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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(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, 2010 |
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OR |
||
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 |
Commission file number 1-13045
IRON MOUNTAIN INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Delaware (State or other Jurisdiction of Incorporation or Organization) |
23-2588479 (I.R.S. Employer Identification No.) |
745 Atlantic Avenue, Boston, MA 02111
(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 small reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company 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 at October 25, 2010: 200,129,229
IRON MOUNTAIN INCORPORATED
Index
2
Item 1. Unaudited Consolidated Financial Statements
IRON MOUNTAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In Thousands, except Share and Per Share Data)
(Unaudited)
|
December 31, 2009 |
September 30, 2010 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
(As Adjusted see note 2.a.) |
|
|||||||||
ASSETS |
|||||||||||
Current Assets: |
|||||||||||
Cash and cash equivalents |
$ | 446,656 | $ | 184,173 | |||||||
Restricted cash |
| 35,104 | |||||||||
Accounts receivable (less allowances of $25,529 and $24,870, respectively) |
585,376 | 590,230 | |||||||||
Deferred income taxes |
37,924 | 27,963 | |||||||||
Prepaid expenses and other |
141,469 | 157,140 | |||||||||
Total Current Assets |
1,211,425 | 994,610 | |||||||||
Property, Plant and Equipment: |
|||||||||||
Property, plant and equipment |
4,184,631 | 4,283,947 | |||||||||
LessAccumulated depreciation |
(1,616,431 | ) | (1,785,077 | ) | |||||||
Net Property, Plant and Equipment |
2,568,200 | 2,498,870 | |||||||||
Other Assets, net: |
|||||||||||
Goodwill |
2,534,713 | 2,333,341 | |||||||||
Customer relationships and acquisition costs |
438,812 | 423,538 | |||||||||
Deferred financing costs |
35,206 | 30,306 | |||||||||
Other |
58,478 | 70,253 | |||||||||
Total Other Assets, net |
3,067,209 | 2,857,438 | |||||||||
Total Assets |
$ | 6,846,834 | $ | 6,350,918 | |||||||
LIABILITIES AND EQUITY |
|||||||||||
Current Liabilities: |
|||||||||||
Current portion of long-term debt |
$ | 40,561 | $ | 36,756 | |||||||
Accounts payable |
175,231 | 138,364 | |||||||||
Accrued expenses |
390,860 | 374,729 | |||||||||
Deferred revenue |
208,062 | 197,317 | |||||||||
Total Current Liabilities |
814,714 | 747,166 | |||||||||
Long-term Debt, net of current portion |
3,211,223 | 2,972,973 | |||||||||
Other Long-term Liabilities |
105,856 | 89,747 | |||||||||
Deferred Rent |
90,503 | 95,189 | |||||||||
Deferred Income Taxes |
467,067 | 478,631 | |||||||||
Commitments and Contingencies (see Note 8) |
|||||||||||
Equity: |
|||||||||||
Iron Mountain Incorporated Stockholders' Equity: |
|||||||||||
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 203,546,757 shares and 200,432,833 shares, respectively) |
2,035 | 2,005 | |||||||||
Additional paid-in capital |
1,298,657 | 1,236,014 | |||||||||
Retained earnings |
825,014 | 700,203 | |||||||||
Accumulated other comprehensive items, net |
27,661 | 22,317 | |||||||||
Total Iron Mountain Incorporated Stockholders' Equity |
2,153,367 | 1,960,539 | |||||||||
Noncontrolling Interests |
4,104 | 6,673 | |||||||||
Total Equity |
2,157,471 | 1,967,212 | |||||||||
Total Liabilities and Equity |
$ | 6,846,834 | $ | 6,350,918 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)
|
Three Months Ended September 30, |
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2009 | 2010 | |||||||
Revenues: |
|||||||||
Storage |
$ | 433,066 | $ | 442,470 | |||||
Service |
331,819 | 340,104 | |||||||
Total Revenues |
764,885 | 782,574 | |||||||
Operating Expenses: |
|||||||||
Cost of sales (excluding depreciation and amortization) |
321,470 | 311,516 | |||||||
Selling, general and administrative |
218,633 | 217,226 | |||||||
Depreciation and amortization |
81,428 | 87,287 | |||||||
Goodwill impairment (see Note 2.d.) |
| 255,000 | |||||||
Loss (Gain) on disposal/writedown of property, plant and equipment, net |
705 | (4,480 | ) | ||||||
Total Operating Expenses |
622,236 | 866,549 | |||||||
Operating Income (Loss) |
142,649 | (83,975 | ) | ||||||
Interest Expense (Income), Net (includes Interest Income of $567 and $200, respectively) |
59,469 | 55,657 | |||||||
Other Expense (Income), Net |
1,390 | (9,166 | ) | ||||||
Income (Loss) Before Provision (Benefit) for Income Taxes |
81,790 | (130,466 | ) | ||||||
Provision (Benefit) for Income Taxes |
38,613 | 20,351 | |||||||
Net Income (Loss) |
43,177 | (150,817 | ) | ||||||
Less: Net (Loss) Income Attributable to Noncontrolling Interests |
(9 | ) | 2,959 | ||||||
Net Income (Loss) Attributable to Iron Mountain Incorporated |
$ | 43,186 | $ | (153,776 | ) | ||||
Earnings (Losses) per ShareBasic and Diluted: |
|||||||||
Net Income (Loss) Attributable to Iron Mountain Incorporated per ShareBasic |
$ | 0.21 | $ | (0.76 | ) | ||||
Net Income (Loss) Attributable to Iron Mountain Incorporated per ShareDiluted |
$ | 0.21 | $ | (0.76 | ) | ||||
Weighted Average Common Shares OutstandingBasic |
203,216 | 201,249 | |||||||
Weighted Average Common Shares OutstandingDiluted |
204,893 | 201,249 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)
|
Nine Months Ended September 30, |
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2009 | 2010 | |||||||
Revenues: |
|||||||||
Storage |
$ | 1,258,733 | $ | 1,313,362 | |||||
Service |
975,526 | 1,025,509 | |||||||
Total Revenues |
2,234,259 | 2,338,871 | |||||||
Operating Expenses: |
|||||||||
Cost of sales (excluding depreciation and amortization) |
951,148 | 945,275 | |||||||
Selling, general and administrative |
644,880 | 686,734 | |||||||
Depreciation and amortization |
236,388 | 258,389 | |||||||
Goodwill impairment (see Note 2.d.) |
| 255,000 | |||||||
(Gain) Loss on disposal/writedown of property, plant and equipment, net |
(57 | ) | (5,677 | ) | |||||
Total Operating Expenses |
1,832,359 | 2,139,721 | |||||||
Operating Income (Loss) |
401,900 | 199,150 | |||||||
Interest Expense (Income), Net (includes Interest Income of $1,934 and $1,000, respectively) |
170,165 | 168,464 | |||||||
Other (Income) Expense, Net |
(9,849 | ) | 3,672 | ||||||
Income (Loss) Before Provision (Benefit) for Income Taxes |
241,584 | 27,014 | |||||||
Provision (Benefit) for Income Taxes |
83,951 | 110,240 | |||||||
Net Income (Loss) |
157,633 | (83,226 | ) | ||||||
Less: Net (Loss) Income Attributable to Noncontrolling Interests |
(1,990 | ) | 3,692 | ||||||
Net Income (Loss) Attributable to Iron Mountain Incorporated |
$ | 159,623 | $ | (86,918 | ) | ||||
Earnings (Losses) per ShareBasic and Diluted: |
|||||||||
Net Income (Loss) Attributable to Iron Mountain Incorporated per ShareBasic |
$ | 0.79 | $ | (0.43 | ) | ||||
Net Income (Loss) Attributable to Iron Mountain Incorporated per ShareDiluted |
$ | 0.78 | $ | (0.43 | ) | ||||
Weighted Average Common Shares OutstandingBasic |
202,595 | 202,612 | |||||||
Weighted Average Common Shares OutstandingDiluted |
204,135 | 202,612 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY
(In Thousands, except Share Data)
(Unaudited)
|
|
|
Iron Mountain Incorporated Stockholders' Equity | |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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|
|
Common Stock | |
|
Accumulated Other Comprehensive Items, Net |
|
|||||||||||||||||||
|
|
Comprehensive Income (Loss) |
Additional Paid-in Capital |
Retained Earnings |
Noncontrolling Interests |
|||||||||||||||||||||
|
Total | Shares | Amounts | |||||||||||||||||||||||
Balance, December 31, 2008, as adjusted (see Note 2.a.) |
$ | 1,818,553 | $ | | 201,931,332 | $ | 2,019 | $ | 1,250,064 | $ | 604,137 | $ | (41,215 | ) | $ | 3,548 | ||||||||||
Issuance of shares under employee stock purchase plan and option plans and stock-based compensation, including tax benefit of $5,282 |
39,510 | | 1,400,671 | 14 | 39,496 | | | | ||||||||||||||||||
Comprehensive Income (Loss): |
||||||||||||||||||||||||||
Currency translation adjustment |
47,406 | 47,406 | | | | | 46,037 | 1,369 | ||||||||||||||||||
Net income (loss) |
157,633 | 157,633 | | | | 159,623 | | (1,990 | ) | |||||||||||||||||
Comprehensive Income (Loss) |
$ | 205,039 | | | | | | | ||||||||||||||||||
Noncontrolling interests equity contributions |
578 | | | | | | 578 | |||||||||||||||||||
Noncontrolling interests dividends |
(1,381 | ) | | | | | | (1,381 | ) | |||||||||||||||||
Balance, September 30, 2009 |
$ | 2,062,299 | 203,332,003 | $ | 2,033 | $ | 1,289,560 | $ | 763,760 | $ | 4,822 | $ | 2,124 | |||||||||||||
|
|
|
Iron Mountain Incorporated Stockholders' Equity | |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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|
|
Common Stock | |
|
Accumulated Other Comprehensive Items, Net |
|
|||||||||||||||||||
|
|
Comprehensive Income (Loss) |
Additional Paid-in Capital |
Retained Earnings |
Noncontrolling Interests |
|||||||||||||||||||||
|
Total | Shares | Amounts | |||||||||||||||||||||||
Balance, December 31, 2009, as adjusted (see Note 2.a.) |
$ | 2,157,471 | $ | | 203,546,757 | $ | 2,035 | $ | 1,298,657 | $ | 825,014 | $ | 27,661 | $ | 4,104 | |||||||||||
Issuance of shares under employee stock purchase plan and option plans and stock-based compensation, including tax benefit of $1,913 |
29,992 | | 876,710 | 9 | 29,983 | | | | ||||||||||||||||||
Stock options issued in connection with acquisition |
1,997 | | | | 1,997 | | | | ||||||||||||||||||
Stock repurchases |
(94,662 | ) | | (3,990,634 | ) | (39 | ) | (94,623 | ) | | | | ||||||||||||||
Parent cash dividends declared (See Note 9) |
(37,893 | ) | | | | | (37,893 | ) | | | ||||||||||||||||
Comprehensive Income (Loss): |
||||||||||||||||||||||||||
Currency translation adjustment |
(5,015 | ) | (5,015 | ) | | | | | (5,344 | ) | 329 | |||||||||||||||
Net income (loss) |
(83,226 | ) | (83,226 | ) | | | | (86,918 | ) | | 3,692 | |||||||||||||||
Comprehensive Income (Loss) |
$ | (88,241 | ) | | | | | | | |||||||||||||||||
Noncontrolling interests dividends |
(1,452 | ) | | | | | | (1,452 | ) | |||||||||||||||||
Balance, September 30, 2010 |
$ | 1,967,212 | 200,432,833 | $ | 2,005 | $ | 1,236,014 | $ | 700,203 | $ | 22,317 | $ | 6,673 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
(Unaudited)
|
Three Months Ended September 30, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2009 | 2010 | ||||||
Net Income (Loss) |
$ | 43,177 | $ | (150,817 | ) | |||
Other Comprehensive Income (Loss): |
||||||||
Foreign Currency Translation Adjustments |
38,994 | 46,993 | ||||||
Total Other Comprehensive Income (Loss) |
38,994 | 46,993 | ||||||
Comprehensive Income (Loss) |
82,171 | (103,824 | ) | |||||
Comprehensive (Loss) Income Attributable to Noncontrolling Interests |
(399 | ) | 3,672 | |||||
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated |
$ | 82,570 | $ | (107,496 | ) | |||
|
Nine Months Ended September 30, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2009 | 2010 | ||||||
Net Income (Loss) |
$ | 157,633 | $ | (83,226 | ) | |||
Other Comprehensive Income (Loss): |
||||||||
Foreign Currency Translation Adjustments |
47,406 | (5,015 | ) | |||||
Total Other Comprehensive Income (Loss) |
47,406 | (5,015 | ) | |||||
Comprehensive Income (Loss) |
205,039 | (88,241 | ) | |||||
Comprehensive (Loss) Income Attributable to Noncontrolling Interests |
(621 | ) | 4,021 | |||||
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated |
$ | 205,660 | $ | (92,262 | ) | |||
The accompanying notes are an integral part of these consolidated financial statements.
