the likelihood of achieving the predefined revenue and ROIC targets in order to calculate the expected PUs to be earned. We record a compensation charge based on either the forecasted PUs to be earned (during the performance period) or the actual PUs earned (at the three-year anniversary of the grant date) over the vesting period for each of the awards. The fair value of PUs based on our performance against revenue and ROIC targets is the excess of the market price of our common stock at the date of grant over the purchase price (which is typically zero). For PUs earned based on a market condition, we utilize a Monte Carlo simulation to fair value these awards at the date of grant, and such fair value is expensed over the three-year performance period. As of September 30, 2016,March 31, 2017, we expected 0%25%, 50%100% and 100% achievement of the predefined revenue and ROIC targets associated with the awards of PUs made in 2014, 2015, 2016 and 2016,2017, respectively.
The fair value of earned PUs that vested during the three and nine months ended September 30, 2015March 31, 2016 and 20162017 is as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2016 | | 2015 | | 2016 |
Fair value of earned PUs that vested | $ | — |
| | $ | 17 |
| | $ | 2,107 |
| | $ | 5,272 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2017 |
Fair value of earned PUs that vested | $ | 4,081 |
| | $ | 905 |
|
A summary of PU activity for the ninethree months ended September 30, 2016March 31, 2017 is as follows:
| | | Original PU Awards | | PU Adjustment(1) | | Total PU Awards | | Weighted- Average Grant-Date Fair Value | Original PU Awards | | PU Adjustment(1) | | Total PU Awards | | Weighted- Average Grant-Date Fair Value |
Non-vested at December 31, 2015 | 520,764 |
| | (86,959 | ) | | 433,805 |
| | $ | 34.11 |
| |
Non-vested at December 31, 2016 | | 559,340 |
| | (121,038 | ) | | 438,302 |
| | $ | 33.67 |
|
Granted | 230,052 |
| | — |
| | 230,052 |
| | 35.84 |
| 229,692 |
| | — |
| | 229,692 |
| | 41.93 |
|
Vested | (148,855 | ) | | — |
| | (148,855 | ) | | 35.42 |
| (32,776 | ) | | — |
| | (32,776 | ) | | 27.60 |
|
Forfeited/Performance or Market Conditions Not Achieved | (7,690 | ) | | (34,079 | ) | | (41,769 | ) | | 42.87 |
| (3,480 | ) | | (129,029 | ) | | (132,509 | ) | | 28.57 |
|
Non-vested at September 30, 2016 | 594,271 |
| | (121,038 | ) | | 473,233 |
| | $ | 33.77 |
| |
Non-vested at March 31, 2017 | | 752,776 |
| | (250,067 | ) | | 502,709 |
| | $ | 39.18 |
|
| |
(1) | Represents an increase or decrease in the number of original PUs awarded based on either the final performance criteria or market condition achievement at the end of the performance period of such PUs or a change in estimated awards based on the forecasted performance against the predefined targets. |
Employee Stock Purchase Plan
We offer an ESPP in which participation is available to substantially all United States and Canadian employees who meet certain service eligibility requirements. The price for shares purchased under the ESPP is 95% of the market price of our common stock at the end of the offering period, without a look-back feature. As a result, we do not recognize compensation expense for the ESPP shares purchased. For the nine months ended September 30, 2015 and 2016, there were 59,569 shares and 56,662 shares, respectively, purchased under the ESPP. As of September 30, 2016,March 31, 2017, we had 781,767727,594 shares available under the ESPP.
As of March 31, 2017, unrecognized compensation cost related to the unvested portion of our Employee Stock-Based Awards was $61,990 and is expected to be recognized over a weighted-average period of 2.4 years.
We generally issue shares of our common stock for the exercises of stock options, the vesting of RSUs and PUs and under our ESPP from unissued reserved shares.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
As of September 30, 2016, unrecognized compensation cost related to the unvested portion of our Employee Stock-Based Awards was $43,137 and is expected to be recognized over a weighted-average period of 2.0 years.
We generally issue shares of our common stock for the exercises of stock options, RSUs, PUs and shares of our common stock under our ESPP from unissued reserved shares.
d. Income (Loss) Per Share—Basic and Diluted
Basic income (loss) per common share is calculated by dividing income (loss) by the weighted average number of common shares outstanding. The calculation of diluted income (loss) per share is consistent with that of basic income (loss) per share but gives effect to all potential common shares (that is, securities such as stock options, warrantsRSUs or convertible securities)PUs) that were outstanding during the period, unless the effect is antidilutive.
The calculation of basic and diluted income (loss) per share for the three and nine months ended September 30, 2015March 31, 2016 and 20162017 is as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2015 | | 2016 | | 2015 | | 2016 | 2016 | | 2017 |
Income (loss) from continuing operations | $ | 23,517 |
| | $ | 5,759 |
| | $ | 119,263 |
| | $ | 54,080 |
| $ | 63,041 |
| | $ | 58,844 |
|
Less: Net income (loss) attributable to noncontrolling interests | 407 |
| | 720 |
| | 1,727 |
| | 1,822 |
| 267 |
| | 382 |
|
Income (loss) from continuing operations (utilized in numerator of Earnings Per Share calculation) | $ | 23,110 |
| | $ | 5,039 |
| | $ | 117,536 |
| | $ | 52,258 |
| $ | 62,774 |
| | $ | 58,462 |
|
Income (loss) from discontinued operations, net of tax | $ | — |
| | $ | 2,041 |
| | $ | — |
| | $ | 3,628 |
| |
(Loss) income from discontinued operations, net of tax | | $ | — |
| | $ | (337 | ) |
Net income (loss) attributable to Iron Mountain Incorporated | $ | 23,110 |
| | $ | 7,080 |
| | $ | 117,536 |
| | $ | 55,886 |
| $ | 62,774 |
| | $ | 58,125 |
|
| | | | | | | | | | |
Weighted-average shares—basic | 210,912,000 |
| | 263,269,000 |
| | 210,616,000 |
| | 240,394,000 |
| 211,526,000 |
| | 263,855,000 |
|
Effect of dilutive potential stock options | 621,615 |
| | 640,202 |
| | 934,553 |
| | 628,263 |
| 482,388 |
| | 461,761 |
|
Effect of dilutive potential RSUs and PUs | 382,995 |
| | 592,773 |
| | 530,252 |
| | 497,658 |
| 463,053 |
| | 492,905 |
|
Weighted-average shares—diluted | 211,916,610 |
| | 264,501,975 |
| | 212,080,805 |
| | 241,519,921 |
| 212,471,441 |
| | 264,809,666 |
|
| | | | | | | | | | |
Earnings (losses) per share—basic: | |
| | |
| | |
| | |
| |
| | |
|
Income (loss) from continuing operations | $ | 0.11 |
| | $ | 0.02 |
| | $ | 0.57 |
| | $ | 0.22 |
| $ | 0.30 |
| | $ | 0.22 |
|
Income (loss) from discontinued operations, net of tax | — |
| | 0.01 |
| | — |
| | 0.02 |
| |
(Loss) income from discontinued operations, net of tax | | — |
| | — |
|
Net income (loss) attributable to Iron Mountain Incorporated(1) | $ | 0.11 |
| | $ | 0.03 |
| | $ | 0.56 |
| | $ | 0.23 |
| $ | 0.30 |
| | $ | 0.22 |
|
| | | | | | | | | | |
Earnings (losses) per share—diluted: | |
| | |
| | |
| | |
| |
| | |
|
Income (loss) from continuing operations | $ | 0.11 |
| | $ | 0.02 |
| | $ | 0.56 |
| | $ | 0.22 |
| $ | 0.30 |
| | $ | 0.22 |
|
Income (loss) from discontinued operations, net of tax | — |
| | 0.01 |
| | — |
| | 0.02 |
| |
(Loss) income from discontinued operations, net of tax | | — |
| | — |
|
Net income (loss) attributable to Iron Mountain Incorporated(1) | $ | 0.11 |
| | $ | 0.03 |
| | $ | 0.55 |
| | $ | 0.23 |
| $ | 0.30 |
| | $ | 0.22 |
|
| | | | | | | | | | |
Antidilutive stock options, RSUs and PUs, excluded from the calculation | 2,262,827 |
| | 759,478 |
| | 1,318,811 |
| | 1,725,249 |
| 2,821,795 |
| | 2,494,255 |
|
(1) Columns may not foot due to rounding.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
e. Income Taxes
We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period they occur. Our effective tax rate is subject to variability in the future due to, among other items: (1) changes in the mix of income between our qualified REIT subsidiaries ("QRSs") and our domestic taxable REIT subsidiaries ("TRSs"), as well as among the jurisdictions in which we operate; (2) tax law changes; (3) volatility in foreign exchange gains and losses; (4) the timing of the establishment and reversal of tax reserves; and (5) our ability to utilize net operating losses that we generate.
Our effective tax ratesrate for the three and nine months ended September 30, 2015 were 14.3%March 31, 2016 and 18.6%, respectively. Our effective tax rates for the three2017 was 15.9% and nine months ended September 30, 2016 were 81.2% and 46.2%13.5%, respectively. The primary reconciling items between the federal statutory tax rate of 35.0% and our overall effective tax ratesrate in the three and nine months ended September 30, 2015March 31, 2016 were the benefit derived from the dividends paid deduction and differences in the rates of tax at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates, and state income taxes (net of federal tax benefit). In the third quarter of 2015, we recorded a tax benefit of $4,100 related to the expiration of certain statutes of limitations and an out-of-period tax adjustment ($9,000 tax benefit) to correct the valuation of certain deferred tax assets associated with the REIT conversion that occurred in 2014.rates. The primary reconciling items between the federal statutory tax rate of 35.0% and our overall effective tax ratesrate in the three and nine months ended September 30, 2016March 31, 2017 were the benefit derived from the dividends paid deduction, a release of valuation allowances on certain of our foreign net operating losses of $7,511 as a result of the merger of certain of our foreign subsidiaries and differences in the rates of tax at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates, andrates. These benefits were partially offset by the impact of a legislative change enacted in the $14,000 charge (described in Note 2.i.) recorded during the thirdfirst quarter of 2017 in the United Kingdom which eliminated the deductibility of certain interest expense and increased our tax provision for the first quarter of 2017 by $1,764, or 2.5%.
During 2016, as a result of the closing of the Recall Transaction and the subsequent integration of Recall's operations into our operations, we reassessed our intentions regarding the indefinite reinvestment of current and future undistributed earnings of our foreign subsidiaries outside the United States (the "2016 Indefinite Reinvestment Assessment"). As a result of the 2016 Indefinite Reinvestment Assessment, we concluded that it is our intent to indefinitely reinvest our current and future undistributed earnings of our unconverted foreign TRSs outside the United States. Accordingly, we no longer provide incremental foreign withholding taxes on the retained book earnings of these unconverted foreign TRSs. As a REIT, future repatriation of incremental undistributed earnings of our foreign subsidiaries will not be subject to federal or state income tax, with the exception of foreign withholding taxes in limited instances; however, such future repatriations will require distribution in accordance with REIT distribution rules, and any such distribution may then be taxable, as appropriate, at the stockholder level. We continue, however, to provide for incremental foreign withholding taxes on net book over outside basis differences related to the anticipated loss on disposalearnings of the Australia Divestment Business (as defined in Note 4), which had no associated tax benefit.our foreign QRSs and certain of our converted TRSs.
f. Concentrations of Credit Risk
Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents (including money market funds and time deposits) and accounts receivable. The only significant concentrations of liquid investments as of December 31, 20152016 and September 30, 2016 relateMarch 31, 2017, respectively, related to cash and cash equivalents. At December 31, 2015, we had time deposits with four global banks. At September 30, 2016 and March 31, 2017, we had time deposits with six global banks. We consider thebanks and seven global banks, to be large, highly-rated investment-grade institutions.respectively. As of December 31, 20152016 and September 30, 2016,March 31, 2017, our cash and cash equivalents were $128,381was $236,484 and $458,128,$295,628, respectively, including time deposits amounting to $18,645of $22,240 and $18,687,$25,739, respectively.
g. Fair Value Measurements
Our financial assets or liabilities that are carried at fair value are required to be measured using inputs from the three levels of the fair value hierarchy. A financial asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The three levels of the fair value hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3—Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
The assets and liabilities carried at fair value measured on a recurring basis as of December 31, 20152016 and September 30, 2016,March 31, 2017, respectively, are as follows:
| | | | | | Fair Value Measurements at December 31, 2015 Using | | | | Fair Value Measurements at December 31, 2016 Using |
Description | | Total Carrying Value at December 31, 2015 | | Quoted prices in active markets (Level 1) | | | | Significant other observable inputs (Level 2) | | | | Significant unobservable inputs (Level 3) | | Total Carrying Value at December 31, 2016 | | Quoted prices in active markets (Level 1) | | | | Significant other observable inputs (Level 2) | | | | Significant unobservable inputs (Level 3) |
Time Deposits(1) | | $ | 18,645 |
| | $ | — |
| | | | $ | 18,645 |
| | | | $ | — |
| | $ | 22,240 |
| | $ | — |
| | | | $ | 22,240 |
| | | | $ | — |
|
Trading Securities | | 10,371 |
| | 9,514 |
| | (2) | | 857 |
| | (1) | | — |
| | 10,659 |
| | 10,181 |
| | (2) | | 478 |
| | (1) | | — |
|
Available-for-Sale Securities | | 624 |
| | 624 |
| | (2) | | — |
| | — |
| |
| | | | | | Fair Value Measurements at September 30, 2016 Using | | | | Fair Value Measurements at March 31, 2017 Using |
Description | | Total Carrying Value at September 30, 2016 | | Quoted prices in active markets (Level 1) | | | | Significant other observable inputs (Level 2) | | | | Significant unobservable inputs (Level 3) | | Total Carrying Value at March 31, 2017 | | Quoted prices in active markets (Level 1) | | | | Significant other observable inputs (Level 2) | | | | Significant unobservable inputs (Level 3) |
Time Deposits(1) | | $ | 18,687 |
| | $ | — |
| | | | $ | 18,687 |
| | | | $ | — |
| | $ | 25,739 |
| | $ | — |
| | | | $ | 25,739 |
| | | | $ | — |
|
Trading Securities | | 10,708 |
| | 10,225 |
| | (2) | | 483 |
| | (1) | | — |
| | 10,342 |
| | 9,958 |
| | (2) | | 384 |
| | (1) | | — |
|
Derivative Assets(3) | | | 114 |
| | — |
| | 114 |
| | — |
|
| |
(1) | Time deposits and certain trading securities (included in Prepaid expenses and other in our Consolidated Balance Sheets) are measured based on quoted prices for similar assets and/or subsequent transactions and are included in Prepaid expenses and other in our Consolidated Balance Sheets.transactions. |
| |
(2) | Available-for-sale securities and certainCertain trading securities are measured at fair value using quoted market prices. |
| |
(3) | Derivative assets relate to short-term (six months or less) foreign currency contracts that we have entered into to hedge certain of our foreign exchange intercompany exposures, as more fully disclosed at Note 3. We calculate the value of such forward contracts by adjusting the spot rate utilized at the balance sheet date for translation purposes by an estimate of the forward points observed in active markets. |
Disclosures are required in the financial statements for items measured at fair value on a non-recurring basis. We did not have any material items that are measured at fair value on a non-recurring basis at December 31, 20152016 and September 30, 2016,March 31, 2017, with the exception of: (i) goodwill (as disclosed in Note 2.b.); (ii) the assets and liabilities acquired through acquisitions (as disclosed in Note 6 to Notes to Consolidated Financial Statements included in our Annual Report and Note 4); (iii) the Access Contingent Consideration (as defined and disclosed in Note 4)10); and (iv) assets and liabilities held for salethe redemption value of certain redeemable noncontrolling interests (as disclosed in Note 10)2.x. in Notes to Consolidated Financial Statements included in our Annual Report), all of which are based on Level 3 inputs.
The fair value of our long-term debt, which was determined based on either Level 1 inputs or Level 3 inputs, is disclosed in Note 5. Long-term debt is measured at cost in our Consolidated Balance Sheets as of December 31, 20152016 and September 30, 2016.March 31, 2017.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
h. Accumulated Other Comprehensive Items, Net
The changes in accumulated other comprehensive items, net for the three months ended September 30, 2015March 31, 2016 and 2016, respectively, are as follows:
|
| | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Market Value Adjustments for Securities | | Total |
Balance as of June 30, 2015 | $ | (130,752 | ) | | $ | 1,002 |
| | $ | (129,750 | ) |
Other comprehensive (loss) income: | | | | |
|
|
Foreign currency translation adjustments | (33,803 | ) | | — |
| | (33,803 | ) |
Market value adjustments for securities | — |
| | (134 | ) | | (134 | ) |
Total other comprehensive (loss) income | (33,803 | ) | | (134 | ) | | (33,937 | ) |
Balance as of September 30, 2015 | $ | (164,555 | ) | | $ | 868 |
| | $ | (163,687 | ) |
|
| | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Market Value Adjustments for Securities | | Total |
Balance as of June 30, 2016 | $ | (149,289 | ) | | $ | — |
| | $ | (149,289 | ) |
Other comprehensive income (loss): |
|
| |
|
| |
|
|
Foreign currency translation adjustments | 10,843 |
| | — |
| | 10,843 |
|
Total other comprehensive income (loss) | 10,843 |
| | — |
| | 10,843 |
|
Balance as of September 30, 2016 | $ | (138,446 | ) | | $ | — |
| | $ | (138,446 | ) |
The changes in accumulated other comprehensive items, net for the nine months ended September 30, 2015 and 2016,2017, respectively, are as follows:
|
| | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Market Value Adjustments for Securities | | Total |
Balance as of December 31, 2014 | $ | (76,010 | ) | | $ | 979 |
| | $ | (75,031 | ) |
Other comprehensive (loss) income: |
|
| | | |
|
|
Foreign currency translation adjustments | (88,545 | ) | | — |
| | (88,545 | ) |
Market value adjustments for securities | — |
| | (111 | ) | | (111 | ) |
Total other comprehensive (loss) income | (88,545 | ) | | (111 | ) | | (88,656 | ) |
Balance as of September 30, 2015 | $ | (164,555 | ) | | $ | 868 |
| | $ | (163,687 | ) |
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
|
| | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Market Value Adjustments for Securities | | Total |
Balance as of December 31, 2015 | $ | (175,651 | ) | | $ | 734 |
| | $ | (174,917 | ) |
Other comprehensive income (loss): |
|
| | | |
|
|
Foreign currency translation adjustments | 23,491 |
| | — |
| | 23,491 |
|
Market value adjustments for securities | — |
| | (734 | ) | | (734 | ) |
Total other comprehensive income (loss) | 23,491 |
| | (734 | ) | | 22,757 |
|
Balance as of March 31, 2016 | $ | (152,160 | ) | | $ | — |
| | $ | (152,160 | ) |
| | | Foreign Currency Translation Adjustments | | Market Value Adjustments for Securities | | Total | Foreign Currency Translation Adjustments | | Market Value Adjustments for Securities | | Total |
Balance as of December 31, 2015 | $ | (175,651 | ) | | $ | 734 |
| | $ | (174,917 | ) | |
Balance as of December 31, 2016 | | $ | (212,573 | ) | | $ | — |
| | $ | (212,573 | ) |
Other comprehensive income (loss): |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
Foreign currency translation adjustments | 37,205 |
| | — |
| | 37,205 |
| 51,334 |
| | — |
| | 51,334 |
|
Market value adjustments for securities | — |
| | (734 | ) | | (734 | ) | — |
| | — |
| | — |
|
Total other comprehensive income (loss) | 37,205 |
| | (734 | ) | | 36,471 |
| 51,334 |
| | — |
| | 51,334 |
|
Balance as of September 30, 2016 | $ | (138,446 | ) | | $ | — |
| | $ | (138,446 | ) | |
Balance as of March 31, 2017 | | $ | (161,239 | ) | | $ | — |
| | $ | (161,239 | ) |
i. Other (Income) Expense, (Income), Net
Other (income) expense, (income), net for the three and nine months ended September 30, 2015March 31, 2016 and 2016 are as follows:2017 consists of the following:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2016 | | 2015 | | 2016 |
Foreign currency transaction losses (gains), net | $ | 32,539 |
| | $ | 10,685 |
| | $ | 56,461 |
| | $ | 15,336 |
|
Debt extinguishment expense | 2,156 |
| | — |
| | 2,156 |
| | 9,283 |
|
Other, net | 551 |
| | 12,617 |
| | 982 |
| | 12,387 |
|
| $ | 35,246 |
| | $ | 23,302 |
| | $ | 59,599 |
| | $ | 37,006 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2017 |
Foreign currency transaction (gains) losses, net | $ | (12,542 | ) | | $ | (4,164 | ) |
Other, net | 605 |
| | (2,200 | ) |
| $ | (11,937 | ) | | $ | (6,364 | ) |
Other, net for the three and nine months ended September 30, 2016 includes a charge of $14,000 associated with the anticipated loss on disposal of the Australia Divestment Business. As disclosed in Note 10, we have determined that the Australia Divestment Business met the criteria to be reported as held for sale beginning in the second quarter of 2016. Accordingly, the Australia Divestment Business is reflected in our Consolidated Balance Sheet at the lower of its carrying value or its fair value (less costs to sell). This charge represents the excess of the carrying value of the Australia Divestment Business compared to its fair value (less costs to sell) as of September 30, 2016, based upon the sale price of the business described more fully in Note 13.j. Property, Plant and Equipment and Long-Lived Assets
During the three and nine months ended September 30, 2015,March 31, 2016 and 2017, we capitalized $6,844$3,403 and $19,279 of costs, respectively, associated with the development of internal use computer software projects. During the three and nine months ended September 30, 2016, we capitalized $3,601 and $12,139$5,283 of costs, respectively, associated with the development of internal use computer software projects.
Consolidated (gain) lossgain on disposal/write-down of property, plant and equipment (excluding real estate), net for the three and nine months ended September 30, 2015March 31, 2016 and 2017 was $(141)$451 and $707,$459, respectively. Losses in the nine months ended September 30, 2015 consisted primarily of the write-off of certain property associated with our North American Records and Information Management Business segment. ConsolidatedThese gains on disposal/write-down of property, plant and equipment (excluding real estate), net for the three and nine months ended September 30, 2016 was $54 and $1,131, respectively, which wereare primarily associated with the retirement of leased vehicles accounted for as capital lease assets within our North American Records and Information Management Business segment.
Consolidated gain on sale of real estate was $850, net of tax of $209, for the three and nine months ended September 30, 2015, which was associated with the sale of a building in the United Kingdom. Consolidated gain on sale of real estate for the three and nine months ended September 30, 2016 was $325, net of tax of $34, associated with the sale of land in North America.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
k. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In May 2014,January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 modifies the process by which entities will test goodwill for impairment. Under existing GAAP, when the carrying value of a reporting unit exceeds the reporting unit’s fair value, an entity would then proceed to a “Step 2” goodwill impairment analysis, which requires calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities, as if that reporting unit had been acquired in a business combination. Under ASU 2017-04, a goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of the reporting unit’s goodwill. We adopted ASU 2017-04 in the first quarter of 2017 and it did not impact our consolidated financial statements.
As Yet Adopted Accounting Pronouncements
a. ASU 2014-09
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 provides guidance for management to reassess revenue recognition as it relates to: (1) transfer of control, (2) variable consideration, (3) allocation of transaction price based on relative standalone selling price, (4) licenses, (5) time value of money, and (6) contract costs. Further disclosures
ASU 2014-09 will be requiredreplace the current revenue recognition criteria under GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of ASU 2014-09 is that a company should recognize revenue to provide a better understandingdepict the transfer of revenuepromised goods or services to customers in an amount that has been recognized and revenue that is expectedreflects the consideration to which the company expects to be entitled in exchange for such goods or services. The two permitted transition methods under ASU 2014-09 are: (i) the full retrospective method, whereby ASU 2014-09 would be applied to each prior reporting period presented and the cumulative effect of adoption would be recognized inat the future from existing contracts.earliest period shown, or (ii) the modified retrospective method, whereby the cumulative effect of applying ASU 2014-09 would be recognized at the date of initial application. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date ("ASU 2015-14"). ASU 2015-14, which deferred the effective date of ASU 2014-09 for one year, making itASU 2014-09 effective for us on January 1, 2018, with early adoption permitted as of January 1, 2017. We will adopt ASU 2014-09 as of January 1, 2018.2018 using the modified retrospective method.
During 2015, we established a project team responsible for the assessment and implementation of ASU 2014-09. We utilized a bottoms-up approach to analyze the impact of ASU 2014-09 on our contracts with customers by reviewing our current accounting policies and practices to identify potential differences that would result from applying the requirements of ASU 2014-09 to our contracts with customers. We are currently evaluatingin the impactprocess of designing and implementing appropriate changes to our business processes, systems and controls to support the accounting and the financial disclosure requirements under ASU 2014-09 will2014-09. We have on our consolidated financial statements.
In August 2014,been closely monitoring the FASB issuedactivity related to specific interpretative issues pertaining to ASU No. 2014-15, Presentation2014-09. During the second half of Financial Statements Going Concern (Subtopic 205-40) (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles of current United States auditing standards. Specifically, the amendments (1) provide a definition2016, we substantially completed our evaluation of the term “substantial doubt”, (2) require an evaluation every reporting period, including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is still present, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU 2014-15 is effective for us on January 1, 2017, with early adoption permitted. We will adopt ASU 2014-15 as of January 1, 2017. We do not believe thatpotential changes resulting from the adoption of ASU 2014-15 will have an impact2014-09 on our consolidatedaccounting and the financial statements.disclosure requirements and are now moving into the more detailed quantification of the impacts of adopting ASU 2014-09, the more significant of which are discussed below. Based on our analysis to date, we expect that the most significant impacts associated with adopting ASU 2014-09 compared to current GAAP will relate to (i) the deferral of certain commissions on our long-term storage contracts (“Accounting for Commissions”) and (ii) certain policy changes related to initial moves of physical storage, which will be subject to new cost guidance (“Accounting for Initial Moves”).
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In February 2015,Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
i. Accounting for Commissions
Under current GAAP, commissions that we pay related to our long-term storage contracts are expensed as incurred. Under ASU 2014-09, however, certain commissions will be capitalized and amortized over the FASB issuedperiod of expected earned revenue. In the year of adoption, this will result in increased intangible contract assets on our Consolidated Balance Sheet, a reduction in selling, general and administrative expenses and a corresponding increase in amortization expense (assuming consistent levels of spending up through the adoption date) on our Consolidated Statement of Operations and an increase in cash flows from operating activities and a corresponding increase in cash used for investing activities on our Consolidated Statement of Cash Flows.
ii. Accounting for Initial Moves
Under current GAAP, intake costs not charged to transport boxes to one of our facilities, which include labor and transportation costs, are capitalized and amortized as a component of depreciation and amortization in our Consolidated Statements of Operations. Under ASU No. 2015-02, Consolidation (Topic 810): Amendments2014-09, however, the revenue and costs associated with all initial moves of physical storage, regardless of whether or not the services associated with such initial moves are provided to the Consolidation Analysis (“ASU 2015‑02”). ASU 2015-02 affects reporting entities that are requiredcustomer at no charge, will be deferred and recognized over the period consistent with the transfer of the service to evaluate whether they should consolidate certain legal entities. We adopted ASU 2015-02the customer to which the asset relates. In the year of adoption, this will result in decreased intangible assets and increased deferred revenue on January 1, 2016. Theour Consolidated Balance Sheet, a reduction in cost of sales and a corresponding increase in amortization expense (assuming consistent levels of spending up through the adoption date) on our Consolidated Statement of ASU 2015-02 did not impactOperations and an increase in cash flows from operating activities and a corresponding increase in cash used for investing activities on our consolidated financial statements.Consolidated Statement of Cash Flows.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes ("ASU 2015-17"). ASU No. 2015-17 eliminates the requirement for reporting entities to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, reporting entities will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments in ASU 2015-17 may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. ASU 2015-17 is effective for us on January 1, 2017, with early adoption permitted. We are currently evaluating the impact ASU 2015-17 will have on our consolidated financial statements.b. Other As Yet Adopted Accounting Pronouncements
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The pronouncementASU 2016-01 also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for us on January 1, 2018. We do not believe that the adoption of ASU 2016-01 will have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU 2016-02 also will require certain qualitative and quantitative disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 will be effective for us on January 1, 2019, with early adoption permitted. We will adopt ASU 2016-02 on January 1, 2019 and are currently evaluating the impact ASU 2016-02 will have on our consolidated financial statements.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
In MarchNovember 2016, the FASB issued ASU No. 2016-07,2016-18, Simplifying the Transition to the Equity MethodStatement of AccountingCash Flows (Topic 230): Restricted Cash ("("ASU 2016-07"2016-18"). ASU 2016-07 eliminates2016-18 provides guidance on the requirementclassification of restricted cash in the statement of cash flows. ASU 2016-18 is effective for us on January 1, 2018, with early adoption permitted and is required to be adopted on a reporting entity to applyretrospective basis. We do not believe that the equity method of accounting retrospectively when they obtain significant influence over a previously held investment. Furthermore, under ASU 2016-07, for any available-for-sale securities that become eligible for the equity method of accounting, the unrealized gain or loss recorded within other comprehensive income (loss) associated with the securities should be recognized in earnings at the date the investment initially qualifies for the use of the equity method. We adopted ASU 2016-07 on April 1, 2016. The adoption of ASU 2016-07 did not2016-18 will have a material impact on our consolidated financial statements.
In March 2016,January 2017, the FASB issued ASU No. 2016-09,2017-01, Compensation-Stock Compensation-Improvements to Employee Share-Based Payment Accounting Business Combinations (Topic 805): Clarifying the Definition of a Business(" ("ASU 2016-09"2017-01"). ASU 2016-09 involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification2017-01 provides greater clarity on the statementdefinition of cash flows. Under ASU 2016-09, income tax benefits and deficiencies area business to be recognized as income tax expense or benefitassist entities in the statement of operations and the tax effects of exercised or vested awardsevaluating whether transactions should be treated as discrete items in the reporting period in which they occur. Additionally, under ASU 2016-09, excess tax benefits should be classified along with other income tax cash flowsaccounted for as an operating activity.acquisition or disposal of assets or businesses. ASU 2016-09 will be2017-01 is effective for us on January 1, 2017,2018, with early adoption permitted. We are currently evaluating the impact ASU 2016-092017-01 will have on our consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15addresses eight specific cash flow changes with the objective of reducing the existing diversity in the practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. We adopted ASU 2016-15 during the third quarter of 2016. ASU 2016-15 did not have an impact on our consolidated financial statements.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(3) Derivative Instruments and Hedging Activities
Historically, we have entered into forward contracts to hedge our exposures in Euros, British pounds sterlingcertain foreign currencies. At the maturity of the forward contracts, we may enter into new forward contracts to hedge movements in the underlying currencies. At the time of settlement, we either pay or receive the net settlement amount from the forward contract and Australian dollars.recognize this amount in other expense (income), net in the Consolidated Statements of Operations as a realized foreign exchange gain or loss. At the end of each month, we mark the outstanding forward contracts to market and record an unrealized foreign exchange gain or loss for the mark-to-market valuation. We have not designated any of the forward contracts we have entered into as hedges. Our policy is to record the fair value of each derivative instrument on a gross basis. As of December 31, 2015 and September 30, 2016, however, we had no forward contracts outstanding.
Net As of March 31, 2017, we had outstanding forward contracts to purchase 46,000 Canadian dollars and sell $34,439 to hedge our foreign exchange exposures associated with the Canadian dollar. As of March 31, 2017, we recorded a derivative asset of $114 which is a component of Prepaid expenses and other on our Consolidated Balance Sheet. During the three months ended March 31, 2016 and 2017, there were no cash (receipts)receipts or payments included in cash from operating activities from continuing operations related to settlements associated with foreign currency forward contracts for the three and nine months ended September 30, 2015 and 2016 are as follows:contracts.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2016 | | 2015 | | 2016 |
Net cash (receipts) payments | $ | (7,024 | ) | | $ | — |
| | $ | 22,164 |
| | $ | — |
|
(Gains) losses for our derivative instruments for the three and nine months ended September 30, 2015 and 2016 are as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | | | | Amount of (Gain) Loss Recognized in Income on Derivatives |
| | | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Derivatives Not Designated as Hedging Instruments | | Location of (Gain) Loss Recognized in Income on Derivative | | 2015 | | 2016 | | 2015 | | 2016 |
Foreign exchange contracts | | Other expense (income), net | | $ | (301 | ) | | $ | — |
| | $ | 20,113 |
| | $ | — |
|
We have designated a portion of our previously outstanding 63/4% Notes and Euro denominated borrowings by IMI under our Revolving Credit Facility (discussed more fully in Note 5) as a hedge of net investment of certain of our Euro denominated subsidiaries. For the ninethree months ended September 30, 2015March 31, 2016 and 2016,2017, we designated, on average, 35,15130,218 and 29,85849,600 Euros, respectively, of the previously outstanding 63/4% Notes andour Euro denominated borrowings by IMI under our Revolving Credit Facility as a hedge of net investment of certain of our Euro denominated subsidiaries. As a result, we recorded the following foreign exchange (losses) gains, net of tax, related to the change in fair value of such debt due to currency translation adjustments, which is a component of accumulated other comprehensive items, net:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2015 | | 2016 | | 2015 | | 2016 | | 2016 | | 2017 |
Foreign exchange (losses) gains | | $ | (85 | ) | | $ | (313 | ) | | $ | 3,381 |
| | $ | (901 | ) | | $ | (1,342 | ) | | $ | (1,072 | ) |
Less: Tax (benefit) expense on foreign exchange (losses) gains | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Foreign exchange (losses) gains, net of tax | | $ | (85 | ) | | $ | (313 | ) | | $ | 3,381 |
| | $ | (901 | ) | | $ | (1,342 | ) | | $ | (1,072 | ) |
As of September 30, 2016,March 31, 2017, cumulative net gains of $16,195,$17,131, net of tax, are recorded in accumulated other comprehensive items, net associated with this net investment hedge.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(4) Acquisitions
We account for acquisitions using the acquisition method of accounting, and, accordingly, the assets and liabilities acquired are recorded at their estimated fair values and the results of operations for each acquisition have been included in our consolidated results from their respective acquisition dates. Cash consideration for our various acquisitions in 20162017 was primarily provided through borrowings under our Revolving Credit Facilitycash flows from operating activities and Bridge Facility (each as defined in Note 5),borrowings, as well as cash and cash equivalents on-hand.
a. Acquisition of Recall in 2016
On May 2, 2016 (Sydney, Australia time), we completed the Recall Transaction. At the closing of the Recall Transaction, we paid approximately $331,800 in cash and issued 50,233,412 shares of our common stock which, based on the closing price of our common stock as of April 29, 2016 (the last day of trading on the NYSENew York Stock Exchange prior to the closing of the Recall Transaction) of $36.53 per share, resulted in a total purchase price to Recall shareholders of approximately $2,166,900.
Regulatory Approvals
In connection with the acquisition of Recall, we sought regulatory approval of the Recall Transaction from the United States Department of Justice (the “DOJ”), the Australian Competition and Consumer Commission (the “ACCC”), the Canada Competition Bureau (the “CCB”), and the United Kingdom Competition and Markets Authority (the “CMA”).
As part of the regulatory approval process, we agreed to make certain divestments which are described below in greater detail, in order to address competition concerns raised by the DOJ, the ACCC, the CCB and the CMA in respect of the Recall Transaction (the “Divestments”).
See The Divestments, all of which were completed during the year ended December 31, 2016, are defined in Note 6 to Notes to Consolidated Financial Statements included in our Annual Report and are described in greater detail within that note, as well as within Note 10 for additional information regarding the Divestments, including the presentation of the Divestments in our Consolidated Balance Sheetthis Quarterly Report, were as of September 30, 2016, our Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2016, respectively, and our Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2016, respectively.follows:
Divestments and Management Pending Sales
i. United States
The DOJ’s approval of the Recall Transaction was subject to the following divestments being made by us following the closing of the Recall Transaction:
Recall’s records and information management facilities, including all associated tangible and intangible assets, in the following 13 United States cities: Buffalo, New York; Charlotte, North Carolina; Detroit, Michigan; Durham, North Carolina; Greenville/Spartanburg, South Carolina; Kansas City, Kansas/Missouri; Nashville, Tennessee; Pittsburgh, Pennsylvania; Raleigh, North Carolina; Richmond, Virginia; San Antonio, Texas; Tulsa, Oklahoma; and San Diego, California (the “Initial United States Divestments”); and
Recall’s records and information management facility in Seattle, Washington and certain of Recall’s records and information management facilities in Atlanta, Georgia, including in each case associated tangible and intangible assets (the “Seattle/Atlanta Divestments”).
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(4) Acquisitions (Continued)
On May 4, 2016, we completed the sale of the Initial United States Divestments to Access CIG, LLC, a privately held provider of information management services throughout the United States (“Access CIG”), for total consideration of approximately $80,000, subject to adjustments (the “Access Sale”). Of the total consideration, we received $55,000 in cash proceeds upon closing of the Access Sale, and we are entitled to receive up to $25,000 of additional cash proceeds on the 27-month anniversary of the closing of the Access Sale (the "Access Contingent Consideration"). Our estimate of the fair value of the Access Contingent Consideration is approximately $21,400 (which reflects a fair value adjustment of approximately $2,200 and a present value adjustment of approximately $1,400), and accordingly, we have recognized a non-trade receivable included in Other, a component of Other Assets, Net in our Consolidated Balance Sheet as of September 30, 2016 for this amount.
The assets subject to the Access Sale were acquired in the Recall Transaction and, therefore, the estimated fair value of the Access Contingent Consideration has been reflected in the allocation of the purchase price for Recall as a component of “Fair Value of Divestments”. Our policy related to the recognition of contingent consideration (from a seller’s perspective) is to recognize contingent consideration at its estimated fair value upon closing of the transaction. Our policy related to the subsequent measurement of contingent consideration (from a seller’s perspective) is (i) to recognize contingent consideration in excess of our original estimate of fair value upon cash receipt of such consideration and (ii) to recognize any impairment of the contingent consideration compared to our original estimate in the period in which we determine such an impairment exists.
The Seattle/Atlanta Divestments will be effected by way of a sale of the tangible and intangible assets associated with the relevant facilities, which include warehouse space as well as customer contracts. We have agreed to place the assets and employees subject to the Seattle/Atlanta Divestments in a hold separate arrangement until the Seattle/Atlanta Divestments are completed.
In October 2016, we entered into an agreement with a potential buyer that provides for the sale of the Seattle/Atlanta Divestments and the Canadian Divestments (as described and defined below) to such potential buyer. This agreement remains subject to approval by the DOJ and the CCB as well as customary closing conditions and, therefore, we can provide no assurances that the DOJ and the CCB will approve the agreement, or that even with such approval that we will complete the sale on the terms agreed, or at all.
ii. Australia
The ACCC approved the Recall Transaction after accepting an undertaking from us pursuant to section 87B of the Australian Competition and Consumer Act 2010 (Cth) (the “ACCC Undertaking”). Pursuant to the ACCC Undertaking, we agreed to divest the majority of our Australian operations as they existed prior to the closing of the Recall Transaction by way of a share sale, which effectively involves the sale of our Australian business (as it existed prior to the closing of the Recall Transaction) other than our data management business throughout Australia and our records and information management business in the Northern Territory of Australia, except in relation to customers who have holdings in other Australian states or territories (the “Australia Divestment Business” and, with respect to the portion of our Australia business that is not subject to divestment, the “Australia Retained Business”).
Pursuant to the ACCC Undertaking, any prospective purchaser of the Australia Divestment Business is subject to ACCC approval. On October 24, 2016, we received the requisite clearance from the ACCC to sell the Australia Divestment Business and, on October 31, 2016, we completed the sale of the Australia Divestment Business. See Note 13.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(4) Acquisitions (Continued)
iii. Canada
The CCB approved the Recall Transaction on the basis of the registration of a consent agreement with us pursuant to sections 92 and 105 of the Competition Act (R.S.C., 1985, c. C-34) (the “CCB Consent Agreement”). The CCB Consent Agreement requires us to divest the following assets:
Recall’s record and information management facilities, including associated tangible and intangible assets and employees, in Edmonton, Alberta and Montreal (Laval), Quebec and certain of Recall’s record and information management facilities, including all associated tangible and intangible assets and employees, in Calgary, Alberta and Toronto, Ontario, (the “Recall Canadian Divestments”); and
One of our records and information management facilities in Vancouver (Burnaby), British Columbia and one of our records and information management facilities in Ottawa, Ontario, including associated tangible and intangible assets and employees (the “Iron Mountain Canadian Divestments”).
The Recall Canadian Divestments and the
The Iron Mountain Canadian Divestments (or collectively, the “Canadian Divestments”) will be affected by way of a sale of only the tangible and intangible assets associated with the relevant facilities, which include warehouse space as well as customer contracts. Under the CCB Consent Agreement, the assets subject of the Canadian Divestments will be acquired by a single buyer to be approved by the Commissioner of Competition (the “Commissioner”).