7
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
|
Nine Months Ended September 30, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2009 | 2010 | ||||||
Cash Flows from Operating Activities: |
||||||||
Net income (loss) |
$ | 157,633 | $ | (83,226 | ) | |||
Adjustments to reconcile net income (loss) to cash flows from operating activities: |
||||||||
Depreciation |
210,009 | 229,040 | ||||||
Amortization (includes deferred financing costs and bond discount of $3,798 and $3,985, respectively) |
30,177 | 33,334 | ||||||
Goodwill impairment |
| 255,000 | ||||||
Stock-based compensation expense |
13,987 | 15,559 | ||||||
Provision for deferred income taxes |
42,556 | 36,366 | ||||||
Loss on early extinguishment of debt |
3,031 | 1,792 | ||||||
(Gain) Loss on disposal/writedown of property, plant and equipment, net |
(57 | ) | (5,677 | ) | ||||
Foreign currency transactions and other, net |
(12,196 | ) | 20,197 | |||||
Changes in Assets and Liabilities (exclusive of acquisitions): |
||||||||
Accounts receivable |
(34,510 | ) | 5,976 | |||||
Prepaid expenses and other current assets |
(3,165 | ) | (6,611 | ) | ||||
Accounts payable |
(5,613 | ) | (7,510 | ) | ||||
Accrued expenses, deferred revenue and other current liabilities |
21,651 | (60,718 | ) | |||||
Other assets and long-term liabilities |
10,387 | 11,514 | ||||||
Cash Flows from Operating Activities |
433,890 | 445,036 | ||||||
Cash Flows from Investing Activities: |
||||||||
Capital expenditures |
(216,013 | ) | (201,829 | ) | ||||
Cash paid for acquisitions, net of cash acquired |
(1,963 | ) | (123,598 | ) | ||||
Additions to customer relationship and acquisition costs |
(7,152 | ) | (10,065 | ) | ||||
Investment in restricted cash |
| (35,102 | ) | |||||
Proceeds from sales of property and equipment and other, net |
1,478 | 18,038 | ||||||
Cash Flows from Investing Activities |
(223,650 | ) | (352,556 | ) | ||||
Cash Flows from Financing Activities: |
||||||||
Repayment of revolving credit and term loan facilities and other debt |
(177,533 | ) | (91,311 | ) | ||||
Proceeds from revolving credit and term loan facilities and other debt |
18,625 | 43,500 | ||||||
Early retirement of senior subordinated notes |
(447,874 | ) | (202,584 | ) | ||||
Net proceeds from sales of senior subordinated notes |
539,688 | | ||||||
Debt financing (repayment to) and equity contribution from (distribution to) noncontrolling interests, net |
794 | 52 | ||||||
Stock repurchases |
| (93,693 | ) | |||||
Parent cash dividends |
| (25,361 | ) | |||||
Proceeds from exercise of stock options and employee stock purchase plan |
20,098 | 12,440 | ||||||
Excess tax benefits from stock-based compensation |
5,282 | 1,913 | ||||||
Payment of debt financing costs |
(1,307 | ) | | |||||
Cash Flows from Financing Activities |
(42,227 | ) | (355,044 | ) | ||||
Effect of Exchange Rates on Cash and Cash Equivalents |
2,880 | 81 | ||||||
Increase (Decrease) in Cash and Cash Equivalents |
170,893 | (262,483 | ) | |||||
Cash and Cash Equivalents, Beginning of Period |
278,370 | 446,656 | ||||||
Cash and Cash Equivalents, End of Period |
$ | 449,263 | $ | 184,173 | ||||
Supplemental Information: |
||||||||
Cash Paid for Interest |
$ | 175,674 | $ | 186,356 | ||||
Cash Paid for Income Taxes |
$ | 52,867 | $ | 104,351 | ||||
Non-Cash Investing and Financing Activities: |
||||||||
Capital Leases |
$ | 42,590 | $ | 24,949 | ||||
Accrued Capital Expenditures |
$ | 28,111 | $ | 25,901 | ||||
Dividends Payable |
$ | | $ | 12,532 | ||||
Unsettled Purchases of Parent Common Stock |
$ | | $ | 970 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
8
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 without audit 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.
The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("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 are adequate to make the information presented not misleading. The consolidated financial statements and notes included herein should be read in conjunction with the annual consolidated financial statements and notes for the year ended December 31, 2009 included in our Annual Report on Form 10-K filed on February 26, 2010.
(2) Summary of Significant Accounting Policies
a. Principles of Consolidation and Change in Accounting Principle
The accompanying financial statements reflect our financial position and results of operations on a consolidated basis. Prior to January 1, 2010, the financial position and results of operations of the operating subsidiaries of Iron Mountain Europe (Group) Limited (collectively referred to as "IME"), our European business, were consolidated based on IME's fiscal year ended October 31. Effective January 1, 2010, we changed the fiscal year-end (and the reporting period for consolidation purposes) of IME to coincide with Iron Mountain Incorporated's ("IMI") fiscal year-end of December 31. We believe that the change in accounting principle related to the elimination of the two-month reporting lag for IME is preferable because it will result in more contemporaneous reporting of events and results related to IME. In accordance with applicable accounting literature, a change in subsidiary year-end is treated as a change in accounting principle and requires retrospective application. The cumulative effect of the change was an increase in retained earnings of $12,225 as of January 1, 2008. We also recorded a corresponding decrease in other long-term liabilities for the same amount. The impact of the change was not material to the results of operations for the previously reported annual and interim periods after January 1, 2008, and, thus, those results have not been revised. There is, however, a charge of $4,711 recorded to other (income) expense, net in the nine months ended September 30, 2010 to recognize the immaterial differences arising in 2008 and 2009. Had the annual financial statements been revised, operating income, pretax income and net income attributable to Iron Mountain Incorporated in calendar 2008 would have been decreased by $6,950, $11,700 and $9,039, respectively, and operating income, pretax income and net income attributable to Iron Mountain Incorporated in calendar 2009 would have been increased by $3,714, $7,041 and $4,957, respectively. Operating income and pretax income would have been decreased by $643 and $2,041, and net income attributable to Iron Mountain Incorporated would have been increased by $284 in the three months ended September 30, 2009, respectively, if the financial statements had been revised to reflect the effect of eliminating the reporting lag for IME, and operating income, pretax income and net income attributable to Iron Mountain Incorporated would have been increased by $2,878, $7,701 and $8,458 in the nine months ended September 30, 2009, respectively. In addition, revenue, operating income, pretax income and net income attributable to Iron Mountain Incorporated for the three and nine months
9
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)
ended September 30, 2010 would not have changed materially had we not eliminated the two-month reporting lag. There were no significant, infrequent or unusual items in the IME two-month period ended December 31, 2009. All intercompany account balances have been eliminated.
b. Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash on hand and cash invested in short-term securities which have remaining maturities at the date of purchase of less than 90 days. Cash and cash equivalents are carried at cost, which approximates fair value.
We have restricted cash associated with our worker's compensation self-insurance program, which represents a collateral trust agreement with our insurance carrier. The restricted cash subject to this agreement was $35,104 as of September 30, 2010 and is included in current assets on our consolidated balance sheets. Restricted cash consists primarily of U.S. treasuries.
c. Foreign Currency Translation and Foreign Currency Transaction Gains and Losses
Local currencies are considered the functional currencies for our operations outside the United States, with the exception of certain foreign holding companies and our financing center in Switzerland, whose functional currencies are the U.S. 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 and Noncontrolling Interests. 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 (a) our 71/4% GBP Senior Subordinated Notes due 2014, (b) our 63/4 Euro Senior Subordinated Notes due 2018, (c) the borrowings in certain foreign currencies under our revolving credit agreement, and (d) certain foreign currency denominated intercompany obligations of our foreign subsidiaries to us and between our foreign subsidiaries, are included in other expense (income), net, on our consolidated statements of operations. We recorded a net gain of $908 and $10,546 for the three and nine months ended September 30, 2009, respectively, and a net gain of $4,385 and a net loss of $4,505 for the three and nine months ended September 30, 2010, respectively, of foreign currency transactions gains and losses.
d. Goodwill and Other Intangible Assets
Goodwill and intangible assets with indefinite lives are not amortized but are reviewed annually for impairment or more frequently if impairment indicators arise. We currently have no intangible assets that have indefinite lives and which are not amortized, other than goodwill. Separable intangible assets that are not deemed to have indefinite lives are amortized over their useful lives. We periodically assess whether events or circumstances warrant a change in the life over which our intangible assets are amortized.
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, 2009, and noted no impairment of
10
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)
goodwill. In making this assessment, we relied on a number of factors including operating results, business plans, anticipated future cash flows, transactions and market place data. There are inherent uncertainties related to these factors and our judgment in applying them to the analysis of goodwill impairment. We perform our goodwill impairment analysis at our reporting unit level, which as of October 1, 2009 were as follows: North America (excluding Fulfillment), Fulfillment, Europe, Worldwide Digital Business (excluding Stratify, Inc. ("Stratify")), Stratify, Latin America and Asia Pacific. Our North America (excluding Fulfillment), Fulfillment, Europe, Worldwide Digital Business (excluding Stratify), Stratify and Latin America reporting units had fair values as of October 1, 2009 that significantly exceeded their carrying values. Our Asia Pacific reporting unit had a fair value that exceeded its carrying value by 9% as of October 1, 2009. Asia Pacific is still in the investment stage, and, accordingly, its fair value does not exceed its carrying value by a significant margin at this point in time. A deterioration of the Asia Pacific business or the business not achieving its forecasted results could result in goodwill impairment in future periods. We concluded during the quarter ended September 30, 2010, based on integration activity since October 1, 2009, that our previous Worldwide Digital Business (excluding Stratify) and Stratify reporting units are now one reporting unit, referred to as Worldwide Digital Business. As of September 30, 2010, no factors were identified that would alter our October 1, 2009 goodwill assessment, other than those related to our Worldwide Digital Business reporting unit discussed below.
Reporting unit valuations have been calculated using an income approach based on the present value of future cash flows of each reporting unit or a combined approach based on the present value of future cash flows and market and transaction multiples of revenues and earnings. The income approach incorporates many assumptions including future growth rates, discount factors, expected capital expenditures and income tax cash flows. Changes in economic and operating conditions impacting these assumptions could result in goodwill impairments in future periods.
During the quarter ended September 30, 2010, we concluded that events occurred and circumstances changed in the Worldwide Digital Business reporting unit that required us to conduct an impairment review. The primary factors contributing to our conclusion that we had a triggering event and a requirement to reassess the Worldwide Digital Business reporting unit goodwill for impairment included: (1) a reduction in forecasted revenue and operating results due to continued pressure on key parts of the business as a result of the weak economy; (2) reduced revenue and profit outlook for our eDiscovery service due to smaller average matter size and lower pricing; (3) a decision to discontinue certain software development projects as more fully discussed at Note 2.o. and; (4) the sale of the domain name management product line of our Worldwide Digital Business reporting unit as more fully discussed at Note 10. As a result of the review, we recorded a provisional goodwill impairment charge associated with our Worldwide Digital Business reporting unit in the amount of $255,000 during the quarter ended September 30, 2010. Our estimate is subject to the refinement of forecast assumptions and results and valuation analyses necessary to calculate an implied fair value for goodwill. After the provisional impairment, the remaining recorded value for the Worldwide Digital Business reporting unit is $65,227. We will finalize this estimate and record any necessary adjustments in the fourth quarter of 2010.
11
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 operating segment for the nine months ended September 30, 2010 is as follows:
|
North American Physical Business |
International Physical Business |
Worldwide Digital Business |
Total Consolidated |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance as of December 31, 2009 |
$ | 1,720,446 | $ | 560,218 | $ | 254,049 | $ | 2,534,713 | |||||
Non-deductible goodwill acquired during the year |
| 3,561 | 70,978 | 74,539 | |||||||||
Adjustments to purchase reserves |
(401 | ) | | | (401 | ) | |||||||
Allocated to divestiture (See Note 10) |
| | (4,800 | ) | (4,800 | ) | |||||||
Goodwill impairment |
| | (255,000 | ) | (255,000 | ) | |||||||
Fair value and other adjustments(1) |
746 | 1,458 | | 2,204 | |||||||||
Currency effects |
3,817 | (21,731 | ) | | (17,914 | ) | |||||||
Balance as of September 30, 2010 |
$ | 1,724,608 | $ | 543,506 | $ | 65,227 | $ | 2,333,341 | |||||
The components of our amortizable intangible assets at September 30, 2010 are as follows:
|
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Customer Relationships and Acquisition Costs |
$ | 585,146 | $ | (161,608 | ) | $ | 423,538 | |||
Core Technology(1) |
73,374 | (31,586 | ) | 41,788 | ||||||
Trademarks and Non-Compete Agreements(1) |
7,355 | (5,602 | ) | 1,753 | ||||||
Deferred Financing Costs |
50,066 | (19,760 | ) | 30,306 | ||||||
Total |
$ | 715,941 | $ | (218,556 | ) | $ | 497,385 | |||
e. Stock-Based Compensation
We record stock-based compensation expense, utilizing the straight-line method, for the cost of stock options, restricted stock, restricted stock units and shares of stock issued under the employee stock purchase plan (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, 2009 was $4,851 ($3,690 after tax or $0.02 per basic and diluted share) and $13,987
12
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)
($10,936 after tax or $0.05 per basic and diluted share), respectively, and for the three and nine months ended September 30, 2010 was $4,750 ($3,819 after tax or $0.02 per basic and diluted share) and $15,559 ($12,240 after tax or $0.06 per basic and diluted share), respectively.
The benefits associated with the tax deductions in excess of recognized compensation cost are required to be reported as a financing cash flow. This requirement reduces reported operating cash flows and increases reported financing cash flows. As a result, net financing cash flows included $5,282 and $1,913 for the nine months ended September 30, 2009 and 2010, respectively, from the benefits of tax deductions in excess of recognized compensation cost. We used the short form method to calculate the Additional Paid-in Capital ("APIC") pool. The tax benefit of any resulting excess tax deduction increases the APIC pool. Any resulting tax deficiency is deducted from the APIC pool.
Stock Options
Under our various stock option plans, options were granted with exercise prices equal to the market price of the stock on the date of grant. The majority of our options become exercisable ratably over a period of five years and generally have a contractual life of ten years, unless the holder's employment is terminated. Beginning in 2007, certain of the options we issue become exercisable ratably over a period of ten years and have a contractual life of 12 years, unless the holder's employment is terminated. As of September 30, 2010, ten-year vesting options represent 7.3% of total outstanding options. Our directors are considered employees for purposes of our stock option plans and stock option reporting. Options granted to our non-employee directors generally become exercisable after one year.
The weighted average fair value of options granted for the nine months ended September 30, 2009 and 2010 was $9.83 and $7.93 per share, respectively. The values were estimated on the date of grant using the Black-Scholes option pricing model. The following table summarizes the weighted average assumptions used for grants in the respective period:
|
Nine Months Ended September 30, |
||||||
---|---|---|---|---|---|---|---|
Weighted Average Assumption
|
2009 | 2010 | |||||
Expected volatility |
32.1 | % | 32.7 | % | |||
Risk-free interest rate |
2.65 | % | 2.50 | % | |||
Expected dividend yield |
None | 1 | % | ||||
Expected life of the option |
6.4 years | 6.4 years |
Expected volatility was calculated utilizing daily historical volatility over a period that equates to the expected life of the option. The risk-free interest rate was based on the U.S. Treasury interest rates whose term is consistent with the expected life of the stock options. Beginning in the first quarter of 2010, expected dividend yield was considered in the option pricing model as a result of our new dividend program. The expected life (estimated period of time outstanding) of the stock options granted was estimated using the historical exercise behavior of employees.
13
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 option activity for the nine months ended September 30, 2010 is as follows:
|
Options | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Outstanding at December 31, 2009 |
12,099,361 | $ | 24.06 | ||||||||||
Granted |
2,264,725 | 23.78 | |||||||||||
Issued in Connection with Acquisitions |
257,366 | 8.67 | |||||||||||
Exercised |
(760,291 | ) | 12.98 | ||||||||||
Forfeited |
(858,891 | ) | 26.88 | ||||||||||
Expired |
(420,578 | ) | 27.89 | ||||||||||
Outstanding at September 30, 2010 |
12,581,692 | $ | 24.06 | 7.15 | $ | 23,699 | |||||||
Options exercisable at September 30, 2010 |
6,175,521 | $ | 22.36 | 5.79 | $ | 19,950 | |||||||
The following table provides the aggregate intrinsic value of stock options exercised for the three and nine months ended September 30, 2009 and 2010:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2010 | 2009 | 2010 | |||||||||
Aggregate intrinsic value of stock options exercised |
$ | 9,343 | $ | 2,856 | $ | 17,983 | $ | 8,820 |
Restricted Stock and Restricted Stock Units
Under our various stock option plans, we may also issue grants of restricted stock or restricted stock units ("RSUs"). Our restricted stock and RSUs generally have a four-to- five year vesting period. The fair value of restricted stock and RSUs is the excess of the market price of our common stock at the date of grant over the exercise price (which is typically zero).
14
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 restricted stock and RSUs activity for the nine months ended September 30, 2010 is as follows:
|
Restricted Stock and RSUs |
Weighted- Average Grant-Date Fair Value |
|||||
---|---|---|---|---|---|---|---|
Non-vested at December 31, 2009 |
2,276 | $ | 28.36 | ||||
Granted |
120,019 | 22.08 | |||||
Vested |
(452 | ) | 28.36 | ||||
Forfeited |
| | |||||
Non-vested at September 30, 2010 |
121,843 | $ | 22.17 | ||||
No restricted stock or RSUs vested during the three and nine months ended September 30, 2009. The total fair value of restricted stock and RSUs vested for both the three and nine months ended September 30, 2010 was $13.