Pursuant to the terms of the CCB Consent Agreement, in order to preserve the businesses of the Canadian Divestments, pending completion of a sale of the Canadian Divestments, we must maintain the economic viability and marketability of the businesses of the Canadian Divestments, and we are required to hold the Recall Canadian Divestments separate from those of our other operations. In addition, the business of the Recall Canadian Divestments is being managed by an independent manager selected by us and approved by the Commissioner.
In October 2016, we entered into an agreement with a potential buyer that provides for the sale of the Seattle/Atlanta Divestments and the Canadian Divestments to such potential buyer. This agreement remains subject to approval by the DOJ and the CCB as well as customary closing conditions and, therefore, we can provide no assurances that the DOJ and the CCB will approve the agreement, or that even with such approval that we will complete the sale, on the terms agreed or at all.
iv. United Kingdom
In January 2016, the CMA referred the Recall Transaction for further investigation and report by a group of CMA panel members who were responsible for determining whether the Recall Transaction would result in a substantial lessening of competition within the relevant United Kingdom markets (the “CMA Review”). On March 30, 2016, the CMA announced its conditional consent for the Recall Transaction prior to the CMA’s issuance of its final decision following the CMA Review (the “CMA Consent”). On June 16, 2016, the CMA completed the CMA Review and published its findings. The findings concluded that the Recall Transaction is not expected to result in any substantial lessening of competition outside of North East Scotland, but that the Recall Transaction may result in a substantial lessening of competition in the supply of records management and information management services (including records management and physical offsite data protection services) in the Aberdeen and Dundee areas of Scotland (the “Scotland Affected Areas”). As a result of the CMA’s decision, we will divest Recall’s record and information management facilities, including associated tangible and intangible assets and employees, in the Scotland Affected Areas (the “UK Divestments”).
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(4) Acquisitions (Continued)
Pursuant to the CMA Consent, in order to preserve the business of the UK Divestments pending completion of the sale of the UK Divestments, we must maintain the economic viability and marketability of the business of the UK Divestments, and we are required to hold the UK Divestments separate from those of our other operations. In addition, the CMA concluded that a monitoring trustee should be appointed, at our sole expense and subject to CMA approval, to monitor compliance with the CMA’s findings and to ensure a prompt sale of the UK Divestments. We are in discussions with potential buyers for the UK Divestments. Aside from the CMA’s eventual approval of the purchaser of the UK Divestments, this decision marks the completion of the CMA Review.
The unaudited consolidated pro forma financial information (the "Pro Forma Financial Information") below summarizes the combined results of us and Recall on a pro forma basis as if the Recall Transaction had occurred on January 1, 2015. The Pro Forma Financial Information is presented for informational purposes and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2015. The Pro Forma Financial Information, for all periods presented, includes adjustments to convert Recall's historical results from International Financial Reporting Standards to GAAP, our current estimates of purchase accounting adjustments (including amortization expenses from acquired intangible assets, depreciation of acquired property, plant and equipment and amortization of favorable and unfavorable operating leases), stock-based compensation and related tax effects. Through September 30, 2016,March 31, 2017, we and Recall have collectively incurred $137,652$140,661 of operating expenditures to complete the Recall Transaction (including advisory and professional fees and costs to complete the Divestments required in connection with receipt of regulatory approval and to provide transitional services required to support the divested businesses during a transition period). These operating expenditures have been reflected within the results of operations in the Pro Forma Financial Information as if they were incurred on January 1, 2015. The costs we have incurred to integrate Recall with our existing operations, including moving, severance, facility upgrade, REIT conversion and system upgrade costs are reflected in the Pro Forma Financial Information in the period in which they were incurred.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(4) Acquisitions (Continued)
The Pro Forma Financial Information, for all periods presented, excludeexcludes from income (loss) from continuing operations the results of operations of the Initial United States Divestments, the Seattle/Atlanta Divestments, the Recall Canadian Divestments and the UK Divestments, as these businesses are presented as discontinued operations. See Note 10 for information regarding our conclusion with respect to the presentation of these divestments as discontinued operations. The results of the Australia Divestment Business and the Iron Mountain Canadian Divestments are included within the results from continuing operations in the Pro Forma Financial Information for all periods presented,through the closing date of the Australia Sale (as defined in Note 10), in the case of the Australia Divestment Business, and through the closing date of the ARKIVE Sale (as defined in Note 10), in the case of the Iron Mountain Canadian Divestments, as these businesses do not qualify for discontinued operations. See Note 10 for information regarding our conclusion that these divestments do not meet the criteria to be reported as discontinued operations. The Australia Divestment Business and the Iron Mountain Canadian Divestments, collectively, represent $23,317 and $50,759$13,376 of total revenues and $3,595 and $5,146$806 of total income from continuing operations for the three and nine months ended September 30, 2015, respectively,March 31, 2016.
|
| | | |
| Three Months Ended March 31, 2016 |
Total Revenues | $ | 937,952 |
|
Income from Continuing Operations | $ | 58,058 |
|
Per Share Income from Continuing Operations - Basic | $ | 0.22 |
|
Per Share Income from Continuing Operations - Diluted | $ | 0.22 |
|
In addition to our acquisition of Recall, we completed certain other acquisitions during 2016 and $15,8032017. The Pro Forma Financial Information does not reflect these acquisitions due to the insignificant impact of these acquisitions on our consolidated results of operations.
b. Other Noteworthy Acquisitions
In November 2016, we entered into a binding agreement to acquire the information management assets and
$42,954operations of
total revenuesSanta Fe Group A/S ("Santa Fe") in ten regions within Europe and
$1,986Asia in order to expand our presence in southeast Asia and
$2,741western Europe. In December 2016, we acquired the information management assets and operations of
total income from continuing operationsSanta Fe in Hong Kong, Malaysia, Singapore, Spain and Taiwan (the “2016 Santa Fe Transaction”) for
approximately 15,200 Euros (approximately $16,000, based upon the
threeexchange rate between the United States dollar and
nine months ended Septemberthe Euro as of December 30, 2016,
respectively. |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2016 | | 2015 | | 2016 |
Total Revenues | $ | 927,622 |
| | $ | 942,822 |
| | $ | 2,811,211 |
| | $ | 2,828,033 |
|
Income (Loss) from Continuing Operations | $ | 14,530 |
| | $ | 8,935 |
| | $ | (15,654 | ) | | $ | 89,036 |
|
Per Share Income (Loss) from Continuing Operations - Basic | $ | 0.05 |
| | $ | 0.03 |
| | $ | (0.07 | ) | | $ | 0.33 |
|
Per Share Income (Loss) from Continuing Operations - Diluted | $ | 0.05 |
| | $ | 0.03 |
| | $ | (0.07 | ) | | $ | 0.33 |
|
The amountthe closing date of revenuethe 2016 Santa Fe Transaction). Of the total purchase price, 13,500 Euros (or approximately $14,200, based upon the exchange rate between the United States dollar and earnings in our Consolidated Statementsthe Euro on the closing date of Operations for the three2016 Santa Fe Transaction) was paid during the year ended December 31, 2016, and nine months ended September 30, 2016 related to Recallthe remaining balance is impracticable for us to determine. Subsequent todue on the 18-month anniversary of the closing of the Recall2016 Santa Fe Transaction. During the first quarter of 2017, we acquired the information management assets and operations of Santa Fe in Macau and South Korea (the "2017 Santa Fe Transaction") for approximately 925 Euros (or approximately $1,000, based upon the exchange rate between the United States dollar and the Euro on the closing date of the 2017 Santa Fe Transaction). We expect to acquire Santa Fe's information management assets and operations in India, Indonesia and the Philippines by the end of the second quarter of 2017.
In addition to the 2017 Santa Fe Transaction we began integrating Recall andnoted above, during 2017, in order to enhance our existing operations in orderthe United States and Greece and to achieve operational synergies. As a result,expand our operations into the revenue generated by Recall, as well as the underlying costs of sales and selling, general and administrative expenses to support Recall's business, are now integrated with the revenueUnited Arab Emirates, we generate, as well as the costs of sales and selling, general and administrative expenses that supported our business, prior tocompleted the acquisition of Recall.three storage and records management companies and one art storage company for total consideration of approximately $13,700. The individual purchase prices of these acquisitions ranged from approximately $2,000 to approximately $4,400.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(4) Acquisitions (Continued)
In addition to our acquisition of Recall, we completed certain other acquisitions during 2016. The unaudited pro forma results of operations (including revenue and earnings) for the current and prior periods reflecting these acquisitions and certain acquisitions in 2015 are not presented due to the insignificant impact of these acquisitions on our consolidated results of operations.
b. Other 2016 Acquisitions
In March 2016, we acquired a controlling interest in Docufile Holdings Proprietary Limited ("Docufile"), a storage and records management company with operations in South Africa, for approximately $15,000. The acquisition of Docufile represents our entrance into Africa.
In March 2016, in order to expand our presence in the Baltic region, we acquired the stock of Archyvu Sistemos, a storage and records management company with operations in Lithuania, Latvia and Estonia, for approximately $5,100.
In August 2016, we reached an agreement in principle under a non-binding memorandum of understanding to acquire the information management operations of Santa Fe Group A/S (“Santa Fe”) in ten regions within Europe and Asia (the “Santa Fe Transaction”) for approximately 27,000 Euro, or approximately $30,300, based upon the exchange rate between the United States dollar and the Euro as of September 30, 2016. Santa Fe operates its information management business in Spain, India, Hong Kong, Macau, Indonesia, the Philippines, Singapore, Malaysia, South Korea and Taiwan. The memorandum of understanding between us and Santa Fe is non-binding and any binding agreement we enter into with Santa Fe will be subject to closing conditions; accordingly, we can provide no assurance that we will complete this acquisition, that the acquisition will not be delayed or that the terms of the acquisition will not change.
A summary of the cumulative consideration paid and the preliminary allocation of the purchase price paid for all of our 20162017 acquisitions is as follows:
| | | Recall | | Other Fiscal 2016 Year Acquisitions (excluding Recall) | | Total | | | |
Cash Paid (gross of cash acquired)(1) | $ | 331,834 |
| | $ | 21,817 |
| | $ | 353,651 |
| | $ | 13,736 |
|
Fair Value of Common Stock Issued | 1,835,026 |
| | — |
| | 1,835,026 |
| |
Fair Value of Noncontrolling Interests | — |
| | 3,506 |
| | 3,506 |
| | 843 |
|
Total Consideration | 2,166,860 |
| | 25,323 |
| | 2,192,183 |
| | 14,579 |
|
Fair Value of Identifiable Assets Acquired: | | | | | | | |
Cash | 76,531 |
| | 567 |
| | 77,098 |
| | 1,631 |
|
Accounts Receivable and Prepaid Expenses | 204,610 |
| | 2,582 |
| | 207,192 |
| | 1,771 |
|
Fair Value of Divestments(2) | 122,978 |
| | — |
| | 122,978 |
| |
Other Assets | 47,574 |
| | 541 |
| | 48,115 |
| | 692 |
|
Property, Plant and Equipment(3) | 677,509 |
| | 8,409 |
| | 685,918 |
| |
Customer Relationship Intangible Assets(4) | 729,514 |
| | 10,614 |
| | 740,128 |
| |
Debt Assumed | (789,264 | ) | | — |
| | (789,264 | ) | |
Property, Plant and Equipment(2) | | | 2,845 |
|
Customer Relationship Intangible Assets(3) | | | 8,222 |
|
Accounts Payable, Accrued Expenses and Other Liabilities | (258,937 | ) | | (8,450 | ) | | (267,387 | ) | | (6,208 | ) |
Deferred Income Taxes | (184,590 | ) | | (2,720 | ) | | (187,310 | ) | | (461 | ) |
Total Fair Value of Identifiable Net Assets Acquired | 625,925 |
| | 11,543 |
| | 637,468 |
| | 8,492 |
|
Goodwill Initially Recorded(5) | $ | 1,540,935 |
| | $ | 13,780 |
| | $ | 1,554,715 |
| |
Goodwill Initially Recorded(4) | | | $ | 6,087 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(4) Acquisitions (Continued)
| |
(1) | Included in cash paid for acquisitions in the Consolidated Statement of Cash Flows for the ninethree months ended September 30, 2016March 31, 2017 is net cash acquired of $77,098$1,631 and cash receivedcontingent and other payments, net of $182$82 related to acquisitions made in previous years. |
| |
(2) | Represents the fair value, less costs to sell, of the Initial United States Divestments, the Seattle/Atlanta Divestments, the Recall Canadian Divestments and the UK Divestments. |
| |
(3) | Consists primarily of buildings, racking structures leasehold improvements and computer hardware and software.warehouse equipment. These assets are depreciated using the straight-line method with the useful lives as noted in Note 2.f. to Notes to Consolidated Financial Statements included in our Annual Report. |
| |
(4)(3) | The weighted average lives of customer relationship intangible assets associated with acquisitions in 20162017 was 14 years, primarily related to the customer relationship intangible assets associated with the Recall Transaction. |
| |
(5) | The goodwill associated with Recall is primarily attributable to the assembled workforce, expanded market opportunities and costs and other operating synergies anticipated upon the integration of the operations of us and Recall.20 years. |
(4) The goodwill associated with acquisitions is primarily attributable to the assembled workforce, expanded market opportunities and costs and other operating synergies anticipated upon the integration of the operations of us and the acquired businesses.
Allocations of the purchase price for acquisitions made in 2016 and 2017 were based on estimates of the fair value of the net assets acquired and are subject to adjustment upon the finalization of the purchase price allocations. The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets, in determining the assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management's best estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. The estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete the valuations within the measurement periods, which are up to one year from the respective acquisition dates. Assets and liabilities that were acquired and classified as held for sale immediately following the Recall Transaction were valued based on the estimated fair value of the divestment, less costs to sell. The preliminary purchase price allocations that are not finalized as of September 30, 2016March 31, 2017 primarily relate to the final assessment of the fair values of intangible assets (primarily customer relationship intangible assets and trademarks)assets), property, plant and equipment (primarily building and racking structures), operating leases, contingencies and income taxes (primarily deferred income taxes), primarily associated with the Recall Transaction.Transaction and the Santa Fe Transaction, as well as other acquisitions which closed in 2017.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(4) Acquisitions (Continued)
As the valuation of certain assets and liabilities for purposes of purchase price allocations are preliminary in nature, they are subject to adjustment as additional information is obtained about the facts and circumstances regarding these assets and liabilities that existed at the acquisition date. Any adjustments to our estimates of purchase price allocation will be made in the periods in which the adjustments are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. Adjustments recorded during the three months ended September 30, 2016March 31, 2017 were not material to our results from operations.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5) Debt
Long-term debt is as follows:
|
| | | | | | | | | | | | | | | |
| December 31, 2015 |
| Debt | | Unamortized Deferred Financing Costs | | Carrying Amount | | Fair Value |
Revolving Credit Facility(1) | $ | 784,438 |
| | $ | (9,410 | ) | | $ | 775,028 |
| | $ | 784,438 |
|
Term Loan(1) | 243,750 |
| | — |
| | 243,750 |
| | 243,750 |
|
6% Senior Notes due 2020 (the "6% Notes due 2020")(2)(3)(4) | 1,000,000 |
| | (16,124 | ) | | 983,876 |
| | 1,052,500 |
|
61/8% CAD Senior Notes due 2021 (the "CAD Notes due 2021")(2)(5) | 144,190 |
| | (1,924 | ) | | 142,266 |
| | 147,074 |
|
61/8% GBP Senior Notes due 2022 (the "GBP Notes")(2)(4)(6) | 592,140 |
| | (8,757 | ) | | 583,383 |
| | 606,944 |
|
6% Senior Notes due 2023 (the "6% Notes due 2023")(2)(3) | 600,000 |
| | (8,420 | ) | | 591,580 |
| | 618,000 |
|
53/4% Senior Subordinated Notes due 2024 (the "53/4% Notes")(2)(3) | 1,000,000 |
| | (11,902 | ) | | 988,098 |
| | 961,200 |
|
Real Estate Mortgages, Capital Leases and Other(7) | 333,559 |
| | (1,070 | ) | | 332,489 |
| | 333,559 |
|
Accounts Receivable Securitization Program(8) | 205,900 |
| | (692 | ) | | 205,208 |
| | 205,900 |
|
Total Long-term Debt | 4,903,977 |
| | (58,299 | ) | | 4,845,678 |
| | |
|
Less Current Portion | (88,068 | ) | | — |
| | (88,068 | ) | | |
|
Long-term Debt, Net of Current Portion | $ | 4,815,909 |
| | $ | (58,299 | ) | | $ | 4,757,610 |
| | |
|
| | | September 30, 2016 | | December 31, 2016 | | March 31, 2017 |
| Debt (inclusive of discount) | | Unamortized Deferred Financing Costs | | Carrying Amount | | Fair Value | | Debt (inclusive of discount) | | Unamortized Deferred Financing Costs | | Carrying Amount | | Fair Value | | Debt (inclusive of discount) | | Unamortized Deferred Financing Costs | | Carrying Amount | | Fair Value |
Revolving Credit Facility(1) | $ | 1,240,761 |
| | $ | (8,166 | ) | | $ | 1,232,595 |
| | $ | 1,240,761 |
| | $ | 953,548 |
| | $ | (7,530 | ) | | $ | 946,018 |
| | $ | 953,548 |
| | | $ | 988,327 |
|
|
| $ | (6,800 | ) |
| $ | 981,527 |
| | $ | 988,327 |
|
Term Loan(1) | 234,375 |
|
| — |
|
| 234,375 |
| | 234,375 |
| | 234,375 |
| | — |
| | 234,375 |
| | 234,375 |
| | | 228,125 |
|
|
| — |
|
| 228,125 |
| | 228,125 |
|
Australian Dollar Term Loan (the "AUD Term Loan")(9) | 188,967 |
| | (3,713 | ) | | 185,254 |
| | 190,876 |
| | 177,198 |
| | (3,774 | ) | | 173,424 |
| | 178,923 |
| | | 186,963 |
|
|
| (3,832 | ) |
| 183,131 |
| | 188,715 |
|
6% Notes due 2020(2)(3)(4) | 1,000,000 |
|
| (13,578 | ) |
| 986,422 |
| | 1,055,000 |
| |
CAD Notes due 2021(2)(5) | 152,179 |
|
| (1,762 | ) |
| 150,417 |
| | 158,837 |
| |
43/8% Senior Notes due 2021 (the "43/8% Notes")(2)(3)(4) | 500,000 |
|
| (8,051 | ) |
| 491,949 |
| | 515,000 |
| |
GBP Notes(2)(4)(6) | 518,808 |
|
| (6,816 | ) |
| 511,992 |
| | 544,748 |
| |
6% Notes due 2023(2)(3) | 600,000 |
|
| (7,597 | ) |
| 592,403 |
| | 642,000 |
| |
6% Senior Notes due 2020 (the "6% Notes due 2020")(1)(2) | | | 1,000,000 |
| | (12,730 | ) | | 987,270 |
| | 1,052,500 |
| | | 1,000,000 |
|
|
| (11,881 | ) |
| 988,119 |
| | 1,046,250 |
|
43/8% Senior Notes due 2021 (the "43/8% Notes")(1)(2) | | | 500,000 |
| | (7,593 | ) | | 492,407 |
| | 511,250 |
| | | 500,000 |
|
|
| (7,163 | ) |
| 492,837 |
| | 512,500 |
|
61/8% CAD Senior Notes due 2021 (the "CAD Notes due 2021")(3) | | | 148,792 |
| | (1,635 | ) | | 147,157 |
| | 155,860 |
| | | 150,045 |
|
|
| (1,561 | ) |
| 148,484 |
| | 155,859 |
|
61/8% GBP Senior Notes due 2022 (the "GBP Notes")(2) | | | 493,648 |
| | (6,214 | ) | | 487,434 |
| | 527,562 |
| | | 499,508 |
|
|
| (6,012 | ) |
| 493,496 |
| | 529,478 |
|
6% Senior Notes due 2023 (the "6% Notes due 2023")(1) | | | 600,000 |
| | (7,322 | ) | | 592,678 |
| | 637,500 |
| | | 600,000 |
|
|
| (7,048 | ) |
| 592,952 |
| | 632,280 |
|
53/8% CAD Senior Notes due 2023 (the "CAD Notes due 2023")(5)(3) | 190,223 |
| | (3,370 | ) | | 186,853 |
| | 191,412 |
| | 185,990 |
| | (3,498 | ) | | 182,492 |
| | 188,780 |
| | | 187,557 |
|
|
| (3,405 | ) |
| 184,152 |
| | 193,418 |
|
53/4% Notes(2)(3) | 1,000,000 |
|
| (10,872 | ) |
| 989,128 |
| | 1,032,500 |
| |
53/8% Senior Notes due 2026 (the "53/8% Notes")(2)(4)(10) | 250,000 |
|
| (4,159 | ) |
| 245,841 |
| | 249,375 |
| |
53/4% Senior Subordinated Notes due 2024 (the "53/4% Notes")(1) | | | 1,000,000 |
| | (10,529 | ) | | 989,471 |
| | 1,027,500 |
| | | 1,000,000 |
|
|
| (10,186 | ) |
| 989,814 |
| | 1,017,500 |
|
53/8% Senior Notes due 2026 (the "53/8% Notes")(2) | | | 250,000 |
| | (4,044 | ) | | 245,956 |
| | 242,500 |
| | | 250,000 |
|
|
| (3,937 | ) |
| 246,063 |
| | 248,750 |
|
Real Estate Mortgages, Capital Leases and Other(7) | 444,772 |
|
| (1,113 | ) |
| 443,659 |
| | 444,772 |
| | 478,565 |
| | (1,277 | ) | | 477,288 |
| | 478,565 |
| | | 518,191 |
|
|
| (1,239 | ) |
| 516,952 |
| | 518,191 |
|
Accounts Receivable Securitization Program(8)(4) | 208,800 |
|
| (461 | ) |
| 208,339 |
| | 208,800 |
| | 247,000 |
| | (384 | ) | | 246,616 |
| | 247,000 |
| | | 250,000 |
|
|
| (308 | ) |
| 249,692 |
| | 250,000 |
|
Mortgage Securitization Program | | | 50,000 |
| | (1,405 | ) | | 48,595 |
| | 50,000 |
| | | 50,000 |
|
|
| (1,369 | ) |
| 48,631 |
| | 50,000 |
|
Total Long-term Debt | 6,528,885 |
| | (69,658 | ) | | 6,459,227 |
| | |
| | 6,319,116 |
| | (67,935 | ) | | 6,251,181 |
| | |
| | | 6,408,716 |
| — |
| (64,741 | ) | | 6,343,975 |
| | |
Less Current Portion | (121,203 | ) | | — |
| | (121,203 | ) | | |
| | (172,975 | ) | | — |
| | (172,975 | ) | | |
| | | (421,535 | ) |
| 308 |
|
| (421,227 | ) | | |
|
Long-term Debt, Net of Current Portion | $ | 6,407,682 |
| | $ | (69,658 | ) | | $ | 6,338,024 |
| | |
| | $ | 6,146,141 |
| | $ | (67,935 | ) | | $ | 6,078,206 |
| | |
| | | $ | 5,987,181 |
|
|
| $ | (64,433 | ) | | $ | 5,922,748 |
| | |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5) Debt (Continued)
| |
(1) | The capital stock or other equity interests of most of our United States subsidiaries, and up to 66% ofCollectively, the capital stock or other equity interests of most of our first-tier foreign subsidiaries, are pledged to secure these debt instruments, together with all intercompany obligations (including promissory notes) of subsidiaries owed to us or to one of our United States subsidiary guarantors. In addition, Iron Mountain Canada Operations ULC ("Canada Company") has pledged 66% of the capital stock of its subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by it, to secure the Canadian dollar subfacility under the Revolving Credit Facility (defined below)"Parent Notes". The fair value (Level 3 of fair value hierarchy described at Note 2.g.) of these debt instruments approximates the carrying value (as borrowings under these debt instruments are based on current variable market interest rates (plus a margin that is subject to change based on our consolidated leverage ratio)), as of December 31, 2015 and September 30, 2016, respectively. |
| |
(2) | The fair values (Level 1 of fair value hierarchy described at Note 2.g.) of these debt instruments are based on quoted market prices for these notes on December 31, 2015 and September 30, 2016, respectively.Collectively, the "Unregistered Notes". |
| |
(3) | Collectively, the "Parent Notes." IMI is the direct obligor on the Parent Notes, which are fully and unconditionally guaranteed, on a senior or senior subordinated basis, as the case may be, by its direct and indirect 100% owned United States subsidiaries that represent the substantial majority of our United States operations (the "Guarantors")"CAD Notes". These guarantees are joint and several obligations of the Guarantors. Canada Company, Iron Mountain Europe PLC ("IME"), the Special Purpose Subsidiaries (as defined below) and the remainder of our subsidiaries do not guarantee the Parent Notes. See Note 6. |
| |
(4) | The 6% Notes due 2020,Because the 43/8% Notes, the GBP Notes, the CAD Notes due 2023 and the 53/8% Notes (collectively, the "Unregistered Notes") have not been registeredAccounts Receivable Securitization Program terminates on March 6, 2018, at which point all obligations under the Securities Act of 1933, as amended (the “Securities Act”), or under the securities laws of any other jurisdiction. Unless they are registered, the Unregistered Notes may be offered only in transactions that are exempt from registration under the Securities Act or the securities laws of any other jurisdiction.
|
| |
(5) | Canada Company is the direct obligor on the CAD Notesprogram become due, 2021 and the CAD Notes due 2023 (collectively, the "CAD Notes"), which are fully and unconditionally guaranteed, on a senior basis, by IMI and the Guarantors. These guarantees are joint and several obligations of IMI and the Guarantors. See Note 6. |
| |
(6) | IME is the direct obligor on the GBP Notes, which are fully and unconditionally guaranteed, on a senior basis, by IMI and the Guarantors. These guarantees are joint and several obligations of IMI and the Guarantors. See Note 6. |
| |
(7) | We believe the fair value (Level 3 of fair value hierarchy described at Note 2.g.) of this debt approximates its carrying value. |
| |
(8) | The Special Purpose Subsidiaries areis classified within the obligors under this program. We believe the fair value (Level 3current portion of fair value hierarchy described at Note 2.g.) of thislong-term debt approximates its carrying value. |
| |
(9) | The fair value (Level 3 of fair value hierarchy described at Note 2.g.) of this debt instrument approximates the carrying value as borrowings under this debt instrument are based on a current variable market interest rate. The amount of debt for the AUD Term Loan reflects an unamortized original issue discount of $1,909in our Consolidated Balance Sheet as of September 30, 2016.March 31, 2017. |
(10) Iron Mountain US Holdings, Inc. ("IM US Holdings"), a 100% owned subsidiary of IMI and one of the Guarantors, is the direct obligor on the 53/8% Notes, which are fully and unconditionally guaranteed, on a senior basis, by IMI and the other Guarantors. These guarantees are joint and several obligations of IMI and such Guarantors. See Note 6.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5) Debt (Continued)
See Note 4 to Notes to Consolidated Financial Statements included in our Annual Report for additional information regarding our long-term debt, including the direct obligors of each of our debt instruments as well as information regarding the fair value of our debt instruments (including the levels of the fair value hierarchy used to determine the fair value of our debt instruments). The levels of the fair value hierarchy used to determine the fair value of our debt as of March 31, 2017 are consistent with the levels of the fair value hierarchy used to determine the fair value of our debt as of December 31, 2016 (which are disclosed in our Annual Report). Additionally, see Note 6 for information regarding which of our consolidated subsidiaries guarantee certain of our debt instruments.
a. Credit Agreement
On July 2, 2015, we entered into a new credit agreement (the "Credit Agreement") to refinance our then existing credit agreementagreement. The Credit Agreement terminates on July 6, 2019, at which consisted of a revolving credit facility (the "Former Revolvingpoint all obligations become due, but may be extended by one year at our option, subject to the conditions set forth in the Credit Facility") and a term loan and was scheduled to terminate on June 27, 2016.Agreement. Borrowings under the Credit Agreement may be prepaid without penalty or premium, in whole or in part, at any time. The Credit Agreement consists of a revolving credit facility (the "Revolving Credit Facility") and a term loan (the "Term Loan"). We recorded a charge of $2,156 to other expense (income), net in the third quarter of 2015 related to the refinancing of the Credit Agreement, representing a write-off of unamortized deferred financing costs.
On June 24, 2016, Iron Mountain Information Management, LLC (“IMIM”) entered into a commitment increase supplement (the “Commitment Increase Supplement”), pursuant to which we increased theThe maximum amount permitted to be borrowed under the Revolving Credit Facility from $1,500,000 tois $1,750,000. After entering intoThe original amount of the Commitment Increase Supplement, the maximum amount available for borrowing under the Credit Agreement is $2,000,000 (consisting of a Revolving Credit Facility of $1,750,000 and a Term Loan of $250,000).was $250,000. We continue to have the option to request additional commitments of up to $250,000, in the form of term loans or through increased commitments under the Revolving Credit Facility, subject to the conditions specified in the Credit Agreement.
The Revolving Credit Facility is supported by a group of 25 banks and enables IMI and certain of its United States and foreign subsidiaries to borrow in United States dollars and (subject to sublimits) a variety of other currencies (including Canadian dollars, British pounds sterling, Euros and Australian dollars, among other currencies) in an aggregate outstanding amount not to exceed $1,750,000. The Term Loan is to be paid in quarterly installments in an amount equal to $3,125 per quarter, with the remaining balance due on July 3, 2019. The Credit Agreement terminates on July 6, 2019, at which point all obligations become due, but may be extended by one year at our option, subject to the conditions set forth in the Credit Agreement. Borrowings under the Credit Agreement may be prepaid without penalty or premium, in whole or in part, at any time.
IMI and the Guarantors guarantee all obligations under the Credit Agreement. The interest rate on borrowings under the Credit Agreement varies depending on our choice of interest rate and currency options, plus an applicable margin, which varies based on our consolidated leverage ratio. Additionally, the Credit Agreement requires the payment of a commitment fee on the unused portion of the Revolving Credit Facility, which fee ranges from between 0.25% to 0.4% based on our consolidated leverage ratio and fees associated with outstanding letters of credit. As of September 30, 2016,March 31, 2017, we had $1,240,761$988,327 and $234,375$228,125 of outstanding borrowings under the Revolving Credit Facility and the Term Loan, respectively. Of the $1,240,761$988,327 of outstanding borrowings under the Revolving Credit Facility, $718,800$741,000 was denominated in United States dollars 6,000and 231,530 was denominated in Canadian dollars, 255,150 was denominated in Euros and 303,000 was denominated in Australian dollars.Euros. In addition, we also had various outstanding letters of credit totaling $55,392.$53,649. The remaining amount available for borrowing under the Revolving Credit Facility as of September 30, 2016,March 31, 2017, which is based on IMI's leverage ratio, the last 12 months' earnings before interest, taxes, depreciation and amortization and rent expense ("EBITDAR"), other adjustments as defined in the Credit Agreement and current external debt, was $453,847$708,024 (which amount represents the maximum availability as of such date). The average interest rate in effect under the Credit Agreement was 2.9%3.0% as of September 30, 2016.March 31, 2017. The average interest rate in effect under the Revolving Credit Facility was 2.9%3.0% and ranged from 2.3% to 4.8%5.0% as of September 30, 2016March 31, 2017 and the interest rate in effect under the Term Loan as of September 30, 2016March 31, 2017 was 2.8%3.2%.
The capital stock or other equity interests of most of our United States subsidiaries, and up to 66% of the capital stock or other equity interests of most of our first-tier foreign subsidiaries, are pledged to secure borrowings under the Credit Agreement, together with all intercompany obligations (including promissory notes) of subsidiaries owed to us or to one of our United States subsidiary guarantors. In addition, Iron Mountain Canada Operations ULC ("Canada Company") has pledged 66% of the capital stock of its subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by it, to secure the Canadian dollar subfacility under the Revolving Credit Facility.
The Credit Agreement, our indentures and other agreements governing our indebtedness contain certain restrictive financial and operating covenants, including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take certain other corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under the Credit Agreement, our indentures or other agreements governing our indebtedness. The Credit Agreement uses EBITDAR-based calculations as the primary measures of financial performance, including leverage and fixed charge coverage ratios.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5) Debt (Continued)
Our leverage and fixed charge coverage ratios under the Credit Agreement as of December 31, 20152016 and September 30, 2016,March 31 2017, respectively, and our leverage ratio under our indentures as of December 31, 20152016 and September 30, 2016,March 31, 2017, respectively, are as follows:
| | | December 31, 2015 | | September 30, 2016 | | Maximum/Minimum Allowable | December 31, 2016 | | March 31, 2017 | | Maximum/Minimum Allowable |
Net total lease adjusted leverage ratio | 5.6 |
| | 5.7 |
| | Maximum allowable of 6.5 | 5.7 |
| | 5.8 |
| | Maximum allowable of 6.5 |
Net secured debt lease adjusted leverage ratio | 2.6 |
| | 2.6 |
| | Maximum allowable of 4.0 | 2.7 |
| | 2.7 |
| | Maximum allowable of 4.0 |
Bond leverage ratio (not lease adjusted) | 5.5 |
| | 5.4 |
| | Maximum allowable of 6.5 | 5.2 |
| | 5.5 |
| | Maximum allowable of 6.5 |
Fixed charge coverage ratio | 2.4 |
| | 2.5 |
| | Minimum allowable of 1.5 | 2.4 |
| | 2.3 |
| | Minimum allowable of 1.5 |
As noted in the table above, our maximum allowable net total lease adjusted leverage ratio under the Credit Agreement is 6.5. The Credit Agreement also contains a provision which limits, in certain circumstances, our dividends in any four consecutive fiscal quarters to 95% of Funds From Operations (as defined in the Credit Agreement) for such four fiscal quarters or, if greater, the amount that we would be required to pay in order to continue to be qualified for taxation as a REIT or to avoid the imposition of income or excise taxes on IMI. This limitation only is applicableapplies when our net total lease adjusted leverage ratio exceeds 6.0 as measured as of the end of the most recently completed fiscal quarter.
Noncompliance with these leverage and fixed charge coverage ratios would have a material adverse effect on our financial condition and liquidity.
Commitment fees and letters of credit fees, which are based on the unused balances under the Former Revolving Credit Facility, the Revolving Credit Facility and the Accounts Receivable Securitization Program (as defined below) for the three and nine months ended September 30, 2015 and 2016 are as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2016 | | 2015 | | 2016 |
Commitment fees and letters of credit fees | $ | 883 |
| | $ | 428 |
| | $ | 2,741 |
| | $ | 1,457 |
|
b. Bridge Facility
On April 19, 2016, in order to provide a portion of the financing necessary to close the Recall Transaction, we entered into a commitment letter with JPMorgan Chase Bank, N.A., as a lender and administrative agent, and the other lenders party thereto (the "Lenders"), pursuant to which the Lenders committed to provide us an unsecured bridge term loan facility of up to $850,000 (the "Bridge Facility"). On April 29, 2016, we entered into a bridge credit agreement (the “Bridge Credit Agreement”) with the Lenders and borrowed the full amount of the Bridge Facility. We used the proceeds from the Bridge Facility, together with borrowings under the Revolving Credit Facility, to finance a portion of the cost of the Recall Transaction, including refinancing Recall’s existing indebtedness and to pay costs we incurred in connection with the Recall Transaction.
On May 31, 2016, we used the proceeds from the issuance of the 4 ⅜% Notes and the 5 ⅜% Notes, together with cash on hand and borrowings under the Revolving Credit Facility, to repay the Bridge Facility, and effective May 31, 2016, we terminated the commitments of the lenders under the Bridge Credit Agreement. We recorded a charge to other expense (income), net of $9,283 during the second quarter of 2016 related to the early extinguishment of the Bridge Credit Agreement. This charge primarily consisted of the write-off of unamortized deferred financing costs.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5) Debt (Continued)
c. Issuance of 43/8% Notes, 53/8% Notes and CAD Notes due 2023
In May 2016, IMI completed a private offering of $500,000 in aggregate principal amount of the 43/8% Notes and IM US Holdings completed a private offering of $250,000 in aggregate principal amount of the 53/8% Notes. The 43/8% Notes and 53/8% Notes were issued at par. The aggregate net proceeds of $738,750 from the 43/8% Notes and 53/8% Notes, after paying the initial purchasers' commissions, were used, together with cash on hand and borrowings under the Revolving Credit Facility, for the repayment of all outstanding borrowings under the Bridge Credit Agreement.
On September 15, 2016, Canada Company completed a private offering of 250,000 Canadian dollars in aggregate principal amount of the CAD Notes due 2023. The CAD Notes due 2023 were issued at par. The aggregate net proceeds from the CAD Notes due 2023 of 246,250 Canadian dollars (or $186,693, based upon the exchange rate between the Canadian dollar and the United States dollar on September 15, 2016 (the settlement date for the CAD Notes due 2023)), after paying the initial purchasers’ commissions, were used to repay outstanding borrowings under the Revolving Credit Facility.
d. Australian Dollar Term Loan
On September 28, 2016, Iron Mountain Australia Group Pty, Ltd., a wholly owned subsidiary of IMI, entered into a 250,000 Australian dollar Syndicated Term Loan B Facility (the “AUD"AUD Term Loan”Loan"), which matures in September 2022. The AUD Term Loan was issued at 99% of par. The net proceeds of approximately 243,750 Australian dollars (or approximately $185,800, based upon the exchange rate between the Australian dollar and the United States dollar on September 28, 2016 (the settlement date for the AUD Term Loan)), after paying commissions to the joint lead arrangers and net of the original discount, were used to repay outstanding borrowings onunder the Revolving Credit Facility in October 2016 and for general corporate purposes.
Principal payments on the AUD Term Loan are to be paid in quarterly installments in an amount equivalent to an aggregate of 6,250 Australian dollars per year, with the remaining balance due on September 28, 2022. The AUD Term Loan is secured by substantially all assets of Iron Mountain Australia Group Pty. Ltd. IMI and the Guarantors guarantee all obligations under the AUD Term Loan. The interest rate on borrowings under the AUD Term Loan is based upon BBSY (an Australian benchmark variable interest rate) plus 4.3%. As of September 30, 2016,March 31, 2017, we had 250,000246,875 Australian dollars ($188,715 based upon the exchange rate between the United States dollar and the Australian dollar as of March 31, 2017) outstanding on the AUD Term Loan and the interest rate in effect under the AUD Term Loan was 6.1%.
The amount of debt for the AUD Term Loan reflects an unamortized original issue discount of $1,725 and $1,752 as of December 31, 2016 and March 31, 2017, respectively.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5) Debt (Continued)
e.c. Accounts Receivable Securitization Program
In March 2015, we entered into a $250,000 accounts receivable securitization program (the "Accounts Receivable Securitization Program") involving several of our wholly owned subsidiaries and certain financial institutions. Under the Accounts Receivable Securitization Program, certain of our subsidiaries sell substantially all of their United States accounts receivable balances to our wholly owned special purpose entities, Iron Mountain Receivables QRS, LLC and Iron Mountain Receivables TRS, LLC (the "Special"Accounts Receivable Securitization Special Purpose Subsidiaries"). The Accounts Receivable Securitization Special Purpose Subsidiaries use the accounts receivable balances to collateralize loans obtained from certain financial institutions. The Accounts Receivable Securitization Special Purpose Subsidiaries are consolidated subsidiaries of IMI. The Accounts Receivable Securitization Program is accounted for as a collateralized financing activity, rather than a sale of assets, and therefore: (i) accounts receivable balances pledged as collateral are presented as assets and borrowings are presented as liabilities on our Consolidated Balance Sheets, (ii) our Consolidated Statements of Operations reflect the associated charges for bad debt expense related to pledged accounts receivable (a component of selling, general and administrative expenses) and reductions to revenue due to billing and service related credit memos issued to customers and related reserves, as well as interest expense associated with the collateralized borrowings and (iii) receipts from customers related to the underlying accounts receivable are reflected as operating cash flows and borrowings and repayments under the collateralized loans are reflected as financing cash flows within our Consolidated Statements of Cash Flows. IMIMIron Mountain Information Management, LLC ("IMIM") retains the responsibility of servicing the accounts receivable balances pledged as collateral in this transaction and IMI provides a performance guaranty. The Accounts Receivable Securitization Program terminates on March 6, 2018, at which point all obligations become due. The maximum availability allowed is limited by eligible accounts receivable, as defined under the terms of the Accounts Receivable Securitization Program. As of September 30, 2016,March 31, 2017, the maximum availability allowed and amount outstanding under the Accounts Receivable Securitization Program was $208,800.$250,000. The interest rate in effect under the Accounts Receivable Securitization Program was 1.4%1.9% as of September 30, 2016. Commitment fees atMarch 31, 2017.
d. Mortgage Securitization Program
In October 2016, we entered into a rate of 40 basis points are charged on amounts made available but not borrowed under the Accounts Receivable$50,000 mortgage securitization program (the "Mortgage Securitization Program.
f. Cash Pooling
Subsequent to the closing of the Recall Transaction,Program") involving certain of our internationalwholly owned subsidiaries began participatingwith Goldman Sachs Mortgage Company (“Goldman Sachs”). Under the Mortgage Securitization Program, IMIM contributed certain real estate assets to its wholly owned special purpose entity, Iron Mountain Mortgage Finance I, LLC (the "Mortgage Securitization Special Purpose Subsidiary"). The Mortgage Securitization Special Purpose Subsidiary then used the real estate to secure a collateralized loan obtained from Goldman Sachs. The Mortgage Securitization Special Purpose Subsidiary is a consolidated subsidiary of IMI. The Mortgage Securitization Program is accounted for as a collateralized financing activity, rather than a sale of assets and therefore: (i) real estate assets pledged as collateral remain as assets and borrowings are presented as liabilities on our Consolidated Balance Sheets, (ii) our Consolidated Statement of Operations reflects the associated charges for depreciation expense related to the pledged real estate and interest expense associated with the collateralized borrowings and (iii) borrowings and repayments under the collateralized loans are reflected as financing cash flows within our Consolidated Statement of Cash Flows. The Mortgage Securitization Program is scheduled to terminate on November 6, 2026, at which point all obligations become due. As of March 31, 2017, the outstanding amount under the Mortgage Securitization Program was $50,000. The interest rate in aeffect under the Mortgage Securitization Program was 3.5% as of March 31, 2017.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5) Debt (Continued)
e. Cash Pooling
Certain of our subsidiaries participate in cash pooling arrangementarrangements (the “Cash Pool”Pools”) with Bank Mendes Gans (“BMG”), an independently operated fully-owned subsidiary of ING Group, in order to help manage global liquidity requirements. TheUnder the Cash Pool allowsPools, cash deposited by participating subsidiaries to borrow funds from BMG against amounts held on deposit with BMG byis pledged as security against the drawings of other participating subsidiaries. The Cash Pool has asubsidiaries, and legal rightrights of offset are provided and, therefore, amounts are presented in our Consolidated Balance SheetSheets on a net basis. Each subsidiary receives interest on the cash balances held on deposit or pays interest on the amounts owed based on an applicable rate as defined in the Cash Pool agreement.Pools. At September 30,December 31, 2016, we had a net cash position of approximately $18,900 (consisting$1,700 (which consisted of a gross cash position of approximately $50,700$69,500 less outstanding borrowings of approximately $31,800$67,800 by participating subsidiaries),.