Employee Stock Purchase Plan
We offer an employee stock purchase plan in which participation is available to substantially all U.S. and Canadian employees who meet certain service eligibility requirements (the "ESPP"). The ESPP provides a way for our eligible employees to become stockholders on favorable terms. The ESPP provides for the purchase of our common stock by eligible employees through successive offering periods. We generally have two six-month offering periods per year, the first of which begins June 1 and ends November 30 and the second of which begins December 1 and ends May 31. During each offering period, participating employees accumulate after-tax payroll contributions, up to a maximum of 15% of their compensation, to pay the exercise price of their options. Participating employees may withdraw from an offering period before the purchase date and obtain a refund of the amounts withheld as payroll deductions. At the end of the offering period, outstanding options are exercised, and each employee's accumulated contributions are used to purchase our common stock. The price for shares purchased under the ESPP is 95% of the fair market price at the end of the offering period, without a look-back feature. As a result, we do not recognize compensation cost for the ESPP shares purchased. The ESPP was amended and approved by our stockholders on May 26, 2005 and the number of shares available for purchase under the ESPP was increased to 3,487,500. For the nine months ended September 30, 2009 and 2010, there were 136,966 shares and 137,200 shares, respectively, purchased under the ESPP. The number of shares available for purchase under the ESPP at September 30, 2010 was 674,501.
As of September 30, 2010, unrecognized compensation cost related to the unvested portion of our Employee Stock-Based Awards was $56,409 and is expected to be recognized over a weighted-average period of 4.0 years.
15
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)
We generally issue shares for the exercises of stock options, restricted stock, RSUs, and shares under our ESPP from unissued reserved shares.
f. Income (Loss) Per ShareBasic and Diluted
Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to Iron Mountain Incorporated by the weighted average number of common shares outstanding. The calculation of diluted net income (loss) per share is consistent with that of basic net income (loss) per share but gives effect to all potential common shares (that is, securities such as options, warrants or convertible securities) that were outstanding during the period, unless the effect is antidilutive.
The following table presents the calculation of basic and diluted net income (loss) per share attributable to Iron Mountain Incorporated:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2010 | 2009 | 2010 | |||||||||
Net income (loss) attributable to Iron Mountain Incorporated |
$ | 43,186 | $ | (153,776 | ) | $ | 159,623 | $ | (86,918 | ) | |||
Weighted-average sharesbasic |
203,216,000 | 201,249,000 | 202,595,000 | 202,612,000 | |||||||||
Effect of dilutive potential stock options |
1,676,744 | | 1,539,687 | | |||||||||
Effect of dilutive potential restricted stock and RSUs |
166 | | 55 | | |||||||||
Weighted-average sharesdiluted |
204,892,910 | 201,249,000 | 204,134,742 | 202,612,000 | |||||||||
Net income (loss) per share attributable to Iron Mountain Incorporatedbasic |
$ | 0.21 | $ | (0.76 | ) | $ | 0.79 | $ | (0.43 | ) | |||
Net income (loss) per share attributable to Iron Mountain Incorporateddiluted |
$ | 0.21 | $ | (0.76 | ) | $ | 0.78 | $ | (0.43 | ) | |||
Antidilutive stock options, excluded from the calculation |
7,534,625 | 10,904,632 | 7,951,551 | 9,193,357 | |||||||||
g. Revenues
Our revenues consist of storage revenues as well as service revenues and are reflected net of sales and value added taxes. Storage revenues, both physical and digital, which are considered a key performance indicator for the information management services industry, consist of largely recurring periodic charges related to the storage of materials or data (generally on a per unit basis). Service revenues are comprised of charges for related core service activities and a wide array of complementary products and services. Included in core service revenues are: (1) the handling of records, including the addition of new records, temporary removal of records from storage, refiling of removed records, destruction of records, and permanent withdrawals from storage; (2) courier operations, consisting
16
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)
primarily of the pickup and delivery of records upon customer request; (3) secure shredding of sensitive documents; and (4) other recurring services including maintenance and support contracts. Our complementary services revenues include special project work, data restoration projects, fulfillment services, consulting services and product sales (including software licenses, specially designed storage containers and related supplies). Our secure shredding revenues include the sale of recycled paper (included in complementary services), the price of which can fluctuate from period to period, adding to the volatility and reducing the predictability of that revenue stream.
We recognize revenue when the following criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable, and collectability of the resulting receivable is reasonably assured. Storage and service revenues are recognized in the month the respective storage or service is provided and customers are generally billed on a monthly basis on contractually agreed-upon terms. Amounts related to future storage or prepaid service contracts, including maintenance and support contracts, for customers where storage fees or services are billed in advance are accounted for as deferred revenue and recognized ratably over the applicable storage or service period or when the service is performed. Revenue from the sales of products is recognized when shipped to the customer and title has passed to the customer. Sales of software licenses are recognized at the time of product delivery to our customer or reseller and maintenance and support agreements are recognized ratably over the term of the agreement. Software license sales and maintenance and support accounted for less than 1% of our annual 2009 and the first nine months of 2010 consolidated revenues. Within our Worldwide Digital Business segment, in certain instances, we process and host data for customers. In these instances, the processing fees are deferred and recognized over the estimated service period.
h. Allowance for Doubtful Accounts and Credit Memo Reserves
We maintain an allowance for doubtful accounts and credit memos for estimated losses resulting from the potential inability of our customers to make required payments and disputes regarding billing and service issues. When calculating the allowance, we consider our past loss experience, current and prior trends in our aged receivables and credit memo activity, current economic conditions, and specific circumstances of individual receivable balances. If the financial condition of our customers were to significantly change, resulting in a significant improvement or impairment of their ability to make payments, an adjustment of the allowance may be required. We consider accounts receivable to be delinquent after such time as reasonable means of collection have been exhausted. We charge-off uncollectible balances as circumstances warrant, generally, no later than one year past due.
i. Income Taxes
Our effective tax rates for the three and nine months ended September 30, 2010 were (15.6%) and 408.1%, respectively. For the three months ended September 30, 2010, we recorded a tax provision of $20,351 on a pre-tax loss of $130,466 which resulted in a negative effective tax rate. The primary reconciling item between the federal statutory rate of 35% and our overall effective tax rate for the three and nine months ended September 30, 2010 is a goodwill impairment charge, of which a majority
17
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)
was non-deductible for tax purposes. The negative impact of U.S. legislative changes reducing the expected utilization of foreign tax credits were offset by the recognition of certain previously unrecognized tax benefits due to expirations of statute of limitation periods and settlements with tax authorities in various jurisdictions. Additionally, to a lesser extent, state income taxes (net of federal benefit) 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, are also reconciling items and impact our effective tax rate.
Our effective tax rates for the three and nine months ended September 30, 2009 were 47.2% and 34.8%, respectively. During the three and nine months ended September 30, 2009, foreign currency gains were recorded in lower tax jurisdictions associated with our marking-to-market of intercompany loan positions while foreign currency losses were recorded in higher tax jurisdictions associated with our marking-to-market of debt and derivative instruments, which reduced the 2009 tax rate by 7.2% for the nine months ended September 30, 2009, and had no significant impact on our effective tax rate for the three months ended September 30, 2009. During the three months ended September 30, 2009, we recorded a change in our estimate of the annual effective tax rate and other discrete items including changes in estimates and adjustments related to the filing of our 2008 federal, state and certain foreign tax returns. Together these items increased the effective tax rate by 7.3% and 3.3% for the three and nine months ended September 30, 2009, respectively.
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. Accounting for income taxes requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax and financial reporting basis of assets and liabilities and for loss and credit carryforwards. Valuation allowances are provided when recovery of deferred tax assets is not considered more likely than not. There were no material changes related to uncertain tax positions during the nine months ended September 30, 2010, except as discussed above.
We have elected to recognize interest and penalties associated with uncertain tax positions as a component of the provision (benefit) for income taxes in the accompanying consolidated statements of operations. We recorded $1,039 and $2,775 for gross interest and penalties for the three and nine months ended September 30, 2009, respectively. We recorded a reduction of $4,214 and $1,464 for gross interest and penalties for the three and nine months ended September 30, 2010, respectively. We had $12,874 and $11,410 accrued for the payment of interest and penalties as of December 31, 2009 and September 30, 2010, respectively.
j. Fair Value Measurements
Entities are permitted under GAAP to elect to measure many financial instruments and certain other items at either fair value or cost. We did not elect the fair value measurement option for any of our financial assets or liabilities.
18
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)
Our financial assets or liabilities are 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 are as follows:
Level 1Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2Inputs 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 3Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2010:
|
|
Fair Value Measurements at September 30, 2010 Using |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Description
|
Total Carrying Value at September 30, 2010 |
Quoted prices in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
|||||||||
Money Market Funds(1) |
$ | 18,649 | $ | | $ | 18,649 | $ | | |||||
Time Deposits(1) |
73,986 | | 73,986 | | |||||||||
Trading Securities |
9,471 | 8,743 | (2) | 728 | (1) | | |||||||
Derivative Liabilities(3) |
5,737 | | 5,737 | |
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 for the three and nine months ended September 30, 2010, except goodwill calculated based on Level 3 inputs, more fully disclosed at Note 2.d.
19
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
Effective at the start of a reporting entity's first fiscal year beginning after November 15, 2009, or January 1, 2010, for a calendar year-end entity, the Financial Accounting Standards Board (the "FASB") Accounting Standards Codification (the "Codification") will require more information about transfers of financial assets, including securitization transactions, and transactions where entities have continuing exposure to the risks related to transferred financial assets. The Codification eliminates the concept of a "qualifying special-purpose entity", changes the requirements for derecognizing financial assets, and requires additional disclosures about an entity's involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects such reporting entity's financial statements. The adoption of these Codification updates did not have a material impact on our consolidated financial statements and results of operations.
In October 2009, the FASB issued amended guidance on multiple-deliverable revenue arrangements and software revenue recognition. The multiple-deliverable revenue arrangements updates to the Codification apply to all deliverables in contractual arrangements in all industries in which a vendor will perform multiple revenue-generating activities. The change to the Codification creates a selling price hierarchy that an entity must use as evidence of fair value in separately accounting for all deliverables on a relative-selling-price basis which qualify for separation. The selling price hierarchy includes: (1) vendor-specific objective evidence; (2) third-party evidence and (3) estimated selling price. Broadly speaking, this update to the Codification will result in the possibility for some entities to recognize revenue earlier and more closely align with the economics of certain revenue arrangements if the other criteria for separation (e.g. standalone value to the customer) are met. The software revenue recognition guidance was issued to address factors that entities should consider when determining whether the software and non-software components of a product function together to deliver the product's essential functionality. The software revenue recognition updates to the Codification will allow revenue arrangements in which software and non-software components deliver together a product's essential functionality to follow the multiple-deliverable revenue recognition criteria as opposed to the criteria applicable to software revenue recognition. Both updates are effective for fiscal years beginning on or after June 15, 2010 and apply prospectively to new or materially modified revenue arrangements after its effective date. Early adoption is permitted; however, we do not anticipate early adopting. We do not expect adoption to have a material impact on our consolidated financial statements and results of operations.