During the first quarter of 2017, we significantly expanded our utilization of the Cash Pools and reduced our utilization of our financing centers in Europe for purposes of meeting our global liquidity requirements. As of March 31, 2017, we utilize two separate cash pools with BMG, one of which iswe utilize to manage global liquidity requirements for our QRSs (the "QRS Cash Pool") and one pool for our TRSs (the "TRS Cash Pool"). As of March 31, 2017, we had a net cash position of approximately $5,400 in the QRS Cash Pool (which consisted of a gross cash position of approximately $478,200 less outstanding borrowings of approximately $472,800 by participating subsidiaries) and we had a net cash position of approximately $11,100 in the TRS Cash Pool (which consisted of a gross cash position of approximately $217,300 less outstanding borrowings of approximately $206,200 by participating subsidiaries). The net cash position balances as of December 31, 2016 and March 31, 2017, respectively, are reflected as cash and cash equivalents in the Consolidated Balance Sheet.Sheets.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors
The following data summarizes the consolidating results of IMI on the equity method of accounting as of December 31, 20152016 and September 30, 2016March 31, 2017 and for the three and nine months ended September 30, 2015March 31, 2016 and 20162017 and are prepared on the same basis as the consolidated financial statements.
The Parent Notes, the CAD Notes, GBP Notes and the 53/8% Notes are guaranteed by the subsidiaries referred to below as the Guarantors. These subsidiaries aredirect and indirect 100% owned by IMI.United States subsidiaries of IMI, that represent the substantial majority of our United States operations (the "Guarantors"). The guarantees are full and unconditional, as well as joint and several.
Additionally, IMI guarantees the CAD Notes, which were issued by Canada Company, the GBP Notes, which were issued by IME,Iron Mountain Europe PLC ("IME"), and the 53/8% Notes, which were issued by IMIron Mountain US Holdings.Holdings, Inc. which is one of the Guarantors. Canada Company and IME do not guarantee the Parent Notes. The subsidiaries that do not guarantee the Parent Notes, the CAD Notes, the GBP Notes and the 53/8% Notes, including IME, and the Accounts Receivable Securitization Special Purpose Subsidiaries and the Mortgage Securitization Special Purpose Subsidiary, but excluding Canada Company, are referred to below as the Non-Guarantors."Non-Guarantors".
In the normal course of business, we periodically change the ownership structure of our subsidiaries to meet the requirements of our business. In the event of such changes, we recast the prior period financial information within this footnote to conform to the current period presentation in the period such changes occur. Generally, these changes do not alter the designation of the underlying subsidiaries as Guarantors or Non-Guarantors. However, they may change whether the underlying subsidiary is owned by the Parent, a Guarantor, Canada Company or a Non-Guarantor. If such a change occurs, the amount of investment in subsidiaries in the below Consolidated Balance Sheets and equity in the earnings (losses) of subsidiaries, net of tax in the below Consolidated Statements of Operations and Comprehensive Income (Loss) Income with respect to the relevant Parent, Guarantors, Canada Company, Non-Guarantors and Eliminations columns also would change.
In July 2016, certain Non-Guarantor subsidiaries which were originally established at the time of our acquisition of Crozier Fine Arts (“Crozier”) in December 2015 (the “Crozier Entities”), were merged into IMIM, a Guarantor and a substantive operating entity (the “Crozier Merger”). As a result of the Crozier Merger, (i) the assets, liabilities and equity of the Crozier Entities are now reported in the Guarantor column ofwe have recast the accompanying Consolidated Balance Sheet as of September 30, 2016; (ii) the revenues and expenses of the Crozier Entities are now reported in the Guarantor column in the accompanying Consolidated StatementsStatement of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2016;March 31, 2016 and (iii) the cash flows of the Crozier Entities are now reported in the Guarantor column in the accompanying Consolidated Statement of Cash Flows for the ninethree months ended September 30, 2016. We have recast the accompanying Consolidated Balance Sheet as of DecemberMarch 31, 20152016 to conform to the current period presentation of the Crozier Entities. We acquired Crozier in December 2015; therefore, the Crozier Merger had no impact on the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2015 and the accompanying Consolidated Statement of Cash Flows for the nine months ended September 30, 2015.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)
CONSOLIDATED BALANCE SHEETS
| | | December 31, 2015 | December 31, 2016 |
| Parent | | Guarantors | | Canada Company | | Non- Guarantors | | Eliminations | | Consolidated | Parent | | Guarantors | | Canada Company | | Non- Guarantors | | Eliminations | | Consolidated |
Assets | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Current Assets: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents | $ | 151 |
| | $ | 7,803 |
| | $ | 13,182 |
| | $ | 107,245 |
| | $ | — |
| | $ | 128,381 |
| |
Cash and Cash Equivalents: | | $ | 2,405 |
| | $ | 23,380 |
| | $ | 17,110 |
| | $ | 193,589 |
| | $ | — |
| | $ | 236,484 |
|
Accounts receivable | — |
| | 18,917 |
| | 30,428 |
| | 515,056 |
| | — |
| | 564,401 |
| — |
| | 53,364 |
| | 37,781 |
| | 600,104 |
| | — |
| | 691,249 |
|
Intercompany receivable | — |
| | 1,038,141 |
| | — |
| | — |
| | (1,038,141 | ) | | — |
| — |
| | 653,008 |
| | 21,114 |
| | — |
| | (674,122 | ) | | — |
|
Other current assets | 898 |
| | 107,235 |
| | 2,305 |
| | 54,721 |
| | (29 | ) | | 165,130 |
| |
Prepaid expenses and other | | — |
| | 70,660 |
| | 4,967 |
| | 108,776 |
| | (29 | ) | | 184,374 |
|
Total Current Assets | 1,049 |
| | 1,172,096 |
| | 45,915 |
| | 677,022 |
| | (1,038,170 | ) | | 857,912 |
| 2,405 |
| | 800,412 |
| | 80,972 |
| | 902,469 |
| | (674,151 | ) | | 1,112,107 |
|
Property, Plant and Equipment, Net | 661 |
| | 1,633,885 |
| | 137,100 |
| | 725,512 |
| | — |
| | 2,497,158 |
| 483 |
| | 1,804,991 |
| | 159,391 |
| | 1,118,461 |
| | — |
| | 3,083,326 |
|
Other Assets, Net: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Long-term notes receivable from affiliates and intercompany receivable | 3,325,005 |
| | 1,869 |
| | — |
| | — |
| | (3,326,874 | ) | | — |
| 4,014,330 |
| | 1,000 |
| | — |
| | — |
| | (4,015,330 | ) | | — |
|
Investment in subsidiaries | 727,710 |
| | 459,429 |
| | 27,731 |
| | 2,862 |
| | (1,217,732 | ) | | — |
| 1,659,518 |
| | 699,411 |
| | 35,504 |
| | 77,449 |
| | (2,471,882 | ) | | — |
|
Goodwill | — |
| | 1,640,130 |
| | 152,975 |
| | 567,873 |
| | — |
| | 2,360,978 |
| — |
| | 2,602,784 |
| | 217,422 |
| | 1,084,815 |
| | — |
| | 3,905,021 |
|
Other | 623 |
| | 414,407 |
| | 22,637 |
| | 196,872 |
| | — |
| | 634,539 |
| — |
| | 765,698 |
| | 49,570 |
| | 571,078 |
| | — |
| | 1,386,346 |
|
Total Other Assets, Net | 4,053,338 |
| | 2,515,835 |
| | 203,343 |
| | 767,607 |
| | (4,544,606 | ) | | 2,995,517 |
| 5,673,848 |
| | 4,068,893 |
| | 302,496 |
| | 1,733,342 |
| | (6,487,212 | ) | | 5,291,367 |
|
Total Assets | $ | 4,055,048 |
| | $ | 5,321,816 |
| | $ | 386,358 |
| | $ | 2,170,141 |
| | $ | (5,582,776 | ) | | $ | 6,350,587 |
| $ | 5,676,736 |
| | $ | 6,674,296 |
| | $ | 542,859 |
| | $ | 3,754,272 |
| | $ | (7,161,363 | ) | | $ | 9,486,800 |
|
Liabilities and Equity | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Intercompany Payable | $ | 879,649 |
| | $ | — |
| | $ | 5,892 |
| | $ | 152,600 |
| | $ | (1,038,141 | ) | | $ | — |
| $ | 558,492 |
| | $ | — |
| | $ | — |
| | $ | 115,630 |
| | $ | (674,122 | ) | | $ | — |
|
Current Portion of Long-Term Debt | — |
| | 41,159 |
| | — |
| | 46,938 |
| | (29 | ) | | 88,068 |
| — |
| | 51,456 |
| | — |
| | 121,548 |
| | (29 | ) | | 172,975 |
|
Total Other Current Liabilities | 56,740 |
| | 463,556 |
| | 26,804 |
| | 206,663 |
| | — |
| | 753,763 |
| 58,478 |
| | 488,194 |
| | 40,442 |
| | 286,468 |
| | — |
| | 873,582 |
|
Long-Term Debt, Net of Current Portion | 2,608,818 |
| | 674,798 |
| | 284,798 |
| | 1,189,196 |
| | — |
| | 4,757,610 |
| 3,093,388 |
| | 1,055,642 |
| | 335,410 |
| | 1,593,766 |
| | — |
| | 6,078,206 |
|
Long-Term Notes Payable to Affiliates and Intercompany Payable | 1,000 |
| | 3,325,005 |
| | 869 |
| | — |
| | (3,326,874 | ) | | — |
| 1,000 |
| | 4,014,330 |
| | — |
| | — |
| | (4,015,330 | ) | | — |
|
Other Long-term Liabilities | — |
| | 119,454 |
| | 37,402 |
| | 65,683 |
| | — |
| | 222,539 |
| — |
| | 127,715 |
| | 54,054 |
| | 188,900 |
| | — |
| | 370,669 |
|
Commitments and Contingencies (See Note 8) | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Redeemable Noncontrolling Interests | | 28,831 |
| | — |
| | — |
| | 25,866 |
| | — |
| | 54,697 |
|
Total Iron Mountain Incorporated Stockholders' Equity | 508,841 |
| | 697,844 |
| | 30,593 |
| | 489,295 |
| | (1,217,732 | ) | | 508,841 |
| 1,936,547 |
| | 936,959 |
| | 112,953 |
| | 1,421,970 |
| | (2,471,882 | ) | | 1,936,547 |
|
Noncontrolling Interests | — |
| | — |
| | — |
| | 19,766 |
| | — |
| | 19,766 |
| — |
| | — |
| | — |
| | 124 |
| | — |
| | 124 |
|
Total Equity | 508,841 |
| | 697,844 |
| | 30,593 |
| | 509,061 |
| | (1,217,732 | ) | | 528,607 |
| 1,936,547 |
| | 936,959 |
| | 112,953 |
| | 1,422,094 |
| | (2,471,882 | ) | | 1,936,671 |
|
Total Liabilities and Equity | $ | 4,055,048 |
| | $ | 5,321,816 |
| | $ | 386,358 |
| | $ | 2,170,141 |
| | $ | (5,582,776 | ) | | $ | 6,350,587 |
| $ | 5,676,736 |
| | $ | 6,674,296 |
| | $ | 542,859 |
| | $ | 3,754,272 |
| | $ | (7,161,363 | ) | | $ | 9,486,800 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)
CONSOLIDATED BALANCE SHEETS (Continued)
| | | September 30, 2016 | March 31, 2017 |
| Parent | | Guarantors | | Canada Company | | Non- Guarantors | | Eliminations | | Consolidated | Parent | | Guarantors | | Canada Company | | Non- Guarantors | | Eliminations | | Consolidated |
Assets | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Current Assets: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents(1) | $ | 1,710 |
| | $ | 26,044 |
| | $ | 14,792 |
| | $ | 415,582 |
| | $ | — |
| | $ | 458,128 |
| $ | 470 |
| | $ | 64,550 |
| | $ | 5,763 |
| | $ | 410,667 |
| | $ | (185,822 | ) | | $ | 295,628 |
|
Accounts receivable | — |
| | 94,358 |
| | 38,707 |
| | 567,173 |
| | — |
| | 700,238 |
| — |
| | 36,545 |
| | 36,215 |
| | 648,270 |
| | — |
| | 721,030 |
|
Intercompany receivable | 562,568 |
| | 546,766 |
| | — |
| | — |
| | (1,109,334 | ) | | — |
| — |
| | 904,316 |
| | 33,923 |
| | — |
| | (938,239 | ) | | — |
|
Other current assets | — |
| | 66,893 |
| | 685 |
| | 113,514 |
| | (29 | ) | | 181,063 |
| |
Assets held for sale (see Note 10) | — |
| | 22,429 |
| | 25,533 |
| | 79,950 |
| | — |
| | 127,912 |
| |
Prepaid expenses and other | | 114 |
| | 79,337 |
| | 6,325 |
| | 96,232 |
| | (29 | ) | | 181,979 |
|
Total Current Assets | 564,278 |
| | 756,490 |
| | 79,717 |
| | 1,176,219 |
| | (1,109,363 | ) | | 1,467,341 |
| 584 |
| | 1,084,748 |
| | 82,226 |
| | 1,155,169 |
| | (1,124,090 | ) | | 1,198,637 |
|
Property, Plant and Equipment, Net | 527 |
| | 1,852,010 |
| | 158,011 |
| | 1,155,980 |
| | — |
| | 3,166,528 |
| 438 |
| | 1,810,787 |
| | 157,814 |
| | 1,142,701 |
| | — |
| | 3,111,740 |
|
Other Assets, Net: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Long-term notes receivable from affiliates and intercompany receivable | 3,948,530 |
| | 1,000 |
| | — |
| | — |
| | (3,949,530 | ) | | — |
| 4,214,179 |
| | 1,000 |
| | — |
| | — |
| | (4,215,179 | ) | | — |
|
Investment in subsidiaries | 761,272 |
| | 537,305 |
| | 34,620 |
| | 81,194 |
| | (1,414,391 | ) | | — |
| 1,750,210 |
| | 785,770 |
| | 35,948 |
| | 85,456 |
| | (2,657,384 | ) | | — |
|
Goodwill | — |
| | 2,511,380 |
| | 232,052 |
| | 1,118,378 |
| | — |
| | 3,861,810 |
| — |
| | 2,584,712 |
| | 217,837 |
| | 1,154,509 |
| | — |
| | 3,957,058 |
|
Other | — |
| | 829,635 |
| | 54,148 |
| | 525,454 |
| | — |
| | 1,409,237 |
| — |
| | 762,098 |
| | 49,211 |
| | 593,390 |
| | — |
| | 1,404,699 |
|
Total Other Assets, Net | 4,709,802 |
| | 3,879,320 |
| | 320,820 |
| | 1,725,026 |
| | (5,363,921 | ) | | 5,271,047 |
| 5,964,389 |
| | 4,133,580 |
| | 302,996 |
| | 1,833,355 |
| | (6,872,563 | ) | | 5,361,757 |
|
Total Assets | $ | 5,274,607 |
| | $ | 6,487,820 |
| | $ | 558,548 |
| | $ | 4,057,225 |
| | $ | (6,473,284 | ) | | $ | 9,904,916 |
| $ | 5,965,411 |
| | $ | 7,029,115 |
| | $ | 543,036 |
| | $ | 4,131,225 |
| | $ | (7,996,653 | ) | | $ | 9,672,134 |
|
Liabilities and Equity | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Intercompany Payable | $ | — |
| | $ | — |
| | $ | 8,451 |
| | $ | 1,100,883 |
| | $ | (1,109,334 | ) | | $ | — |
| $ | 698,066 |
| | $ | — |
| | $ | — |
| | $ | 240,173 |
| | $ | (938,239 | ) | | $ | — |
|
Borrowings under cash pools | | — |
| | 138,693 |
| | — |
| | 47,129 |
| | (185,822 | ) | | — |
|
Current Portion of Long-Term Debt | — |
| | 46,749 |
| | — |
| | 74,483 |
| | (29 | ) | | 121,203 |
| — |
| | 45,837 |
| | — |
| | 375,419 |
| | (29 | ) | | 421,227 |
|
Total Other Current Liabilities | 55,378 |
| | 495,255 |
| | 32,535 |
| | 300,387 |
| | — |
| | 883,555 |
| 199,038 |
| | 454,823 |
| | 41,747 |
| | 301,634 |
| | — |
| | 997,242 |
|
Liabilities held for sale (see Note 10) | — |
| | — |
| | — |
| | 19,269 |
| | — |
| | 19,269 |
| |
Long-Term Debt, Net of Current Portion | 3,093,536 |
| | 1,063,324 |
| | 347,719 |
| | 1,833,445 |
| | — |
| | 6,338,024 |
| 3,159,864 |
| | 1,014,038 |
| | 338,456 |
| | 1,410,390 |
| | — |
| | 5,922,748 |
|
Long-Term Notes Payable to Affiliates and Intercompany Payable | 1,000 |
| | 3,948,530 |
| | — |
| | — |
| | (3,949,530 | ) | | — |
| 1,000 |
| | 4,214,179 |
| | — |
| | — |
| | (4,215,179 | ) | | — |
|
Other Long-term Liabilities | — |
| | 159,109 |
| | 54,029 |
| | 179,473 |
| | — |
| | 392,611 |
| — |
| | 138,228 |
| | 41,429 |
| | 180,178 |
| | — |
| | 359,835 |
|
Commitments and Contingencies (See Note 8) | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Redeemable Noncontrolling Interests | | 4,718 |
| | — |
| | — |
| | 62,590 |
| | — |
| | 67,308 |
|
Total Iron Mountain Incorporated Stockholders' Equity | 2,124,693 |
| | 774,853 |
| | 115,814 |
| | 523,724 |
| | (1,414,391 | ) | | 2,124,693 |
| 1,902,725 |
| | 1,023,317 |
| | 121,404 |
| | 1,512,663 |
| | (2,657,384 | ) | | 1,902,725 |
|
Noncontrolling Interests | — |
| | — |
| | — |
| | 25,561 |
| | — |
| | 25,561 |
| — |
| | — |
| | — |
| | 1,049 |
| | — |
| | 1,049 |
|
Total Equity | 2,124,693 |
| | 774,853 |
| | 115,814 |
| | 549,285 |
| | (1,414,391 | ) | | 2,150,254 |
| 1,902,725 |
| | 1,023,317 |
| | 121,404 |
| | 1,513,712 |
| | (2,657,384 | ) | | 1,903,774 |
|
Total Liabilities and Equity | $ | 5,274,607 |
| | $ | 6,487,820 |
| | $ | 558,548 |
| | $ | 4,057,225 |
| | $ | (6,473,284 | ) | | $ | 9,904,916 |
| $ | 5,965,411 |
| | $ | 7,029,115 |
| | $ | 543,036 |
| | $ | 4,131,225 |
| | $ | (7,996,653 | ) | | $ | 9,672,134 |
|
| |
(1) | Included within Cash and Cash Equivalents at March 31, 2017 is approximately $58,200 and $144,100 of cash on deposit associated with our Cash Pools for the Guarantor and Non-Guarantors, respectively. See Note 5 for more information on our Cash Pools. |
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| | | Three Months Ended September 30, 2015 | Three Months Ended March 31, 2016 |
| Parent | | Guarantors | | Canada Company | | Non- Guarantors | | Eliminations | | Consolidated | Parent | | Guarantors | | Canada Company | | Non- Guarantors | | Eliminations | | Consolidated |
Revenues: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Storage rental | $ | — |
| | $ | 308,336 |
| | $ | 29,164 |
| | $ | 122,552 |
| | $ | — |
| | $ | 460,052 |
| $ | — |
| | $ | 313,619 |
| | $ | 27,605 |
| | $ | 119,987 |
| | $ | — |
| | $ | 461,211 |
|
Service | — |
| | 181,230 |
| | 14,558 |
| | 90,689 |
| | — |
| | 286,477 |
| — |
| | 188,908 |
| | 14,642 |
| | 85,929 |
| | — |
| | 289,479 |
|
Intercompany service | — |
| | 1,042 |
| | — |
| | 16,243 |
| | (17,285 | ) | | — |
| |
Intercompany revenues | | — |
| | 1,013 |
| | — |
| | 17,345 |
| | (18,358 | ) | | — |
|
Total Revenues | — |
| | 490,608 |
| | 43,722 |
| | 229,484 |
| | (17,285 | ) | | 746,529 |
| — |
| | 503,540 |
| | 42,247 |
| | 223,261 |
| | (18,358 | ) | | 750,690 |
|
Operating Expenses: | |
| | |
| | |
| | |
| | |
| |
|
| |
| | |
| | |
| | |
| | |
| |
|
|
Cost of sales (excluding depreciation and amortization) | — |
| | 196,060 |
| | 6,008 |
| | 115,595 |
| | — |
| | 317,663 |
| — |
| | 208,154 |
| | 6,790 |
| | 111,161 |
| | — |
| | 326,105 |
|
Selling, general and administrative | 19 |
| | 154,202 |
| | 3,565 |
| | 57,907 |
| | — |
| | 215,693 |
| 72 |
| | 150,019 |
| | 3,373 |
| | 54,302 |
| | — |
| | 207,766 |
|
Intercompany service charges | — |
| | 3,257 |
| | 12,986 |
| | 1,042 |
| | (17,285 | ) | | — |
| |
Intercompany cost of sales | | — |
| | 3,354 |
| | 13,991 |
| | 1,013 |
| | (18,358 | ) | | — |
|
Depreciation and amortization | 45 |
| | 56,145 |
| | 3,089 |
| | 27,213 |
| | — |
| | 86,492 |
| 45 |
| | 56,926 |
| | 3,079 |
| | 27,154 |
| | — |
| | 87,204 |
|
(Gain) Loss on disposal/write-down of property, plant and equipment (excluding real estate), net | — |
| | (197 | ) | | 34 |
| | 22 |
| | — |
| | (141 | ) | — |
| | (570 | ) | | 6 |
| | 113 |
| | — |
| | (451 | ) |
Total Operating Expenses | 64 |
| | 409,467 |
| | 25,682 |
| | 201,779 |
| | (17,285 | ) | | 619,707 |
| 117 |
| | 417,883 |
| | 27,239 |
| | 193,743 |
| | (18,358 | ) | | 620,624 |
|
Operating (Loss) Income | (64 | ) | | 81,141 |
| | 18,040 |
| | 27,705 |
| | — |
| | 126,822 |
| (117 | ) | | 85,657 |
| | 15,008 |
| | 29,518 |
| | — |
| | 130,066 |
|
Interest Expense (Income), Net | 39,302 |
| | (7,281 | ) | | 7,784 |
| | 25,330 |
| | — |
| | 65,135 |
| 39,984 |
| | (8,509 | ) | | 10,034 |
| | 25,553 |
| | — |
| | 67,062 |
|
Other Expense (Income), Net | 686 |
| | 1,577 |
| | (98 | ) | | 33,081 |
| | — |
| | 35,246 |
| 886 |
| | 3,456 |
| | (20 | ) | | (16,259 | ) | | — |
| | (11,937 | ) |
(Loss) Income from Continuing Operations Before (Benefit) Provision for Income Taxes and Gain on Real Estate | (40,052 | ) | | 86,845 |
| | 10,354 |
| | (30,706 | ) | | — |
| | 26,441 |
| |
(Benefit) Provision for Income Taxes | — |
| | (5,210 | ) | | 3,041 |
| | 5,943 |
| | — |
| | 3,774 |
| |
Gain on Sale of Real Estate, Net of Tax | — |
| | — |
| | — |
| | (850 | ) | | — |
| | (850 | ) | |
(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes | | (40,987 | ) | | 90,710 |
| | 4,994 |
| | 20,224 |
| | — |
| | 74,941 |
|
Provision (Benefit) for Income Taxes | | — |
| | 9,070 |
| | 1,866 |
| | 964 |
| | — |
| | 11,900 |
|
Equity in the (Earnings) Losses of Subsidiaries, Net of Tax | (63,162 | ) | | 28,343 |
| | (605 | ) | | (7,313 | ) | | 42,737 |
| | — |
| (103,761 | ) | | (22,374 | ) | | (1,371 | ) | | (3,128 | ) | | 130,634 |
| | — |
|
Net Income (Loss) | 23,110 |
| | 63,712 |
| | 7,918 |
| | (28,486 | ) | | (42,737 | ) | | 23,517 |
| 62,774 |
| | 104,014 |
| | 4,499 |
| | 22,388 |
| | (130,634 | ) | | 63,041 |
|
Less: Net Income (Loss) Attributable to Noncontrolling Interests | — |
| | — |
| | — |
| | 407 |
| | — |
| | 407 |
| — |
| | — |
| | — |
| | 267 |
| | — |
| | 267 |
|
Net Income (Loss) Attributable to Iron Mountain Incorporated | $ | 23,110 |
| | $ | 63,712 |
| | $ | 7,918 |
| | $ | (28,893 | ) | | $ | (42,737 | ) | | $ | 23,110 |
| $ | 62,774 |
| | $ | 104,014 |
| | $ | 4,499 |
| | $ | 22,121 |
| | $ | (130,634 | ) | | $ | 62,774 |
|
Net Income (Loss) | $ | 23,110 |
| | $ | 63,712 |
| | $ | 7,918 |
| | $ | (28,486 | ) | | $ | (42,737 | ) | | $ | 23,517 |
| $ | 62,774 |
| | $ | 104,014 |
| | $ | 4,499 |
| | $ | 22,388 |
| | $ | (130,634 | ) | | $ | 63,041 |
|
Other Comprehensive Income (Loss): | | | | | | | | | | | | | | | | | | | | | | |
Foreign Currency Translation Adjustments | (85 | ) | | — |
| | (7,709 | ) | | (26,800 | ) | | — |
| | (34,594 | ) | (1,342 | ) | | — |
| | 1,789 |
| | 23,531 |
| | — |
| | 23,978 |
|
Market Value Adjustments for Securities | — |
| | (134 | ) | | — |
| | — |
| | — |
| | (134 | ) | — |
| | (734 | ) | | — |
| | — |
| | — |
| | (734 | ) |
Equity in Other Comprehensive (Loss) Income of Subsidiaries | (33,852 | ) | | (33,637 | ) | | (1,805 | ) | | (7,709 | ) | | 77,003 |
| | — |
| |
Total Other Comprehensive (Loss) Income | (33,937 | ) | | (33,771 | ) | | (9,514 | ) | | (34,509 | ) | | 77,003 |
| | (34,728 | ) | |
Comprehensive (Loss) Income | (10,827 | ) | | 29,941 |
| | (1,596 | ) | | (62,995 | ) | | 34,266 |
| | (11,211 | ) | |
Equity in Other Comprehensive Income (Loss) of Subsidiaries | | 24,099 |
| | 24,099 |
| | 661 |
| | 1,789 |
| | (50,648 | ) | | — |
|
Total Other Comprehensive Income (Loss) | | 22,757 |
| | 23,365 |
| | 2,450 |
| | 25,320 |
| | (50,648 | ) | | 23,244 |
|
Comprehensive Income (Loss) | | 85,531 |
| | 127,379 |
| | 6,949 |
| | 47,708 |
| | (181,282 | ) | | 86,285 |
|
Comprehensive Income (Loss) Attributable to Noncontrolling Interests | — |
| | — |
| | — |
| | (384 | ) | | — |
| | (384 | ) | — |
| | — |
| | — |
| | 754 |
| | — |
| | 754 |
|
Comprehensive (Loss) Income Attributable to Iron Mountain Incorporated | $ | (10,827 | ) | | $ | 29,941 |
| | $ | (1,596 | ) | | $ | (62,611 | ) | | $ | 34,266 |
| | $ | (10,827 | ) | |
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated | | $ | 85,531 |
| | $ | 127,379 |
| | $ | 6,949 |
| | $ | 46,954 |
| | $ | (181,282 | ) | | $ | 85,531 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Continued)
| | | Three Months Ended September 30, 2016 | Three Months Ended March 31, 2017 |
| Parent | | Guarantors | | Canada Company | | Non- Guarantors | | Eliminations | | Consolidated | Parent | | Guarantors | | Canada Company | | Non- Guarantors | | Eliminations | | Consolidated |
Revenues: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Storage rental | $ | — |
| | $ | 347,174 |
| | $ | 33,102 |
| | $ | 196,189 |
| | $ | — |
| | $ | 576,465 |
| $ | — |
| | $ | 349,351 |
| | $ | 32,006 |
| | $ | 190,922 |
| | $ | — |
| | $ | 572,279 |
|
Service | — |
| | 212,640 |
| | 16,344 |
| | 137,373 |
| | — |
| | 366,357 |
| — |
| | 218,209 |
| | 16,050 |
| | 132,338 |
| | — |
| | 366,597 |
|
Intercompany service | — |
| | 981 |
| | — |
| | 20,561 |
| | (21,542 | ) | | — |
| |
Intercompany revenues | | — |
| | 1,097 |
| | — |
| | 22,342 |
| | (23,439 | ) | | — |
|
Total Revenues | — |
| | 560,795 |
| | 49,446 |
| | 354,123 |
| | (21,542 | ) | | 942,822 |
| — |
| | 568,657 |
| | 48,056 |
| | 345,602 |
| | (23,439 | ) | | 938,876 |
|
Operating Expenses: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Cost of sales (excluding depreciation and amortization) | — |
| | 234,791 |
| | 7,942 |
| | 187,075 |
| | — |
| | 429,808 |
| — |
| | 239,329 |
| | 7,550 |
| | 179,828 |
| | — |
| | 426,707 |
|
Selling, general and administrative | 28 |
| | 163,997 |
| | 5,084 |
| | 83,835 |
| | — |
| | 252,944 |
| 79 |
| | 162,705 |
| | 3,561 |
| | 73,821 |
| | — |
| | 240,166 |
|
Intercompany service charges | — |
| | 4,104 |
| | 16,457 |
| | 981 |
| | (21,542 | ) | | — |
| |
Intercompany cost of sales | | — |
| | 6,606 |
| | 15,736 |
| | 1,097 |
| | (23,439 | ) | | — |
|
Depreciation and amortization | 45 |
| | 73,284 |
| | 4,266 |
| | 47,075 |
| | — |
| | 124,670 |
| 46 |
| | 76,161 |
| | 4,238 |
| | 44,262 |
| | — |
| | 124,707 |
|
(Gain) Loss on disposal/write-down of property, plant and equipment (excluding real estate), net | — |
| | 101 |
| | — |
| | (155 | ) | | — |
| | (54 | ) | — |
| | (548 | ) | | 2 |
| | 87 |
| | — |
| | (459 | ) |
Total Operating Expenses | 73 |
| | 476,277 |
| | 33,749 |
| | 318,811 |
| | (21,542 | ) | | 807,368 |
| 125 |
| | 484,253 |
| | 31,087 |
| | 299,095 |
| | (23,439 | ) | | 791,121 |
|
Operating (Loss) Income | (73 | ) | | 84,518 |
| | 15,697 |
| | 35,312 |
| | — |
| | 135,454 |
| (125 | ) | | 84,404 |
| | 16,969 |
| | 46,507 |
| | — |
| | 147,755 |
|
Interest Expense (Income), Net | 21,689 |
| | (4,074 | ) | | 11,929 |
| | 53,756 |
| | — |
| | 83,300 |
| 42,784 |
| | (3,279 | ) | | 11,670 |
| | 34,880 |
| | — |
| | 86,055 |
|
Other Expense (Income), Net | (6,962 | ) | | 2,815 |
| | 8,872 |
| | 18,577 |
| | — |
| | 23,302 |
| 81 |
| | 2,519 |
| | (27 | ) | | (8,937 | ) | | — |
| | (6,364 | ) |
(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes and Gain on Sale of Real Estate | (14,800 | ) |
| 85,777 |
|
| (5,104 | ) |
| (37,021 | ) |
| — |
|
| 28,852 |
| |
(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes | | (42,990 | ) |
| 85,164 |
|
| 5,326 |
|
| 20,564 |
|
| — |
|
| 68,064 |
|
Provision (Benefit) for Income Taxes | — |
| | 22,326 |
| | 786 |
| | 306 |
| | — |
| | 23,418 |
| — |
| | 12,744 |
| | (3,488 | ) | | (36 | ) | | — |
| | 9,220 |
|
Gain on Sale of Real Estate, Net of Tax | — |
| | (266 | ) | | (59 | ) | | — |
| | — |
| | (325 | ) | |
Equity in the (Earnings) Losses of Subsidiaries, Net of Tax | (21,880 | ) | | 10,144 |
| | (675 | ) | | 5,182 |
| | 7,229 |
| | — |
| (101,115 | ) | | (23,413 | ) | | (157 | ) | | (8,814 | ) | | 133,499 |
| | — |
|
(Loss) Income from Continuing Operations | 7,080 |
| | 53,573 |
| | (5,156 | ) | | (42,509 | ) | | (7,229 | ) | | 5,759 |
| |
Income (Loss) from Continuing Operations | | 58,125 |
| | 95,833 |
| | 8,971 |
| | 29,414 |
| | (133,499 | ) | | 58,844 |
|
Income (Loss) from Discontinued Operations, Net of Tax | — |
| | 1,464 |
| | 649 |
| | (72 | ) | | — |
| | 2,041 |
| — |
| | 198 |
| | — |
| | (535 | ) | | — |
| | (337 | ) |
Net (Loss) Income | 7,080 |
| | 55,037 |
| | (4,507 | ) | | (42,581 | ) | | (7,229 | ) | | 7,800 |
| |
Net Income (Loss) | | 58,125 |
| | 96,031 |
| | 8,971 |
| | 28,879 |
| | (133,499 | ) | | 58,507 |
|
Less: Net Income (Loss) Attributable to Noncontrolling Interests | — |
| | — |
| | — |
| | 720 |
| | — |
| | 720 |
| — |
| | — |
| | — |
| | 382 |
| | — |
| | 382 |
|
Net (Loss) Income Attributable to Iron Mountain Incorporated | $ | 7,080 |
| | $ | 55,037 |
| | $ | (4,507 | ) | | $ | (43,301 | ) | | $ | (7,229 | ) | | $ | 7,080 |
| |
Net (Loss) Income | $ | 7,080 |
| | $ | 55,037 |
| | $ | (4,507 | ) | | $ | (42,581 | ) | | $ | (7,229 | ) | | $ | 7,800 |
| |
Net Income (Loss) Attributable to Iron Mountain Incorporated | | $ | 58,125 |
| | $ | 96,031 |
| | $ | 8,971 |
| | $ | 28,497 |
| | $ | (133,499 | ) | | $ | 58,125 |
|
Net Income (Loss) | | $ | 58,125 |
| | $ | 96,031 |
| | $ | 8,971 |
| | $ | 28,879 |
| | $ | (133,499 | ) | | $ | 58,507 |
|
Other Comprehensive Income (Loss): | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Foreign Currency Translation Adjustments | (313 | ) | | — |
| | (2,803 | ) | | 14,420 |
| | — |
| | 11,304 |
| (1,072 | ) | | — |
| | 635 |
| | 51,221 |
| | — |
| | 50,784 |
|
Equity in Other Comprehensive Income (Loss) of Subsidiaries | 11,156 |
| | 12,378 |
| | (152 | ) | | (2,803 | ) | | (20,579 | ) | | — |
| 52,406 |
| | 28,540 |
| | 287 |
| | 635 |
| | (81,868 | ) | | — |
|
Total Other Comprehensive Income (Loss) | 10,843 |
| | 12,378 |
| | (2,955 | ) | | 11,617 |
| | (20,579 | ) | | 11,304 |
| 51,334 |
| | 28,540 |
| | 922 |
| | 51,856 |
| | (81,868 | ) | | 50,784 |
|
Comprehensive (Loss) Income | 17,923 |
| | 67,415 |
| | (7,462 | ) | | (30,964 | ) | | (27,808 | ) | | 19,104 |
| |
Comprehensive Income (Loss) Attributable to Noncontrolling Interests | — |
| | — |
| | — |
| | 1,181 |
| | — |
| | 1,181 |
| |
Comprehensive (Loss) Income Attributable to Iron Mountain Incorporated | $ | 17,923 |
| | $ | 67,415 |
| | $ | (7,462 | ) | | $ | (32,145 | ) | | $ | (27,808 | ) | | $ | 17,923 |
| |
Comprehensive Income (Loss) | | 109,459 |
| | 124,571 |
| | 9,893 |
| | 80,735 |
| | (215,367 | ) | | 109,291 |
|
Comprehensive (Loss) Income Attributable to Noncontrolling Interests | | — |
| | — |
| | — |
| | (168 | ) | | — |
| | (168 | ) |
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated | | $ | 109,459 |
| | $ | 124,571 |
| | $ | 9,893 |
| | $ | 80,903 |
| | $ | (215,367 | ) | | $ | 109,459 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2015 |
| Parent | | Guarantors | | Canada Company | | Non- Guarantors | | Eliminations | | Consolidated |
Revenues: | |
| | |
| | |
| | |
| | |
| | |
|
Storage rental | $ | — |
| | $ | 918,841 |
| | $ | 90,836 |
| | $ | 370,456 |
| | $ | — |
| | $ | 1,380,133 |
|
Service | — |
| | 551,363 |
| | 47,223 |
| | 276,830 |
| | — |
| | 875,416 |
|
Intercompany service | — |
| | 2,449 |
| | — |
| | 54,788 |
| | (57,237 | ) | | — |
|
Total Revenues | — |
| | 1,472,653 |
| | 138,059 |
| | 702,074 |
| | (57,237 | ) | | 2,255,549 |
|
Operating Expenses: | |
| | |
| | |
| | |
| | |
| | |
|
Cost of sales (excluding depreciation and amortization) | — |
| | 588,801 |
| | 19,815 |
| | 356,984 |
| | — |
| | 965,600 |
|
Selling, general and administrative | 116 |
| | 435,445 |
| | 11,527 |
| | 180,904 |
| | — |
| | 627,992 |
|
Intercompany service charges | — |
| | 9,657 |
| | 45,131 |
| | 2,449 |
| | (57,237 | ) | | — |
|
Depreciation and amortization | 136 |
| | 167,908 |
| | 9,306 |
| | 82,642 |
| | — |
| | 259,992 |
|
Loss (Gain) on disposal/write-down of property, plant and equipment (excluding real estate), net | — |
| | 565 |
| | 34 |
| | 108 |
| | — |
| | 707 |
|
Total Operating Expenses | 252 |
| | 1,202,376 |
| | 85,813 |
| | 623,087 |
| | (57,237 | ) | | 1,854,291 |
|
Operating (Loss) Income | (252 | ) | | 270,277 |
| | 52,246 |
| | 78,987 |
| | — |
| | 401,258 |
|
Interest Expense (Income), Net | 117,694 |
| | (20,373 | ) | | 24,329 |
| | 74,470 |
| | — |
| | 196,120 |
|
Other (Income) Expense, Net | (225 | ) | | 6,099 |
| | (235 | ) | | 53,960 |
| | — |
| | 59,599 |
|
(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes and Gain on Real Estate | (117,721 | ) | | 284,551 |
| | 28,152 |
| | (49,443 | ) | | — |
| | 145,539 |
|
Provision (Benefit) for Income Taxes | — |
| | 3,455 |
| | 10,900 |
| | 12,771 |
| | — |
| | 27,126 |
|
Gain on Sale of Real Estate, Net of Tax | — |
| | — |
| | — |
| | (850 | ) | | — |
| | (850 | ) |
Equity in the (Earnings) Losses of Subsidiaries, Net of Tax | (235,257 | ) | | 46,440 |
| | (2,538 | ) | | (17,252 | ) | | 208,607 |
| | — |
|
Net Income (Loss) | 117,536 |
| | 234,656 |
| | 19,790 |
| | (44,112 | ) | | (208,607 | ) | | 119,263 |
|
Less: Net Income (Loss) Attributable to Noncontrolling Interests | — |
| | — |
| | — |
| | 1,727 |
| | — |
| | 1,727 |
|
Net Income (Loss) Attributable to Iron Mountain Incorporated | $ | 117,536 |
| | $ | 234,656 |
| | $ | 19,790 |
| | $ | (45,839 | ) | | $ | (208,607 | ) | | $ | 117,536 |
|
Net Income (Loss) | $ | 117,536 |
| | $ | 234,656 |
| | $ | 19,790 |
| | $ | (44,112 | ) | | $ | (208,607 | ) | | $ | 119,263 |
|
Other Comprehensive (Loss) Income: | |
| | |
| | |
| | |
| | |
| | |
|
Foreign Currency Translation Adjustments | 3,381 |
| | — |
| | (14,612 | ) | | (78,538 | ) | | — |
| | (89,769 | ) |
Market Value Adjustments for Securities | — |
| | (111 | ) | | — |
| | — |
| | — |
| | (111 | ) |