In January 2010, the FASB issued amended guidance improving disclosures about fair value measurements to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. The new guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The change in the Codification requires an entity, in determining the appropriate classes of assets and liabilities, to consider the nature and risks of the assets and liabilities as well as their placement in the fair value hierarchy (Level 1, 2 or 3). The Codification update is effective for the first reporting period, including interim periods, beginning after December 15, 2009, except for the requirement to provide the Level 3
20
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)
activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010. In the period of initial adoption, entities will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. However, those disclosures are required for periods ending after initial adoption. Early adoption is permitted for the requirement to provide the Level 3 activity of purchases, sales, issuances and settlements on a gross basis; however, we do not anticipate early adopting. We do not expect adoption to have a material impact on our consolidated financial statements and results of operations.
l. Use of Estimates
The preparation of financial statements in conformity with GAAP 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 on-going 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.
m. Accumulated Other Comprehensive Items, Net
Accumulated other comprehensive items, net consists of foreign currency translation adjustments as of December, 31, 2009 and September 30, 2010, respectively.
n. Other Expense (Income), Net
Other expense (income), net consists of the following:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2010 | 2009 | 2010 | |||||||||
Foreign currency transaction (gains) losses, net |
$ | (908 | ) | $ | (4,385 | ) | $ | (10,546 | ) | $ | 4,505 | ||
Debt extinguishment expense |
3,031 | 1,792 | 3,031 | 1,792 | |||||||||
Other, net |
(733 | ) | (6,573 | ) | (2,334 | ) | (2,625 | ) | |||||
|
$ | 1,390 | $ | (9,166 | ) | $ | (9,849 | ) | $ | 3,672 | |||
o. Property, Plant and Equipment
We develop various software applications for internal use. Payroll and related costs for employees who are directly associated with, and who devote time to, the development of internal use computer software projects (to the extent of the time spent directly on the project) are capitalized. Capitalization begins when the design stage of the application has been completed and it is probable that the project will be completed and used to perform the function intended. Capitalized software costs are depreciated over the estimated useful life of the software beginning when the software is placed in
21
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)
service. During the quarter ending September 30, 2010, we wrote off approximately $4,900 of previously deferred software costs related to our Worldwide Digital Business segment, primarily internal labor costs, associated with certain software development projects that were discontinued after implementation, which resulted in a loss on disposal/writedown of property, plant and equipment, net in the accompanying consolidated statement of operations.
(3) Derivative Instruments and Hedging Activities
Every derivative instrument is required to be recorded in the balance sheet as either an asset or a liability measured at its fair value. Periodically, we acquire derivative instruments that are intended to hedge either cash flows or values which are subject to foreign exchange or other market price risk, and not for trading purposes. We have formally documented our hedging relationships, including identification of the hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking each hedge transaction. Given the recurring nature of our revenues and the long term nature of our asset base, we have the ability and the preference to use long-term, fixed interest rate debt to finance our business, thereby preserving our long term returns on invested capital. We target approximately 75% of our debt portfolio to be fixed with respect to interest rates. Occasionally, we will use interest rate swaps as a tool to maintain our targeted level of fixed rate debt. In addition, we will use borrowings in foreign currencies, either obtained in the U.S. or by our foreign subsidiaries, to naturally hedge foreign currency risk associated with our international investments. Sometimes we enter into currency swaps to temporarily hedge an overseas investment, such as a major acquisition, while we arrange permanent financing or to hedge our exposures due to foreign currency exchange movements related to our intercompany accounts with and between our foreign subsidiaries. As of December 31, 2009 and September 30, 2010, none of our derivative instruments contained credit-risk related contingent features.
We have entered into a number of forward contracts to hedge our exposures in British pounds sterling. As of September 30, 2010, we had an outstanding forward contract to purchase 191,601 U.S. dollars and sell 125,000 British pounds sterling to hedge our intercompany exposures with IME. 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 recognize this amount in other (income) expense, net in the accompanying statement of operations as a realized foreign exchange gain or loss. We have not designated these forward contracts as hedges. During the three and nine months ended September 30, 2009, there was $0 and $2,392 in net cash disbursements, respectively, included in cash from operating activities related to settlements associated with these foreign currency forward contracts. During the three and nine months ended September 30, 2010, there was $3,280 in net cash disbursements and $6,726 in net cash receipts, respectively, included in cash from operating activities related to settlements associated with these foreign currency forward contracts. The following table provides the fair value of
22
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(3) Derivative Instruments and Hedging Activities (Continued)
our derivative instruments as of December 31, 2009 and September 30, 2010 and their gains and losses for the three and nine months ended September 30, 2009 and 2010:
|
Asset Derivatives | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
December 31, 2009 | September 30, 2010 | ||||||||||
|
Balance Sheet Location |
Fair Value |
Balance Sheet Location |
Fair Value |
||||||||
Derivatives Not Designated as Hedging Instruments |
||||||||||||
Foreign exchange contracts |
Current assets | $ | 4,115 | Current assets | $ | | ||||||
Total |
$ | 4,115 | $ | | ||||||||
|
Liability Derivatives | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
December 31, 2009 | September 30, 2010 | ||||||||||
|
Balance Sheet Location |
Fair Value |
Balance Sheet Location |
Fair Value |
||||||||
Derivatives Not Designated as Hedging Instruments |
||||||||||||
Foreign exchange contracts |
Current liabilities | $ | | Current liabilities | $ | 5,737 | ||||||
Total |
$ | | $ | 5,737 | ||||||||
|
|
Amount of (Gain) Loss Recognized in Income on Derivatives |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||
|
Location of (Gain) Loss Recognized in Income on Derivative |
||||||||||||||
Derivatives Not Designated as Hedging Instruments |
2009 | 2010 | 2009 | 2010 | |||||||||||
Foreign exchange contracts |
Other (income) expense, net | $ | (4,332 | ) | $ | 10,022 | $ | 11,838 | $ | 3,127 | |||||
Total |
$ | (4,332 | ) | $ | 10,022 | $ | 11,838 | $ | 3,127 | ||||||
In the third quarter of 2007, we designated a portion of our 63/4% Euro Senior Subordinated Notes due 2018 issued by IMI (the "63/4% Euro Notes") as a hedge of net investment of certain of our Euro denominated subsidiaries. For the nine months ended September 30, 2009 and 2010, we designated on average 102,333 and 75,667 Euros, respectively, of the 63/4% Euro Notes as a hedge of net investment of certain of our Euro denominated subsidiaries. As a result, we recorded foreign exchange losses of $4,352 ($2,706, net of tax) and $80 for the three and nine months ended September 30, 2009, respectively, 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 included in stockholders' equity. We recorded foreign exchange losses of $10,305 ($6,442, net of tax) and foreign exchange gains $5,331 ($3,332, net of tax) for the three and nine months ended September 30, 2010, respectively, 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 included in stockholders' equity. As of September 30, 2010, net gains of $6,691 are recorded in accumulated other comprehensive items, net associated with this net investment hedge.
23
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 purchase method of accounting, and, accordingly, 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 was primarily provided through borrowings under our credit facilities and cash equivalents on-hand. The unaudited pro forma results of operations for the period ended September 30, 2010 are not presented due to the insignificant impact of the 2010 acquisitions on our consolidated results of operations.
In February 2010, we acquired 100% of Mimosa Systems, Inc. ("Mimosa"), a leader in enterprise-class digital content archiving solutions, for approximately $112,000 in cash and approximately $2,000 in fair value of options issued. Mimosa, based in Santa Clara, California, provides an on-premises integrated archive for email, SharePoint data and files, and complements IMI's existing enterprise-class, cloud-based digital archive services. NearPoint, Mimosa's enterprise archiving platform, has applications for retention and disposition, eDiscovery, compliance supervision, classification, recovery, and end-user search, enabling customers to reduce risk and lower their eDiscovery and storage costs. Goodwill associated with the Mimosa acquisition was allocated to the Worldwide Digital Business. We deposited $11,200 of the cash consideration payable in our acquisition of Mimosa into escrow to secure certain indemnification obligations of the former stockholders of Mimosa (the "Mimosa Stockholders") and to satisfy certain other obligations of the Mimosa Stockholders. On the 15-month anniversary of the closing of the acquisition, or May 16, 2011, amounts remaining in the escrow fund will be distributed to the Mimosa Stockholders, minus (i) $750 which shall continue to be held as security for certain types of claims and (ii) any amounts held for unresolved indemnification claims made by us. On the 24-month anniversary of the closing, or February 16, 2012, the balance of the escrow fund less any amounts held for unresolved claims will be distributed to the Mimosa Stockholders. The allocation of the purchase price will be finalized upon the final settlement of the purchase price with the Mimosa Stockholders and the subsequent completion of the analyses of the fair value of Mimosa's assets and liabilities and certain tax matters. The analyses include examination of the underlying books and tax records, completion of an appraisal of certain intangible assets and liabilities and a full assessment of legal and tax contingencies.
To expand our geographical footprint in Europe, in May 2010 we acquired the remaining 87% interest of our joint venture in Greece (Safe doc S.A.) for a cash purchase price of approximately $4,700, and we now control 100% of our Greek operations, which provide storage and records management services. The carrying value of the 13% interest that we had previously acquired and accounted for under the equity method of accounting amounted to approximately $416 and the fair value of such interest on the date of acquisition was approximately $473 and resulted in a gain being recorded on the date of the transaction to other (income) expense, net of approximately $57 during the second quarter of 2010.
24
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(4) Acquisitions (Continued)
A summary of the consideration paid for acquisitions in 2010 and the allocation of the purchase price of the acquisitions is as follows:
Cash Paid (gross of cash acquired)(1) |
$ | 115,872 | |||
Fair Value of Options Issued |
1,997 | ||||
Fair Value of Previously Held Equity Interest |
473 | ||||
Total Consideration |
118,342 | ||||
Fair Value of Identifiable Assets Acquired: |
|||||
Cash, Accounts Receivable, Prepaid Expenses, Deferred Income Taxes and Other |
28,362 | ||||
Property, Plant and Equipment(2) |
2,087 | ||||
Customer Relationship Assets(3) |
7,765 | ||||
Core Technology(3) |
22,000 | ||||
Liabilities Assumed(4) |
(16,411 | ) | |||
Total Fair Value of Identifiable Net Assets Acquired |
43,803 | ||||
Recorded Goodwill |
$ | 74,539 | |||
Allocations of the purchase price for the 2010 acquisitions were based on estimates of the fair value of net assets acquired and are subject to adjustment. The purchase price allocations of the 2010 acquisitions are subject to finalization of the assessment of the fair value of intangible assets (primarily customer relationship assets and core technology), deferred revenue, sales and use tax and deferred income taxes (including taxes payable, tax reserves and valuation allowances). We are not aware of any information that would indicate that the final purchase price allocations will differ meaningfully from preliminary estimates. Our acquisitions after January 1, 2009 will be accounted for under newly promulgated accounting guidance and all acquisition costs and restructuring activity has been charged to operations rather than being capitalized as part of the purchase price.
25
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5) Long-term Debt
Long-term debt consists of the following:
|
December 31, 2009 | September 30, 2010 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
|||||||||
Revolving Credit Facility(1) |
$ | 21,799 | $ | 21,799 | $ | | $ | | |||||
Term Loan Facility(1) |
400,300 | 400,300 | 397,225 | 397,225 | |||||||||
71/4% GBP Senior Subordinated Notes due 2014 (the "71/4% notes")(2)(3) |
238,920 | 236,531 | 236,985 | 235,800 | |||||||||
73/4% Senior Subordinated Notes due 2015 (the "73/4% notes")(2)(3) |
435,856 | 433,411 | 233,356 | 233,857 | |||||||||
65/8% Senior Subordinated Notes due 2016 (the "65/8% notes")(2)(3) |
317,035 | 313,200 | 317,406 | 321,392 | |||||||||
71/2% CAD Senior Subordinated Notes due 2017 (the "Subsidiary Notes")(2)(4) |
166,810 | 165,142 | 169,855 | 175,375 | |||||||||
83/4% Senior Subordinated Notes due 2018 (the "83/4% notes")(2)(3) |
200,000 | 207,750 | 200,000 | 212,750 | |||||||||
8% Senior Subordinated Notes due 2018 (the "8% notes")(2)(3) |
49,749 | 48,464 | 49,770 | 53,629 | |||||||||
63/4% Euro Senior Subordinated Notes due 2018 (the "63/4% notes")(2)(3) |
363,166 | 343,562 | 345,290 | 344,806 | |||||||||
8% Senior Subordinated Notes due 2020 (the "8% notes due 2020")(2)(3) |
300,000 | 305,250 | 300,000 | 315,750 | |||||||||
83/8% Senior Subordinated Notes due 2021 (the "83/8% notes")(2)(3) |
548,002 | 567,188 | 548,131 | 592,625 | |||||||||
Real Estate Mortgages, Capital Leases and Other(5) |
210,147 | 210,147 | 211,711 | 211,711 | |||||||||
Total Long-term Debt |
3,251,784 | 3,009,729 | |||||||||||
Less Current Portion |
(40,561 | ) | (36,756 | ) | |||||||||
Long-term Debt, Net of Current Portion |
$ | 3,211,223 | $ | 2,972,973 | |||||||||
26
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5) Long-term Debt (Continued)
direct and indirect 100% owned U.S. subsidiaries (the "Guarantors"). These guarantees are joint and several obligations of the Guarantors. Iron Mountain Canada Corporation ("Canada Company") and the remainder of our subsidiaries do not guarantee the Parent Notes.
Our credit facility consists of (i) revolving credit facilities, where we can borrow, subject to certain limitations as defined in the credit agreement we entered into on April 16, 2007 governing this facility (the "Credit Agreement"), up to an aggregate amount of $765,000 (including Canadian dollar and multi-currency revolving credit facilities), and (ii) a $410,000 term loan facility. Our revolving credit facility is supported by a group of 24 banks. Our subsidiaries, Canada Company and Iron Mountain Switzerland GmbH, may borrow directly under the Canadian revolving credit and multi-currency revolving credit facilities, respectively. Additional subsidiary borrowers may be added under the multi-currency revolving credit facility. The revolving credit facility terminates on April 16, 2012. With respect to the term loan facility, quarterly loan payments of approximately $1,000 are required through maturity on April 16, 2014, at which time the remaining outstanding principal balance of the term loan facility is due. The interest rate on borrowings under the Credit Agreement varies depending on our choice of interest rate and currency options, plus an applicable margin. IMI guarantees the obligations of each of the subsidiary borrowers under the Credit Agreement, and substantially all of our U.S. subsidiaries guarantee the obligations of IMI and the subsidiary borrowers. The capital stock or other equity interests of most of our U.S. subsidiaries, and up to 66% of the capital stock or other equity interests of our first tier foreign subsidiaries, are pledged to secure the Credit Agreement, together with all intercompany obligations of foreign subsidiaries owed to us or to one of our U.S. subsidiary guarantors. As of September 30, 2010, we had no outstanding borrowings under the revolving credit facility; we had various outstanding letters of credit totaling $2,507. The remaining availability, based on IMI's leverage ratio, which is calculated based on the last 12 months' earnings before interest, taxes, depreciation and amortization ("EBITDA"), and other adjustments as defined in the Credit Agreement and current external debt, under the revolving credit facility on September 30, 2010, was $762,493. The interest rate in effect under the term loan facility was 1.8% as of September 30, 2010. For the three and nine months ended September 30, 2009, we recorded commitment fees of $473 and $1,448, respectively, and for the three and nine months ended September 30, 2010, we recorded commitment fees of $599 and $1,751, respectively, based on the unused balances under our revolving credit facilities.
In September 2010, we redeemed $200,000 of the $431,255 aggregate principal amount outstanding of the 73/4% notes due 2015 at a redemption price of 101.292% for each one thousand dollars of principal amount of notes redeemed, plus accrued and unpaid interest. We recorded a charge to other expense (income), net of $1,792 in the third quarter of 2010 related to the early extinguishment of the 73/4% notes being redeemed. This charge consists of the call premium and deferred financing costs, net of original issue premiums related to the 73/4% notes that were redeemed.
27
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5) Long-term Debt (Continued)
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 and our indentures and other agreements governing our indebtedness. Our revolving credit and term loan facilities, as well as our indentures, use EBITDA based calculations as primary measures of financial performance, including leverage ratios. IMI's revolving credit and term leverage ratio was 3.3 and 3.0 as of December 31, 2009 and September 30, 2010, respectively, compared to a maximum allowable ratio of 5.5. Similarly, our bond leverage ratio, per the indentures, was 4.1 and 3.5 as of December 31, 2009 and September 30, 2010, respectively, compared to a maximum allowable ratio of 6.5. Noncompliance with these leverage ratios would have a material adverse effect on our financial condition and liquidity.
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors
The following data summarizes the consolidating Company on the equity method of accounting as of December 31, 2009 and September 30, 2010 and for the three and nine months ended September 30, 2009 and 2010.
The Parent Notes and the Subsidiary Notes are guaranteed by the subsidiaries referred to below as the "Guarantors." These subsidiaries are 100% owned by the Parent. The guarantees are full and unconditional, as well as joint and several.
28
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)
Additionally, the Parent guarantees the Subsidiary Notes, which were issued by Canada Company. Canada Company does not guarantee the Parent Notes. The other subsidiaries that do not guarantee the Parent Notes or the Subsidiary Notes are referred to below as the "Non-Guarantors."
|
December 31, 2009 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Parent | Guarantors | Canada Company |
Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
Assets |
||||||||||||||||||||||
Current Assets: |
||||||||||||||||||||||
Cash and Cash Equivalents |
$ | | $ | 382,588 | $ | 3,906 | $ | 60,162 | $ | | $ | 446,656 | ||||||||||
Accounts Receivable |
| 387,670 | 36,776 | 160,930 | | 585,376 | ||||||||||||||||
Intercompany Receivable |
1,047,805 | | 8,886 | | (1,056,691 | ) | | |||||||||||||||
Other Current Assets |
4,216 | 118,780 | 10,367 | 46,030 | | 179,393 | ||||||||||||||||
Total Current Assets |
1,052,021 | 889,038 | 59,935 | 267,122 | (1,056,691 | ) | 1,211,425 | |||||||||||||||
Property, Plant and Equipment, Net |
| 1,613,985 | 197,272 | 756,943 | | 2,568,200 | ||||||||||||||||
Other Assets, Net: |
||||||||||||||||||||||
Long-term Notes Receivable from Affiliates and Intercompany Receivable |
2,192,476 | 1,000 | | | (2,193,476 | ) | | |||||||||||||||
Investment in Subsidiaries |
1,797,439 | 1,534,577 | | | (3,332,016 | ) | | |||||||||||||||
Goodwill |
| 1,762,409 | 191,856 | 580,448 | | 2,534,713 | ||||||||||||||||
Other |
32,837 | 300,582 | 12,210 | 187,324 | (457 | ) | 532,496 | |||||||||||||||
Total Other Assets, Net |
4,022,752 | 3,598,568 | 204,066 | 767,772 | (5,525,949 | ) | 3,067,209 | |||||||||||||||
Total Assets |
$ | 5,074,773 | $ | 6,101,591 | $ | 461,273 | $ | 1,791,837 | $ | (6,582,640 | ) | $ | 6,846,834 | |||||||||
Liabilities and Equity |
||||||||||||||||||||||
Intercompany Payable |
$ | | $ | 999,182 | $ | | $ | 57,509 | $ | (1,056,691 | ) | $ | | |||||||||
Current Portion of Long-term Debt |
4,639 | 25,024 | 2,170 | 8,728 | | 40,561 | ||||||||||||||||
Total Other Current Liabilities |
62,987 | 480,557 | 31,664 | 198,945 | | 774,153 | ||||||||||||||||