Equity in Other Comprehensive (Loss) Income of Subsidiaries | (92,037 | ) | | (91,626 | ) | | (3,270 | ) | | (14,612 | ) | | 201,545 |
| | — |
|
Total Other Comprehensive (Loss) Income | (88,656 | ) | | (91,737 | ) | | (17,882 | ) | | (93,150 | ) | | 201,545 |
| | (89,880 | ) |
Comprehensive Income (Loss) | 28,880 |
| | 142,919 |
| | 1,908 |
| | (137,262 | ) | | (7,062 | ) | | 29,383 |
|
Comprehensive Income (Loss) Attributable to Noncontrolling Interests | — |
| | — |
| | — |
| | 503 |
| | — |
| | 503 |
|
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated | $ | 28,880 |
| | $ | 142,919 |
| | $ | 1,908 |
| | $ | (137,765 | ) | | $ | (7,062 | ) | | $ | 28,880 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
| Parent | | Guarantors | | Canada Company | | Non- Guarantors | | Eliminations | | Consolidated |
Revenues: | |
| | |
| | |
| | |
| | |
| | |
|
Storage rental | $ | — |
| | $ | 995,206 |
| | $ | 93,038 |
| | $ | 488,114 |
| | $ | — |
| | $ | 1,576,358 |
|
Service | — |
| | 604,414 |
| | 47,893 |
| | 348,595 |
| | — |
| | 1,000,902 |
|
Intercompany service | — |
| | 3,007 |
| | — |
| | 57,809 |
| | (60,816 | ) | | — |
|
Total Revenues | — |
| | 1,602,627 |
| | 140,931 |
| | 894,518 |
| | (60,816 | ) | | 2,577,260 |
|
Operating Expenses: | |
| | |
| | |
| | |
| | |
| |
|
|
Cost of sales (excluding depreciation and amortization) | — |
| | 665,207 |
| | 21,661 |
| | 464,694 |
| | — |
| | 1,151,562 |
|
Selling, general and administrative | 621 |
| | 506,987 |
| | 13,052 |
| | 217,127 |
| | — |
| | 737,787 |
|
Intercompany service charges | — |
| | 11,267 |
| | 46,542 |
| | 3,007 |
| | (60,816 | ) | | — |
|
Depreciation and amortization | 134 |
| | 198,749 |
| | 11,307 |
| | 116,706 |
| | — |
| | 326,896 |
|
(Gain) Loss on disposal/write-down of property, plant and equipment (excluding real estate), net | — |
| | (1,311 | ) | | 6 |
| | 174 |
| | — |
| | (1,131 | ) |
Total Operating Expenses | 755 |
| | 1,380,899 |
| | 92,568 |
| | 801,708 |
| | (60,816 | ) | | 2,215,114 |
|
Operating (Loss) Income | (755 | ) | | 221,728 |
| | 48,363 |
| | 92,810 |
| | — |
| | 362,146 |
|
Interest Expense (Income), Net | 89,742 |
| | (18,654 | ) | | 33,311 |
| | 120,829 |
| | — |
| | 225,228 |
|
Other Expense (Income), Net | 44,769 |
| | 6,987 |
| | 8,916 |
| | (23,666 | ) | | — |
| | 37,006 |
|
(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes and Gain on Sale of Real Estate | (135,266 | ) | | 233,395 |
| | 6,136 |
| | (4,353 | ) | | — |
| | 99,912 |
|
Provision (Benefit) for Income Taxes | — |
| | 39,327 |
| | 4,826 |
| | 2,004 |
| | — |
| | 46,157 |
|
Gain on Sale of Real Estate, Net of Tax | — |
| | (266 | ) | | (59 | ) | | — |
| | — |
| | (325 | ) |
Equity in the (Earnings) Losses of Subsidiaries, Net of Tax | (191,152 | ) | | (43,724 | ) | | (3,361 | ) | | (2,653 | ) | | 240,890 |
| | — |
|
Income (Loss) from Continuing Operations | 55,886 |
| | 238,058 |
| | 4,730 |
| | (3,704 | ) | | (240,890 | ) | | 54,080 |
|
Income (Loss) from Discontinued Operations, Net of Tax | — |
| | 2,354 |
| | 1,284 |
| | (10 | ) | | — |
| | 3,628 |
|
Net Income (Loss) | 55,886 |
| | 240,412 |
| | 6,014 |
| | (3,714 | ) | | (240,890 | ) | | 57,708 |
|
Less: Net Income (Loss) Attributable to Noncontrolling Interests | — |
| | — |
| | — |
| | 1,822 |
| | — |
| | 1,822 |
|
Net Income (Loss) Attributable to Iron Mountain Incorporated | $ | 55,886 |
| | $ | 240,412 |
| | $ | 6,014 |
| | $ | (5,536 | ) | | $ | (240,890 | ) | | $ | 55,886 |
|
Net Income (Loss) | $ | 55,886 |
| | $ | 240,412 |
| | $ | 6,014 |
| | $ | (3,714 | ) | | $ | (240,890 | ) | | $ | 57,708 |
|
Other Comprehensive Income (Loss): | |
| | |
| | |
| | |
| | |
| | |
|
Foreign Currency Translation Adjustments | (901 | ) | | — |
| | (5,908 | ) | | 44,880 |
| | — |
| | 38,071 |
|
Market Value Adjustments for Securities | — |
| | (734 | ) | | — |
| | — |
| | — |
| | (734 | ) |
Equity in Other Comprehensive Income (Loss) of Subsidiaries | 37,372 |
| | 33,908 |
| | 461 |
| | (5,908 | ) | | (65,833 | ) | | — |
|
Total Other Comprehensive Income (Loss) | 36,471 |
| | 33,174 |
| | (5,447 | ) | | 38,972 |
| | (65,833 | ) | | 37,337 |
|
Comprehensive Income (Loss) | 92,357 |
| | 273,586 |
| | 567 |
| | 35,258 |
| | (306,723 | ) | | 95,045 |
|
Comprehensive Income (Loss) Attributable to Noncontrolling Interests | — |
| | — |
| | — |
| | 2,688 |
| | — |
| | 2,688 |
|
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated | $ | 92,357 |
| | $ | 273,586 |
| | $ | 567 |
| | $ | 32,570 |
| | $ | (306,723 | ) | | $ | 92,357 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | Nine Months Ended September 30, 2015 | Three Months Ended March 31, 2016 |
| Parent | | Guarantors | | Canada Company | | Non- Guarantors | | Eliminations | | Consolidated | Parent | | Guarantors | | Canada Company | | Non- Guarantors | | Eliminations | | Consolidated |
Cash Flows from Operating Activities: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Cash Flows from Operating Activities | $ | (130,151 | ) | | $ | 365,002 |
| | $ | 27,249 |
| | $ | 57,995 |
| | $ | — |
| | $ | 320,095 |
| $ | (48,737 | ) | | $ | 121,636 |
| | $ | 6,477 |
| | $ | 1,742 |
| | $ | — |
| | $ | 81,118 |
|
Cash Flows from Investing Activities: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Capital expenditures | — |
| | (128,461 | ) | | (11,341 | ) | | (62,779 | ) | | — |
| | (202,581 | ) | — |
| | (61,886 | ) | | (1,007 | ) | | (17,959 | ) | | — |
| | (80,852 | ) |
Cash paid for acquisitions, net of cash acquired | — |
| | (9,871 | ) | | (5,260 | ) | | (12,844 | ) | | — |
| | (27,975 | ) | — |
| | — |
| | 130 |
| | (19,470 | ) | | — |
| | (19,340 | ) |
Intercompany loans to subsidiaries | (290,254 | ) | | 136,995 |
| | — |
| | — |
| | 153,259 |
| | — |
| 166,442 |
| | 31,987 |
| | — |
| | — |
| | (198,429 | ) | | — |
|
Investment in subsidiaries | (16,000 | ) | | (16,000 | ) | | — |
| | — |
| | 32,000 |
| | — |
| (1,585 | ) | | (1,585 | ) | | — |
| | — |
| | 3,170 |
| | — |
|
Decrease in restricted cash | 33,860 |
| | — |
| | — |
| | — |
| | — |
| | 33,860 |
| |
Acquisitions of customer relationships and customer inducements | — |
| | (26,920 | ) | | (677 | ) | | (7,566 | ) | | — |
| | (35,163 | ) | — |
| | (4,733 | ) | | — |
| | (2,525 | ) | | — |
| | (7,258 | ) |
Proceeds from sales of property and equipment and other, net (including real estate) | — |
| | 475 |
| | 32 |
| | 1,525 |
| | — |
| | 2,032 |
| — |
| | 50 |
| | — |
| | 119 |
| | — |
| | 169 |
|
Cash Flows from Investing Activities | (272,394 | ) | | (43,782 | ) | | (17,246 | ) | | (81,664 | ) | | 185,259 |
| | (229,827 | ) | 164,857 |
| | (36,167 | ) | | (877 | ) | | (39,835 | ) | | (195,259 | ) | | (107,281 | ) |
Cash Flows from Financing Activities: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Repayment of revolving credit and term loan facilities and other debt | — |
| | (6,732,070 | ) | | (510,109 | ) | | (1,297,398 | ) | | — |
| | (8,539,577 | ) | (8,463 | ) | | (1,422,545 | ) | | (383,896 | ) | | (569,311 | ) | | — |
| | (2,384,215 | ) |
Proceeds from revolving credit and term loan facilities and other debt | — |
| | 6,169,400 |
| | 507,741 |
| | 1,465,302 |
| | — |
| | 8,142,443 |
| — |
| | 1,500,499 |
| | 370,816 |
| | 638,530 |
| | — |
| | 2,509,845 |
|
Net proceeds from sales of senior notes | 985,000 |
| | — |
| | — |
| | — |
| | — |
| | 985,000 |
| |
Debt (repayment to) financing from and equity (distribution to) contribution from noncontrolling interests, net | — |
| | — |
| | — |
| | (1,260 | ) | | — |
| | (1,260 | ) | |
Debt financing from (repayment to) and equity contribution from (distribution to) noncontrolling interests, net | | — |
| | — |
| | — |
| | 885 |
| | — |
| | 885 |
|
Intercompany loans from parent | — |
| | 298,690 |
| | (636 | ) | | (144,795 | ) | | (153,259 | ) | | — |
| — |
| | (167,514 | ) | | (1,111 | ) | | (29,804 | ) | | 198,429 |
| | — |
|
Equity contribution from parent | — |
| | 16,000 |
| | — |
| | 16,000 |
| | (32,000 | ) | | — |
| — |
| | 1,585 |
| | — |
| | 1,585 |
| | (3,170 | ) | | — |
|
Parent cash dividends | (303,712 | ) | | — |
| | — |
| | — |
| | — |
| | (303,712 | ) | (104,931 | ) | | — |
| | — |
| | — |
| | — |
| | (104,931 | ) |
Net proceeds (payments) associated with employee stock-based awards | 13,988 |
| | — |
| | — |
| | — |
| | — |
| | 13,988 |
| |
Excess tax benefit (deficiency) from stock-based compensation | 323 |
| | — |
| | — |
| | — |
| | — |
| | 323 |
| |
Payment of debt financing and stock issuance costs | (29 | ) | | (10,661 | ) | | — |
| | (975 | ) | | — |
| | (11,665 | ) | |
Net (payments) proceeds associated with employee stock-based awards | | (1,975 | ) | | — |
| | — |
| | — |
| | — |
| | (1,975 | ) |
Excess tax (deficiency) benefit from stock-based compensation | | (348 | ) | | — |
| | — |
| | — |
| | — |
| | (348 | ) |
Cash Flows from Financing Activities | 695,570 |
| | (258,641 | ) | | (3,004 | ) | | 36,874 |
| | (185,259 | ) | | 285,540 |
| (115,717 | ) | | (87,975 | ) | | (14,191 | ) | | 41,885 |
| | 195,259 |
| | 19,261 |
|
Effect of exchange rates on cash and cash equivalents | — |
| | (67 | ) | | (802 | ) | | (7,973 | ) | | — |
| | (8,842 | ) | — |
| | — |
| | (608 | ) | | (2,926 | ) | | — |
| | (3,534 | ) |
Increase (Decrease) in cash and cash equivalents | 293,025 |
| | 62,512 |
| | 6,197 |
| | 5,232 |
| | — |
| | 366,966 |
| 403 |
| | (2,506 | ) | | (9,199 | ) | | 866 |
| | — |
| | (10,436 | ) |
Cash and cash equivalents, beginning of period | 2,399 |
| | 4,713 |
| | 4,979 |
| | 113,842 |
| | — |
| | 125,933 |
| 151 |
| | 7,803 |
| | 13,182 |
| | 107,245 |
| | — |
| | 128,381 |
|
Cash and cash equivalents, end of period | $ | 295,424 |
| | $ | 67,225 |
| | $ | 11,176 |
| | $ | 119,074 |
| | $ | — |
| | $ | 492,899 |
| $ | 554 |
| | $ | 5,297 |
| | $ | 3,983 |
| | $ | 108,111 |
| | $ | — |
| | $ | 117,945 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
| | | Nine Months Ended September 30, 2016 | Three Months Ended March 31, 2017 |
| Parent | | Guarantors | | Canada Company | | Non- Guarantors | | Eliminations | | Consolidated | Parent | | Guarantors | | Canada Company | | Non- Guarantors | | Eliminations | | Consolidated |
Cash Flows from Operating Activities: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Cash Flows from Operating Activities—Continuing Operations | $ | (122,725 | ) | | $ | 426,082 |
| | $ | 31,171 |
| | $ | 84,424 |
| | $ | — |
| | $ | 418,952 |
| $ | (41,288 | ) | | $ | 136,411 |
| | $ | 5,291 |
| | $ | 21,760 |
| | $ | — |
| | $ | 122,174 |
|
Cash Flows from Operating Activities—Discontinued Operations | — |
| | 2,213 |
| | 1,443 |
| | (16 | ) | | — |
| | 3,640 |
| — |
| | 198 |
| | (535 | ) | | — |
| | — |
| | (337 | ) |
Cash Flows from Operating Activities | (122,725 | ) | | 428,295 |
| | 32,614 |
| | 84,408 |
| | — |
| | 422,592 |
| (41,288 | ) | | 136,609 |
| | 4,756 |
| | 21,760 |
| | — |
| | 121,837 |
|
Cash Flows from Investing Activities: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Capital expenditures | — |
| | (151,785 | ) | | (6,219 | ) | | (88,025 | ) | | — |
| | (246,029 | ) | — |
| | (53,175 | ) | | (2,555 | ) | | (17,472 | ) | | — |
| | (73,202 | ) |
Cash paid for acquisitions, net of cash acquired | — |
| | 4,057 |
| | (2,381 | ) | | (278,047 | ) | | — |
| | (276,371 | ) | — |
| | (6,380 | ) | | — |
| | (5,807 | ) | | — |
| | (12,187 | ) |
Intercompany loans to subsidiaries | (11,220 | ) | | (183,281 | ) | | — |
| | — |
| | 194,501 |
| | — |
| (1,187 | ) | | (72,807 | ) | | — |
| | (478 | ) | | 74,472 |
| | — |
|
Investment in subsidiaries | (1,585 | ) | | (1,585 | ) | | — |
| | — |
| | 3,170 |
| | — |
| (16,170 | ) | | — |
| | — |
| | — |
| | 16,170 |
| | — |
|
Acquisitions of customer relationships and customer inducements | — |
| | (32,989 | ) | | — |
| | (7,866 | ) | | — |
| | (40,855 | ) | — |
| | (20,653 | ) | | (271 | ) | | (479 | ) | | — |
| | (21,403 | ) |
Net proceeds from divestments (see Note 10) | — |
| | 53,950 |
| | — |
| |
|
| | — |
| | 53,950 |
| |
Net proceeds from Iron Mountain Divestments (see Note 10) | | — |
| | — |
| | — |
| | 2,423 |
| | — |
| | 2,423 |
|
Proceeds from sales of property and equipment and other, net (including real estate) | — |
| | 161 |
| | — |
| | 2,036 |
| | — |
| | 2,197 |
| — |
| | 93 |
| | 2 |
| | (29 | ) | | — |
| | 66 |
|
Cash Flows from Investing Activities—Continuing Operations | (12,805 | ) | | (311,472 | ) | | (8,600 | ) | | (371,902 | ) | | 197,671 |
| | (507,108 | ) | (17,357 | ) | | (152,922 | ) | | (2,824 | ) | | (21,842 | ) | | 90,642 |
| | (104,303 | ) |
Cash Flows from Investing Activities—Discontinued Operations | — |
| | (12 | ) | | — |
| | — |
| | — |
| | (12 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Cash Flows from Investing Activities | (12,805 | ) | | (311,484 | ) | | (8,600 | ) | | (371,902 | ) | | 197,671 |
| | (507,120 | ) | (17,357 | ) | | (152,922 | ) | | (2,824 | ) | | (21,842 | ) | | 90,642 |
| | (104,303 | ) |
Cash Flows from Financing Activities: | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Repayment of revolving credit, term loan and bridge facilities and other debt | (1,130,020 | ) | | (5,721,732 | ) | | (1,269,696 | ) | | (3,438,937 | ) | | — |
| | (11,560,385 | ) | |
Proceeds from revolving credit, term loan and bridge facilities and other debt | 1,116,995 |
| | 5,366,524 |
| | 1,130,193 |
| | 3,813,677 |
| | — |
| | 11,427,389 |
| |
Net proceeds from sales of senior notes | 492,500 |
| | 246,250 |
| | 186,693 |
| | — |
| | — |
| | 925,443 |
| |
Repayment of revolving credit and term loan facilities and other debt | | (31,733 | ) | | (1,495,558 | ) | | (71 | ) | | (1,154,986 | ) | | — |
| | (2,682,348 | ) |
Proceeds from revolving credit and term loan facilities and other debt | | 94,811 |
| | 1,423,653 |
| | — |
| | 1,196,319 |
| | — |
| | 2,714,783 |
|
Borrowings (payments) under cash pools | | — |
| | 138,693 |
| | — |
| | 47,129 |
| | (185,822 | ) | | — |
|
Debt financing from (repayment to) and equity contribution from (distribution to) noncontrolling interests, net | — |
| | — |
| | — |
| | (6 | ) | | — |
| | (6 | ) | — |
| | — |
| | — |
| | 10,668 |
| | — |
| | 10,668 |
|
Intercompany loans from parent | — |
| | 13,303 |
| | (67,169 | ) | | 248,367 |
| | (194,501 | ) | | — |
| — |
| | (9,305 | ) | | (12,680 | ) | | 96,457 |
| | (74,472 | ) | | — |
|
Equity contribution from parent | — |
| | 1,585 |
| | — |
| | 1,585 |
| | (3,170 | ) | | — |
| — |
| | — |
| | — |
| | 16,170 |
| | (16,170 | ) | | — |
|
Parent cash dividends | (360,462 | ) | | — |
| | — |
| | — |
| | — |
| | (360,462 | ) | (2,060 | ) | | — |
| | — |
| | — |
| | — |
| | (2,060 | ) |
Net proceeds (payments) associated with employee stock-based awards | 26,374 |
| | — |
| | — |
| | — |
| | — |
| | 26,374 |
| |
Excess tax benefit (deficiency) from stock-based compensation | 91 |
| | — |
| | — |
| | — |
| | — |
| | 91 |
| |
Net payments associated with employee stock-based awards | | (4,308 | ) | | — |
| | — |
| | — |
| | — |
| | (4,308 | ) |
Payment of debt financing and stock issuance costs | (8,389 | ) | | (4,500 | ) | | (531 | ) | | (3,687 | ) | | — |
| | (17,107 | ) | — |
| | — |
| | (73 | ) | | — |
| | — |
| | (73 | ) |
Cash Flows from Financing Activities—Continuing Operations | 137,089 |
| | (98,570 | ) | | (20,510 | ) | | 620,999 |
| | (197,671 | ) | | 441,337 |
| 56,710 |
| | 57,483 |
| | (12,824 | ) | | 211,757 |
| | (276,464 | ) | | 36,662 |
|
Cash Flows from Financing Activities—Discontinued Operations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Cash Flows from Financing Activities | 137,089 |
| | (98,570 | ) | | (20,510 | ) | | 620,999 |
| | (197,671 | ) | | 441,337 |
| 56,710 |
| | 57,483 |
| | (12,824 | ) | | 211,757 |
| | (276,464 | ) | | 36,662 |
|
Effect of exchange rates on cash and cash equivalents | — |
| | — |
| | (1,894 | ) | | (25,168 | ) | | — |
| | (27,062 | ) | — |
| | — |
| | (455 | ) | | 5,403 |
| | — |
| | 4,948 |
|
Increase (Decrease) in cash and cash equivalents | 1,559 |
| | 18,241 |
| | 1,610 |
| | 308,337 |
| | — |
| | 329,747 |
| |
(Decrease) Increase in cash and cash equivalents | | (1,935 | ) | | 41,170 |
| | (11,347 | ) | | 217,078 |
| | (185,822 | ) | | 59,144 |
|
Cash and cash equivalents, beginning of period | 151 |
| | 7,803 |
| | 13,182 |
| | 107,245 |
| | — |
| | 128,381 |
| 2,405 |
| | 23,380 |
| | 17,110 |
| | 193,589 |
| | — |
| | 236,484 |
|
Cash and cash equivalents, end of period | $ | 1,710 |
| | $ | 26,044 |
| | $ | 14,792 |
| | $ | 415,582 |
| | $ | — |
| | $ | 458,128 |
| $ | 470 |
| | $ | 64,550 |
| | $ | 5,763 |
| | $ | 410,667 |
| | $ | (185,822 | ) | | $ | 295,628 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(7) Segment Information
During the fourth quarter of 2015, as a result of changes in the senior management of our business in Norway, we determined that our Norway operations are now being managed as a component of our Other International Business segment rather than as a component of our Western European Business segment. As a result of this change, previously reported segment information has been restated to conform to the current presentation. There were no changes to our operating segments or our reportable operating segments as a result of the Recall Transaction.
Our five reportable operating segments as of December 31, 2016 are described in Note 9 to Notes to Consolidated Financial Statements included in our Annual Report and are as follows:
North American Records and Information Management Business—provides records and information management services, including the storage of physical records, including media such as microfilm and microfiche, master audio and videotapes, film, X-rays and blueprints, including healthcare information services, vital records services, service and courier operations, and the collection, handling and disposal of sensitive documents for corporate customers (“Records Management”); information destruction services (“Destruction”); and DMS throughout the United States and Canada; as well as fulfillment services and technology escrow services in the United States.Business
North American Data Management Business—provides storage and rotation of backup computer media as part of corporate disaster recovery plans, including service and courier operations (“Data Protection & Recovery”); server and computer backup services; digital content repository systems to house, distribute, and archive key media assets; and storage, safeguarding and electronic or physical delivery of physical media of all types, primarily for entertainment and media industry clients, throughout the United States and Canada.Business
Western European Business—provides records and information management services, including Records Management, Data Protection & Recovery and DMS throughout Austria, Belgium, France, Germany, Ireland, Netherlands, Spain, Switzerland and the United Kingdom, as well as DMS in Sweden.Business
Other International Business—provides records and information management services throughout the remaining European countries in which we operate, Latin America, Asia Pacific and Africa, including Records Management, Data Protection & Recovery and DMS. Our European operations provide records and information management services, including Records Management, Data Protection & Recovery and DMS throughout the Czech Republic, Denmark, Finland, Greece, Hungary, Norway, Poland, Romania, Russia, Serbia, Slovakia, Turkey and Ukraine; Records Management and DMS in Estonia, Latvia and Lithuania; and Records Management in Sweden. Our Latin America operations provide records and information management services, including Records Management, Data Protection & Recovery, Destruction and DMS throughout Argentina, Brazil, Chile, Colombia, Mexico and Peru. Our Asia Pacific operations provide records and information management services, including Records Management, Data Protection & Recovery and DMS throughout Australia and New Zealand, with Records Management and Data Protection & Recovery also provided in certain markets in China, Hong Kong-SAR, India, Malaysia, Singapore, Taiwan and Thailand. Our African operations provide Records Management, Data Protection & Recovery, and DMS in South Africa.Business
Corporate and Other Business—primarily consistsBusiness
There have been no changes made to our reportable operating segments since December 31, 2016. The operations associated with acquisitions completed during the first three months of 2017 (which are described in Note 4) have been incorporated into our existing reportable operating segments.
An analysis of our data centerbusiness segment information and fine art storage businessesreconciliation to the accompanying Consolidated Financial Statements is as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | North American Records and Information Management Business | | North American Data Management Business | | Western European Business | | Other International Business | | Corporate and Other Business | | Total Consolidated |
For the Three Months Ended March 31, 2016 | | |
| | |
| | | | |
| | |
| | |
|
Total Revenues | | $ | 444,681 |
| | $ | 96,343 |
| | $ | 93,876 |
| | $ | 101,341 |
| | $ | 14,449 |
| | $ | 750,690 |
|
Depreciation and Amortization | | 45,350 |
| | 5,670 |
| | 11,251 |
| | 14,286 |
| | 10,647 |
| | 87,204 |
|
Depreciation | | 40,255 |
| | 5,422 |
| | 8,671 |
| | 10,902 |
| | 10,140 |
| | 75,390 |
|
Amortization | | 5,095 |
| | 248 |
| | 2,580 |
| | 3,384 |
| | 507 |
| | 11,814 |
|
Adjusted EBITDA | | 176,557 |
| | 53,460 |
| | 31,946 |
| | 21,576 |
| | (48,393 | ) | | 235,146 |
|
Expenditures for Segment Assets | | 46,666 |
| | 4,827 |
| | 6,060 |
| | 32,156 |
| | 17,741 |
| | 107,450 |
|
Capital Expenditures | | 42,088 |
| | 4,827 |
| | 4,059 |
| | 12,162 |
| | 17,716 |
| | 80,852 |
|
Cash (Received) Paid for Acquisitions, Net of Cash Acquired | | (130 | ) | | — |
| | — |
| | 19,470 |
| | — |
| | 19,340 |
|
Acquisitions of Customer Relationships and Customer Inducements | | 4,708 |
| | — |
| | 2,001 |
| | 524 |
| | 25 |
| | 7,258 |
|
For the Three Months Ended March 31, 2017 | | |
| | |
| | | | |
| | |
| | |
|
Total Revenues | | 507,597 |
| | 106,950 |
| | 120,072 |
| | 189,241 |
| | 15,016 |
| | 938,876 |
|
Depreciation and Amortization | | 60,535 |
| | 8,933 |
| | 14,297 |
| | 27,676 |
| | 13,266 |
| | 124,707 |
|
Depreciation | | 51,952 |
| | 6,673 |
| | 10,888 |
| | 19,305 |
| | 10,774 |
| | 99,592 |
|
Amortization | | 8,583 |
| | 2,260 |
| | 3,409 |
| | 8,371 |
| | 2,492 |
| | 25,115 |
|
Adjusted EBITDA | | 209,530 |
| | 55,912 |
| | 34,142 |
| | 55,347 |
| | (62,357 | ) | | 292,574 |
|
Expenditures for Segment Assets | | 51,888 |
| | 8,737 |
| | 5,025 |
| | 18,620 |
| | 22,522 |
| | 106,792 |
|
Capital Expenditures | | 26,578 |
| | 8,737 |
| | 4,898 |
| | 12,467 |
| | 20,522 |
| | 73,202 |
|
Cash Paid (Received) for Acquisitions, Net of Cash Acquired | | 4,379 |
| | — |
| | — |
| | 5,808 |
| | 2,000 |
| | 12,187 |
|
Acquisitions of Customer Relationships and Customer Inducements | | 20,931 |
| | — |
| | 127 |
| | 345 |
| | — |
| | 21,403 |
|
The accounting policies of the reportable segments are the same as those described in the United States, the primary product offeringsNote 2 and in our Annual Report. Adjusted EBITDA for each segment is defined as income (loss) from continuing operations before interest expense, net, provision (benefit) for income taxes, depreciation and amortization, and also excludes certain items that we believe are not indicative of our Adjacent Businessescore operating segment,results, specifically: (i) (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net; (ii) intangible impairments; (iii) other (income) expense, net; (iv) gain on sale of real estate, net of tax; and (v) Recall Costs (as defined below). Internally, we use Adjusted EBITDA as well as costs relatedthe basis for evaluating the performance of, and allocating resources to, executive and staff functions, including finance, human resources and information technology, which benefit the enterprise as a whole. These costs are primarily related to the general management of these functions on a corporate level and the design and development of programs, policies and procedures that are then implemented in the individual segments, with each segment bearing its own cost of implementation. Our Corporate and Other Business segment also includes stock-based employee compensation expense associated with all Employee Stock-Based Awards.
our operating segments.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(7) Segment Information (Continued)
An analysis of our business segment information and reconciliation to the accompanying Consolidated Financial Statements is as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | North American Records and Information Management Business | | North American Data Management Business | | Western European Business | | Other International Business | | Corporate and Other Business | | Total Consolidated |
For the Three Months Ended September 30, 2015 | | |
| | |
| | | | |
| | |
| | |
|
Total Revenues | | $ | 441,237 |
| | $ | 97,385 |
| | $ | 99,003 |
| | $ | 103,327 |
| | $ | 5,577 |
| | $ | 746,529 |
|
Depreciation and Amortization | | 45,985 |
| | 5,389 |
| | 11,126 |
| | 14,399 |
| | 9,593 |
| | 86,492 |
|
Depreciation | | 41,034 |
| | 5,142 |
| | 9,631 |
| | 9,991 |
| | 9,684 |
| | 75,482 |
|
Amortization | | 4,951 |
| | 247 |
| | 1,495 |
| | 4,408 |
| | (91 | ) | | 11,010 |
|
Adjusted OIBDA | | 175,331 |
| | 50,268 |
| | 30,789 |
| | 21,267 |
| | (49,820 | ) | | 227,835 |
|
Expenditures for Segment Assets | | 42,670 |
| | 1,891 |
| | 7,138 |
| | 17,809 |
| | 10,934 |
| | 80,442 |
|
Capital Expenditures | | 32,026 |
| | 1,891 |
| | 3,417 |
| | 14,957 |
| | 10,934 |
| | 63,225 |
|
Cash Paid (Received) for Acquisitions, Net of Cash Acquired | | 3,986 |
| | — |
| | — |
| | 2,275 |
| | — |
| | 6,261 |
|
Acquisitions of Customer Relationships and Customer Inducements | | 6,658 |
| | — |
| | 3,721 |
| | 577 |
| | — |
| | 10,956 |
|
For the Three Months Ended September 30, 2016 | | |
| | |
| | | | |
| | |
| | |
|
Total Revenues | | 499,977 |
| | 107,477 |
| | 122,785 |
| | 197,084 |
| | 15,499 |
| | 942,822 |
|
Depreciation and Amortization | | 55,256 |
| | 9,680 |
| | 14,409 |
| | 30,279 |
| | 15,046 |
| | 124,670 |
|
Depreciation | | 47,634 |
| | 5,822 |
| | 10,657 |
| | 20,615 |
| | 13,632 |
| | 98,360 |
|
Amortization | | 7,622 |
| | 3,858 |
| | 3,752 |
| | 9,664 |
| | 1,414 |
| | 26,310 |
|
Adjusted OIBDA | | 199,559 |
| | 59,714 |
| | 37,546 |
| | 53,844 |
| | (56,460 | ) | | 294,203 |
|
Expenditures for Segment Assets | | 48,135 |
| | 9,391 |
| | 13,057 |
| | 16,320 |
| | 19,388 |
| | 106,291 |
|
Capital Expenditures | | 29,061 |
| | 9,391 |
| | 8,266 |
| | 16,258 |
| | 19,388 |
| | 82,364 |
|
Cash (Received) Paid for Acquisitions, Net of Cash Acquired | | 17 |
| | — |
| | 225 |
| | (424 | ) | | — |
| | (182 | ) |
Acquisitions of Customer Relationships and Customer Inducements | | 19,057 |
| | — |
| | 4,566 |
| | 486 |
| | — |
| | 24,109 |
|
As of and for the Nine Months Ended September 30, 2015 | | |
| | |
| | | | |
| | |
| | |
|
Total Revenues | | 1,332,811 |
| | 294,220 |
| | 296,337 |
| | 317,378 |
| | 14,803 |
| | 2,255,549 |
|
Depreciation and Amortization | | 137,581 |
| | 16,231 |
| | 34,022 |
| | 43,553 |
| | 28,605 |
| | 259,992 |
|
Depreciation | | 122,705 |
| | 15,726 |
| | 29,590 |
| | 29,922 |
| | 28,554 |
| | 226,497 |
|
Amortization | | 14,876 |
| | 505 |
| | 4,432 |
| | 13,631 |
| | 51 |
| | 33,495 |
|
Adjusted OIBDA | | 533,598 |
| | 152,178 |
| | 87,146 |
| | 63,143 |
| | (153,784 | ) | | 682,281 |
|
Total Assets (1)(2) | | 3,610,618 |
| | 645,832 |
| | 892,798 |
| | 866,138 |
| | 588,568 |
| | 6,603,954 |
|
Expenditures for Segment Assets | | 129,512 |
| | 15,879 |
| | 19,676 |
| | 61,111 |
| | 39,541 |
| | 265,719 |
|
Capital Expenditures | | 96,135 |
| | 8,837 |
| | 11,967 |
| | 48,500 |
| | 37,142 |
| | 202,581 |
|
Cash Paid (Received) for Acquisitions, Net of Cash Acquired | | 12,764 |
| | (21 | ) | | 2,510 |
| | 10,323 |
| | 2,399 |
| | 27,975 |
|
Acquisitions of Customer Relationships and Customer Inducements | | 20,613 |
| | 7,063 |
| | 5,199 |
| | 2,288 |
| | — |
| | 35,163 |
|
As of and for the Nine Months Ended September 30, 2016 | | |
| | |
| | | | |
| | |
| | |
|
Total Revenues | | 1,426,128 |
| | 307,090 |
| | 334,859 |
| | 464,094 |
| | 45,089 |
| | 2,577,260 |
|
Depreciation and Amortization | | 158,071 |
| | 21,427 |
| | 40,729 |
| | 70,462 |
| | 36,207 |
| | 326,896 |
|
Depreciation | | 135,756 |
| | 17,076 |
| | 31,026 |
| | 49,840 |
| | 33,582 |
| | 267,280 |
|
Amortization | | 22,315 |
| | 4,351 |
| | 9,703 |
| | 20,622 |
| | 2,625 |
| | 59,616 |
|
Adjusted OIBDA | | 565,254 |
| | 170,255 |
| | 102,765 |
| | 117,351 |
| | (164,842 | ) | | 790,783 |
|
Total Assets (1) | | 5,021,015 |
| | 867,181 |
| | 1,231,580 |
| | 2,134,678 |
| | 650,462 |
| | 9,904,916 |
|
Expenditures for Segment Assets | | 114,673 |
| | 17,968 |
| | 17,959 |
| | 330,065 |
| | 82,590 |
| | 563,255 |
|
Capital Expenditures | | 85,883 |
| | 16,520 |
| | 18,303 |
| | 43,800 |
| | 81,523 |
| | 246,029 |
|
Cash (Received) Paid for Acquisitions, Net of Cash Acquired (3) | | (2,659 | ) | | (59 | ) | | (6,878 | ) | | 284,925 |
| | 1,042 |
| | 276,371 |
|
Acquisitions of Customer Relationships and Customer Inducements | | 31,449 |
| | 1,507 |
| | 6,534 |
| | 1,340 |
| | 25 |
| | 40,855 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(7) Segment Information (Continued)
| |
(1) | Excludes all intercompany receivables or payables and investment in subsidiary balances. |
| |
(2) | During the fourth quarter of 2015, we adopted ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires debt issuance costs to be presented in the balance sheet as a reduction of the related debt liability rather than an asset. Total assets as of September 30, 2015 for the Western European Business, Other International Business and Corporate and Other Business segments have been reduced by $9,215, $548, and $56,105, respectively, to reflect the adoption of ASU 2015-03.
|
| |
(3) | Cash paid for acquisitions, net of cash acquired for the Other International Business segment for the nine months ended September 30, 2016 primarily consists of the cash component of the purchase price for the Recall Transaction, as the IMI entity that made the cash payment was an Australian subsidiary. However, the Recall Transaction also benefited the North American Records and Information Management Business, North American Data Management Business and Western European Business segments. |
The accounting policies of the reportable segments are the same as those described in Note 2 in Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q and in our Annual Report. Adjusted OIBDA for each segment is defined as operating income before depreciation, amortization, intangible impairments, (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net, costs associated with our conversion to a REIT, excluding REIT compliance costs beginning January 1, 2014 which we expect to recur in future periods ("REIT Costs") and Recall Costs (as defined below) directly attributable to the segment. Internally, we use Adjusted OIBDA as the basis for evaluating the performance of, and allocating resources to, our operating segments.
A reconciliation of Adjusted OIBDAEBITDA to income (loss) from continuing operations before provision (benefit) for income taxes and gain on sale of real estatea consolidated basis is as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2016 | | 2015 | | 2016 |
Adjusted OIBDA | $ | 227,835 |
| | $ | 294,203 |
| | $ | 682,281 |
| | $ | 790,783 |
|
Less: Depreciation and Amortization | 86,492 |
| | 124,670 |
| | 259,992 |
| | 326,896 |
|
(Gain) Loss on Disposal/Write-Down of Property, Plant and Equipment (Excluding Real Estate), Net | (141 | ) | | (54 | ) | | 707 |
| | (1,131 | ) |
Recall Costs(1) | 14,662 |
| | 34,133 |
| | 20,324 |
| | 102,872 |
|
Interest Expense, Net | 65,135 |
| | 83,300 |
| | 196,120 |
| | 225,228 |
|
Other Expense (Income), Net | 35,246 |
| | 23,302 |
| | 59,599 |
| | 37,006 |
|
Income (Loss) from Continuing Operations before Provision (Benefit) for Income Taxes and Gain on Sale of Real Estate | $ | 26,441 |
| | $ | 28,852 |
| | $ | 145,539 |
| | $ | 99,912 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2017 |
Adjusted EBITDA | $ | 235,146 |
| | $ | 292,574 |
|
(Add)/Deduct: | | | |
(Gain) Loss on Disposal/Write-Down of Property, Plant and Equipment (Excluding Real Estate), Net | (451 | ) | | (459 | ) |
Provision (Benefit) for Income Taxes | 11,900 |
| | 9,220 |
|
Other (Income) Expense, Net | (11,937 | ) | | (6,364 | ) |
Interest Expense, Net | 67,062 |
| | 86,055 |
|
Depreciation and Amortization | 87,204 |
| | 124,707 |
|
Recall Costs(1) | 18,327 |
| | 20,571 |
|
Income (Loss) from Continuing Operations | $ | 63,041 |
| | $ | 58,844 |
|
| |
(1) | Includes operating expenditures associated with our acquisition of Recall, includingRepresents operating expenditures to complete the Recall Transaction, including advisory and professional fees and costs to complete the Divestments required in connection with receipt of regulatory approval, and to provideincluding transitional services required to support the divested businesses during a transition period ("Recall Deal Close & Divestment Costs"), as well asand operating expenditures to integrate Recall with our existing operations, including moving, severance, facility upgrade, REIT conversion and system upgrade costs ("Recall Integration Costs" and, collectively with Recall Deal Close & Divestment Costs, "Recall Costs"). |
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(8) Commitments and Contingencies
a. Litigation—General
We are involved in litigation from time to time in the ordinary course of business. A portion of the defense and/or
settlement costs associated with such litigation is covered by various commercial liability insurance policies purchased by us
and, in limited cases, indemnification from third parties. Our policy is to establish reserves for loss contingencies when the
losses are both probable and reasonably able to be estimated. We record legal costs associated with loss contingencies as expenses in the period in which they are incurred. The matters described below represent our significant loss contingencies. We have evaluated each matter and, if both probable and estimable,reasonably able to be estimated, accrued an amount that represents our estimate of any probable loss associated with such matter. In addition, we have estimated a reasonably possible range for all loss contingencies including those described below. We believe it is reasonably possible that we could incur aggregate losses in addition to amounts currently accrued for all matters up to an additional $21,000$20,000 over the next several years, of which certain amounts would be covered by insurance or indemnity arrangements.
b. Italy Fire
On November 4, 2011, we experienced a fire at a facility we leased in Aprilia, Italy. The facility primarily stored archival and inactive business records for local area businesses. Despite quick response by local fire authorities, damage to the building was extensive, and the building and its contents were a total loss. We have been sued by five customers. Four of those lawsuits have been settled and one, a claim asserted by Azienda per i Transporti Autoferrotranviari del Comune di Roma, S.p.A, seeking 42,600 Euros for the loss of its current and historical archives, remains pending. We have also received correspondence from other affected customers, including certain customers demanding payment under various theories of liability. Although our warehouse legal liability insurer has reserved its rights to contest coverage related to certain types of potential claims, we believe we carry adequate insurance. We deny any liability with respect to the fire and we have referred these claims to our warehouse legal liability insurer for an appropriate response. We do not expect that this event will have a material impact on our consolidated financial condition, results of operations or cash flows. We sold our Italian operations on April 27, 2012, and we indemnified the buyers related to certain obligations and contingencies associated with the fire. As a result of the sale of the Italian operations, any future statement of operations and cash flow impacts related to the fire will be reflected as discontinued operations.
c. Argentina Fire
On February 5, 2014, we experienced a fire at a facility we own in Buenos Aires, Argentina. As a result of the quick response by local fire authorities, the fire was contained before the entire facility was destroyed and all employees were safely evacuated; however, a number of first responders lost their lives, or in some cases, were severely injured. The cause of the fire is currently being investigated. We believe we carry adequate insurance and do not expect that this event will have a material impact to our consolidated financial condition, results of operations or cash flows. Revenues from our operations at this facility represent less than 0.5% of our consolidated revenues.
d. Brooklyn Fire (Recall)
On January 31, 2015, a former Recall leased facility located in Brooklyn, New York was completely destroyed by a fire. Approximately 900,000 cartons of customer records were lost impacting approximately 1,200 customers. No one was injured as a result of the fire. We believe we carry adequate insurance to cover any losses resulting from the fire. There are three pending customer-related lawsuits stemming from the fire, which are being defended by our warehouse legal liability insurer. We have also received correspondence from other customers, under various theories of liability. We deny any liability with respect to the fire and we have referred these claims to our insurer for an appropriate response. We do not expect that this event will have a material impact on our consolidated financial condition, results of operations or cash flows.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(8) Commitments and Contingencies (Continued)
e. Roye Fire (Recall)
On January 28, 2002, a former leased Recall records management facility located in Roye, France was destroyed by a fire.
Local French authorities conducted an investigation relating to the fire and issued a charge of criminal negligence for non-compliance with security regulations against us.the Recall entity that leased the facility. We intend to defend this matter
vigorously. We are currently corresponding with various customers impacted by the fire who are seeking payment under various
theories of liability. There is also pending civil litigation with the owner of the destroyed facility, who is demanding payment
for lost rental income and other items. Based on known and expected claims and our expectation of the ultimate outcome of
those claims, we believe we carry adequate insurance coverage. We do not expect that this event will have a material impact on
our consolidated financial condition, results of operations or cash flows.
(9) Stockholders' Equity Matters
Our board of directors has adopted a dividend policy under which we have paid, and in the future intend to pay, quarterly cash dividends on our common stock. The amount and timing of future dividends will continue to be subject to the approval of our board of directors, in its sole discretion, and to applicable legal requirements.
In fiscal year 20152016 and in the first ninethree months of 2016,2017, our board of directors declared the following dividends:
|
| | | | | | | | | | | | |
Declaration Date | | Dividend Per Share | | Record Date | | Total Amount | | Payment Date |
February 19, 2015 | | $ | 0.4750 |
| | March 6, 2015 | | $ | 99,795 |
| | March 20, 2015 |
May 28, 2015 | | 0.4750 |
| | June 12, 2015 | | 100,119 |
| | June 26, 2015 |
August 27, 2015 | | 0.4750 |
| | September 11, 2015 | | 100,213 |
| | September 30, 2015 |
October 29, 2015 | | 0.4850 |
| | December 1, 2015 | | 102,438 |
| | December 15, 2015 |
February 18, 2016 | | 0.4850 |
| | March 7, 2016 | | 102,651 |
| | March 21, 2016 |
May 25, 2016 | | 0.4850 |
| | June 6, 2016 | | 127,469 |
| | June 24, 2016 |
July 27, 2016 | | 0.4850 |
| | September 12, 2016 | | 127,737 |
| | September 30, 2016 |
|
| | | | | | | | | | | |
Declaration Date | | Dividend Per Share | | Record Date | | Total Amount | | Payment Date |
February 17, 2016 | | 0.4850 |
| | March 7, 2016 | | $ | 102,651 |
| | March 21, 2016 |
May 25, 2016 | | 0.4850 |
| | June 6, 2016 | | 127,469 |
| | June 24, 2016 |
July 27, 2016 | | 0.4850 |
| | September 12, 2016 | | 127,737 |
| | September 30, 2016 |
October 31, 2016 | | 0.5500 |
| | December 15, 2016 | | 145,006 |
| | December 30, 2016 |
February 15, 2017 | | 0.5500 |
| | March 15, 2017 | | 145,235 |
| | April 3, 2017 |
(10) Divestments
As disclosed in Note 4, in connection with the acquisition of Recall, we sought regulatory approval of the Recall Transaction from the DOJ, the ACCC, the CCB and the CMA and, as part of the regulatory approval process, we agreed to make the Divestments.
The assetsOn May 4, 2016, we completed the sale of the Initial United States Divestments to Access CIG, LLC, a privately held provider of information management services throughout the United States (“Access CIG”), for total consideration of approximately $80,000, subject to adjustments (the “Access Sale”). Of the total consideration, we received $55,000 in cash proceeds upon closing of the Access Sale, and liabilities relatedwe are entitled to receive up to $25,000 of additional cash proceeds on the Seattle/Atlanta Divestments,27-month anniversary of the Australia Divestment Business,closing of the Canadian DivestmentsAccess Sale (the "Access Contingent Consideration"). Our estimate of the fair value of the Access Contingent Consideration is approximately $21,400 (which reflects a fair value adjustment of approximately $2,200 and the UK Divestments area present value adjustment of approximately $1,400). We have a non-trade receivable amounting to $22,000 included in Other, a component of Other Assets, Net in our Consolidated Balance Sheet as of September 30, 2016. The assets and liabilitiesMarch 31, 2017 related to the Initial United States Divestments were sold to Access CIG inContingent Consideration.
On December 29, 2016, we completed the Access Sale on May 4, 2016.
The following provides additional information regarding (a) the assets and liabilities related tosale of the Seattle/Atlanta Divestments, the Australia Divestment Business, theRecall Canadian Divestments and the UKIron Mountain Canadian Divestments (collectively,to ARKIVE, Inc., an information management company (“ARKIVE”), for total consideration of approximately $50,000, subject to adjustments (the “ARKIVE Sale”). Of the “Divestments Held for Sale”), each of which are classified as held for sale on our Consolidated Balance Sheet beginningtotal consideration, we received approximately $45,000 in cash proceeds upon the second quarter of 2016; and (b) the presentationclosing of the DivestmentsARKIVE Sale and the remaining consideration is held in our Consolidated Statementsescrow. ARKIVE may be entitled to receive from us, on the 24-month anniversary of Operations for the three and nine months ended September 30, 2015 and 2016, respectively, and our Consolidated Statementsclosing of Cash Flows for the nine months ended September 30, 2015 and 2016, respectively.ARKIVE Sale, cash payments, up to the total consideration paid by ARKIVE, based on lost revenues attributable to the acquired customer base.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(10) Divestments (Continued)
a.Assets and Liabilities Held for Sale
We have concluded that, as of September 30,On October 31, 2016, the assets and liabilities related to the Divestments Held for Sale meet the criteria to be reported as held for sale on our Consolidated Balance Sheet as of September 30, 2016.
Our assets and liabilities held for sale as of September 30, 2016 are comprisedafter receiving approval of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Description | | Seattle/Atlanta Divestments | | Australia Divestment Business | | Recall Canadian Divestments | | Iron Mountain Canadian Divestments | | UK Divestments | | Total |
Assets held for sale: | | | | | | | | | | | | |
Accounts receivable | | $ | — |
| | $ | 8,508 |
| | $ | ��� |
| | $ | — |
| | $ | — |
| | $ | 8,508 |
|
Deferred income taxes | | — |
| | 1,107 |
| | — |
| | — |
| | — |
| | 1,107 |
|
Prepaid expenses and other | | — |
| | 613 |
| | — |
| | — |
| | — |
| | 613 |
|
Property, plant and equipment, net | | — |
| | 24,253 |
| | — |
| | 1,641 |
| | — |
| | 25,894 |
|
Goodwill | | — |
| | 27,130 |
| | — |
| | 3,288 |
| | — |
| | 30,418 |
|
Estimated fair value of assets held for sale, less costs to sell | | 22,429 |
| | — |
| | 20,642 |
| | — |
| | 3,507 |
| | 46,578 |
|
Customer relationships and customer inducements | | — |
| | 14,359 |
| | — |
| | — |
| | — |
| | 14,359 |
|
Other | | — |
| | 435 |
| | — |
| | — |
| | — |
| | 435 |
|
| | $ | 22,429 |
| | $ | 76,405 |
| | $ | 20,642 |
| | $ | 4,929 |
| | $ | 3,507 |
| | $ | 127,912 |
|
| | | | | | | | | | | | |
Liabilities held for sale: | | | | | | | | | | | | |
Accounts payable | | $ | — |
| | $ | 2,211 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,211 |
|
Accrued expenses | | — |
| | 5,601 |
| | — |
| | — |
| | — |
| | 5,601 |
|
Deferred revenue | | — |
| | 1,366 |
| | — |
| | — |
| | — |
| | 1,366 |
|
Other long-term liabilities | | — |
| | 7,390 |
| | — |
| | — |
| | — |
| | 7,390 |
|
Deferred rent | | — |
| | 2,701 |
| | — |
| | — |
| | — |
| | 2,701 |
|
| | $ | — |
| | $ | 19,269 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 19,269 |
|
The assets and liabilities associated withproposed transaction from the Seattle/Atlanta Divestments andACCC, we completed the Canadian Divestments are included in our North American Records and Information Management Business segment. The assets and liabilities associated withsale of the Australia Divestment Business are included(the “Australia Sale”) to a consortium led by Housatonic Partners (the “Australia Divestment Business Purchasers”) for total consideration of approximately 70,000 Australian dollars (or approximately $53,200, based upon the exchange rate between the United States dollar and the Australian dollar as of October 31, 2016, the closing date of the Australia Sale), subject to adjustments. The total consideration consists of (i) 35,000 Australian dollars in our Other Internationalcash received upon the closing of the Australia Sale and (ii) 35,000 Australian dollars in the form of a note due from the Australia Divestment Business segment.Purchasers to us (the “Bridging Loan Note”). The assetsBridging Loan Note bears interest at 3.3% per annum and liabilitiesmatures on December 29, 2017, at which point all outstanding obligations become due. The total consideration for the Australia Sale is subject to certain adjustments, including ones associated with customer attrition, subsequent to the closing of the Australia Sale.
On December 9, 2016, we completed the sale of the UK Divestments are included in our Western European Business segment.(the "UK Sale") to the Oasis Group for total consideration of approximately 1,800 British pounds sterling (or approximately $2,200, based upon the exchange rate between the United States dollar and the British pound sterling as of December 9, 2016, the closing date of the UK Sale), subject to adjustments.
| |
b. | Presentation of Divestments in Consolidated Statements of Operations and Consolidated Statements of Cash Flows |
We have concluded that the Australian Divestment Business and the Iron Mountain Canadian Divestments (collectively, the “Iron Mountain Divestments”) do not meet the criteria to be reported as discontinued operations in our Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2016, respectively, and in our Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2016, respectively, as our decision to divest these businesses doesdid not represent a strategic shift that will havehad a major effect on our operations and financial results. Accordingly, the revenues and expenses associated with the Iron Mountain Divestments are includedpresented as a component of income (loss) from continuing operations in our Consolidated StatementsStatement of Operations for the three and nine months ended September 30, 2015 andMarch 31, 2016 respectively, and the cash flows associated with these businessesthe Iron Mountain Divestments are includedpresented as a component of cash flows from continuing operations in our Consolidated StatementsStatement of Cash Flows for the ninethree months ended September 30, 2015 and 2016, respectively.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(10) Divestments (Continued)
March 31, 2016.
We have concluded that the Initial United States Divestments, the Seattle/Atlanta Divestments, the Recall Canadian Divestments and the UK Divestments (collectively, the “Recall Divestments”) meet the criteria to be reported as discontinued operations in our Consolidated StatementsStatement of Operations for the three and nine months ended September 30, 2016 and in our Consolidated StatementsStatement of Cash Flows for the nine months ended September 30, 2016, respectively, as the Recall Divestments met the criteria to be reported as assets and liabilities held for sale at, or within a short period of time following, the closing of the Recall Transaction.
The table below summarizes certain results of operations of the Recall Divestments:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2017 |
Description | | Initial United States Divestments | | Seattle/Atlanta Divestments | | Recall Canadian Divestments | | UK Divestments | | Total(1) |
Income (Loss) from Discontinued Operations Before Provision (Benefit) for Income Taxes | | $ | — |
| | $ | 239 |
| | $ | (668 | ) | | $ | — |
| | $ | (429 | ) |
Provision (Benefit) for Income Taxes | | — |
| | 41 |
| — |
| (133 | ) | | — |
| | (92 | ) |
Income (Loss) from Discontinued Operations, Net of Tax | | $ | — |
| | $ | 198 |
| | $ | (535 | ) | | $ | — |
| | $ | (337 | ) |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2016 |
Description | | Initial United States Divestments(1) | | Seattle/Atlanta Divestments | | Recall Canadian Divestments | | UK Divestments | | Total |
Total Revenues | | $ | — |
| | $ | 3,200 |
| | $ | 2,977 |
| | $ | 385 |
| | $ | 6,562 |
|
Income (Loss) from Discontinued Operations Before Provision (Benefit) for Income Taxes | | — |
| | 1,534 |
| | 888 |
| | (88 | ) | | 2,334 |
|
Provision (Benefit) for Income Taxes | | — |
| | 70 |
| — |
| 239 |
| | (16 | ) | | 293 |
|
Income (Loss) from Discontinued Operations, Net of Tax | | $ | — |
| | $ | 1,464 |
| | $ | 649 |
| | $ | (72 | ) | | $ | 2,041 |
|
(1) During the three months ended March 31, 2017, we recognized a loss from discontinued operations before benefit for income taxes of $429, primarily related to costs associated with transitional service agreements related to the Recall Divestments.
|
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2016 |
Description | | Initial United States Divestments(1) | | Seattle/Atlanta Divestments | | Recall Canadian Divestments | | UK Divestments | | Total |
Total Revenues | | $ | — |
| | $ | 5,010 |
| | $ | 4,865 |
| | $ | 696 |
| | $ | 10,571 |
|
Income (Loss) from Discontinued Operations Before Provision (Benefit) for Income Taxes | | — |
| | 2,468 |
| | 1,755 |
| | (13 | ) | | 4,210 |
|
Provision (Benefit) for Income Taxes | | — |
| | 114 |
| | 471 |
| | (3 | ) | | 582 |
|
Income (Loss) from Discontinued Operations, Net of Tax | | $ | — |
| | $ | 2,354 |
| | $ | 1,284 |
| | $ | (10 | ) | | $ | 3,628 |
|
| |
(1) | The Access Sale occurred nearly simultaneously with the closing of the Recall Transaction. Accordingly, the revenue and expenses associated with the Initial United States Divestments are not included in our Consolidated Statements of Operations for the three and nine months ended September 30, 2016, respectively, and the cash flows associated with the Initial United States Divestments are not included in our Consolidated Statement of Cash Flows for the nine months ended September 30, 2016, due to the immaterial nature of the revenues, expenses and cash flows related to the Initial United States Divestments for the period of time we owned these businesses (May 2, 2016 through May 4, 2016). |
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(11) Transformation Initiative
During the third quarter of 2015, we implemented a plan that calls for certain organizational realignments to reduce our overhead costs, particularly in our developed markets, in order to optimize our selling, general and administrative cost structure and to support investments to advance our growth strategy (the “Transformation Initiative”), which is expected to be completed by the end of 2017. As a result of the Transformation Initiative, we recorded a charge of $9,080 for both the three and nine months ended September 30, 2015 and a charge of $188 and $6,007 for the three and nine months ended September 30, 2016, respectively, primarily related to employee severance and associated benefits. Costs included in the accompanying Consolidated Statements of Operations associated with the Transformation Initiative are as follows:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2015 | | 2016 | | 2015 | | 2016 |
Cost of sales (excluding depreciation and amortization) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Selling, general and administrative expenses | | 9,080 |
| | 188 |
| | 9,080 |
| | 6,007 |
|
Total | | $ | 9,080 |
| | $ | 188 |
| | $ | 9,080 |
| | $ | 6,007 |
|
Costs recorded by segment associated with the Transformation Initiative are as follows:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2015 | | 2016 | | 2015 | | 2016 |
North American Records and Information Management Business | | $ | 5,200 |
| | $ | 40 |
| | $ | 5,200 |
| | $ | 2,329 |
|
North American Data Management Business | | 241 |
| | — |
| | 241 |
| | 395 |
|
Western European Business | | 1,439 |
| | — |
| | 1,439 |
| | 204 |
|
Other International Business | | — |
| | — |
| | — |
| | — |
|
Corporate and Other Business | | 2,200 |
| | 148 |
| | 2,200 |
| | 3,079 |
|
Total | | $ | 9,080 |
| | $ | 188 |
| | $ | 9,080 |
| | $ | 6,007 |
|
Through September 30, 2016, we have recorded cumulative charges to our Consolidated Statements of Operations associated with the Transformation Initiative of $16,174. As of September 30, 2016, we had accrued $751 related to the Transformation Initiative. We expect that this liability will be paid throughout the remainder of 2016.
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(12) Recall Costs
We expect to incur approximately $300,000 of Recall Costs, including approximately $80,000 of Recall Deal Close & Divestment Costs, as well as approximately $220,000 of Recall Integration Costs.
Recall Costs included in the accompanying Consolidated Statements of Operations are as follows:
|
| | | | | | | | | | | | | | | | |
| | Recall Deal Close & Divestment Costs |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2015 | | 2016 | | 2015 | | 2016 |
Cost of sales (excluding depreciation and amortization) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Selling, general and administrative expenses | | 14,662 |
| | 3,861 |
| | 20,324 |
| | 35,938 |
|
Total Recall Deal Close & Divestment Costs | | $ | 14,662 |
| | $ | 3,861 |
| | $ | 20,324 |
| | $ | 35,938 |
|
| | | | Recall Integration Costs | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2015 | | 2016 | | 2015 | | 2016 | | 2016 | | 2017 |
Cost of sales (excluding depreciation and amortization) | | $ | — |
| | $ | 4,457 |
| | $ | — |
| | $ | 4,788 |
| | $ | — |
| | $ | 7,887 |
|
Selling, general and administrative expenses | | — |
| | 25,815 |
| | — |
| | 62,146 |
| | 18,327 |
| | 12,684 |
|
Total Recall Integration Costs | | $ | — |
| | $ | 30,272 |
| | $ | — |
| | $ | 66,934 |
| |
| | | | | | | | | |
Total Recall Costs | | $ | 14,662 |
| | $ | 34,133 |
| | $ | 20,324 |
| | $ | 102,872 |
| | $ | 18,327 |
| | $ | 20,571 |
|
Recall Costs included in the accompanying Consolidated Statements of Operations by segment are as follows:
| | | | Recall Deal Close & Divestment Costs | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2015 | | 2016 | | 2015 | | 2016 | | 2016 | | 2017 |
North American Records and Information Management Business | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 39 |
| | $ | 7,299 |
|
North American Data Management Business | | — |
| | — |
| | — |
| | — |
| | — |
| | 873 |
|
Western European Business | | — |
| | — |
| | — |
| | — |
| | 217 |
| | 3,216 |
|
Other International Business | | — |
| | — |
| | — |
| | — |
| | 431 |
| | 1,651 |
|
Corporate and Other Business | | 14,662 |
| | 3,861 |
| | 20,324 |
| | 35,938 |
| | 17,640 |
| | 7,532 |
|
Total Recall Deal Close & Divestment Costs | | $ | 14,662 |
| | $ | 3,861 |
| | $ | 20,324 |
| | $ | 35,938 |
| |
Total Recall Costs | | | $ | 18,327 |
| | $ | 20,571 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(12)accrued liabilities related to Recall Costs (Continued)
on our Consolidated Balance Sheets as of December 31, 2016 to March 31, 2017 is as follows:
|
| | | | | | | | | | | | | | | | |
| | Recall Integration Costs |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2015 | | 2016 | | 2015 | | 2016 |
North American Records and Information Management Business | | $ | — |
| | $ | 4,989 |
| | $ | — |
| | $ | 7,822 |
|
North American Data Management Business | | — |
| | 1,578 |
| | — |
| | 2,095 |
|
Western European Business | | — |
| | 7,483 |
| | — |
| | 11,613 |
|
Other International Business | | — |
| | 5,638 |
| | — |
| | 11,586 |
|
Corporate and Other Business | | — |
| | 10,584 |
| | — |
| | 33,818 |
|
Total Recall Integration Costs | | $ | — |
| | $ | 30,272 |
| | $ | — |
| | $ | 66,934 |
|
| | | | | | | | |
Total Recall Costs | | $ | 14,662 |
| | $ | 34,133 |
| | $ | 20,324 |
| | $ | 102,872 |
|
|
| | | |
| Accrual for Recall Costs |
Balance at December 31, 2016 | $ | 4,914 |
|
Amounts accrued | 5,147 |
|
Change in estimates(1) | (230 | ) |
Payments | (5,371 | ) |
Currency translation adjustments | 47 |
|
Balance at March 31, 2017(2) | $ | 4,507 |
|
As of September 30, 2016, we had accrued approximately $25,555 of Recall Integration Costs, primarily related to employee severance costs. We expect that this liability will be paid throughout the remainder of 2016.
(13) Subsequent Events
Mortgage Securitization Program
In October 2016, we entered into a $50,000 mortgage securitization program (the "Mortgage Securitization Program") involving certain of our wholly owned subsidiaries with Goldman Sachs Mortgage Company (“Goldman Sachs”). Under the Mortgage Securitization Program, IMIM contributed certain real estate assets to its wholly owned special purpose entity, Iron Mountain Mortgage Finance I, LLC (the "Mortgage Special Purpose Subsidiary"). The Mortgage Special Purpose Subsidiary then used the real estate to secure collateralized loans from Goldman Sachs. The Mortgage Special Purpose Subsidiary is a consolidated subsidiary of IMI. Borrowings under the Mortgage Securitization Program bear interest at 3.5%. The Mortgage Securitization Program is scheduled to terminate in November 2026. Proceeds from the Mortgage Securitization Program will be used to repay outstanding borrowings on the Revolving Credit Facility.
Australia Sale
On October 31, 2016, after receiving approval of the proposed transaction from the ACCC, we completed the sale of the Australia Divestment Business (the “Australia Sale”) to a consortium led by Housatonic Partners (the “Buyers”) for total consideration of approximately 70,000 Australian dollars (or approximately $53,200, based upon the exchange rate between the United States dollar and the Australian dollar as of October 31, 2016), subject to adjustments. The purchase price consists of (i) 35,000 Australian dollars in cash received upon the closing of the Australia Sale and (ii) 35,000 Australian dollars in the form of a note due from the Buyers to us (the “Bridging Loan Note”). The Bridging Loan Note bears interest at 3.3% per annum and matures on December 29, 2017, at which point all outstanding obligations become due. The purchase price for the Australia Sale is subject to certain adjustments, including a working capital adjustment and adjustments associated with customer attrition subsequent to the closing of the Australia Sale. We recorded a charge of $14,000 associated with the anticipated loss on disposal of the Australia Divestment Business during the quarter ended September 30, 2016, representing the excess of the carrying value of the Australia Divestment Business compared to its fair value (less costs to sell) as of September 30, 2016, based upon the sale price described above.
| |
(1) | Includes adjustments made to amounts accrued in a prior period. |
| |
(2) | Accrued liabilities related to Recall Costs as of March 31, 2017 presented in the table above generally related to employee severance costs and onerous lease liabilities. We expect that the majority of these liabilities will be paid throughout 2017. Additional Recall Costs recorded in our Consolidated Statement of Operations have either been settled in cash during the three months ended March 31, 2017 or are included in our Consolidated Balance Sheet as of March 31, 2017 as a component of accounts payable. |
IRON MOUNTAIN INCORPORATED
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2016March 31, 2017 should be read in conjunction with our Consolidated Financial Statements and Notes thereto for the three and nine months ended September 30, 2016,March 31, 2017, included herein, and for the year ended December 31, 2015,2016, included in our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission ("SEC") on February 26, 201623, 2017 (our "Annual Report").
FORWARD-LOOKING STATEMENTS
We have made statements in this Quarterly Report on Form 10-Q ("Quarterly Report") that constitute "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements concern our operations, economic performance, financial condition, goals, beliefs, future growth strategies, investment objectives, plans and current expectations, such as our (1) commitment to future dividend payments, (2) expected 20162017 consolidated internal storage rental revenue growth rate and capital expenditures, (3) statements made in relation toestimate of total acquisition and integration expenditures associated with our acquisition of Recall Holdings Limited ("Recall") pursuant to the Scheme Implementation Deed, as amended, with Recall (the "Recall Transaction") including (i) the total cost to integrate the combined companies and (ii) the expected proceeds from the Divestments (as defined in Note 4 to Notes to Consolidated Financial Statements included in this Quarterly Report) associated with the Recall Transaction, and (4) expected cost savings associated with the Transformation Initiative (as defined below). These forward-looking statements are subject to various known and unknown risks, uncertainties and other factors. When we use words such as "believes," "expects," "anticipates," "estimates" or similar expressions, we are making forward-looking statements. Although we believe that our forward-looking statements are based on reasonable assumptions, our expected results may not be achieved, and actual results may differ materially from our expectations. In addition, important factors that could cause actual results to differ from expectations include, among others:
our ability to remain qualified for taxation as a real estate investment trust for United States federal income tax purposes ("REIT");
the adoption of alternative technologies and shifts by our customers to storage of data through non-paper based technologies;
changes in customer preferences and demand for our storage and information management services;
the cost to comply with current and future laws, regulations and customer demands relating to data security and privacy issues, as well as fire and safety standards;
the impact of litigation or disputes that may arise in connection with incidents in which we fail to protect our customers' information;
changes in the price for our storage and information management services relative to the cost of providing such storage and information management services;
changes in the political and economic environments in the countries in which our international subsidiaries operate;operate and changes in the global political climate;
our ability or inability to complete acquisitions on satisfactory terms and to integrate acquired companies efficiently;
changes in the amount of our capital expenditures;
changes in the cost of our debt;
the impact of alternative, more attractive investments on dividends;
the cost or potential liabilities associated with real estate necessary for our business;
the performance of business partners upon whom we depend for technical assistance or management expertise outside the United States;
changes in the valuation of records and information businesses which could impact the proceeds we will receive from the Divestments; and
other trends in competitive or economic conditions affecting our financial condition or results of operations not presently contemplated.
You should not rely upon forward-looking statements except as statements of our present intentions and of our present expectations, which may or may not occur. You should read these cautionary statements as being applicable to all forward-looking statements wherever they appear. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures we have made in this Quarterly Report, as well as our other periodic reports filed with the SEC including under "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on April 28, 2016 and in our Annual Report.
Overview
The following discussions set forth, for the periods indicated, management's discussion and analysis of financial condition and results of operations. Significant trends and changes are discussed for the three and nine month periodsperiod ended September 30, 2016March 31, 2017 within each section. Trends and changes that are consistent with the three and nine month periods are not repeated and are discussed on a year to date basis.
Recall Acquisition
On May 2, 2016 (Sydney, Australia time), we completed the Recall Transaction. At the closing of the Recall Transaction, we paid approximately $331.8 million and issued approximately 50.2 million shares of our common stock which, based upon the closing price of our common stock as of April 29, 2016 (the last day of trading on the New York Stock Exchange (the "NYSE") prior to the closing of the Recall Transaction) of $36.53 per share, resulted in a total purchase price to Recall shareholders of approximately $2,166.9 million.
We account for acquisitions using the acquisition method of accounting, and, accordingly, the assets and liabilities acquired are recorded at their estimated fair values and the results of operations for each acquisition have been included in our consolidated results from their respective acquisition dates. With respect to the acquisition of Recall, theThe results of operations of Recall have been included in our consolidated results from May 2, 2016. See Note 4 to Notes to Consolidated Financial Statements included in this Quarterly Report for unaudited pro forma results of operations for us and Recall, as if the Recall Transaction was completed on January 1, 2015, for the three and nine months ended September 30, 2015 and 2016, respectively.March 31, 2016.
We currently estimate total operatingacquisition and capitalintegration expenditures associated with the Recall Transaction to be approximately $380.0 million, the majority of which is expected to be incurred by the end of 2018. This amount consists of (i) approximately $80.0 million of operating expenditures to complete the Recall Transaction, including advisory and professional fees and costs to complete the Divestments required(as defined in connection with receipt of regulatory approval andNote 4 to provideNotes to Consolidated Financial Statements included in this Quarterly Report) including transitional services required to support the divested businesses during a transition period (“Recall Deal Close & Divestment Costs”), (ii) approximately $220.0 million ofand operating expenditures to integrate Recall with our existing operations, including moving, severance, facility upgrade, REIT conversion and system upgrade costs (“("Recall Integration Costs” and, collectively with Recall Deal Close & Divestment Costs, “Recall Costs”Costs") and (iii) approximately $80.0 million of(ii) capital expenditures to integrate Recall with our existing operations. From January 1, 2015 through September 30, 2016,March 31, 2017, we have incurred cumulative operating and capital expenditures associated with the Recall Transaction of $156.9$224.2 million, including $149.9$199.5 million of Recall Costs and $7.0$24.7 million of capital expenditures.
See Note 1211 to Notes to Consolidated Financial Statements included in this Quarterly Report for more information on Recall Costs, including costs recorded by segment as well as recorded between cost of sales and selling, general and administrative expenses.
Divestments Associated with the Recall Transaction
As disclosed in Note 4 to Notes to Consolidated Financial Statements included in this Quarterly Report, we sought regulatory approval of the Recall Transaction and, as part of the regulatory approval process, we agreed to make the Divestments.
The Initial United States Divestments, the Seattle/Atlanta Divestments, the Recall Canadian Divestments and the UK Divestments (each as defined in Note 6 to Notes to Consolidated Financial Statements included in our Annual Report) (collectively, the "Recall Divestments") meet the criteria to be reported as discontinued operations as the Recall Divestments met the criteria to be reported as assets and liabilities held for sale at, or within a short period of time following, the closing of the Recall Transaction. Accordingly, the results of operations for the Recall Divestments are presented as a component of
discontinued operations in our Consolidated Statement of Operations for the three months ended March 31, 2017 and the cash flows associated with the Recall Divestments are presented as a component of cash flows from discontinued operations in our Consolidated Statement of Cash Flows for the three months ended March 31, 2017.
The Australia Divestment Business and the Iron Mountain Canadian Divestments (each as defined in Note 6 to Notes to Consolidated Financial Statements included in our Annual Report) (collectively, the "Iron Mountain Divestments") do not meet the criteria to be reported as discontinued operations as our decision to divest the Iron Mountain Divestments does not represent a strategic shift that will have a major effect on our operations and financial results. Accordingly, the revenues and expenses associated with the Iron Mountain Divestments are presented as a component of income (loss) from continuing operations in our Consolidated Statement of Operations for the three months ended March 31, 2016 and the cash flows associated with the Iron Mountain Divestments are presented as a component of cash flows from continuing operations in our Consolidated Statement of Cash Flows for the three months ended March 31, 2016.
The Australia Divestment Business represents approximately $12.2 million of total revenues and approximately $0.1 million of total income from continuing operations for the three months ended March 31, 2016. The Iron Mountain Canadian Divestments represent approximately $1.2 million of total revenues and approximately $0.7 million of total income from continuing operations for the three months ended March 31, 2016. The Australia Divestment Business was previously included in our Other International Business segment and the Iron Mountain Canadian Divestments were previously included in our North American Records and Information Management Business segment.
See Note 10 to Notes to Consolidated Financial Statements included in this Quarterly Report for additional information regarding the presentation of the Divestments in our Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the three months ended March 31, 2017.
Transformation Initiative
During the third quarter of 2015, we implemented a plan that calls for certain organizational realignments to reduce our overhead costs by $125.0 million by the end of 2017, particularly in our developed markets, in order to optimize our selling, general and administrative cost structure and to support investments to advance our growth strategy (the "Transformation Initiative"), which is expected to be completed by the end of 2017.. As a result of the Transformation Initiative, we recorded a charge of $0.2 million and $6.0$5.7 million for the three and nine months ended September 30,March 31, 2016, respectively, and a charge of $9.1 million for both the three and nine months ended September 30, 2015, primarily related to employee severance and associated benefits. See Note 11 to Notes to Consolidated Financial Statements included in this Quarterly Report for more informationWe are on costs related to the Transformation Initiative, including costs recorded by segment as well as between cost of sales and selling, general and administrative expenses.
As we quantify incremental costs associated with future Transformation Initiative actionstarget to achieve our $125.0 million cost reduction goal we will discloseby the relevant cost estimates and charges in the period that such actions are approved.end of 2017.
General
During the fourth quarter of 2015, as a result of changes in the senior management of our business in Norway, we determined that our Norway operations are now being managed as a component of our Other International Business segment rather than as a component of our Western European Business segment. As a result of this change, previously reported segment information has been restated to conform to the current presentation. There were no changes to our operating segments or our reportable operating segments as a result of the Recall Transaction.
Our revenues consist of storage rental revenues as well as service revenues and are reflected net of sales and value added taxes. Storage rental revenues, which are considered a key driver of financial performance for the storage and information management services industry, consist primarily of recurring periodic rental charges related to the storage of materials or data (generally on a per unit basis) that are typically retained by customers for many years and technology escrow services that protect and manage source code. Service revenues include charges for related service activities, which include: (1) the handling of records, including the addition of new records, temporary removal of records from storage, refiling of removed records and the destruction of records; (2) courier operations, consisting primarily of the pickup and delivery of records upon customer request; (3) secure shredding of sensitive documents and the related sale of recycled paper, the price of which can fluctuate from period to period; (4) other services, including the scanning, imaging and document management solutions,conversion services of active and inactive records, or Information Governance and Digital Solutions, which relate to physical and digital records, and project revenues; (5) customer termination and permanent removal fees; (6) data restoration projects; (7) special project work; (8) the storage, assembly, reporting and detailed reportingdelivery of customer marketing literature, and delivery to sales offices, trade shows and prospective customers' sites based on current and prospective customer orders;or fulfillment services; (9) consulting services; and (10) other technology services and product sales (including specially designed storage containers and related supplies). Our service revenue growth has been negatively impacted by declining activity rates as stored records are becoming less active. While customers continue to store their records and tapes with us, they are less likely than they have been in the past to retrieve records for research and other purposes, thereby reducing service activity levels.
Cost of sales (excluding depreciation and amortization) consists primarily of wages and benefits for field personnel, facility occupancy costs (including rent and utilities), transportation expenses (including vehicle leases and fuel), other product cost of sales and other equipment costs and supplies. Of these, wages and benefits and facility occupancy costs are the most significant. Selling, general and administrative expenses consist primarily of wages and benefits for management, administrative, information technology, sales, account management and marketing personnel, as well as expenses related to communications and data processing, travel, professional fees, bad debts, training, office equipment and supplies. Trends in facility occupancy costs are impacted by the total number of facilities we occupy, the mix of properties we own versus properties we occupy under operating leases, fluctuations in per square foot occupancy costs, and the levels of utilization of these properties. Trends in total wages and benefits in dollars and as a percentage of total consolidated revenue are influenced by changes in headcount and compensation levels, achievement of incentive compensation targets, workforce productivity and variability in costs associated with medical insurance and workers' compensation.
The expansion of our international businesses has impacted the major cost of sales components and selling, general and administrative expenses. Our international operations are more labor intensive than our operations in North America and, therefore, labor costs are a higher percentage of international segment revenue. In addition, the overhead structure of our expanding international operations has not achieved the same level of overhead leverage as our North American segments, which may result in an increase in selling, general and administrative expenses, as a percentage of consolidated revenue, as our international operations become a more meaningful percentage of our consolidated results.
Our depreciation and amortization charges result primarily from the capital-intensive nature of our business. The principal components of depreciation relate to storage systems, which include racking structures, buildings, building and leasehold improvements and computer systems hardware and software and buildings.software. Amortization relates primarily to customer relationship intangible assets. Both depreciation and amortization are impacted by the timing of acquisitions.
Our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues and expenses incurred by our entities outside the United States. It is difficult to predict the future fluctuations of foreign currency exchange rates and how those fluctuations will impact our Consolidated Statements of Operations. As a result of the relative size of our international operations, these fluctuations may be material on individual balances. Our revenues and expenses from our international operations are generally denominated in the local currency of the country in which they are derived or incurred. Therefore, the impact of currency fluctuations on our operating income and operating margin is partially mitigated. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we compare the percentage change in the results from one period to another period in this report using constant currency presentation. The constant currency growth rates are calculated by translating the 20152016 results at the 20162017 average exchange rates. Constant currency growth rates are a non-GAAP measure.
The following table is a comparison of underlying average exchange rates of the foreign currencies that had the most significant impact on our United States dollar-reported revenues and expenses:
| | | Average Exchange Rates for the Three Months Ended September 30, | | Percentage Strengthening / (Weakening) of Foreign Currency | Average Exchange Rates for the Three Months Ended March 31, | | Percentage Strengthening / (Weakening) of Foreign Currency |
| 2015 | | 2016 | | 2016 | | 2017 | |
Australian dollar | $ | 0.726 |
| | $ | 0.758 |
| | 4.4 | % | $ | 0.722 |
| | $ | 0.758 |
| | 5.0 | % |
Brazilian real | $ | 0.284 |
| | $ | 0.308 |
| | 8.5 | % | $ | 0.257 |
| | $ | 0.318 |
| | 23.7 | % |
British pound sterling | $ | 1.549 |
| | $ | 1.313 |
| | (15.2 | )% | $ | 1.433 |
| | $ | 1.239 |
| | (13.5 | )% |
Canadian dollar | $ | 0.765 |
| | $ | 0.767 |
| | 0.3 | % | $ | 0.729 |
| | $ | 0.756 |
| | 3.7 | % |
Euro | $ | 1.113 |
| | $ | 1.116 |
| | 0.3 | % | $ | 1.103 |
| | $ | 1.066 |
| | (3.4 | )% |
|
| | | | | | | | | | |
| Average Exchange Rates for the Nine Months Ended September 30, | | Percentage Strengthening / (Weakening) of Foreign Currency |
| 2015 | | 2016 | |
Australian dollar | $ | 0.763 |
| | $ | 0.742 |
| | (2.8 | )% |
Brazilian real | $ | 0.320 |
| | $ | 0.283 |
| | (11.6 | )% |
British pound sterling | $ | 1.532 |
| | $ | 1.393 |
| | (9.1 | )% |
Canadian dollar | $ | 0.795 |
| | $ | 0.757 |
| | (4.8 | )% |
Euro | $ | 1.115 |
| | $ | 1.116 |
| | 0.1 | % |
Non-GAAP Measures
Adjusted OIBDAEBITDA
Adjusted OIBDAEBITDA is defined as operating income (loss) from continuing operations before interest expense, net, provision (benefit) for income taxes, depreciation and amortization, intangible impairments, (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net, Recall Costs and REIT Costs (as defined in Note 7 to Notes to Consolidated Financial Statements included in this Quarterly Report). Adjusted OIBDA does not includealso excludes certain items that we believe are not indicative of our core operating results, specifically: (1)(i) (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net; (2)(ii) intangible impairments; (iii) other (income) expense, net; (iv) gain on sale of real estate, net of tax; (3) intangible impairments; (4)and (v) Recall Costs; (5) REIT Costs; (6) other expense (income), net; (7) income (loss) from discontinued operations, net of tax; (8) gain (loss) on sale of discontinued operations, net of tax; and (9) net income (loss) attributable to noncontrolling interests.Costs. Adjusted OIBDAEBITDA Margin is calculated by dividing Adjusted OIBDAEBITDA by total revenues. We use multiples of current or projected Adjusted OIBDAEBITDA in conjunction with our discounted cash flow models to determine our estimated overall enterprise valuation and to evaluate acquisition targets. We believe Adjusted OIBDAEBITDA and Adjusted OIBDAEBITDA Margin provide our current and potential investors with relevant and useful information regarding our ability to generate cash flow to support business investment. These measures are an integral part of the internal reporting system we use to assess and evaluate the operating performance of our business.
Adjusted OIBDA also does not includeEBITDA excludes both interest expense, net and the provision (benefit) for income taxes. These expenses are associated with our capitalization and tax structures, which we do not consider when evaluating the operating profitability of our core operations. Finally, Adjusted OIBDAEBITDA does not include depreciation and amortization expenses, in order to eliminate the impact of capital investments, which we evaluate by comparing capital expenditures to incremental revenue generated and as a percentage of total revenues. Adjusted OIBDAEBITDA and Adjusted OIBDAEBITDA Margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with accounting principles generally accepted in the United States of America ("GAAP"), such as operating orincome, income (loss) from continuing operations, net income (loss) or cash flows from operating activities from continuing operations (as determined in accordance with GAAP).
Reconciliation of Operating Income (Loss) from Continuing Operations to Adjusted OIBDAEBITDA (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2016 | | 2015 | | 2016 |
Operating Income | $ | 126,822 |
| | $ | 135,454 |
| | $ | 401,258 |
| | $ | 362,146 |
|
Add: Depreciation and Amortization | 86,492 |
| | 124,670 |
| | 259,992 |
| | 326,896 |
|
(Gain) Loss on Disposal/Write-Down of Property, Plant and Equipment (Excluding Real Estate), Net | (141 | ) | | (54 | ) | | 707 |
| | (1,131 | ) |
Recall Costs | 14,662 |
| | 34,133 |
| | 20,324 |
| | 102,872 |
|
Adjusted OIBDA | $ | 227,835 |
| | $ | 294,203 |
| | $ | 682,281 |
| | $ | 790,783 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2017 |
Income (Loss) from Continuing Operations | $ | 63,041 |
| | $ | 58,844 |
|
Add/(Deduct): | | | |
Provision (Benefit) for Income Taxes | 11,900 |
| | 9,220 |
|
Other (Income) Expense, Net | (11,937 | ) | | (6,364 | ) |
Interest Expense, Net | 67,062 |
| | 86,055 |
|
(Gain) Loss on Disposal/Write-Down of Property, Plant and Equipment (Excluding Real Estate), Net | (451 | ) | | (459 | ) |
Depreciation and Amortization | 87,204 |
| | 124,707 |
|
Recall Costs | 18,327 |
| | 20,571 |
|
Adjusted EBITDA | $ | 235,146 |
| | $ | 292,574 |
|
Adjusted EPS
Adjusted EPS is defined as reported earnings per share fully diluted from continuing operations excluding: (1) (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net; (2) gain on sale of real estate, net of tax; (3) intangible impairments; (4) other (income) expense, (income), net; (5) Recall Costs; (6) REIT Costs; and (7)(6) the tax impact of reconciling items and discrete tax items. Adjusted EPS includes income (loss) attributable to noncontrolling interests. We do not believe these excluded items to be indicative of our ongoing operating results, and they are not considered when we are forecasting our future results. We believe Adjusted EPS is of value to our current and potential investors when comparing our results from past, present and future periods.
Reconciliation of Reported EPS—Fully Diluted from Continuing Operations to Adjusted EPS—Fully Diluted from Continuing Operations:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2015 | | 2016 | | 2015 | | 2016 | 2016 | | 2017 |
Reported EPS—Fully Diluted from Continuing Operations | $ | 0.11 |
| | $ | 0.02 |
| | $ | 0.56 |
| | $ | 0.22 |
| $ | 0.30 |
| | $ | 0.22 |
|
Add: Income (Loss) Attributable to Noncontrolling Interests | — |
| | — |
| | — |
| | — |
| |
Add/(Deduct): | | | | |
Income (Loss) Attributable to Noncontrolling Interests | | — |
| | — |
|
Other (Income) Expense, Net | | (0.06 | ) | | (0.02 | ) |
(Gain) Loss on Disposal/Write-Down of Property, Plant and Equipment (Excluding Real Estate), Net | — |
| | — |
| | — |
| | — |
| — |
| | — |
|
Gain on Sale of Real Estate, Net of Tax | — |
| | — |
| | — |
| | — |
| |
Other Expense (Income), Net | 0.17 |
| | 0.09 |
| | 0.28 |
| | 0.15 |
| |
Recall Costs | 0.07 |
| | 0.13 |
| | 0.10 |
| | 0.43 |
| 0.09 |
| | 0.08 |
|
Tax Impact of Reconciling Items and Discrete Tax Items(1) | (0.04 | ) | | 0.03 |
| | (0.05 | ) | | 0.01 |
| — |
| | (0.04 | ) |
Adjusted EPS—Fully Diluted from Continuing Operations(2) | $ | 0.31 |
| | $ | 0.27 |
| | $ | 0.89 |
| | $ | 0.80 |
| $ | 0.33 |
| | $ | 0.24 |
|
| |
(1) | The difference between our effective tax rate and our structural tax rate (or adjusted effective tax rate) for the three and nine months ended September 30, 2015March 31, 2016 and 2016,2017, respectively, is primarily due to (i) the reconciling items above, which impact our reported income (loss) from continuing operations before provision (benefit) for income taxes but have an insignificant impact on our reported provision (benefit) for income taxes and (ii) other discrete tax items. Our structural tax rate for purposes of the calculation of Adjusted EPS for the three and nine months ended September 30, 2015March 31, 2016 and 20162017 was 16.5%14.0% and 18.6%23.1%, respectively. |
| |
(2) | Columns may not foot due to rounding. |
FFO (NAREIT) and FFO (Normalized)
Funds from operations (“FFO”) is defined by the National Association of Real Estate Investment Trusts ("NAREIT") and us as net income excluding depreciation on real estate assets and gain on sale of real estate, net of tax (“FFO (NAREIT)”). FFO (NAREIT) does not give effect to real estate depreciation because these amounts are computed, under GAAP, to allocate the cost of a property over its useful life. Because values for well-maintained real estate assets have historically increased or decreased based upon prevailing market conditions, we believe that FFO (NAREIT) provides investors with a clearer view of our operating performance. Our most directly comparable GAAP measure to FFO (NAREIT) is net income. Although NAREIT has published a definition of FFO, modifications to FFO (NAREIT) are common among REITs as companies seek to provide financial measures that most meaningfully reflect their particular business. Our definition of FFO (Normalized) excludes certain items included in FFO (NAREIT) that we believe are not indicative of our core operating results, specifically: (1) (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net; (2) intangible impairments; (3) other (income) expense, (income), net; (4) deferred income taxes and REIT tax adjustments; (5) Recall Costs; (5) the tax impact of reconciling items and discrete tax items; (6) REIT Costs; (7) income (loss)loss (income) from discontinued operations, net of tax; and (8) gain (loss)(7) loss (gain) on sale of discontinued operations, net of tax.
Reconciliation of Net Income (Loss) to FFO (NAREIT) and FFO (Normalized) (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | | 2016 | | 2015 | | 2016 |
Net Income (Loss) | $ | 23,517 |
| | $ | 7,800 |
| | $ | 119,263 |
| | $ | 57,708 |
|
Add: Real Estate Depreciation(1) | 44,896 |
| | 61,655 |
| | 134,454 |
| | 165,037 |
|
Gain on Sale of Real Estate, Net of Tax(2) | (850 | ) | | (325 | ) | | (850 | ) | | (325 | ) |
FFO (NAREIT) | 67,563 |
| | 69,130 |
| | 252,867 |
| | 222,420 |
|
Add: (Gain) Loss on Disposal/Write-Down of Property, Plant and Equipment (Excluding Real Estate), Net | (141 | ) | | (54 | ) | | 707 |
| | (1,131 | ) |
Other Expense, Net(3) | 35,246 |
| | 23,302 |
| | 59,599 |
| | 37,006 |
|
Deferred Income Taxes and REIT Tax Adjustments(4) | (685 | ) | | (6,976 | ) | | (7,175 | ) | | (15,035 | ) |
Recall Costs | 14,662 |
| | 34,133 |
| | 20,324 |
| | 102,872 |
|
Income from Discontinued Operations, Net of Tax(5) | — |
| | (2,041 | ) | | — |
| | (3,628 | ) |
FFO (Normalized) | $ | 116,645 |
| | $ | 117,494 |
| | $ | 326,322 |
| | $ | 342,504 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2016 | | 2017 |
Net Income (Loss) | $ | 63,041 |
| | $ | 58,507 |
|
Add/(Deduct): | | | |
Real Estate Depreciation(1) | 45,063 |
| | 62,956 |
|
FFO (NAREIT) | 108,104 |
| | 121,463 |
|
Add/(Deduct): | | | |
(Gain) Loss on Disposal/Write-Down of Property, Plant and Equipment (Excluding Real Estate), Net | (451 | ) | | (459 | ) |
Other (Income) Expense, Net(2) | (11,937 | ) | | (6,364 | ) |
Recall Costs | 18,327 |
| | 20,571 |
|
Tax Impact of Reconciling Items and Discrete Tax Items(3) | 577 |
| | (9,678 | ) |
Loss (Income) from Discontinued Operations, Net of Tax(4) | — |
| | 337 |
|
FFO (Normalized) | $ | 114,620 |
| | $ | 125,870 |
|
| |
(1) | Includes depreciation expense related to real estate assets (land improvements, buildings, building improvements, leasehold improvements and racking). |
| |
(2) | NetIncludes foreign currency transaction (gains) losses, net of tax provision of $0.1$(12.5) million for each ofand $(4.2) million in the three and nine months ended September 30,March 31, 2016 and $0.2 million for each of the three and nine months ended September 30, 2015.2017, respectively. |
| |
(3) | Includes foreign currency transaction losses, netRepresents the tax impact of $10.7 million(i) the reconciling items above, which impact our reported income (loss) from continuing operations before provision (benefit) for income taxes but have an insignificant impact on our reported provision (benefit) for income taxes and $15.3 million in the three and nine months ended September 30, 2016, respectively, and $32.5 million and $56.5 million in the three and nine months ended September 30, 2015, respectively.(ii) other discrete tax items. |
| |
(4) | REIT tax adjustments primarily include the impact of the repatriation of foreign earnings and accounting method changes related to the REIT conversion (including the impact of amended tax returns). |
| |
(5) | Net of tax provisionbenefit of $0.3 million and $0.6$0.1 million for the three and nine months ended September 30, 2016, respectively.March 31, 2017. |
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended. On an ongoing basis, we evaluate the estimates used. We base our estimates on historical experience, actuarial estimates, current conditions and various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities and are not readily apparent from other sources. Actual results may differ from these estimates. Our critical accounting policies include the following, which are listed in no particular order:
Revenue Recognition
Accounting for Acquisitions
Impairment of Tangible and Intangible Assets
Income Taxes
Further detail regarding our critical accounting policies can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report, and the Consolidated Financial Statements and the Notes included therein. We have determined that no material changes concerning our critical accounting policies have occurred since December 31, 2015.2016.
Recent Accounting Pronouncements
See Note 2.k. to Notes to Consolidated Financial Statements included in this Quarterly Report for a description of recently issued accounting pronouncements.pronouncements, including those recently adopted.
Results of Operations
Comparison of three and nine months ended September 30, 2016March 31, 2017 to three and nine months ended September 30, 2015March 31, 2016 (in thousands):
| | | Three Months Ended September 30, | | | | | Three Months Ended March 31, | | | | |
| | Dollar Change | | Percentage Change | | Dollar Change | | Percentage Change |
| 2015 | | 2016 | | 2016 | | 2017 | |
Revenues | $ | 746,529 |
| | $ | 942,822 |
| | $ | 196,293 |
| | 26.3 | % | $ | 750,690 |
| | $ | 938,876 |
| | $ | 188,186 |
| | 25.1 | % |
Operating Expenses | 619,707 |
| | 807,368 |
| | 187,661 |
| | 30.3 | % | 620,624 |
| | 791,121 |
| | 170,497 |
| | 27.5 | % |
Operating Income | 126,822 |
| | 135,454 |
| | 8,632 |
| | 6.8 | % | 130,066 |
| | 147,755 |
| | 17,689 |
| | 13.6 | % |
Other Expenses, Net | 103,305 |
| | 129,695 |
| | 26,390 |
| | 25.5 | % | 67,025 |
| | 88,911 |
| | 21,886 |
| | 32.7 | % |
Income from Continuing Operations | 23,517 |
| | 5,759 |
| | (17,758 | ) | | (75.5 | )% | 63,041 |
| | 58,844 |
| | (4,197 | ) | | (6.7 | )% |
Income from Discontinued Operations, Net of Tax | — |
| | 2,041 |
| | 2,041 |
| | 100.0 | % | |
Loss from Discontinued Operations, Net of Tax | | — |
| | (337 | ) | | (337 | ) | | (100.0 | )% |
Net Income | 23,517 |
| | 7,800 |
| | (15,717 | ) | | (66.8 | )% | 63,041 |
| | 58,507 |
| | (4,534 | ) | | (7.2 | )% |
Net Income Attributable to Noncontrolling Interests | 407 |
| | 720 |
| | 313 |
| | 76.9 | % | 267 |
| | 382 |
| | 115 |
| | 43.1 | % |
Net Income Attributable to Iron Mountain Incorporated | $ | 23,110 |
| | $ | 7,080 |
| | $ | (16,030 | ) | | (69.4 | )% | $ | 62,774 |
| | $ | 58,125 |
| | $ | (4,649 | ) | | (7.4 | )% |
Adjusted OIBDA(1) | $ | 227,835 |
| | $ | 294,203 |
| | $ | 66,368 |
| | 29.1 | % | |
Adjusted OIBDA Margin(1) | 30.5 | % | | 31.2 | % | | | | | |
Adjusted EBITDA(1) | | $ | 235,146 |
| | $ | 292,574 |
| | $ | 57,428 |
| | 24.4 | % |
Adjusted EBITDA Margin(1) | | 31.3 | % | | 31.2 | % | | | | |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | |
| | Dollar Change | | Percentage Change |
| 2015 | | 2016 | | |
Revenues | $ | 2,255,549 |
| | $ | 2,577,260 |
| | $ | 321,711 |
| | 14.3 | % |
Operating Expenses | 1,854,291 |
| | 2,215,114 |
| | 360,823 |
| | 19.5 | % |
Operating Income | 401,258 |
| | 362,146 |
| | (39,112 | ) | | (9.7 | )% |
Other Expenses, Net | 281,995 |
| | 308,066 |
| | 26,071 |
| | 9.2 | % |
Income from Continuing Operations | 119,263 |
| | 54,080 |
| | (65,183 | ) | | (54.7 | )% |
Income from Discontinued Operations, Net of Tax | — |
| | 3,628 |
| | 3,628 |
| | 100.0 | % |
Net Income | 119,263 |
| | 57,708 |
| | (61,555 | ) | | (51.6 | )% |
Net Income Attributable to Noncontrolling Interests | 1,727 |
| | 1,822 |
| | 95 |
| | 5.5 | % |
Net Income Attributable to Iron Mountain Incorporated | $ | 117,536 |
| | $ | 55,886 |
| | $ | (61,650 | ) | | (52.5 | )% |
Adjusted OIBDA(1) | $ | 682,281 |
| | $ | 790,783 |
| | $ | 108,502 |
| | 15.9 | % |
Adjusted OIBDA Margin(1) | 30.2 | % | | 30.7 | % | | | | |
| |
(1) | See "Non-GAAP Measures—Adjusted OIBDA"EBITDA" in this Quarterly Report for the definition, reconciliation and a discussion of why we believe these measures provide relevant and useful information to our current and potential investors. |
REVENUES
Consolidated revenues consists of the following (in thousands):
| | | Three Months Ended September 30, | | | | Percentage Change | | | Three Months Ended March 31, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency(1) | | Internal Growth(2) | | Dollar Change | | Actual | | Constant Currency(1) | | Internal Growth(2) |
| 2015 | | 2016 | | 2016 | | 2017 | |
Storage Rental | $ | 460,052 |
| | $ | 576,465 |
| | $ | 116,413 |
| | 25.3 | % | | 27.2 | % | | 2.6 | % | $ | 461,211 |
| | $ | 572,279 |
| | $ | 111,068 |
| | 24.1 | % | | 24.6 | % | | 3.0 | % |
Service | 286,477 |
| | 366,357 |
| | 79,880 |
| | 27.9 | % | | 29.9 | % | | (0.5 | )% | 289,479 |
| | 366,597 |
| | 77,118 |
| | 26.6 | % | | 26.7 | % | | 0.6 | % |
Total Revenues | $ | 746,529 |
| | $ | 942,822 |
| | $ | 196,293 |
| | 26.3 | % | | 28.2 | % | | 1.4 | % | $ | 750,690 |
| | $ | 938,876 |
| | $ | 188,186 |
| | 25.1 | % | | 25.4 | % | | 2.0 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency(1) | | Internal Growth(2) |
| 2015 | | 2016 | | | | |
Storage Rental | $ | 1,380,133 |
| | $ | 1,576,358 |
| | $ | 196,225 |
| | 14.2 | % | | 16.9 | % | | 2.3 | % |
Service | 875,416 |
| | 1,000,902 |
| | 125,486 |
| | 14.3 | % | | 17.4 | % | | (0.2 | )% |
Total Revenues | $ | 2,255,549 |
| | $ | 2,577,260 |
| | $ | 321,711 |
| | 14.3 | % | | 17.1 | % | | 1.3 | % |
| |
(1) | Constant currency growth rates are calculated by translating the 20152016 results at the 20162017 average exchange rates. |
| |
(2) | Our internal revenue growth rate, which is a non-GAAP measure, represents the weighted average year-over-year growth rate of our revenues excluding the impact of business acquisitions, divestitures and foreign currency exchange rate fluctuations. The revenues generated by Recall have been integrated with our existing revenues and it is impracticable for us to determine actual Recall revenue contribution.contribution for the applicable periods. Therefore, our internal revenue growth rates exclude the impact of revenues associated with the Recall Transaction based upon forecasted or budgeted Recall revenues beginning in the third quarter of 2016. Our internal revenue growth rate includes the impact of acquisitions of customer relationships. |
Storage Rental Revenues
Consolidated storage rental revenues increased $116.4$111.1 million, or 25.3%24.1%, to $576.5 million and $196.2 million, or 14.2%, to $1,576.4$572.3 million for the three and nine months ended September 30, 2016, respectively,March 31, 2017 from $460.1 million and $1,380.1$461.2 million for the three and nine months ended September 30, 2015, respectively.March 31, 2016. In the three and nine months ended September 30, 2016,March 31, 2017, the net impact of acquisitions/divestitures and consolidated internal storage rental revenue growth were partially offset by unfavorable fluctuations in foreign currency exchange rates compared to the three and nine months ended September 30, 2015.March 31, 2016. The net impact of acquisitions/divestitures contributed 24.6% and 14.6%21.6% to the reported storage rental revenue growth ratesrate for the three and nine months ended September 30, 2016, respectively,March 31, 2017 compared to the samecomparable prior year periods,period, primarily driven primarily by our acquisition of Recall. Internal storage rental revenue growth of 2.3%3.0% in the ninethree months ended September 30, 2016March 31, 2017 compared to the samecomparable prior year period was driven by sustained internal storage rental revenue growth of 0.7%2.7%, 1.7%, 0.8% and 9.9%8.3% in our North American Records and Information Management Business, North American Data Management Business, Western European Business and Other International Business segments, respectively.respectively, primarily driven by volume increases, as well as internal storage rental revenue growth of 1.9% in our North American Records and Information Management Business segment, primarily driven by net price increases. Excluding the impact of acquisitions, global records management net volumes as of March 31, 2017 increased by 1.9% over the ending volume as of March 31, 2016. These increases were partially offset by the impact of foreign currency exchange rate fluctuations, which decreased our reported storage rental revenue growth ratesrate for the three and nine months ended September 30, 2016March 31, 2017 by 1.9% and 2.7%, respectively,0.5% compared to the samecomparable prior year periods.period. Global records management reported net volumes, including the impact of acquisitions, as of September 30, 2016March 31, 2017 increased by 29.2%25.0% over the ending volume at September 30, 2015,March 31, 2016, supported by volume increases across each of our reportable operating segments, primarily associated with the acquisition of Recall.
Service Revenues
Consolidated service revenues increased $79.9$77.1 million, or 27.9%26.6%, to $366.4 million and $125.5 million, or 14.3%, to $1,000.9$366.6 million for the three and nine months ended September 30, 2016, respectively,March 31, 2017 from $286.5 million and $875.4$289.5 million for the three and nine months ended September 30, 2015, respectively.March 31, 2016. In the three and nine months ended September 30, 2016,March 31, 2017, the net impact of acquisitions/divestitures was partially offset by negativeand consolidated internal service revenue growth andwere partially offset by unfavorable fluctuations in foreign currency exchange rates compared to the three and nine months ended September 30, 2015.March 31, 2016. The net impact of acquisitions/divestitures contributed 30.4% and 17.6%26.1% to the reported service revenue growth ratesrate for the three and nine months ended September 30, 2016, respectively,March 31, 2017 compared to the samecomparable prior year periods,period, primarily driven primarily by our acquisition of Recall. Internal service revenue growth was negative 0.5% and negative 0.2%0.6% for the three and nine months ended September 30, 2016, respectively,March 31, 2017 compared to the samecomparable prior year periods.period. The negative internal service revenue growth for the ninethree months ended September 30, 2016March 31, 2017 reflects reducedgrowth in secure shredding revenues, in part due to higher recycled paper prices, and the stabilization in recent periods of the decline in retrieval/re-file activity and athe related decrease in transportation revenues within our North American Records and Information Management Business, andas well as increased special project work within our Western European Business segments, as well assegment, partially offset by continued declines in service revenue activity levels in our North American Data Management Business segment, as the storage business becomes more archival in nature. In the North American Records and Information Management Business segment, the decline in service activities has begun to stabilize in recent periods, while service revenue declines in the Western European Business and the North American Data Management Business segments are reflecting more recent reductions in service activity levels. Foreign currency exchange rate fluctuations decreased our reported total service revenues by 2.0% and 3.1%0.1% for the three and nine months ended September 30, 2016, respectively,March 31, 2017 compared to the samecomparable prior year periods.period.
Total Revenues
For the reasons stated above, our consolidated revenues increased $196.3$188.2 million, or 26.3%25.1%, to $942.8 million and $321.7 million, or 14.3%, to $2,577.3$938.9 million for the three and nine months ended September 30, 2016, respectively,March 31, 2017 from $746.5 million and $2,255.5$750.7 million for the three and nine months ended September 30, 2015, respectively.March 31, 2016. The net impact of acquisitions/divestitures contributed 26.8% and 15.8%23.4% to the reported consolidated revenue growth ratesrate for the three and nine months ended September 30, 2016, respectively,March 31, 2017 compared to the samecomparable prior year periods,period, primarily driven primarily by our acquisition of Recall. Consolidated internal revenue growth was 1.4% and 1.3%2.0% in the three and nine months ended September 30, 2016, respectively,March 31, 2017 compared to the samecomparable prior year periods.period. These increases were partially offset by the impact of foreign currency exchange rate fluctuations, which decreased our reported consolidated revenues by 1.9% and 2.8%0.3% in the three and nine months ended September 30, 2016, respectively,March 31, 2017 compared to the samecomparable prior year periods.period, primarily due to the weakening of the British pound sterling and the Euro against the United States dollar, based on an analysis of weighted average rates for the comparable period.
Internal Growth—Eight-Quarter Trend
| | | 2014 | | 2015 | | 2016 | 2015 | | 2016 | | 2017 |
| Fourth Quarter | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | First Quarter | | Second Quarter | | Third Quarter | Second Quarter | | Third Quarter | | Fourth Quarter | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | First Quarter |
Storage Rental Revenue | 3.5 | % | | 3.0 | % | | 2.7 | % | | 2.8 | % | | 2.2 | % | | 2.2 | % | | 2.1 | % | | 2.6 | % | 2.7 | % | | 2.8 | % | | 2.2 | % | | 2.2 | % | | 2.1 | % | | 2.1 | % | | 2.9 | % | | 3.0 | % |
Service Revenue | 2.3 | % | | (1.0 | )% | | — | % | | (0.9 | )% | | 0.3 | % | | 1.6 | % | | (2.1 | )% | | (0.5 | )% | — | % | | (0.9 | )% | | 0.3 | % | | 1.6 | % | | (2.1 | )% | | (1.3 | )% | | (0.9 | )% | | 0.6 | % |
Total Revenue | 3.0 | % | | 1.4 | % | | 1.6 | % | | 1.3 | % | | 1.4 | % | | 2.0 | % | | 0.4 | % | | 1.4 | % | 1.6 | % | | 1.3 | % | | 1.4 | % | | 2.0 | % | | 0.4 | % | | 0.8 | % | | 1.4 | % | | 2.0 | % |
We expect our consolidated internal storage rental revenue growth rate for 20162017 to be approximately 1.5%2.0% to 2.0%2.5%. During the past eight quarters, our internal storage rental revenue growth rate has ranged between 2.1% and 3.5%3.0%. Our internal storage rental revenue growth rates have been relatively stable over the past two fiscal years, as internal storage rental revenue growth for full year 20142015 and 20152016 were 2.2%2.7% and 2.7%2.3%, respectively. At various points in the economic cycle, internal storage rental revenue growth may be influenced by changes in pricing and volume. Within our international portfolio, the Western European Business segment is generating consistent low single-digit internal storage rental revenue growth, while the Other International Business segment is producing high single-digit internal storage rental revenue growth by capturing the first-time outsourcing trends for physical records storage and management in those markets. The internal growth rate for service revenue is inherently more volatile than the internal growth rate for storage rental revenues due to the more discretionary nature of certain services we offer, such as large special projects, and, as a commodity, the volatility of pricing for recycled paper. These revenues, which are often event-driven and impacted to a greater extent by economic downturns as customers defer or cancel the purchase of certain services as a way to reduce their short-term costs, may be difficult to replicate in future periods. The internal growth rate for total service revenues over the past eight quarters reflects reduced retrieval/re-file activity and a related decrease in transportation revenues within our North American Records and Information Management Business and Western European Business segments, as well as continued service declines in service revenue activity levels in our North American Data Management Business segment as the storage business becomes more archival in nature.
OPERATING EXPENSES
Cost of Sales
Consolidated cost of sales (excluding depreciation and amortization) consists of the following expenses (in thousands):
| | | Three Months Ended September 30, | | | | Percentage Change | | % of Consolidated Revenues | | Percentage Change (Favorable)/ Unfavorable | Three Months Ended March 31, | | | | Percentage Change | | % of Consolidated Revenues | | Percentage Change (Favorable)/ Unfavorable |
| | | | | | |
| | Dollar Change | | Actual | | Constant Currency | | | Dollar Change | | Actual | | Constant Currency | |
| 2015 | | 2016 | | 2015 | | 2016 | | 2016 | | 2017 | | 2016 | | 2017 | |
Labor | $ | 158,905 |
| | $ | 199,459 |
| | $ | 40,554 |
| | 25.5 | % | | 27.4 | % | | 21.3 | % | | 21.2 | % | | (0.1 | )% | $ | 169,028 |
| | $ | 200,160 |
| | $ | 31,132 |
| | 18.4 | % | | 18.2 | % | | 22.5 | % | | 21.3 | % | | (1.2 | )% |
Facilities | 105,024 |
| | 146,534 |
| | 41,510 |
| | 39.5 | % | | 42.0 | % | | 14.1 | % | | 15.5 | % | | 1.4 | % | 104,194 |
| | 144,253 |
| | 40,059 |
| | 38.4 | % | | 38.2 | % | | 13.9 | % | | 15.4 | % | | 1.5 | % |
Transportation | 24,958 |
| | 38,337 |
| | 13,379 |
| | 53.6 | % | | 55.9 | % | | 3.3 | % | | 4.1 | % | | 0.8 | % | 25,249 |
| | 35,221 |
| | 9,972 |
| | 39.5 | % | | 39.9 | % | | 3.4 | % | | 3.8 | % | | 0.4 | % |
Product Cost of Sales and Other | 28,776 |
| | 41,021 |
| | 12,245 |
| | 42.6 | % | | 45.2 | % | | 3.9 | % | | 4.4 | % | | 0.5 | % | 27,634 |
| | 39,186 |
| | 11,552 |
| | 41.8 | % | | 41.4 | % | | 3.7 | % | | 4.2 | % | | 0.5 | % |
Recall Costs | — |
| | 4,457 |
| | 4,457 |
| | 100.0 | % | | 100.0 | % | | — | % | | 0.5 | % | | 0.5 | % | — |
| | 7,887 |
| | 7,887 |
| | 100.0 | % | | 100.0 | % | | — | % | | 0.8 | % | | 0.8 | % |
| $ | 317,663 |
| | $ | 429,808 |
| | $ | 112,145 |
| | 35.3 | % | | 37.5 | % | | 42.6 | % | | 45.6 | % | | 3.0 | % | $ | 326,105 |
| | $ | 426,707 |
| | $ | 100,602 |
| | 30.8 | % | | 30.6 | % | | 43.4 | % | | 45.4 | % | | 2.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | Percentage Change | | % of Consolidated Revenues | | Percentage Change (Favorable)/ Unfavorable |
| | | | | |
| | Dollar Change | | Actual | | Constant Currency | | |
| 2015 | | 2016 | | | | | 2015 | | 2016 | |
Labor | $ | 484,389 |
| | $ | 561,056 |
| | $ | 76,667 |
| | 15.8 | % | | 19.5 | % | | 21.5 | % | | 21.8 | % | | 0.3 | % |
Facilities | 319,833 |
| | 383,648 |
| | 63,815 |
| | 20.0 | % | | 23.4 | % | | 14.2 | % | | 14.9 | % | | 0.7 | % |
Transportation | 75,310 |
| | 96,812 |
| | 21,502 |
| | 28.6 | % | | 31.8 | % | | 3.3 | % | | 3.8 | % | | 0.5 | % |
Product Cost of Sales and Other | 86,068 |
| | 105,258 |
| | 19,190 |
| | 22.3 | % | | 26.2 | % | | 3.8 | % | | 4.1 | % | | 0.3 | % |
Recall Costs | — |
| | 4,788 |
| | 4,788 |
| | 100.0 | % | | 100.0 | % | | — | % | | 0.2 | % | | 0.2 | % |
| $ | 965,600 |
| | $ | 1,151,562 |
| | $ | 185,962 |
| | 19.3 | % | | 22.8 | % | | 42.8 | % | | 44.7 | % | | 1.9 | % |
Labor
Labor expenses decreased to 21.2%21.3% of consolidated revenues in the three months ended September 30, 2016March 31, 2017 compared to 21.3%22.5% in the three months ended September 30, 2015.March 31, 2016. The decrease in labor expenses as a percentage of consolidated revenuerevenues was driven by a 121185 basis point decrease in labor expenses associated with our North American Records and Information Management Business segment as a percentage of consolidated revenue (11.42%revenues (11.61% in the three months ended September 30, 2016March 31, 2017 compared to 12.63%13.46% in the comparable prior year period), primarily associated with wages and benefits growing at a lower rate than revenue, partially attributable to synergies associated with our acquisition of Recall. This decrease was partially offset by a 9791 basis point increase in labor expenses associated with our Other International Business segment as a percentage of consolidated revenue (4.90%revenues (4.79% in the three months ended September 30, 2016March 31, 2017 compared to 3.93%3.88% in the comparable prior year period), primarily associated with increased wages and benefits.
Labor expenses increased to 21.8% of consolidated revenues in the nine months ended September 30, 2016 compared to 21.5% in the nine months ended September 30, 2015. The increase in labor expenses as a percentage of consolidated revenue was driven by a 44 basis point increase in labor expenses associated with our Other International Business segment as a percentage of consolidated revenue (4.53% in the nine months ended September 30, 2016 compared to 4.09% in the comparable prior year period), primarily associated with increased wages, a 23 basis point increase in labor expenses associated with our Corporate and Other Business segment as a percentage of consolidated revenue (0.37% in the nine months ended September 30, 2016 compared to 0.14% in the comparable prior year period), primarily associated with the impact of recent acquisitions, as well as a 22 basis point increase in labor expenses associated with our Western European Business segment as a percentage of consolidated revenue (2.88% in the nine months ended September 30, 2016 compared to 2.66% in the comparable prior year period), primarily associated with increased wages and benefits. These increases were partially offset by a 48 basis point decrease in labor expenses associated with our North American Records and Information Management Business segment as a percentage of consolidated revenue (12.14% in the nine months ended September 30, 2016 compared to 12.62% in the comparable prior year period), primarily associated with wages and benefits growing at a lower rate than revenue. Labor expenses for the ninethree months ended September 30, 2016March 31, 2017 increased by $91.4$30.8 million, or 19.5%18.2%, on a constant dollar basis compared to the samecomparable prior year period, primarily driven by our acquisition of Recall. Labor expenses were favorably impacted by 3.7 percentage points due to currency rate changes during the nine months ended September 30, 2016 compared to the same prior year period.
Facilities
Facilities expenses increased to 14.9%15.4% of consolidated revenues in the ninethree months ended September 30, 2016March 31, 2017 compared to 14.2%13.9% in the ninethree months ended September 30, 2015.March 31, 2016. The 150 basis point increase in facilities expenses as a percentage of consolidated revenues was primarily driven by a 94 basis pointan increase in rent expense as a percentageresult of consolidated revenues (7.81% in the nine months ended September 30, 2016 compared to 6.87% in the comparable prior year period), partially offset by a 23 basis point decrease in other facilities costs as a percentage of consolidated revenues (7.08% in the nine months ended September 30, 2016 compared to 7.31% in the comparable prior year period). The increase in rent expense was primarily driven by the acquisition of Recall, as Recall's real estate portfolio contains a more significant proportion of leased facilities than our real estate portfolio as it existed prior to the closing of the Recall Transaction. We expect this trendTransaction, as well as an increase in rent expense to continue through the first quarter of 2017.other facilities costs. The decreaseincrease in other facilities costs was primarily driven by lower utilities and building maintenance costs associated with our North American Records and Information Management Business segment, as well as lowerincreased property taxes, primarily associated with our Western European Business segment. Facilities expenses for the ninethree months ended September 30, 2016March 31, 2017 increased by $72.8$39.9 million, or 23.4%38.2%, on a constant dollar basis compared to the samecomparable prior year period, primarily driven by our acquisition of Recall. Facilities expenses were favorably impacted by 3.4 percentage points due to currency rate changes during the nine months ended September 30, 2016 compared to the same prior year period.
Transportation
Transportation expenses increased to 3.8% of consolidated revenues in the ninethree months ended September 30, 2016March 31, 2017 compared to 3.3%3.4% in the ninethree months ended September 30, 2015.March 31, 2016. The increase in transportation expenses as a percentage of consolidated revenues was driven by a 31 basis pointan increase in third party carrier costs (1.15% in the nine months ended September 30, 2016 compared to 0.84% in the comparable prior year period),as a percentage of consolidated revenue, primarily associated with our Other International Business segment, as well as a 14 basis point increase in vehicle lease and insurance costs (0.45% in the nine months ended September 30, 2016 compared to 0.31% in the comparable prior year period), primarily associated with our Western European Business segment. Transportation expenses for the ninethree months ended September 30, 2016March 31, 2017 increased by $23.3$10.0 million, or 31.8%39.9%, on a constant dollar basis compared to the samecomparable prior year period, primarily driven by our acquisition of Recall. Transportation expenses were favorably impacted by 3.2 percentage points due to currency rate changes during the nine months ended September 30, 2016 compared to the same prior year period.
Product Cost of Sales and Other
Product cost of sales and other, which includes cartons, media and other service, storage and supply costs and is highly correlated to service revenue streams, particularly project revenues, increased to 4.1%4.2% of consolidated revenues for the ninethree months ended September 30, 2016March 31, 2017 compared to 3.8%3.7% in the ninethree months ended September 30, 2015.March 31, 2016. The increase in product cost of sales and other was driven by a 37 basis point increase in product cost of sales and other associated with our Other International Business segment (1.17% for the nine months ended September 30, 2016 compared to 0.80% in the comparable prior year period) driven byspecial project costs. Product cost of sales and other increased by $21.9$11.5 million, or 26.2%41.4%, on a constant dollar basis compared to the samecomparable prior year period, primarily driven by our acquisition of Recall. Product cost of sales and other were favorably impacted by 3.9 percentage points due to currency rate changes during the nine months ended September 30, 2016.
Recall Costs
Recall Costs included in cost of sales were $4.8$7.9 million in the ninethree months ended September 30, 2016,March 31, 2017, and primarily consisted of employee severance costs and facility integration costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consists of the following expenses (in thousands): | | | Three Months Ended September 30, | | | | Percentage Change | | % of Consolidated Revenues | | Percentage Change (Favorable)/ Unfavorable | Three Months Ended March 31, | | | | Percentage Change | | % of Consolidated Revenues | | Percentage Change (Favorable)/ Unfavorable |
| | | | | | |
| | Dollar Change | | Actual | | Constant Currency | | | Dollar Change | | Actual | | Constant Currency | |
| 2015 | | 2016 | | 2015 | | 2016 | | 2016 | | 2017 | | 2016 | | 2017 | |
General and Administrative | $ | 116,295 |
| | $ | 128,250 |
| | $ | 11,955 |
| | 10.3 | % | | 12.4 | % | | 15.6 | % | | 13.6 | % | | (2.0 | )% | $ | 111,988 |
| | $ | 134,800 |
| | $ | 22,812 |
| | 20.4 | % | | 21.2 | % | | 14.9 | % | | 14.4 | % | | (0.5 | )% |
Sales, Marketing & Account Management | 54,079 |
| | 60,572 |
| | 6,493 |
| | 12.0 | % | | 14.3 | % | | 7.2 | % | | 6.4 | % | | (0.8 | )% | 53,222 |
| | 63,306 |
| | 10,084 |
| | 18.9 | % | | 19.7 | % | | 7.1 | % | | 6.7 | % | | (0.4 | )% |
Information Technology | 25,433 |
| | 31,863 |
| | 6,430 |
| | 25.3 | % | | 27.6 | % | | 3.4 | % | | 3.4 | % | | — | % | 24,091 |
| | 31,793 |
| | 7,702 |
| | 32.0 | % | | 33.1 | % | | 3.2 | % | | 3.4 | % | | 0.2 | % |
Bad Debt Expense | 5,224 |
| | 2,583 |
| | (2,641 | ) | | (50.6 | )% | | (51.2 | )% | | 0.7 | % | | 0.3 | % | | (0.4 | )% | 138 |
| | (2,417 | ) | | (2,555 | ) | | (1,851.4 | )% | | (1,563.9 | )% | | — | % | | (0.3 | )% | | (0.3 | )% |
Recall Costs | 14,662 |
| | 29,676 |
| | 15,014 |
| | 102.4 | % | | 102.4 | % | | 2.0 | % | | 3.1 | % | | 1.1 | % | 18,327 |
| | 12,684 |
| | (5,643 | ) | | (30.8 | )% | | (30.8 | )% | | 2.4 | % | | 1.4 | % | | (1.0 | )% |
| $ | 215,693 |
| | $ | 252,944 |
| | $ | 37,251 |
| | 17.3 | % | | 19.3 | % | | 28.9 | % | | 26.8 | % | | (2.1 | )% | $ | 207,766 |
| | $ | 240,166 |
| | $ | 32,400 |
| | 15.6 | % | | 16.3 | % | | 27.7 | % | | 25.6 | % | | (2.1 | )% |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | Percentage Change | | % of Consolidated Revenues | | Percentage Change (Favorable)/ Unfavorable |
| | | | | |
| | Dollar Change | | Actual | | Constant Currency | | |
| 2015 | | 2016 | | | | | 2015 | | 2016 | |
General and Administrative | $ | 355,569 |
| | $ | 371,654 |
| | $ | 16,085 |
| | 4.5 | % | | 7.2 | % | | 15.8 | % | | 14.4 | % | | (1.4 | )% |
Sales, Marketing & Account Management | 160,959 |
| | 175,332 |
| | 14,373 |
| | 8.9 | % | | 11.4 | % | | 7.1 | % | | 6.8 | % | | (0.3 | )% |
Information Technology | 75,493 |
| | 86,968 |
| | 11,475 |
| | 15.2 | % | | 18.0 | % | | 3.3 | % | | 3.4 | % | | 0.1 | % |
Bad Debt Expense | 15,647 |
| | 5,749 |
| | (9,898 | ) | | (63.3 | )% | | (63.0 | )% | | 0.7 | % | | 0.2 | % | | (0.5 | )% |
Recall Costs | 20,324 |
| | 98,084 |
| | 77,760 |
| | 382.6 | % | | 382.6 | % | | 0.9 | % | | 3.8 | % | | 2.9 | % |
| $ | 627,992 |
| | $ | 737,787 |
| | $ | 109,795 |
| | 17.5 | % | | 20.3 | % | | 27.8 | % | | 28.6 | % | | 0.8 | % |
General and Administrative
General and administrative expenses decreased to 14.4% of consolidated revenues duringin the ninethree months ended September 30, 2016March 31, 2017 compared to 15.8%14.9% in the ninethree months ended September 30, 2015.March 31, 2016. The decrease in general and administrative expenses as a percentage of consolidated revenues was driven mainly by a 52 basis point decrease in professional fees (1.30% in the nine months ended September 30, 2016 compared to 1.82% in the comparable prior year period), primarily associated with our North American Records and Information Management Business, Western European Business and Corporate and Other Business segments and a 36 basis point decrease in compensation expense, (9.62% in the nine months ended September 30, 2016 compared to 9.98% in the comparable prior year period), primarily associated with wages and benefits growing at a lower rate than revenue, as well as a 26 basis point decrease in employee related expenses (1.12% inpartially attributable to the nine months ended September 30, 2016 compared to 1.38% in the comparable prior year period), primarily due to decreased travelTransformation Initiative and entertainment expensessynergies associated with our North American Records and Information Management Business segment.acquisition of Recall, partially offset by an increase in professional fees. General and administrative expenses for the ninethree months ended September 30, 2016March 31, 2017 increased by $25.1$23.5 million, or 7.2%21.2%, on a constant dollar basis compared to the samecomparable prior year period, primarily driven by our acquisition of Recall. General and administrative expenses were favorably impacted by 2.7 percentage points due to currency rate changes during the nine months ended September 30, 2016.
Sales, Marketing & Account Management
Sales, marketing and account management expenses decreased to 6.8%6.7% of consolidated revenues duringin the ninethree months ended September 30, 2016March 31, 2017 compared to 7.1% in the ninethree months ended September 30, 2015.March 31, 2016. The decrease in sales, marketing and account management expenses as a percentage of consolidated revenues was driven by a 36 basis point decrease in sales, marketing and account management expenses in our North American Records and Information Management Business segment (3.21% in the nine months ended September 30, 2016 compared to 3.57% in the comparable prior year period),compensation expense, primarily associated with compensationwages and benefits growing at a lower rate than revenue, partially attributable to the Transformation Initiative and lower professional fees.synergies associated with our acquisition of Recall. Sales, marketing and account management expenses for the ninethree months ended September 30, 2016March 31, 2017 increased by $17.9$10.4 million, or 11.4%19.7%, on a constant dollar basis compared to the samecomparable prior year period, primarily driven by our acquisition of Recall. Sales, marketing and account management expenses were favorably impacted by 2.5 percentage points due to currency rate changes during the nine months ended September 30, 2016.
Information Technology
Information technology expenses increased to 3.4% of consolidated revenues duringin the ninethree months ended September 30, 2016March 31, 2017 compared to 3.3%3.2% in the ninethree months ended September 30, 2015.March 31, 2016. The increase in information technology expenses as a percentage of consolidated revenues was driven by a 16 basis pointan increase in information technology expenses associated withmaintenance and software license fees, primarily in our Corporate and Other Business segment as a percentage of consolidated revenues (2.16% in the nine months ended September 30, 2016 compared to 2.00% in the comparable prior year period), primarily associated with increased software maintenance and license fees.segment. Information technology expenses for the ninethree months ended September 30, 2016March 31, 2017 increased by $13.3$7.9 million, or 18.0%33.1%, on a constant dollar basis compared to the samecomparable prior year period, primarily driven by our acquisition of Recall. Information technology expenses were favorably impacted by 2.8 percentage points due to currency rate changes during the nine months ended September 30, 2016.
Bad Debt Expense
Consolidated bad debt expense for the nine months ended September 30, 2016 decreased to 0.2% of consolidated revenues during the nine months ended September 30, 2016 compared to 0.7% in the nine months ended September 30, 2015. Bad debt expenses for the nine months ended September 30, 2016 decreased by $9.8 million, or 63.0%, on a constant dollar basis compared to the same prior year period. This decrease in bad debt expense was primarily driven by lower bad debt expense associated with our North American Records and Information Management Business segment. We maintain an allowance for doubtful accounts that is calculated based on our past loss experience, current and prior trends in our aged receivables, current economic conditions, and specific circumstances of individual receivable balances. We continue to monitor our customers' payment activity and make adjustments based on their financial condition and in light of historical and expected trends. Bad debt expenses for the three months ended March 31, 2017 decreased by $2.6 million on a constant dollar basis compared to the comparable prior year period, primarily driven by lower bad debt expense associated with our North American Records and Information Management Business segment.
Recall Costs
Recall Costs included in selling, general and administrative expenses were $98.1$12.7 million in the ninethree months ended September 30, 2016,March 31, 2017, and primarily consisted of advisory and professional fees, as well as severance and REIT conversion costs. Recall Costs included in selling, general and administrative expenses were $20.3$18.3 million in the ninethree months ended September 30, 2015,March 31, 2016, and primarily consisted of advisory and professional fees.
Depreciation Amortization, and (Gain) Loss on Disposal/Write-down of Property, Plant and Equipment (Excluding Real Estate), NetAmortization
Depreciation expense increased $40.8$24.2 million, or 18.0%32.1%, on a reported dollar basis ($45.524.2 million, or 20.5%32.2%, on a constant dollar basis) for the ninethree months ended September 30, 2016March 31, 2017 compared to the ninethree months ended September 30, 2015,March 31, 2016, primarily due to the increased depreciation of property, plant and equipment acquired in the Recall Transaction. In particular, the increase in depreciation expense was driven by (i) the depreciation of leasehold improvements acquired in the Recall Transaction, which are depreciated using the straight-line method over a period of the useful life of the leasehold improvements, 10 years or the life of the lease (whichever is shorter) and (ii) the depreciation of racking structures included in leased facilities acquired in the Recall Transaction, which are depreciated using the straight-line method over a period of the useful life of the racking structures, 20 years or the life of the lease (whichever is shorter). See Note 2.f. to Notes to Consolidated Financial Statements in our Annual Report for additional information regarding the useful lives over which our property, plant and equipment is depreciated.
Amortization expense increased $26.1$13.3 million, or 78.0%112.7%, on a reported dollar basis ($27.413.4 million, or 84.9%113.7%, on a constant dollar basis) for the ninethree months ended September 30, 2016March 31, 2017 compared to the ninethree months ended September 30, 2015,March 31, 2016, primarily due to the increased amortization of customer relationship intangible assets acquired in the Recall Transaction, which are amortized over a weighted average useful life of 1413 years.
Consolidated gain on disposal/write-down of property, plant and equipment (excluding real estate), net was $1.1 million for the nine months ended September 30, 2016 and consisted primarily of gains associated with the retirement of leased vehicles accounted for as capital lease assets within our North American Records and Information Management Business segment. Consolidated loss on disposal/write-down of property, plant and equipment (excluding real estate), net was $0.7 million for the nine months ended September 30, 2015 and consisted primarily of the write-off of certain property associated with our North American Records and Information Management Business segment.
OPERATING INCOME AND ADJUSTED OIBDA (in thousands)
The following table reflects the effect of the foregoing factors on our consolidated operating income and Adjusted OIBDA:
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Dollar Change | | Percentage Change |
| 2015 | | 2016 | |
Operating Income | $ | 126,822 |
| | $ | 135,454 |
| | $ | 8,632 |
| | 6.8 | % |
Operating Income as a Percentage of Consolidated Revenue | 17.0 | % | | 14.4 | % | | | | |
Adjusted OIBDA | 227,835 |
| | 294,203 |
| | 66,368 |
| | 29.1 | % |
Adjusted OIBDA Margin | 30.5 | % | | 31.2 | % | | | | |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Dollar Change | | Percentage Change |
| 2015 | | 2016 | |
Operating Income | $ | 401,258 |
| | $ | 362,146 |
| | $ | (39,112 | ) | | (9.7 | )% |
Operating Income as a Percentage of Consolidated Revenue | 17.8 | % | | 14.1 | % | | | | |
Adjusted OIBDA | 682,281 |
| | 790,783 |
| | 108,502 |
| | 15.9 | % |
Adjusted OIBDA Margin | 30.2 | % | | 30.7 | % | | | | |
OTHER EXPENSES, NET
Interest Expense, Net
Consolidated interest expense, net increased $18.2$19.0 million to $83.3$86.1 million (8.8% of consolidated revenues) and $29.1 million to $225.2 million (8.7% of consolidated revenues) for the three and nine months ended September 30, 2016, respectively,March 31, 2017 from $65.1$67.1 million (8.7% of consolidated revenues) and $196.1 million (8.7% of consolidated revenues) for the three and nine months ended September 30, 2015, respectively,March 31, 2016 primarily due to (i) the issuance of $1,000.0 million in aggregate principal amount of 6% Senior Notes due 2020 (the "6% Notes due 2020") by Iron Mountain Incorporated ("IMI") in September 2015, (ii) $850.0 million of borrowings under the Bridge Facility (as defined below) during the second quarter of 2016, (iii) the issuance of $500.0 million in aggregate principal amount of 43/8% Senior Notes due 2021 (the "43/8% Notes") by IMIIron Mountain Incorporated ("IMI") in May 2016, (iv)(ii) the issuance of $250.0 million in aggregate principal amount of 53/8% Senior Notes due 2026 (the "53/8% Notes") by Iron Mountain US Holdings, Inc. ("IM US Holdings") in May 2016, (iii) the issuance of 250.0 million Canadian dollars in aggregate principal amount of 53/8% CAD Senior Notes due 2023 (the "CAD Notes due 2023") by Iron Mountain Canada Operations, ULC ("Canada Company") in September 2016, (iv) $185.8 million of borrowings from the Australian Dollar Term Loan during the third quarter of 2016 and (v) higher borrowings (on a weighted average basis) under the Revolving Credit AgreementFacility (as defined below) during the ninethree months ended September 30, 2016March 31, 2017 compared to the ninethree months ended September 30, 2015. This increase was partially offset by the redemption in October 2015 of (i) 255.0 million Euro aggregate principal outstanding of the 63/4% Euro Senior Subordinated Notes due 2018, (ii) $400.0 million aggregate principal outstanding of the 73/4% Senior Subordinated Notes due 2019 and (iii) the remaining $106.0 million aggregate principal outstanding of the 83/8% Senior Subordinated Notes due 2021.March 31, 2016. Our weighted average interest rate was 5.1%5.3% and 5.8%5.2% at September 30,March 31, 2017 and 2016, and 2015, respectively.
Other (Income) Expense, (Income), Net (in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Dollar Change | | Nine Months Ended September 30, | | Dollar Change |
| 2015 | | 2016 | | | 2015 | | 2016 | |
Foreign currency transaction losses (gains), net | $ | 32,539 |
| | $ | 10,685 |
| | $ | (21,854 | ) | | $ | 56,461 |
| | $ | 15,336 |
| | $ | (41,125 | ) |
Debt extinguishment expense | 2,156 |
| | — |
| | (2,156 | ) | | 2,156 |
| | 9,283 |
| | 7,127 |
|
Other, net | 551 |
| | 12,617 |
| | 12,066 |
| | 982 |
| | 12,387 |
| | 11,405 |
|
| $ | 35,246 |
| | $ | 23,302 |
| | $ | (11,944 | ) | | $ | 59,599 |
| | $ | 37,006 |
| | $ | (22,593 | ) |
|
| | | | | | | | | | | |
| Three Months Ended March 31, | | Dollar Change |
| 2016 | | 2017 | |
Foreign currency transaction (gains) losses, net | $ | (12,542 | ) | | $ | (4,164 | ) | | $ | 8,378 |
|
Other, net | 605 |
| | (2,200 | ) | | (2,805 | ) |
| $ | (11,937 | ) | | $ | (6,364 | ) | | $ | 5,573 |
|
Foreign Currency Transaction (Gains) Losses
We recorded net foreign currency transaction lossesgains of $15.3$4.2 million in the ninethree months ended September 30, 2016,March 31, 2017, based on period-end exchange rates. These lossesgains resulted primarily from changes in the exchange rateimpact of each of the Argentine peso and British pound sterling against the United States dollar compared to December 31, 2015, as these currencies relate to our intercompany balances with and between our Latin American and European subsidiaries, as well as Euro denominated borrowings by IMI under our Revolving Credit Facility (as defined below). These losses were partially offset by gains primarily from changes in the exchange rate of each of the Brazilian real, Mexican peso and Russian ruble against the United States dollar compared to December 31, 2016 on our intercompany balances with and between certain of our subsidiaries. These gains were partially offset by losses resulting primarily from the impact of changes in the exchange rate of each of the British pound sterling and Euro against the United States dollar compared to December 31, 2016 on our intercompany balances with and between certain of our subsidiaries.
We recorded net foreign currency transaction gains of $12.5 million in the three months ended March 31, 2016, based on period-end exchange rates. These gains resulted primarily from the impact of changes in the exchange rate of each of the Brazilian real, British pound sterling, Euro, and Russian ruble against the United States dollar compared to December 31, 2015 as these currencies relate toon our intercompany balances with and between certain of our Latin American and European subsidiaries.
We recorded net foreign currency transaction These gains were partially offset by losses of $56.5 million in the nine months ended September 30, 2015, based on period-end exchange rates. These losses resultedresulting primarily from the impact of changes in the exchange rate of each of the Argentine peso Brazilian real, Euro, Russian ruble and Ukrainian hryvnia against the United States dollar compared to December 31, 2014, as these currencies relate to2015 on our intercompany balances with and between certain of our Latin American and European subsidiaries, as well as Euro forward contracts. These losses were partially offset by gains primarily from changesa change in the exchange rate of the British pound sterling as it relatesEuro against the United States dollar compared to our intercompany balances with and between our European subsidiaries, andDecember 31, 2015 on Euro denominated bonds issuedborrowings by IMI.
We recorded a charge of approximately $2.2 million in the third quarter of 2015 related to the refinancing of theIMI under our Revolving Credit Agreement (as defined below), representing the write-off of unamortized deferred financing costs. We recorded a charge of approximately $9.3 million in the second quarter of 2016 related to the termination of the Bridge Facility (as defined below), which primarily consists of the write-off of unamortized deferred financing costs.Facility.
Other, net for the three and nine months ended September 30, 2016 includes a charge of $14.0 million associated with the anticipated loss on disposal of the Australia Divestment Business (as defined in Note 4 to Notes to Consolidated Financial Statements included in this Quarterly Report). As disclosed in Note 10 to Notes to Consolidated Financial Statements, we have determined that the Australia Divestment Business met the criteria to be reported as held for sale beginning in the second quarter of 2016. Accordingly, the Australia Divestment Business is reflected in our Consolidated Balance Sheet at the lower of its carrying value or its fair value (less costs to sell). This charge represents the excess of the carrying value of the Australia Divestment Business compared to its fair value (less costs to sell) as of September 30, 2016, based upon the sale price of the business described more fully in Note 13 to Notes to Consolidated Financial Statements. Other, net in the nine months ended September 30, 2015 consisted primarily of $0.6 million related to the write-down of certain investments.
Provision for Income Taxes
We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period they occur. Our effective tax rate is subject to variability in the future due to, among other items: (1) changes in the mix of income between our qualified REIT subsidiaries ("QRSs") and our domestic taxable REIT subsidiaries ("TRSs"), as well as among the jurisdictions in which we operate; (2) tax law changes; (3) volatility in foreign exchange gains and losses; (4) the timing of the establishment and reversal of tax reserves; and (5) our ability to utilize net operating losses that we generate.
Our effective tax ratesrate for the three and nine months ended September 30, 2015 were 14.3%March 31, 2016 and 18.6%, respectively. Our effective tax rates for the three2017 was 15.9% and nine months ended September 30, 2016 were 81.2% and 46.2%13.5%, respectively. The primary reconciling items between the federal statutory tax rate of 35.0% and our overall effective tax ratesrate in the three and nine months ended September 30, 2015March 31, 2016 were the benefit derived from the dividends paid deduction and differences in the rates of tax at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates, and state income taxes (net of federal tax benefit). In the third quarter of 2015, we recorded a tax benefit of $4.1 million related to the expiration of certain statutes of limitations and an out-of-period tax adjustment ($9.0 million tax benefit) to correct the valuation of certain deferred tax assets associated with the REIT conversion that occurred in 2014.rates. The primary reconciling items between the federal statutory tax rate of 35.0% and our overall effective tax ratesrate in the three and nine months ended September 30, 2016March 31, 2017 were the benefit derived from the dividends paid deduction, a release of valuation allowances on certain of our foreign net operating losses of $7.5 million as a result of the merger of certain of our foreign subsidiaries and differences in the rates of tax at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates, andrates. These benefits were partially offset by the impact of a legislative change enacted in the $14.0first quarter of 2017 in the United Kingdom which eliminated the deductibility of certain interest expense and increased our tax provision for the first quarter of 2017 by $1.8 million, charge (describedor 2.5%. We are seeking an exemption from Her Majesty's Revenue and Customs but have not as yet received clarification on our request and, therefore, we have reflected the incremental tax associated with this legislative change into our annual effective tax rate.
As a result of the 2016 Indefinite Reinvestment Assessment (as defined in Note 2.i.2.e. to Notes to Consolidated Financial Statements) recorded duringStatements included in this Quarterly Report), we concluded that it is our intent to indefinitely reinvest our current and future undistributed earnings of our unconverted foreign TRSs outside the third quarterUnited States. Accordingly, we no longer provide incremental foreign withholding taxes on the retained book earnings of 2016these unconverted foreign TRSs. As a REIT, future repatriation of incremental undistributed earnings of our foreign subsidiaries will not be subject to federal or state income tax, with the exception of foreign withholding taxes in limited instances; however, such future repatriations will require distribution in accordance with REIT distribution rules, and any such distribution may then be taxable, as appropriate, at the stockholder level. We continue, however, to provide for incremental foreign withholding taxes on net book over outside basis differences related to the anticipated loss on disposalearnings of the Australia Divestment Business, which had no associated tax benefit.our foreign QRSs and certain of our converted TRSs.
As a REIT, we are entitled to a deduction for dividends paid, resulting in a substantial reduction of federal income tax expense, and substantially all of our income tax expense will be incurred based on the earnings generated by our foreign subsidiaries and our domestic TRSs.
Gain on Sale of Real Estate, Net of Tax
Consolidated gain on sale of real estate for the nine months ended September 30, 2016 was $0.3 million, net of tax of $0.1 million, associated with the sale of land in North America. Consolidated gain on sale of real estate was $0.9 million, net of tax of $0.2 million, for the nine months ended September 30, 2015, which was associated with the sale of a building in the United Kingdom.
INCOME (LOSS) FROM CONTINUING OPERATIONS AND ADJUSTED EBITDA (in thousands)
The following table reflects the effect of the foregoing factors on our consolidated income (loss) from continuing operations:operations and Adjusted EBITDA:
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Dollar Change | | Percentage Change |
| 2015 | | 2016 | |
Income (Loss) from Continuing Operations | $ | 23,517 |
| | $ | 5,759 |
| | $ | (17,758 | ) | | (75.5 | )% |
Income (Loss) from Continuing Operations as a Percentage of Consolidated Revenue | 3.2 | % | | 0.6 | % | | | | |
|
| | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Dollar Change | | Percentage Change |
| 2016 | | 2017 | |
Income from Continuing Operations | $ | 63,041 |
| | $ | 58,844 |
| | $ | (4,197 | ) | | (6.7 | )% |
Income from Continuing Operations as a percentage of Consolidated Revenue | 8.4 | % | | 6.3 | % | | | | |
Adjusted EBITDA | 235,146 |
| | 292,574 |
| | 57,428 |
| | 24.4 | % |
Adjusted EBITDA Margin | 31.3 | % | | 31.2 | % | | | | |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Dollar Change | | Percentage Change |
| 2015 | | 2016 | |
Income from Continuing Operations | $ | 119,263 |
| | $ | 54,080 |
| | $ | (65,183 | ) | | (54.7 | )% |
Income from Continuing Operations as a Percentage of Consolidated Revenue | 5.3 | % | | 2.1 | % | | | | |
INCOMELOSS FROM DISCONTINUED OPERATIONS, NET OF TAX
IncomeLoss from discontinued operations, net of tax was $3.6$0.3 million for the ninethree months ended September 30, 2016,March 31, 2017, primarily related to the operations of the Recall Divestments (as defined in Note 10 to Notes to Consolidated Financial Statements included in this Quarterly Report).
Divestments.
NONCONTROLLING INTERESTS
For the three and nine months ended September 30,March 31, 2016 and 2017, net income attributable to noncontrolling interests resulted in a decrease in net income attributable to IMI of $0.7$0.3 million and $1.8 million, respectively. For the three and nine months ended September 30, 2015, net income attributable to noncontrolling interests resulted in a decrease in net income attributable to IMI of $0.4 million and $1.7 million, respectively. These amounts represent our noncontrolling partners' share of earnings/losses in our majority-owned international subsidiaries that are consolidated in our operating results.
Segment Analysis (in thousands)
See Note 7 to Notes to Consolidated Financial Statements included in this Quarterly Report for a description of our reportable operating segments.
North American Records and Information Management Business
| | | Three Months Ended September 30, | | | | Percentage Change | | | Three Months Ended March 31, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Internal Growth | | Dollar Change | | Actual | | Constant Currency | | Internal Growth |
| 2015 | | 2016 | | 2016 | | 2017 | |
Storage Rental | $ | 269,239 |
| | $ | 298,049 |
| | $ | 28,810 |
| | 10.7 | % | | 10.7 | % | | 1.1 | % | $ | 267,223 |
| | $ | 298,183 |
| | $ | 30,960 |
| | 11.6 | % | | 11.2 | % | | 1.9 | % |
Service | 171,998 |
| | 201,928 |
| | 29,930 |
| | 17.4 | % | | 17.4 | % | | (0.8 | )% | 177,458 |
| | 209,414 |
| | 31,956 |
| | 18.0 | % | | 17.5 | % | | 1.1 | % |
Segment Revenue | $ | 441,237 |
| | $ | 499,977 |
| | $ | 58,740 |
| | 13.3 | % | | 13.3 | % | | 0.4 | % | $ | 444,681 |
| | $ | 507,597 |
| | $ | 62,916 |
| | 14.1 | % | | 13.7 | % | | 1.6 | % |
Segment Adjusted OIBDA(1) | $ | 175,331 |
| | $ | 199,559 |
| | $ | 24,228 |
| | | | | | | |
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue | 39.7 | % | | 39.9 | % | | | | | | | | | |
Segment Adjusted EBITDA(1) | | $ | 176,557 |
| | $ | 209,530 |
| | $ | 32,973 |
| | | | | | |
Segment Adjusted EBITDA(1) as a percentage of Segment Revenue | | 39.7 | % | | 41.3 | % | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Internal Growth |
| 2015 | | 2016 | | | | |
Storage Rental | $ | 809,039 |
| | $ | 853,183 |
| | $ | 44,144 |
| | 5.5 | % | | 5.9 | % | | 0.7 | % |
Service | 523,772 |
| | 572,945 |
| | 49,173 |
| | 9.4 | % | | 10.1 | % | | 0.9 | % |
Segment Revenue | $ | 1,332,811 |
| | $ | 1,426,128 |
| | $ | 93,317 |
| | 7.0 | % | | 7.6 | % | | 0.8 | % |
Segment Adjusted OIBDA(1) | $ | 533,598 |
| | $ | 565,254 |
| | $ | 31,656 |
| | | | | | |
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue | 40.0 | % | | 39.6 | % | | | | | | | | |
| |
(1) | See Note 7 to Notes to the Consolidated Financial Statements included in this Quarterly Report for the definition of Adjusted OIBDAEBITDA and a reconciliation of Adjusted OIBDAEBITDA to income (loss) from continuing operations before provision (benefit) for income taxes and gain on sale of real estate.operations. |
For the three and nine months ended September 30, 2016,March 31, 2017, reported revenue in our North American Records and Information Management Business segment increased 13.3% and 7.0%, respectively,14.1% compared to the three and nine months ended September 30, 2015. In the three and nine months ended September 30,March 31, 2016 due to the net impact of acquisitions/divestitures, and internal revenue growth were partially offset by unfavorableand favorable fluctuations in foreign currency exchange rates compared to the three and nine months ended September 30, 2015.March 31, 2016. The net impact of acquisitions/divestitures contributed 12.9% and 6.8%12.1% to the reported revenue growth ratesrate in our North American Records and Information Management Business segment for the three and nine months ended September 30, 2016, respectively,March 31, 2017 compared to the samecomparable prior year periods,period, primarily driven by our acquisition of Recall. The internal revenue growth in the ninethree months ended September 30,March 31, 2017 compared to the three months ended March 31, 2016 was primarily the result of internal servicestorage rental revenue growth of 0.9% in the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, which was1.9% primarily driven by special project revenue recognized in the first quarter of 2016. The negativenet price increases and internal service revenue growth of 0.8%1.1% driven by growth in the three months ended September 30, 2016 was primarilysecure shredding revenues, in part due to ahigher recycled paper prices, as well as the stabilization in recent periods of the decline in retrieval/re-file activity and the related decrease in special project revenue in the three months ended September 30, 2016 compared to the same prior year period. For the nine months ended September 30, 2016, foreign currency exchange rate fluctuations decreased our reported revenues for the North American Records and Information Management Business segment by 0.6% compared to the same prior year period due to the weakening of the Canadian dollar against the United States dollar.transportation revenues. Adjusted OIBDAEBITDA as a percentage of segment revenue increased 20160 basis points during the three months ended September 30, 2016March 31, 2017 compared to the three months ended September 30, 2015,March 31, 2016, primarily driven by a 228 basis point decrease in selling, generalwages and administrative expensesbenefits as a percentage of segment revenue (14.67% in the three months ended September 30, 2016 compared to 16.95% in the comparable prior year period), primarily associated with wages and benefits growing at a lower rate than revenue, partially attributable to the Transformation Initiative and lower bad debt expense, partially offset by a 210 basis point increase in costsynergies associated with our acquisition of salesRecall, as well as a percentage of segment revenue (45.42% in the three months ended September 30, 2016 compared to 43.32% in the comparable prior year period), primarily driven by increased wages and benefits, rent expense and building maintenance costs. Adjusted OIBDA as a percentage of segment revenue decreased 40 basis points during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, primarily driven by a 153 basis point increase in cost of sales as a percentage of segment revenue (45.00% in the nine months ended
September 30, 2016 compared to 43.47% in the comparable prior year period), primarily associated with increased wages, benefits and medical costs, partially offset by a 114 basis point decrease in selling, general and administrative expenses as a percentage of segment revenue (15.36% in the nine months ended September 30, 2016 compared to 16.50% in the comparable prior year period), primarily associated with a decrease in professional fees, travel and entertainment expenses and bad debt expense.
North American Data Management Business
| | | Three Months Ended September 30, | | | | Percentage Change | | | Three Months Ended March 31, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Internal Growth | | Dollar Change | | Actual | | Constant Currency | | Internal Growth |
| 2015 | | 2016 | | 2016 | | 2017 | |
Storage Rental | $ | 63,947 |
| | $ | 72,612 |
| | $ | 8,665 |
| | 13.6 | % | | 13.5 | % | | 2.2 | % | $ | 65,348 |
| | $ | 73,312 |
| | $ | 7,964 |
| | 12.2 | % | | 11.9 | % | | 2.7 | % |
Service | 33,438 |
| | 34,865 |
| | 1,427 |
| | 4.3 | % | | 4.2 | % | | (11.3 | )% | 30,995 |
| | 33,638 |
| | 2,643 |
| | 8.5 | % | | 8.3 | % | | (6.7 | )% |
Segment Revenue | $ | 97,385 |
| | $ | 107,477 |
| | $ | 10,092 |
| | 10.4 | % | | 10.3 | % | | (2.4 | )% | $ | 96,343 |
| | $ | 106,950 |
| | $ | 10,607 |
| | 11.0 | % | | 10.8 | % | | (0.3 | )% |
Segment Adjusted OIBDA(1) | $ | 50,268 |
| | $ | 59,714 |
| | $ | 9,446 |
| | | | | | | |
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue | 51.6 | % | | 55.6 | % | | | | | | | | | |
Segment Adjusted EBITDA(1) | | $ | 53,460 |
| | $ | 55,912 |
| | $ | 2,452 |
| | | | | | |
Segment Adjusted EBITDA(1) as a percentage of Segment Revenue | | 55.5 | % | | 52.3 | % | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Internal Growth |
| 2015 | | 2016 | | | | |
Storage Rental | $ | 191,867 |
| | $ | 207,602 |
| | $ | 15,735 |
| | 8.2 | % | | 8.5 | % | | 1.7 | % |
Service | 102,353 |
| | 99,488 |
| | (2,865 | ) | | (2.8 | )% | | (2.5 | )% | | (10.7 | )% |
Segment Revenue | $ | 294,220 |
| | $ | 307,090 |
| | $ | 12,870 |
| | 4.4 | % | | 4.7 | % | | (2.6 | )% |
Segment Adjusted OIBDA(1) | $ | 152,178 |
| | $ | 170,255 |
| | $ | 18,077 |
| | | | | | |
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue | 51.7 | % | | 55.4 | % | | | | | | | | |
| |
(1) | See Note 7 to Notes to the Consolidated Financial Statements included in this Quarterly Report for the definition of Adjusted OIBDAEBITDA and a reconciliation of Adjusted OIBDAEBITDA to income (loss) from continuing operations before provision (benefit) for income taxes and gain on sale of real estate.operations. |
For the three and nine months ended September 30, 2016,March 31, 2017, reported revenue in our North American Data Management Business segment increased 10.4% and 4.4%, respectively,11.0% compared to the three and nine months ended September 30, 2015. In the three and nine months ended September 30,March 31, 2016 primarily due to the net impact of acquisitions/divestitures was partially offset by negative internal revenue growth and unfavorable fluctuations in foreign currency exchange rates compared to the three and nine months ended September 30, 2015.divestitures. The net impact of acquisitions/divestitures contributed 12.7% and 7.3%11.1% to the reported revenue growth rates in our North American Data Management Business segment for the three and nine months ended September 30, 2016, respectively,March 31, 2017 compared to the samecomparable prior year periods,period, primarily driven by our acquisition of Recall. The negative internal revenue growth for the three and nine months ended September 30, 2016March 31, 2017 was primarily attributable to negative internal service revenue growth of 11.3% and 10.7%6.7% for the three and nine months ended September 30, 2016, respectively,March 31, 2017 which was due to continued declines in service revenue activity levels as the business becomes more archival in nature, partially offset by internal storage rental revenue growth of 2.2% and 1.7%2.7% in the three and nine months ended September 30, 2016, respectively. For the nine months ended September 30, 2016, foreign currency exchange rate fluctuations decreased our reported revenues for the North American Data Management Business segment by 0.3% comparedMarch 31, 2017, primarily attributable to the same prior year period due to the weakening of the Canadian dollar against the United States dollar.volume increases. Adjusted OIBDAEBITDA as a percentage of segment revenue increased 370decreased 320 basis points during the ninethree months ended September 30, 2016March 31, 2017 compared to the ninethree months ended September 30, 2015,March 31, 2016, primarily driven by a 348 basis point decreasean increase in overhead expenses as a percentage of segment revenue (17.05% in the nine months ended September 30, 2016 compared to 20.53% in the comparable prior year period), primarily driven by lower selling, general and administrative expenses.expenses, partially attributable to investments associated with product management and development.
Western European Business
| | | Three Months Ended September 30, | | | | Percentage Change | | | Three Months Ended March 31, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Internal Growth | | Dollar Change | | Actual | | Constant Currency | | Internal Growth |
| 2015 | | 2016 | | 2016 | | 2017 | |
Storage Rental | $ | 60,629 |
| | $ | 74,534 |
| | $ | 13,905 |
| | 22.9 | % | | 36.3 | % | | 0.3 | % | $ | 57,819 |
| | $ | 71,567 |
| | $ | 13,748 |
| | 23.8 | % | | 37.2 | % | | 1.7 | % |
Service | 38,374 |
| | 48,251 |
| | 9,877 |
| | 25.7 | % | | 38.3 | % | | (0.4 | )% | 36,057 |
| | 48,505 |
| | 12,448 |
| | 34.5 | % | | 48.0 | % | | 4.4 | % |
Segment Revenue | $ | 99,003 |
| | $ | 122,785 |
| | $ | 23,782 |
| | 24.0 | % | | 37.1 | % | | — | % | $ | 93,876 |
| | $ | 120,072 |
| | $ | 26,196 |
| | 27.9 | % | | 41.3 | % | | 2.7 | % |
Segment Adjusted OIBDA(1) | $ | 30,789 |
| | $ | 37,546 |
| | $ | 6,757 |
| | | | | | | |
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue | 31.1 | % | | 30.6 | % | | | | | | | | | |
Segment Adjusted EBITDA(1) | | $ | 31,946 |
| | $ | 34,142 |
| | $ | 2,196 |
| | | | | | |
Segment Adjusted EBITDA(1) as a percentage of Segment Revenue | | 34.0 | % | | 28.4 | % | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Internal Growth |
| 2015 | | 2016 | | | | |
Storage Rental | $ | 179,612 |
| | $ | 203,926 |
| | $ | 24,314 |
| | 13.5 | % | | 20.6 | % | | 0.8 | % |
Service | 116,725 |
| | 130,933 |
| | 14,208 |
| | 12.2 | % | | 18.7 | % | | (4.6 | )% |
Segment Revenue | $ | 296,337 |
| | $ | 334,859 |
| | $ | 38,522 |
| | 13.0 | % | | 19.9 | % | | (1.3 | )% |
Segment Adjusted OIBDA(1) | $ | 87,146 |
| | $ | 102,765 |
| | $ | 15,619 |
| | | | | | |
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue | 29.4 | % | | 30.7 | % | | | | | | | | |
| |
(1) | See Note 7 to Notes to the Consolidated Financial Statements included in this Quarterly Report for the definition of Adjusted OIBDAEBITDA and a reconciliation of Adjusted OIBDAEBITDA to income (loss) from continuing operations before provision (benefit) for income taxes and gain on sale of real estate.operations. |
For the three and nine months ended September 30, 2016,March 31, 2017, reported revenue in our Western European Business segment increased 24.0% and 13.0%, respectively,27.9% compared to the three and nine months ended September 30, 2015.March 31, 2016. In the three and nine months ended September 30, 2016,March 31, 2017, the net impact of acquisitions/divestitures and internal revenue growth was partially offset by negative internal revenue growth and unfavorable fluctuations in foreign currency exchange rates compared to the three and nine months ended September 30, 2015.March 31, 2016. The net impact of acquisitions/divestitures contributed 37.1% and 21.2%38.6% to the reported revenue growth rates in our Western European Business segment for the three and nine months ended September 30, 2016, respectively,March 31, 2017 compared to the samecomparable prior year periods,period, primarily driven by our acquisition of Recall. Internal revenue growth for the ninethree months ended September 30, 2016March 31, 2017 was negative 1.3%2.7%, primarily attributable to negative internal service revenue growth of 4.6%4.4% for the ninethree months ended September 30, 2016,March 31, 2017, which was due to reduced retrieval/refile activity and a related decrease in transportation revenues, partially offset by 0.8% internal storage rental revenue growth in the nine months ended September 30, 2016.primarily associated with increased special project activity. For the three and nine months ended September 30, 2016,March 31, 2017, foreign currency exchange rate fluctuations decreased our reported revenues for the Western European Business segment by 13.1% and 6.9%, respectively,13.4% compared to the samecomparable prior year periodsperiod due to the weakening of the British pound sterling and Euro against the United States dollar. Adjusted OIBDAEBITDA as a percentage of segment revenue decreased 50560 basis points during the three months ended September 30, 2016March 31, 2017 compared to the three months ended September 30, 2015,March 31, 2016, primarily driven by a 536 basis pointan increase in cost of sales as a percentage of segment revenue, (46.72% in the three months ended September 30, 2016 compared to 41.36% in the comparable prior year period), primarily driven byassociated with increased wages and benefits, and rent expense and property taxes, partially offset by a 483 basis point decrease in selling, general and administrative expenses as a percentage of segment revenue, (22.71% in the three months ended September 30, 2016 compared to 27.54% in the comparable prior year period), primarily associated with wages and benefits growing at a lower rate than revenue. Adjusted OIBDA as a percentage of segment revenue, increased 130 basis points during the nine months ended September 30, 2016 comparedpartially attributable to the nine months ended September 30, 2015, primarily driven by a 458 basis point decrease in selling, generalTransformation Initiative and administrative expenses as a percentage of segment revenues (24.18% in the nine months ended September 30, 2016 compared to 28.76% in the comparable prior year period), primarilysynergies associated with lower professional fees, as well as wages and benefits growing at a lower rate than revenues, partially offset by a 329 basis point increase in costour acquisition of sales as a percentage of segment revenues (45.13% in the nine months ended September 30, 2016 compared to 41.84% in the comparable prior year period), primarily associated with higher wages and rent expense.Recall.
Other International Business
| | | Three Months Ended September 30, | | | | Percentage Change | | | Three Months Ended March 31, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Internal Growth | | Dollar Change | | Actual | | Constant Currency | | Internal Growth |
| 2015 | | 2016 | | 2016 | | 2017 | |
Storage Rental | $ | 60,201 |
| | $ | 119,881 |
| | $ | 59,680 |
| | 99.1 | % | | 102.2 | % | | 11.6 | % | $ | 60,416 |
| | $ | 117,615 |
| | $ | 57,199 |
| | 94.7 | % | | 86.0 | % | | 8.3 | % |
Service | 43,126 |
| | 77,203 |
| | 34,077 |
| | 79.0 | % | | 82.7 | % | | 6.9 | % | 40,925 |
| | 71,626 |
| | 30,701 |
| | 75.0 | % | | 65.8 | % | | 2.8 | % |
Segment Revenue | $ | 103,327 |
| | $ | 197,084 |
| | $ | 93,757 |
| | 90.7 | % | | 94.1 | % | | 9.7 | % | $ | 101,341 |
| | $ | 189,241 |
| | $ | 87,900 |
| | 86.7 | % | | 77.8 | % | | 6.1 | % |
Segment Adjusted OIBDA(1) | $ | 21,267 |
| | $ | 53,844 |
| | $ | 32,577 |
| | | | | | | |
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue | 20.6 | % | | 27.3 | % | | | | | | | | | |
Segment Adjusted EBITDA(1) | | $ | 21,576 |
| | $ | 55,347 |
| | $ | 33,771 |
| | | | | | |
Segment Adjusted EBITDA(1) as a percentage of Segment Revenue | | 21.3 | % | | 29.2 | % | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Internal Growth |
| 2015 | | 2016 | | | | |
Storage Rental | $ | 185,866 |
| | $ | 278,907 |
| | $ | 93,041 |
| | 50.1 | % | | 64.6 | % | | 9.9 | % |
Service | 131,512 |
| | 185,187 |
| | 53,675 |
| | 40.8 | % | | 55.9 | % | | 7.8 | % |
Segment Revenue | $ | 317,378 |
| | $ | 464,094 |
| | $ | 146,716 |
| | 46.2 | % | | 61.0 | % | | 9.0 | % |
Segment Adjusted OIBDA(1) | $ | 63,143 |
| | $ | 117,351 |
| | $ | 54,208 |
| | | | | | |
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue | 19.9 | % | | 25.3 | % | | | | | | | | |
| |
(1) | See Note 7 to Notes to the Consolidated Financial Statements included in this Quarterly Report for the definition of Adjusted OIBDAEBITDA and a reconciliation of Adjusted OIBDAEBITDA to income (loss) from continuing operations before provision (benefit) for income taxes and gain on sale of real estate.operations. |
For the three and nine months ended September 30, 2016,March 31, 2017, reported revenue in our Other International Business segment increased 90.7% and 46.2%, respectively,86.7% compared to the three and nine months ended September 30, 2015. In the three and nine months ended September 30,March 31, 2016 due to the net impact of acquisitions/divestitures, and internal revenue growth were partially offset by unfavorableand favorable fluctuations in foreign currency exchange rates compared to the three and nine months ended September 30, 2015.March 31, 2016. The net impact of acquisitions/divestitures contributed 84.4% and 52.0%71.7% to the reported revenue growth rates in our Other International Business segment for the three and nine months ended September 30, 2016, respectively,March 31, 2017 compared to the samecomparable prior year periods,period, primarily driven by our acquisition of Recall. Internal revenue growth for the three and nine months ended September 30, 2016March 31, 2017 was 9.7% and 9.0%6.1%, respectively, supported by 11.6% and 9.9%8.3% internal storage rental internal revenue growth for the three and nine months ended September 30, 2016, respectively.primarily due to volume increases. Foreign currency fluctuations in the ninethree months ended September 30, 2016March 31, 2017 resulted in decreasedincreased revenue, as measured in United States dollars, of approximately 14.8%8.9% as compared to the samecomparable prior year period, primarily due to the weakeningstrengthening of the Australian dollar and Brazilian real against the United States dollar. Adjusted OIBDAEBITDA as a percentage of segment revenue increased 540790 basis points during the ninethree months ended September 30, 2016March 31, 2017 compared to the ninethree months ended September 30, 2015. The increase in Adjusted OIBDAMarch 31, 2016, primarily as a percentage of segment revenue during the nine months ended September 30, 2016 was primarily a result of a 415 basis point decreasehigher margin business in selling, general and administrative expensesAustralia as a percentageresult of segment revenues (21.98% in the nine months ended September 30, 2016 comparedRecall acquisition and to 26.13% in the comparable prior year period) and a 125 basis point decrease in cost of sales as a percentage of segment revenue (52.73% in the nine months ended September 30, 2016 compared to 53.98% in the comparable prior year period), primarilylesser extent, synergies associated with compensation expenses growing at a lower rate than revenue,our acquisition of Recall, as well as lower professional fees.
Corporate and Other Business
| | | Three Months Ended September 30, | | | | Percentage Change | | | Three Months Ended March 31, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Internal Growth | | Dollar Change | | Actual | | Constant Currency | | Internal Growth |
| 2015 | | 2016 | | 2016 | | 2017 | |
Storage Rental | $ | 6,036 |
| | $ | 11,390 |
| | $ | 5,354 |
| | 88.7 | % | | 88.7 | % | | 12.7 | % | $ | 10,405 |
| | $ | 11,602 |
| | $ | 1,197 |
| | 11.5 | % | | 11.5 | % | | 9.0 | % |
Service | (459 | ) | | 4,109 |
| | 4,568 |
| | 995.2 | % | | 995.2 | % | | 190.5 | % | 4,044 |
| | 3,414 |
| | (630 | ) | | (15.6 | )% | | (15.6 | )% | | (18.3 | )% |
Segment Revenue | $ | 5,577 |
| | $ | 15,499 |
| | $ | 9,922 |
| | 177.9 | % | | 177.9 | % | | 34.1 | % | $ | 14,449 |
| | $ | 15,016 |
| | $ | 567 |
| | 3.9 | % | | 3.9 | % | | 1.4 | % |
Segment Adjusted OIBDA(1) | $ | (49,820 | ) | | $ | (56,460 | ) | | $ | (6,640 | ) | | | | | | | |
Segment Adjusted OIBDA(1) as a Percentage of Consolidated Revenue | (6.7 | )% | | (6.0 | )% | | | | | | | | | |
Segment Adjusted EBITDA(1) | | $ | (48,393 | ) | | $ | (62,357 | ) | | $ | (13,964 | ) | | | | | | |
Segment Adjusted EBITDA(1) as a percentage of Consolidated Revenue | | (6.4 | )% | | (6.6 | )% | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Internal Growth |
| 2015 | | 2016 | | | | |
Storage Rental | $ | 13,749 |
| | $ | 32,741 |
| | $ | 18,992 |
| | 138.1 | % | | 138.1 | % | | 34.2 | % |
Service | 1,054 |
| | 12,348 |
| | 11,294 |
| | 1,071.5 | % | | 1,071.5 | % | | 201.7 | % |
Segment Revenue | $ | 14,803 |
| | $ | 45,089 |
| | $ | 30,286 |
| | 204.6 | % | | 204.6 | % | | 40.7 | % |
Segment Adjusted OIBDA(1) | $ | (153,784 | ) | | $ | (164,842 | ) | | $ | (11,058 | ) | | | | | | |
Segment Adjusted OIBDA(1) as a Percentage of Consolidated Revenue | (6.8 | )% | | (6.4 | )% | | | | | | | | |
| |
(1) | See Note 7 to Notes to the Consolidated Financial Statements included in this Quarterly Report for the definition of Adjusted OIBDAEBITDA and a reconciliation of Adjusted OIBDAEBITDA to income (loss) from continuing operations before provision (benefit) for income taxes and gain on sale of real estate.operations. |
During the ninethree months ended September 30, 2016,March 31, 2017, Adjusted OIBDAEBITDA in the Corporate and Other Business segment as a percentage of consolidated revenue improved 40revenues decreased 20 basis points compared to the ninethree months September 30, 2015.ended March 31, 2016. Adjusted OIBDAEBITDA in the Corporate and Other Business segment decreased $11.1$14.0 million in the ninethree months ended September 30, 2016March 31, 2017 compared to the ninethree months ended September 30, 2015,March 31, 2016, primarily due to the impact of the Recall Transaction, partially offsetdriven by profitability associated with recent acquisitionsan increase in our Adjacent Businesses operating segment. Adjusted OIBDA in our Corporate and Other Business segment includes approximately $8.7 million and $17.1 million of incrementalinformation technology expenses associated with our acquisition of Recall for the three and nine months ended September 30, 2016, respectively.increased professional fees associated with our innovation investments.
Liquidity and Capital Resources
The following is a summary of our cash balances and cash flows (in thousands) as of and for the ninethree months ended September 30,March 31,
| | | 2015 | | 2016 | 2016 | | 2017 |
Cash flows from operating activities - continuing operations | $ | 320,095 |
| | $ | 418,952 |
| $ | 81,118 |
| | $ | 122,174 |
|
Cash flows from investing activities - continuing operations | (229,827 | ) | | (507,108 | ) | (107,281 | ) | | (104,303 | ) |
Cash flows from financing activities - continuing operations | 285,540 |
| | 441,337 |
| 19,261 |
| | 36,662 |
|
Cash and cash equivalents at the end of period | 492,899 |
| | 458,128 |
| 117,945 |
| | 295,628 |
|
Net cash provided by operating activities from continuing operations was $419.0$122.2 million for the ninethree months ended September 30, 2016March 31, 2017 compared to $320.1$81.1 million for the ninethree months ended September 30, 2015.March 31, 2016. The $98.9$41.1 million period over period increase in cash flows from operating activities resulted from a decrease in cash used in working capital of $100.3 million, primarily related to the timing of accrued expenses and deferred revenue, offset by a decreasean increase in net income (including non-cash charges and realized foreign exchange losses) of $1.4 million.$43.7 million, offset by an increase in cash used in working capital of $2.6 million, primarily related to the timing of prepaid expenses.
Our business requires capital expenditures to maintain our ongoing operations, support our expected revenue growth and new products and services, and increase our profitability. These expenditures are included in the cash flows from investing activities. The nature of our capital expenditures has evolved over time along with the nature of our business. Our capital goes to support business-line growth and our ongoing operations, but we also expend capital to support the development and improvement of products and services and projects designed to increase our profitability. These expenditures are generally discretionary in nature. Cash paid for our capital expenditures, acquisition of customer relationships and customer inducements during the ninethree months ended September 30, 2016March 31, 2017 amounted to $246.0$73.2 million, $24.8$17.1 million and $16.1$4.3 million, respectively. Cash paid for acquisitions (net of cash acquired) duringFor the ninethree months ended September 30, 2016 of $276.4 million consisted primarily of the cash portion of the purchase price associated with the Recall Transaction. For the nine months ended September 30, 2016,March 31, 2017, these expenditures were primarily funded with cash flows from operations, as well as the financing activities described below. Net proceeds from divestments received during the nine months ended September 30, 2016 of $54.0 million consisted of the net cash proceeds from the Access Sale (as defined in Note 4 to Notes to Consolidated Financial Statements included in this Quarterly Report).through borrowings under our Revolving Credit Facility. Excluding capital expenditures associated with potential future acquisitions, and opportunistic real estate investments and capital expenditures associated with the integration of Recall, we expect our capital expenditures to be approximately $320.0 million to $370.0 million in the year ending December 31, 2016. We expect to spend up to $50.0 million of additional capital expenditures on opportunistic real estate investments in the year ending December 31, 2016.2017.
Net cash provided by financing activities from continuing operations was $441.3$36.7 million for the ninethree months ended September 30, 2016. During the nine months ended September 30, 2016, we receivedMarch 31, 2017, consisting primarily of net proceeds of $925.4$32.4 million associated with the issuance of the 43/8% Notes, 53/8% Notes and the CAD Notes due 2023 and $185.8 million of proceeds from the AUD Term Loan (as defined below). We used the proceeds from these transactions, as well as cash flows provided by operating activities, for the net payment of $318.8 millionprimarily associated with net paymentsborrowings under the Revolving Credit Facility and the Bridge Facility, as well as for the payment of dividends in the amount of $360.5 million on our common stock.Facility.
Capital Expenditures
Below are descriptions of the major types of investments and other capital expenditures that we have made in recent years or that we are likely to consider in 2017. Beginning in the first quarter of 2017, we are separately identifying an additional capital expenditure category, Innovation and Growth Investment capital spend, which was previously included within the Non-Real Estate Investment capital spend category. We have reclassified the categorization of our prior year capital expenditures to conform with our current presentation.
Real Estate:
Real estate assets that support core business growthprimarily related to investments in land, buildings, building improvements, leasehold improvements and racking structures that expand our revenue capacity in existing or new geographies, replace a long-term operational obligation or create operational efficiencies ("Real Estate Investment").
Real estate assets necessary to maintain ongoing business operations primarily related to the repair or replacement of real estate assets such as buildings, building improvements, leasehold improvements and racking structures ("Real Estate Maintenance").
Non-Real Estate:
Non-real estate assets that either (i) support the growth of our business, and/or increase our profitability, such as customer-inventory technology systems, and technology service storage and processing capacity, or (ii) are directly related to the development of core products or services in support of our integrated value proposition and enhance our leadership position in the industry, including items such as increased feature functionality, security upgrades or system enhancements ("Non-Real Estate Investment").
Non-real estate assets necessary to maintain ongoing business operations primarily related to the repair or replacement of customer-facing assets such as containers and shred bins, warehouse equipment, fixtures, computer hardware, or third-party or internally-developed software assets. This category also includes operational support initiatives such as sales and marketing and information technology projects to support infrastructure requirements ("Non-Real Estate Maintenance").
Innovation and Growth Investment:
Discretionary capital expenditures in significant new products and services in new, existing or adjacent business opportunities.
The following table presents our capital spend for the ninethree months ended September 30, 2015March 31, 2016 and 2016,2017, respectively, organized by the type of the spending as described in the "Our Business Fundamentals" section of "Item 1. Business" of our Annual Report:above:
| | | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | |
Nature of Capital Spend (in thousands) | | 2015 | | 2016 | | 2016 | | 2017 |
Real Estate: | | | | |
Investment | | $ | 105,531 |
| | $ | 157,272 |
| | $ | 51,900 |
| | $ | 43,987 |
|
Maintenance | | 28,111 |
| | 35,611 |
| | 7,526 |
| | 8,054 |
|
Total Real Estate Capital Spend | | 133,642 |
| | 192,883 |
| | 59,426 |
| | 52,041 |
|
Non-Real Estate: | | |
| | |
| | |
| | |
|
Investment | | 34,956 |
| | 33,755 |
| | 6,344 |
| | 10,020 |
|
Maintenance | | 16,043 |
| | 14,592 |
| | 3,773 |
| | 7,245 |
|
Total Non-Real Estate Capital Spend | | 50,999 |
| | 48,347 |
| | 10,117 |
| | 17,265 |
|
| | | | | |
Innovation and Growth Investment Capital Spend | | | 1,341 |
| | 4,382 |
|
Total Capital Spend (on accrual basis) | | 184,641 |
| | 241,230 |
| | 70,884 |
| | 73,688 |
|
Net increase in prepaid capital expenditures | | 37 |
| | 853 |
| | 327 |
| | 478 |
|
Net decrease accrued capital expenditures | | 17,903 |
| | 3,946 |
| |
Net decrease (increase) in accrued capital expenditures | | | 9,641 |
| | (964 | ) |
Total Capital Spend (on cash basis) | | $ | 202,581 |
| | $ | 246,029 |
| | $ | 80,852 |
| | $ | 73,202 |
|
Dividends
See Note 9 to Notes to Consolidated Financial Statements included in this Quarterly Report for a listing of dividends that were declared in fiscal year 20152016 and the first ninethree months of 2017. Our quarterly cash dividend for the first quarter of 2017 was paid on April 3, 2017, subsequent to the end of the first quarter, which significantly impacted our financing cash flows from continuing operations for the three months ended March 31, 2017 compared to the three months ended March 31, 2016.
Financial Instruments and Debt
See Note 2.f. to Notes to Consolidated Financial Statements included in this Quarterly Report for information on our financial instruments, that potentially subject us to credit risk consist principally of cash and cash equivalents (including time deposits) and accounts receivable. The only significantincluding concentrations of liquid investments as of September 30, 2016 relate to cash and cash equivalents held in time deposits with six global banks, all of which we consider to be large, highly-rated investment-grade institutions. As of September 30, 2016, our cash and cash equivalents balance was $458.1 million, including time deposits amounting to $18.7 million.
credit risk.
Our consolidated debt as of September 30, 2016March 31, 2017 is as follows (in thousands):
| | | September 30, 2016 | | March 31, 2017 |
| Debt (inclusive of discount) | | Unamortized Deferred Financing Costs | | Carrying Amount | | Debt (inclusive of discount) | | Unamortized Deferred Financing Costs | | Carrying Amount |
Revolving Credit Facility(1) | $ | 1,240,761 |
| | $ | (8,166 | ) | | $ | 1,232,595 |
| | $ | 988,327 |
| | $ | (6,800 | ) | | $ | 981,527 |
|
Term Loan(1) | 234,375 |
| | — |
| | 234,375 |
| | 228,125 |
| | — |
| | 228,125 |
|
AUD Term Loan(2) | 188,967 |
| | (3,713 | ) | | 185,254 |
| |
6% Notes due 2020(3)(4) | 1,000,000 |
| | (13,578 | ) | | 986,422 |
| |
61/8% CAD Senior Notes due 2021 (the "CAD Notes due 2021")(5) | 152,179 |
| | (1,762 | ) | | 150,417 |
| |
43/8% Notes(3)(4) | 500,000 |
| | (8,051 | ) | | 491,949 |
| |
61/8% GBP Senior Notes due 2022 (the "GBP Notes")(4)(6) | 518,808 |
| | (6,816 | ) | | 511,992 |
| |
Australian Dollar Term Loan | | | 186,963 |
| | (3,832 | ) | | 183,131 |
|
6% Senior Notes due 2020 | | | 1,000,000 |
| | (11,881 | ) | | 988,119 |
|
43/8% Notes | | | 500,000 |
| | (7,163 | ) | | 492,837 |
|
61/8% CAD Senior Notes due 2021 | | | 150,045 |
| | (1,561 | ) | | 148,484 |
|
61/8% GBP Senior Notes due 2022 | | | 499,508 |
| | (6,012 | ) | | 493,496 |
|
6% Senior Notes due 2023(3) | 600,000 |
| | (7,597 | ) | | 592,403 |
| | 600,000 |
| | (7,048 | ) | | 592,952 |
|
53/8% CAD Senior Notes due 2023 (the "CAD Notes due 2023")(4)(5) | 190,223 |
| | (3,370 | ) | | 186,853 |
| |
CAD Notes due 2023 | | | 187,557 |
| | (3,405 | ) | | 184,152 |
|
53/4% Senior Subordinated Notes due 2024(3) | 1,000,000 |
| | (10,872 | ) | | 989,128 |
| | 1,000,000 |
| | (10,186 | ) | | 989,814 |
|
53/8% Notes(7) | 250,000 |
| | (4,159 | ) | | 245,841 |
| | 250,000 |
| | (3,937 | ) | | 246,063 |
|
Real Estate Mortgages, Capital Leases and Other | 444,772 |
| | (1,113 | ) | | 443,659 |
| | 518,191 |
| | (1,239 | ) | | 516,952 |
|
Accounts Receivable Securitization Program(8)(1) | 208,800 |
| | (461 | ) | | 208,339 |
| | 250,000 |
| | (308 | ) | | 249,692 |
|
Mortgage Securitization Program | | | 50,000 |
| | (1,369 | ) | | 48,631 |
|
Total Long-term Debt | 6,528,885 |
| | (69,658 | ) | | 6,459,227 |
| | 6,408,716 |
| | (64,741 | ) | | 6,343,975 |
|
Less Current Portion | (121,203 | ) | | — |
| | (121,203 | ) | | (421,535 | ) | | 308 |
| | (421,227 | ) |
Long-term Debt, Net of Current Portion | $ | 6,407,682 |
| | $ | (69,658 | ) | | $ | 6,338,024 |
| | $ | 5,987,181 |
| | $ | (64,433 | ) | | $ | 5,922,748 |
|
| |
(1) | The capital stock or other equity interests of most of our United States subsidiaries, and up to 66% ofBecause the capital stock or other equity interests of most of our first-tier foreign subsidiaries, are pledged to secure these debt instruments, together withAccounts Receivable Securitization Program terminates on March 6, 2018, at which point all intercompany obligations (including promissory notes) of subsidiaries owed to us or to one of our United States subsidiary guarantors. In addition, Iron Mountain Canada Operations ULC ("Canada Company") has pledged 66% of the capital stock of its subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by it, to secure the Canadian dollar subfacility under the Revolving Credit Facility.program become due, this debt is classified within the current portion of long-term debt in our Consolidated Balance Sheet as of March 31, 2017. |
See Note 4 to Notes to Consolidated Financial Statements included in our Annual Report and Note 5 to Notes to Consolidated Financial Statements included in this Quarterly Report for additional information regarding our long-term debt.
| |
(2) | The amount of debt for the AUD Term Loan reflects an unamortized original issue discount of $1.9 million as of September 30, 2016. |
| |
(3) | Collectively, the "Parent Notes." IMI is the direct obligor on the Parent Notes, which are fully and unconditionally guaranteed, on a senior or senior subordinated basis, as the case may be, by its direct and indirect 100% owned United States subsidiaries that represent the substantial majority of our United States operations (the "Guarantors"). These guarantees are joint and several obligations of the Guarantors. Canada Company, Iron Mountain Europe PLC ("IME"), the Special Purpose Subsidiaries (as defined in Note 5 to Notes to Consolidated Financial Statements) and the remainder of our subsidiaries do not guarantee the Parent Notes. See Note 6 to Notes to Consolidated Financial Statements included in this Quarterly Report. |
| |
(4) | The 6% Notes due 2020, the 43/8% Notes, the GBP Notes, the CAD Notes due 2023 and the 53/8% Notes (collectively, the "Unregistered Notes") have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or under the securities laws of any other jurisdiction. Unless they are registered, the Unregistered Notes may be offered only in transactions that are exempt from registration under the Securities Act or the securities laws of any other jurisdiction.
|
| |
(5) | Canada Company is the direct obligor on the CAD Notes due 2021 and the CAD Notes due 2023, which are fully and unconditionally guaranteed, on a senior basis, by IMI and the Guarantors. These guarantees are joint and several obligations of IMI and the Guarantors. See Note 6 to Notes to Consolidated Financial Statements included in this Quarterly Report. |
| |
(6) | IME is the direct obligor on the GBP Notes, which are fully and unconditionally guaranteed, on a senior basis, by IMI and the Guarantors. These guarantees are joint and several obligations of IMI and the Guarantors. See Note 6 to Notes to Consolidated Financial Statements included in this Quarterly Report. |
| |
(7) | IM US Holdings, a 100% owned subsidiary of IMI and one of the Guarantors, is the direct obligor on the 53/8% Notes, which are fully and unconditionally guaranteed, on a senior basis, by IMI and the other Guarantors. These guarantees are joint and several obligations of IMI and such Guarantors. See Note 6 to Notes to Consolidated Financial Statements included in this Quarterly Report.
|
| |
(8) | The Special Purpose Subsidiaries (as defined in Note 5 to Notes to Consolidated Financial Statements included in this Quarterly Report) are the obligors under this program. |
a. Credit Agreement
On July 2, 2015, we entered into a new credit agreement (the "Credit Agreement") to refinance our then existing credit agreement that was scheduledagreement. The Credit Agreement terminates on July 6, 2019, at which point all obligations become due, but may be extended by one year at our option, subject to terminate on June 27, 2016.the conditions set forth in the Credit Agreement. The Credit Agreement consists of a revolving credit facility (the "Revolving Credit Facility") and a term loan (the "Term Loan"). We recorded a charge of approximately $2.2 million to other expense (income), net in the third quarter of 2015 related to the refinancing of the Credit Agreement, representing a write-off of unamortized deferred financing costs.
On June 24, 2016, Iron Mountain Information Management, LLC (“IMIM”) entered into a commitment increase supplement (the “Commitment Increase Supplement”), pursuant to which we increased theThe maximum amount permitted to be borrowed under the Revolving Credit Facility from $1,500.0 million tois $1,750.0 million. After entering intoThe original amount of the Commitment Increase Supplement, the maximum amount available for borrowing under the Credit Agreement is $2,000.0 million (consisting of a Revolving Credit Facility of $1,750.0 million and a Term Loan ofwas $250.0 million).million. We continue to have the option to request additional commitments of up to $250.0 million, in the form of term loans or through increased commitments under the Revolving Credit Facility, subject to the conditions specified in the Credit Agreement.
As of September 30, 2016,March 31, 2017, we had $1,240.8$988.3 million and $234.4$228.1 million of outstanding borrowings under the Revolving Credit Facility and the Term Loan, respectively, and $55.4$53.6 million of various letters of credit outstanding. The remaining amount available for borrowing thereunder,under the Revolving Credit Facility as of March 31, 2017, which is based on IMI's leverage ratio, the last 12 months' earnings before interest, taxes, depreciation and amortization and rent expense ("EBITDAR"), other adjustments as defined in the Credit Agreement and current external debt, was $453.8$708.0 million (which amount represents the maximum availability as of such date). The average interest rate in effect under the Credit Agreement was 2.9%3.0% as of September 30, 2016.March 31, 2017. The average interest rate in effect under the Revolving Credit Facility was 2.9%3.0% and ranged from 2.3% to 4.8%5.0% as of September 30, 2016March 31, 2017 and the interest rate in effect under the Term Loan as of September 30, 2016March 31, 2017 was 2.8%3.2%.
The Credit Agreement, our indentures and other agreements governing our indebtedness contain certain restrictive financial and operating covenants, including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take certain other corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under the Credit Agreement, our indentures or other agreements governing our indebtedness. The Credit Agreement uses EBITDAR-based calculations as the primary measures of financial performance, including leverage and fixed charge coverage ratios.
b. Cash Pooling
Certain of our subsidiaries participate in cash pooling arrangements (the “Cash Pools”) with Bank Mendes Gans (“BMG”), an independently operated fully-owned subsidiary of ING Group, in order to help manage global liquidity requirements. Under the Cash Pools, cash deposited by participating subsidiaries with BMG is pledged as security against the drawings of other participating subsidiaries, and legal rights of offset are provided and, therefore, amounts are presented in our Consolidated Balance Sheets on a net basis. Each subsidiary receives interest on the cash balances held on deposit or pays interest on the amounts owed based on an applicable rate as defined in the Cash Pools. At December 31, 2016, we had a net cash position of approximately $1.7 million (which consisted of a gross cash position of approximately $69.5 million less outstanding borrowings of approximately $67.8 million by participating subsidiaries).
During the first quarter of 2017, we significantly expanded our utilization of the Cash Pools and reduced our utilization of our financing centers in Europe for purposes of meeting our global liquidity requirements. As of March 31, 2017, we utilize two separate cash pools with BMG, one of which we utilize to manage global liquidity requirements for our QRSs (the "QRS Cash Pool") and one pool for our TRSs (the "TRS Cash Pool"). As of March 31, 2017, we had a net cash position of approximately $5.4 million in the QRS Cash Pool (which consisted of a gross cash position of approximately $478.2 million less outstanding borrowings of approximately $472.8 million by participating subsidiaries) and we had a net cash position of approximately $11.1 million in the TRS Cash Pool (which consisted of a gross cash position of approximately $217.3 million less outstanding borrowings of approximately $206.2 million by participating subsidiaries). The net cash position balances as of December 31, 2016 and March 31, 2017, respectively, are reflected as cash and cash equivalents in the Consolidated Balance Sheets.
Our leverage and fixed charge coverage ratios under the Credit Agreement as of December 31, 20152016 and September 30, 2016,March 31, 2017, respectively, and our leverage ratio under our indentures as of December 31, 20152016 and September 30, 2016,March 31, 2017, respectively, are as follows:
| | | December 31, 2015 | | September 30, 2016 | | Maximum/Minimum Allowable | December 31, 2016 | | March 31, 2017 | | Maximum/Minimum Allowable |
Net total lease adjusted leverage ratio | 5.6 |
| | 5.7 |
| | Maximum allowable of 6.5 | 5.7 |
| | 5.8 |
| | Maximum allowable of 6.5 |
Net secured debt lease adjusted leverage ratio | 2.6 |
| | 2.6 |
| | Maximum allowable of 4.0 | 2.7 |
| | 2.7 |
| | Maximum allowable of 4.0 |
Bond leverage ratio (not lease adjusted) | 5.5 |
| | 5.4 |
| | Maximum allowable of 6.5 | 5.2 |
| | 5.5 |
| | Maximum allowable of 6.5 |
Fixed charge coverage ratio | 2.4 |
| | 2.5 |
| | Minimum allowable of 1.5 | 2.4 |
| | 2.3 |
| | Minimum allowable of 1.5 |
As noted in the table above, our maximum allowable net total lease adjusted leverage ratio under the Credit Agreement is 6.5. The Credit Agreement also contains a provision which limits, in certain circumstances, our dividends in any four consecutive fiscal quarters to 95% of Funds From Operations (as defined in the Credit Agreement) for such four fiscal quarters or, if greater, the amount that we would be required to pay in order to continue to be qualified for taxation as a REIT or to avoid the imposition of income or excise taxes on IMI. This limitation only is applicableapplies when our net total lease adjusted leverage ratio exceeds 6.0 as measured as of the end of the most recently completed fiscal quarter.
Noncompliance with these leverage and fixed charge coverage ratios would have a material adverse effect on our financial condition and liquidity.
b. Bridge Facility
On April 19, 2016, in order to provide a portion of the financing necessary to close the Recall Transaction, we entered into a commitment letter with JPMorgan Chase Bank, N.A., as a lender and administrative agent, and the other lenders party thereto (the "Lenders"), pursuant to which the Lenders committed to provide us an unsecured bridge term loan facility of up to $850.0 million (the "Bridge Facility"). On April 29, 2016, we entered into a bridge credit agreement (the “Bridge Credit Agreement”) with the Lenders and borrowed the full amount of the Bridge Facility. We used the proceeds from the Bridge Facility, together with borrowings under the Revolving Credit Facility, to finance a portion of the cost of the Recall Transaction, including refinancing Recall’s existing indebtedness and to pay costs we incurred in connection with the Recall Transaction.
On May 31, 2016, we used the proceeds from the issuanceAcquisitions
a. Acquisition of the 43/8% Notes and the 53/8% Notes, together with cash on hand and borrowings under the Revolving Credit Facility, to repay the Bridge Facility, and effective May 31, 2016, we terminated the commitments of the lenders under the Bridge Credit Agreement. We recorded a charge to other expense (income), net of $9.3 million during the second quarter of 2016 related to the early extinguishment of the Bridge Credit Agreement. This charge primarily consisted of the write-off of unamortized deferred financing costs.
c. Issuance of 43/8% Notes, 53/8% Notes and CAD Notes due 2023
In May 2016, IMI completed a private offering of $500.0 million in aggregate principal amount of the 43/8% Notes and IM US Holdings completed a private offering of $250.0 million in aggregate principal amount of the 53/8% Notes. The 43/8% Notes and 53/8% Notes were issued at par. The aggregate net proceeds of $738.8 million from the 43/8% Notes and 53/8% Notes, after paying the initial purchasers' commissions, were used, together with cash on hand and borrowings under the Revolving Credit Facility, for the repayment of all outstanding borrowings under the Bridge Credit Agreement.
On September 15, 2016, Canada Company completed a private offering of 250.0 million Canadian dollars in aggregate principal amount of the CAD Notes due 2023. The CAD Notes due 2023 were issued at par. The aggregate net proceeds from the CAD Notes due 2023 of 246.3 million Canadian dollars (or $186.7 million based upon the exchange rate between the Canadian dollar and the United States dollar on September 15, 2016 (the settlement date for the CAD Notes due 2023)), after paying the initial purchasers’ commissions, were used to repay outstanding borrowings under the Revolving Credit Facility.
d. Australian Dollar Term Loan
On September 28, 2016, Iron Mountain Australia Group Pty, Ltd., a wholly owned subsidiary of IMI, entered into a 250.0 million Australian dollar Syndicated Term Loan B Facility (the “AUD Term Loan”) which matures in September 2022. The AUD Term Loan was issued at 99% of par. The net proceeds of approximately 243.8 million Australian dollars (or approximately $185.8 million based upon the exchange rate between the Australian dollar and the United States dollar on September 28, 2016 (the settlement date for the AUD Term Loan)), after paying commissions to the joint lead arrangers and net of the original issue discount, were used to repay outstanding borrowings on the Revolving Credit Facility in October 2016 and for general corporate purposes.
Principal payments on the AUD Term Loan are to be paid in quarterly installments in an amount equivalent to 6.3 million Australian dollars per year, with the remaining balance due on September 28, 2022. The AUD Term Loan is secured by substantially all assets of Iron Mountain Australia Group Pty. Ltd. IMI and the Guarantors guarantee all obligations under the AUD Term Loan. The interest rate on borrowings under the AUD Term Loan is based upon BBSY (an Australian benchmark variable interest rate) plus 4.3%. As of September 30, 2016, we had 250.0 million Australian dollars outstanding on the AUD Term Loan and the interest rate in effect under the AUD Term Loan was 6.1%.
e. Cash Pooling
Subsequent to the closing of the Recall Transaction, certain of our international subsidiaries began participating in a cash pooling arrangement (the “Cash Pool”) with Bank Mendes Gans (“BMG”) in order to help manage global liquidity requirements. The Cash Pool allows participating subsidiaries to borrow funds from BMG against amounts held on deposit with BMG by other participating subsidiaries. The Cash Pool has a legal right of offset and, therefore, amounts are presented in our Consolidated Balance Sheet on a net basis. Each subsidiary receives interest on the cash balances held on deposit or pays interest on the amounts owed based on an applicable rate as defined in the Cash Pool agreement. At September 30, 2016, we had a net cash position of approximately $18.9 million (consisting of a gross cash position of approximately $50.7 million less outstanding borrowings of approximately $31.8 million by participating subsidiaries), which is reflected as cash and cash equivalents in the Consolidated Balance Sheet.
f. Mortgage Securitization Program
In October 2016, we entered into a $50.0 million mortgage securitization program (the "Mortgage Securitization Program") involving certain of our wholly owned subsidiaries with Goldman Sachs Mortgage Company (“Goldman Sachs”). Under the Mortgage Securitization Program, IMIM contributed certain real estate assets to its wholly owned special purpose entity, Iron Mountain Mortgage Finance I, LLC (the "Mortgage Special Purpose Subsidiary"). The Mortgage Special Purpose Subsidiary then used the real estate to secure collateralized loans from Goldman Sachs. The Mortgage Special Purpose Subsidiary is a consolidated subsidiary of IMI. Borrowings under the Mortgage Securitization Program bear interest at 3.5%. The Mortgage Securitization Program is scheduled to terminate in November 2026. Proceeds from the Mortgage Securitization Program will be used to repay outstanding borrowings on the Revolving Credit Facility.
For more information on our Credit Agreement and the Accounts Receivable Securitization Program, see Note 5 to Notes to Consolidated Financial Statements included in this Quarterly Report.
Our ability to pay interest on or to refinance our indebtedness depends on our future performance, working capital levels and capital structure, which are subject to general economic, financial, competitive, legislative, regulatory and other factors which may be beyond our control. There can be no assurance that we will generate sufficient cash flow from our operations or that future financings will be available on acceptable terms or in amounts sufficient to enable us to service or refinance our indebtedness or to make necessary capital expenditures.
Acquisitions
On May 2, 2016 (Sydney, Australia time), we completed the Recall Transaction. At the closing of the Recall Transaction, we paid approximately $331.8 million and issued approximately 50.2 million shares of our common stock which, based upon the closing price of our common stock as of April 29, 2016 (the last day of trading on the NYSE prior to the closing of the Recall Transaction) of $36.53 per share, resulted in a total purchase price to Recall shareholders of approximately $2,166.9 million.
We currently estimate total operatingacquisition and capitalintegration expenditures associated with the Recall Transaction to be approximately $380.0 million, the majority of which is expected to be incurred by the end of 2018. This amount consists of (i) approximately $80.0 million of Recall Deal Close & Divestment Costs, (ii) approximately $220.0 million of Recall Integration Costs and (iii) approximately $80.0 million of(ii) capital expenditures to integrate Recall with our existing operations.
The following table presents the operating and capital expenditures associated with the Recall Transaction incurred for the twelve monthsyear ended December 31, 2015,2016, the three and nine months ended September 30, 2016March 31, 2017 and the cumulative amount incurred through September 30, 2016March 31, 2017 (in thousands):
|
| | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, 2015 | | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2016 | | Cumulative Total |
| | | |
Recall Deal Close & Divestment Costs | $ | 24,671 |
| | $ | 3,861 |
| | $ | 35,938 |
| | $ | 60,609 |
|
Recall Integration Costs | 22,353 |
| | 30,272 |
| | 66,934 |
| | 89,287 |
|
Recall Costs | 47,024 |
| | 34,133 |
| | 102,872 |
| | 149,896 |
|
Capital Expenditures | 65 |
| | 4,871 |
| | 6,939 |
| | 7,004 |
|
Total | $ | 47,089 |
| | $ | 39,004 |
| | $ | 109,811 |
| | $ | 156,900 |
|
|
| | | | | | | | | | | | |
| | Year Ended December 31, 2016 | | Three Months Ended March 31, 2017 | | Cumulative Total |
Recall Costs | | $ | 131,944 |
| | $ | 20,571 |
| | $ | 199,529 |
|
Recall Capital Expenditures | | 18,391 |
| | 6,255 |
| | 24,711 |
|
Total | | $ | 150,335 |
| | $ | 26,826 |
| | $ | 224,240 |
|
b. Santa Fe Transaction
In MarchNovember 2016, we acquiredentered into a controlling interest in Docufile Holdings Proprietary Limited ("Docufile"), a storage and records management company with operations in South Africa, for approximately $15.0 million. The acquisition of Docufile represents our entrance into Africa.
In March 2016, in order to expand our presence in the Baltic region, we acquired the stock of Archyvu Sistemos, a storage and records management company with operations in Lithuania, Latvia and Estonia, for approximately $5.1 million.
In August 2016, we reached anbinding agreement in principle under a non-binding memorandum of understanding to acquire the information management assets and operations of Santa Fe Group A/S (“("Santa Fe”Fe") in ten regions within Europe and Asia in order to expand our presence in southeast Asia and western Europe. In December 2016, we acquired the information management assets and operations of Santa Fe in Hong Kong, Malaysia, Singapore, Spain and Taiwan (the “2016 Santa Fe Transaction”) for approximately 27.015.2 million Euro, or approximately $30.3Euros (approximately $16.0 million, (the “Santa Fe Transaction”), based upon the exchange rate between the United States dollar and the Euro as of SeptemberDecember 30, 2016.2016, the closing date of the 2016 Santa Fe operates its information management business in Spain, India, Hong Kong, Macau, Indonesia,Transaction). Of the Philippines, Singapore, Malaysia, South Korea and Taiwan. The memorandum of understanding between us and Santa Fe is non-binding and any binding agreement we enter into with Santa Fe will be subject to closing conditions; accordingly, we can provide no assurance that we will complete this acquisition, that the acquisition will not be delayed or that the terms of the acquisition will not change.
Divestments
As discussed in Note 4 to Notes to Consolidated Financial Statements included in this Quarterly Report, we are required to make the Divestments. The Access Sale (as defined in Note 4 to Notes to Consolidated Financial Statements included in this Quarterly Report) resulted in total consideration of $80.0purchase price, 13.5 million (including cash proceeds of $55.0 million received at the closing of the transaction and an additional amount of contingent consideration of up to $25.0 million payable upon the 27-month anniversary of the closing of the Access Sale). See Note 4 to Notes to Consolidated Financial Statements included in this Quarterly Report for information regarding our estimate of the fair value of this contingent consideration as a result of the Access Sale. The Australia Sale (as defined in Note 13 to Notes to Consolidated Financial Statements included in this Quarterly Report) resulted in total consideration of approximately 70.0 million Australian dollarsEuros (or approximately $53.2$14.2 million, based upon the exchange rate between the United States dollar and the Australian dollar as of October 31, 2016), subject to adjustments. Our estimate (which incorporates current market conditions)Euro on the closing date of the proceeds we will receive in relation to2016 Santa Fe Transaction) was paid during the Seattle/Atlanta Divestments, the Canadian Divestmentsyear ended December 31, 2016, and the UK Divestments (each as definedremaining balance is due on the 18-month anniversary of the closing of the 2016 Santa Fe Transaction. During the first quarter of 2017, we acquired the information management assets and operations of Santa Fe in Note 4Macau and South Korea (the "2017 Santa Fe Transaction") for approximately 0.9 million Euros (or approximately $1.0 million, based upon the exchange rate between the United States dollar and the Euro on the closing date of the 2017 Santa Fe Transaction). We expect to Notes to Consolidated Financial Statements includedacquire Santa Fe's information management assets and operations in this Quarterly Report) is approximately $50.0 million. UponIndia, Indonesia and the successfulPhilippines by the end of the second quarter of 2017. However, the completion of these divestments,pending acquisitions is subject to closing conditions; accordingly, we anticipate usingcan provide no assurance that these acquisitions will be completed or that the net proceedsterms thereof will not change.
c. Other Acquisitions
In addition to repay outstanding borrowings underthe 2017 Santa Fe Transaction noted above, during 2017, in order to enhance our Revolving Credit Facilityexisting operations in the United States and ultimatelyGreece and to reinvest those proceeds inexpand our business.operations into the United Arab Emirates, we completed the acquisition of three storage and records management companies and one art storage company for total consideration of approximately $13.7 million. The individual purchase prices of these acquisitions ranged from approximately $2.0 million to approximately $4.4 million.
Contractual Obligations
We expect to meet our cash flow requirements for the next twelve months from cash generated from operations, existing cash, cash equivalents, borrowings under the Credit Agreement and other financings, which may include senior or senior subordinated notes, secured credit facilities, securitizations and mortgage or capital lease financings, and the issuance of equity. We expect to meet our long-term cash flow requirements using the same means described above. We are highly leveraged and expect to continue to be highly leveraged for the foreseeable future.currently operating above our long-term targeted leverage ratio. As a REIT, we expect our long-term capital allocation strategy will naturally shift towardtowards lower leverage, though our leverage has increased over the last several fiscal years to fund the costs of theour REIT conversion and the Recall Transaction.
Net Operating Losses
We have federal net operating loss carryforwards, which expire from 2021 through 2033, of $64.2 million at September 30, 2016 to reduce future federal taxable income, of which $0.8 million of federal tax benefit is expected to be realized. We can carry forward these net operating losses to the extent we do not utilize them in any given available year. We have state net operating loss carryforwards, which expire from 2016 through 2034, of which an insignificant state tax benefit is expected to be realized. We have assets for foreign net operating losses of $99.1 million, with various expiration dates (and in some cases no expiration date), subject to a valuation allowance of approximately 77%.
Inflation
Certain of our expenses, such as wages and benefits, insurance, occupancy costs and equipment repair and replacement, are subject to normal inflationary pressures. Although to date we have been able to offset inflationary cost increases throughwith increased operating efficiencies, the negotiation of favorable long-term real estate leases and an ability to increase prices in our customer contracts (many of which contain provisions for inflationary price escalators,escalators), we can give no assurance that we will be able to offset any future inflationary cost increases through similar efficiencies, leases or increased storage rental or service charges.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These rules refer to the controls and other procedures of a company that are designed to ensure that information is recorded, processed, accumulated, summarized, communicated and reported to management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding what is required to be disclosed by a company in the reports that it files under the Exchange Act. As of September 30, 2016March 31, 2017 (the "Evaluation Date"), we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, our chief executive officer and chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
Our management, with the participation of our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements.
On May 2, 2016, we completed the acquisition of Recall. See Note 4 to Notes to Consolidated Financial Statements included in this Quarterly Report for further details about the Recall Transaction. As a result of the Recall Transaction, we are currently in the process of assessing and integrating Recall’s internal controls over financial reporting into our financial reporting controls.
There have been no changes other than associated with Recall discussed above, in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Securities Act of 1934) during the quarter ended September 30, 2016March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not sell any unregistered equity securities during the three months ended September 30, 2016,March 31, 2017, nor did we repurchase any shares of our common stock during the three months ended September 30, 2016.March 31, 2017.
Item 6. Exhibits
(a) Exhibits
Certain exhibits indicated below are incorporated by reference to documents we have filed with the SEC.
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Exhibit No. | | Description |
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4.110.1 |
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10.2 |
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10.3 |
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12 |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.1 |
| | The following materials from Iron Mountain Incorporated's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016,March 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and in detail. (Filed herewith.) |
SIGNATURES
Pursuant to the requirements 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.
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| IRON MOUNTAIN INCORPORATED |
| By: | /s/ STUART B. BROWN |
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| | Stuart B. Brown Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
Dated: November 1, 2016April 27, 2017