Long-term Debt, Net of Current Portion |
2,848,927 | 76,728 | 181,318 | 104,250 | | 3,211,223 | ||||||||||||||||
Long-term Notes Payable to Affiliates and Intercompany Payable |
1,000 | 2,192,476 | | | (2,193,476 | ) | | |||||||||||||||
Other Long-term Liabilities |
3,853 | 544,233 | 24,025 | 91,772 | (457 | ) | 663,426 | |||||||||||||||
Commitments and Contingencies (See Note 8) |
||||||||||||||||||||||
Total Iron Mountain Incorporated Stockholders' Equity |
2,153,367 | 1,783,391 | 222,096 | 1,326,529 | (3,332,016 | ) | 2,153,367 | |||||||||||||||
Noncontrolling Interests |
| | | 4,104 | | 4,104 | ||||||||||||||||
Total Equity |
2,153,367 | 1,783,391 | 222,096 | 1,330,633 | (3,332,016 | ) | 2,157,471 | |||||||||||||||
Total Liabilities and Equity |
$ | 5,074,773 | $ | 6,101,591 | $ | 461,273 | $ | 1,791,837 | $ | (6,582,640 | ) | $ | 6,846,834 | |||||||||
29
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)
|
September 30, 2010 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Parent | Guarantors | Canada Company |
Non- Guarantors |
Eliminations | Consolidated | ||||||||||||||||
Assets |
||||||||||||||||||||||
Current Assets: |
||||||||||||||||||||||
Cash and Cash Equivalents |
$ | 4,915 | $ | 75,563 | $ | 24,972 | $ | 78,723 | $ | | $ | 184,173 | ||||||||||
Restricted Cash |
35,104 | | | | | 35,104 | ||||||||||||||||
Accounts Receivable |
| 384,772 | 39,684 | 165,774 | | 590,230 | ||||||||||||||||
Intercompany Receivable |
1,344,822 | | 7,895 | | (1,352,717 | ) | | |||||||||||||||
Other Current Assets |
101 | 118,353 | 13,582 | 53,067 | | 185,103 | ||||||||||||||||
Total Current Assets |
1,384,942 | 578,688 | 86,133 | 297,564 | (1,352,717 | ) | 994,610 | |||||||||||||||
Property, Plant and Equipment, Net |
| 1,557,014 | 202,336 | 739,520 | | 2,498,870 | ||||||||||||||||
Other Assets, Net: |
||||||||||||||||||||||
Long-term Notes Receivable from Affiliates and Intercompany Receivable |
1,419,695 | 1,000 | | | (1,420,695 | ) | | |||||||||||||||
Investment in Subsidiaries |
1,826,764 | 1,563,444 | | | (3,390,208 | ) | | |||||||||||||||
Goodwill |
| 1,573,930 | 195,359 | 564,052 | | 2,333,341 | ||||||||||||||||
Other |
28,377 | 309,020 | 11,586 | 176,568 | (1,454 | ) | 524,097 | |||||||||||||||
Total Other Assets, Net |
3,274,836 | 3,447,394 | 206,945 | 740,620 | (4,812,357 | ) | 2,857,438 | |||||||||||||||
Total Assets |
$ | 4,659,778 | $ | 5,583,096 | $ | 495,414 | $ | 1,777,704 | $ | (6,165,074 | ) | $ | 6,350,918 | |||||||||
Liabilities and Equity |
||||||||||||||||||||||
Intercompany Payable |
$ | | $ | 1,286,060 | $ | | $ | 66,657 | $ | (1,352,717 | ) | $ | | |||||||||
Current Portion of Long-term Debt |
4,702 | 20,114 | 2,436 | 9,504 | | 36,756 | ||||||||||||||||
Total Other Current Liabilities |
65,622 | 440,510 | 37,852 | 166,426 | | 710,410 | ||||||||||||||||
Long-term Debt, Net of Current Portion |
2,624,062 | 70,681 | 184,558 | 93,672 | | 2,972,973 | ||||||||||||||||
Long-term Notes Payable to Affiliates and Intercompany Payable |
1,000 | 1,419,695 | | | (1,420,695 | ) | | |||||||||||||||
Other Long-term Liabilities |
3,853 | 533,778 | 23,682 | 103,708 | (1,454 | ) | 663,567 | |||||||||||||||
Commitments and Contingencies (See Note 8) |
||||||||||||||||||||||
Total Iron Mountain Incorporated Stockholders' Equity |
1,960,539 | 1,812,258 | 246,886 | 1,331,064 | (3,390,208 | ) | 1,960,539 | |||||||||||||||
Noncontrolling Interests |
| | | 6,673 | | 6,673 | ||||||||||||||||
Total Equity |
1,960,539 | 1,812,258 | 246,886 | 1,337,737 | (3,390,208 | ) | 1,967,212 | |||||||||||||||
Total Liabilities and Equity |
$ | 4,659,778 | $ | 5,583,096 | $ | 495,414 | $ | 1,777,704 | $ | (6,165,074 | ) | $ | 6,350,918 | |||||||||
30
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)
|
Three Months Ended September 30, 2009 | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Parent | Guarantors | Canada Company |
Non- Guarantors |
Eliminations | Consolidated | |||||||||||||||
Revenues: |
|||||||||||||||||||||
Storage |
$ | | $ | 315,917 | $ | 24,399 | $ | 92,750 | $ | | $ | 433,066 | |||||||||
Service |
| 217,847 | 24,042 | 89,930 | | 331,819 | |||||||||||||||
Total Revenues |
| 533,764 | 48,441 | 182,680 | | 764,885 | |||||||||||||||
Operating Expenses: |
|||||||||||||||||||||
Cost of Sales (Excluding Depreciation and Amortization) |
| 207,996 | 19,289 | 94,185 | | 321,470 | |||||||||||||||
Selling, General and Administrative |
25 | 157,243 | 8,214 | 53,151 | | 218,633 | |||||||||||||||
Depreciation and Amortization |
62 | 57,319 | 4,087 | 19,960 | | 81,428 | |||||||||||||||
Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net |
| 855 | (30 | ) | (120 | ) | | 705 | |||||||||||||
Total Operating Expenses |
87 | 423,413 | 31,560 | 167,176 | | 622,236 | |||||||||||||||
Operating (Loss) Income |
(87 | ) | 110,351 | 16,881 | 15,504 | | 142,649 | ||||||||||||||
Interest Expense (Income), Net |
53,257 | (7,357 | ) | 10,702 | 2,867 | | 59,469 | ||||||||||||||
Other (Income) Expense, Net |
(688 | ) | (971 | ) | | 3,049 | | 1,390 | |||||||||||||
(Loss) Income Before Provision (Benefit) for Income Taxes |
(52,656 | ) | 118,679 | 6,179 | 9,588 | | 81,790 | ||||||||||||||
Provision (Benefit) for Income Taxes |
| 31,499 | 1,082 | 6,032 | | 38,613 | |||||||||||||||
Equity in the (Earnings) Losses of Subsidiaries, Net of Tax |
(95,842 | ) | (7,648 | ) | | | 103,490 | | |||||||||||||
Net Income (Loss) |
43,186 | 94,828 | 5,097 | 3,556 | (103,490 | ) | 43,177 | ||||||||||||||
Less: Net (Loss) Income Attributable to Noncontrolling Interests |
| | | (9 | ) | | (9 | ) | |||||||||||||
Net Income (Loss) Attributable to Iron Mountain Incorporated |
$ | 43,186 | $ | 94,828 | $ | 5,097 | $ | 3,565 | $ | (103,490 | ) | $ | 43,186 | ||||||||
31
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)
|
Three Months Ended September 30, 2010 | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Parent | Guarantors | Canada Company |
Non- Guarantors |
Eliminations | Consolidated | |||||||||||||||
Revenues: |
|||||||||||||||||||||
Storage |
$ | | $ | 318,442 | $ | 27,665 | $ | 96,363 | $ | | $ | 442,470 | |||||||||
Service |
| 219,672 | 28,036 | 92,396 | | 340,104 | |||||||||||||||
Total Revenues |
| 538,114 | 55,701 | 188,759 | | 782,574 | |||||||||||||||
Operating Expenses: |
|||||||||||||||||||||
Cost of Sales (Excluding Depreciation and Amortization) |
| 191,620 | 21,292 | 98,604 | | 311,516 | |||||||||||||||
Selling, General and Administrative |
7 | 152,568 | 9,074 | 55,577 | | 217,226 | |||||||||||||||
Depreciation and Amortization |
49 | 60,411 | 4,770 | 22,057 | | 87,287 | |||||||||||||||
Goodwill Impairment (See Note 2.d.) |
| 255,000 | | | | 255,000 | |||||||||||||||
Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net |
| 4,833 | 2 | (9,315 | ) | | (4,480 | ) | |||||||||||||
Total Operating Expenses |
56 | 664,432 | 35,138 | 166,923 | | 866,549 | |||||||||||||||
Operating (Loss) Income |
(56 | ) | (126,318 | ) | 20,563 | 21,836 | | (83,975 | ) | ||||||||||||
Interest Expense (Income), Net |
48,901 | (8,110 | ) | 11,160 | 3,706 | | 55,657 | ||||||||||||||
Other Expense (Income), Net |
49,579 | (7,944 | ) | (2 | ) | (50,799 | ) | | (9,166 | ) | |||||||||||
(Loss) Income Before Provision (Benefit) for Income Taxes |
(98,536 | ) | (110,264 | ) | 9,405 | 68,929 | | (130,466 | ) | ||||||||||||
Provision (Benefit) for Income Taxes |
| 18,988 | 1,377 | (14 | ) | | 20,351 | ||||||||||||||
Equity in the Losses (Earnings) of Subsidiaries, Net of Tax |
55,240 | (73,754 | ) | | | 18,514 | | ||||||||||||||
Net (Loss) Income |
(153,776 | ) | (55,498 | ) | 8,028 | 68,943 | (18,514 | ) | (150,817 | ) | |||||||||||
Less: Net Income (Loss) Attributable to Noncontrolling Interests |
| | | 2,959 | | 2,959 | |||||||||||||||
Net (Loss) Income Attributable to Iron Mountain Incorporated |
$ | (153,776 | ) | $ | (55,498 | ) | $ | 8,028 | $ | 65,984 | $ | (18,514 | ) | $ | (153,776 | ) | |||||
32
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)
|
Nine Months Ended September 30, 2009 | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Parent | Guarantors | Canada Company |
Non- Guarantors |
Eliminations | Consolidated | |||||||||||||||
Revenues: |
|||||||||||||||||||||
Storage |
$ | | $ | 932,551 | $ | 67,559 | $ | 258,623 | $ | | $ | 1,258,733 | |||||||||
Service |
| 652,945 | 69,617 | 252,964 | | 975,526 | |||||||||||||||
Total Revenues |
| 1,585,496 | 137,176 | 511,587 | | 2,234,259 | |||||||||||||||
Operating Expenses: |
|||||||||||||||||||||
Cost of Sales (Excluding Depreciation and Amortization) |
| 627,247 | 57,629 | 266,272 | | 951,148 | |||||||||||||||
Selling, General and Administrative |
65 | 476,533 | 23,497 | 144,785 | | 644,880 | |||||||||||||||
Depreciation and Amortization |
172 | 169,403 | 11,211 | 55,602 | | 236,388 | |||||||||||||||
Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net |
| 1,131 | 114 | (1,302 | ) | | (57 | ) | |||||||||||||
Total Operating Expenses |
237 | 1,274,314 | 92,451 | 465,357 | | 1,832,359 | |||||||||||||||
Operating (Loss) Income |
(237 | ) | 311,182 | 44,725 | 46,230 | | 401,900 | ||||||||||||||
Interest Expense (Income), Net |
152,023 | (20,742 | ) | 30,877 | 8,007 | | 170,165 | ||||||||||||||
Other Expense (Income), Net |
49,282 | (4,054 | ) | | (55,077 | ) | | (9,849 | ) | ||||||||||||
(Loss) Income Before Provision (Benefit) for Income Taxes |
(201,542 | ) | 335,978 | 13,848 | 93,300 | | 241,584 | ||||||||||||||
Provision (Benefit) for Income Taxes |
| 69,615 | 2,107 | 12,229 | | 83,951 | |||||||||||||||
Equity in the (Earnings) Losses of Subsidiaries, Net of Tax |
(361,165 | ) | (92,110 | ) | | | 453,275 | | |||||||||||||
Net Income (Loss) |
159,623 | 358,473 | 11,741 | 81,071 | (453,275 | ) | 157,633 | ||||||||||||||
Less: Net (Loss) Income Attributable to Noncontrolling Interests |
| | | (1,990 | ) | | (1,990 | ) | |||||||||||||
Net Income (Loss) Attributable to Iron Mountain Incorporated |
$ | 159,623 | $ | 358,473 | $ | 11,741 | $ | 83,061 | $ | (453,275 | ) | $ | 159,623 | ||||||||
33
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)
|
Nine Months Ended September 30, 2010 | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Parent | Guarantors | Canada Company |
Non- Guarantors |
Eliminations | Consolidated | |||||||||||||||
Revenues: |
|||||||||||||||||||||
Storage |
$ | | $ | 948,672 | $ | 82,097 | $ | 282,593 | $ | | $ | 1,313,362 | |||||||||
Service |
| 670,774 | 85,106 | 269,629 | | 1,025,509 | |||||||||||||||
Total Revenues |
| 1,619,446 | 167,203 | 552,222 | | 2,338,871 | |||||||||||||||
Operating Expenses: |
|||||||||||||||||||||
Cost of Sales (Excluding Depreciation and Amortization) |
| 597,036 | 64,271 | 283,968 | | 945,275 | |||||||||||||||
Selling, General and Administrative |
54 | 494,566 | 27,207 | 164,907 | | 686,734 | |||||||||||||||
Depreciation and Amortization |
158 | 179,395 | 14,057 | 64,779 | | 258,389 | |||||||||||||||
Goodwill Impairment (See Note 2.d.) |
| 255,000 | | | | 255,000 | |||||||||||||||
Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net |
| 3,594 | (53 | ) | (9,218 | ) | | (5,677 | ) | ||||||||||||
Total Operating Expenses |
212 | 1,529,591 | 105,482 | 504,436 | | 2,139,721 | |||||||||||||||
Operating (Loss) Income |
(212 | ) | 89,855 | 61,721 | 47,786 | | 199,150 | ||||||||||||||
Interest Expense (Income), Net |
148,360 | (24,132 | ) | 33,525 | 10,711 | | 168,464 | ||||||||||||||
Other (Income) Expense , Net |
(9,520 | ) | (7,683 | ) | (10 | ) | 20,885 | | 3,672 | ||||||||||||
(Loss) Income Before Provision (Benefit) for Income Taxes |
(139,052 | ) | 121,670 | 28,206 | 16,190 | | 27,014 | ||||||||||||||
Provision (Benefit) for Income Taxes |
| 100,483 | 7,583 | 2,174 | | 110,240 | |||||||||||||||
Equity in the (Earnings) Losses of Subsidiaries, Net of Tax |
(52,134 | ) | (29,926 | ) | | | 82,060 | | |||||||||||||
Net (Loss) Income |
(86,918 | ) | 51,113 | 20,623 | 14,016 | (82,060 | ) | (83,226 | ) | ||||||||||||
Less: Net Income (Loss) Attributable to Noncontrolling Interests |
| | | 3,692 | | 3,692 | |||||||||||||||
Net (Loss) Income Attributable to Iron Mountain Incorporated |
$ | (86,918 | ) | $ | 51,113 | $ | 20,623 | $ | 10,324 | $ | (82,060 | ) | $ | (86,918 | ) | ||||||
34
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)
|
Nine Months Ended September 30, 2009 | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Parent | Guarantors | Canada Company |
Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Cash Flows from Operating Activities |
$ | (150,371 | ) | $ | 481,606 | $ | 21,859 | $ | 80,796 | $ | | $ | 433,890 | ||||||||
Cash Flows from Investing Activities: |
|||||||||||||||||||||
Capital expenditures |
| (135,309 | ) | (13,698 | ) | (67,006 | ) | | (216,013 | ) | |||||||||||
Cash paid for acquisitions, net of cash acquired |
| (186 | ) | | (1,777 | ) | | (1,963 | ) | ||||||||||||
Intercompany loans to subsidiaries |
159,359 | 4,212 | | | (163,571 | ) | | ||||||||||||||
Investment in subsidiaries |
(71,836 | ) | (71,836 | ) | | | 143,672 | | |||||||||||||
Additions to customer relationship and acquisition costs |
| (4,553 | ) | (448 | ) | (2,151 | ) | | (7,152 | ) | |||||||||||
Proceeds from sales of property and equipment and other, net |
| 1,036 | 39 | 403 | | 1,478 | |||||||||||||||
Cash Flows from Investing Activities |
87,523 | (206,636 | ) | (14,107 | ) | (70,531 | ) | (19,899 | ) | (223,650 | ) | ||||||||||
Cash Flows from Financing Activities: |
|||||||||||||||||||||
Repayment of revolving credit and term loan facilities and other debt |
(53,134 | ) | (13,841 | ) | (91,459 | ) | (19,099 | ) | | (177,533 | ) | ||||||||||
Proceeds from revolving credit and term loan facilities and other debt |
| | | 18,625 | | 18,625 | |||||||||||||||
Early retirement of senior subordinated notes |
(447,874 | ) | | | | | (447,874 | ) | |||||||||||||
Net proceeds from sales of senior subordinated notes |
539,688 | | | | | 539,688 | |||||||||||||||
Debt financing (repayment to) and equity contribution from (distribution to) noncontrolling interests, net |
| | | 794 | | 794 | |||||||||||||||
Intercompany loans from parent |
| (160,435 | ) | 4,229 | (7,365 | ) | 163,571 | | |||||||||||||
Equity contribution from parent |
| 71,836 | 65,000 | 6,836 | (143,672 | ) | | ||||||||||||||
Proceeds from exercise of stock options and employee stock purchase plan |
20,098 | | | | | 20,098 | |||||||||||||||
Excess tax benefits from stock-based compensation |
5,282 | | | | | 5,282 | |||||||||||||||
Payment of debt financing costs |
(1,212 | ) | | (37 | ) | (58 | ) | | (1,307 | ) | |||||||||||
Cash Flows from Financing Activities |
62,848 | (102,440 | ) | (22,267 | ) | (267 | ) | 19,899 | (42,227 | ) | |||||||||||
Effect of exchange rates on cash and cash equivalents |
| | 264 | 2,616 | | 2,880 | |||||||||||||||
Increase (Decrease) in cash and cash equivalents |
| 172,530 | (14,251 | ) | 12,614 | | 170,893 | ||||||||||||||
Cash and cash equivalents, beginning of period |
| 210,636 | 17,069 | 50,665 | | 278,370 | |||||||||||||||
Cash and cash equivalents, end of period |
$ | | $ | 383,166 | $ | 2,818 | $ | 63,279 | $ | | $ | 449,263 | |||||||||
35
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)
|
Nine Months Ended September 30, 2010 | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Parent | Guarantors | Canada Company |
Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Cash Flows from Operating Activities |
$ | (143,760 | ) | $ | 445,514 | $ | 36,408 | $ | 106,874 | $ | | $ | 445,036 | ||||||||
Cash Flows from Investing Activities: |
|||||||||||||||||||||
Capital expenditures |
| (114,827 | ) | (14,170 | ) | (72,832 | ) | | (201,829 | ) | |||||||||||
Cash paid for acquisitions, net of cash acquired |
| (112,346 | ) | | (11,252 | ) | | (123,598 | ) | ||||||||||||
Intercompany loans to subsidiaries |
504,552 | (2,885 | ) | | | (501,667 | ) | | |||||||||||||
Investment in subsidiaries |
(10,415 | ) | (10,415 | ) | | | 20,830 | | |||||||||||||
Investment in restricted cash |
(35,102 | ) | | | | | (35,102 | ) | |||||||||||||
Additions to customer relationship and acquisition costs |
| (7,428 | ) | (561 | ) | (2,076 | ) | | (10,065 | ) | |||||||||||
Proceeds from sales of property and equipment and other, net |
| 5,240 | 93 | 12,705 | | 18,038 | |||||||||||||||
Cash Flows from Investing Activities |
459,035 | (242,661 | ) | (14,638 | ) | (73,455 | ) | (480,837 | ) | (352,556 | ) | ||||||||||
Cash Flows from Financing Activities: |
|||||||||||||||||||||
Repayment of revolving credit and term loan facilities and other debt |
(3,075 | ) | (19,242 | ) | (1,840 | ) | (67,154 | ) | | (91,311 | ) | ||||||||||
Proceeds from revolving credit and term loan facilities and other debt |
| | | 43,500 | | 43,500 | |||||||||||||||
Early retirement of senior subordinated notes |
(202,584 | ) | | | | | (202,584 | ) | |||||||||||||
Debt financing (repayment to) and equity contribution from (distribution to) noncontrolling interests, net |
| | | 52 | | 52 | |||||||||||||||
Intercompany loans from parent |
| (501,051 | ) | 1,160 | (1,776 | ) | 501,667 | | |||||||||||||
Equity contribution from parent |
| 10,415 | | 10,415 | (20,830 | ) | | ||||||||||||||
Stock repurchases |
(93,693 | ) | | | | | (93,693 | ) | |||||||||||||
Parent cash dividends |
(25,361 | ) | | | | | (25,361 | ) | |||||||||||||
Proceeds from exercise of stock options and employee stock purchase plan |
12,440 | | | | | 12,440 | |||||||||||||||
Excess tax benefits from stock-based compensation |
1,913 | | | | | 1,913 | |||||||||||||||
Cash Flows from Financing Activities |
(310,360 | ) | (509,878 | ) | (680 | ) | (14,963 | ) | 480,837 | (355,044 | ) | ||||||||||
Effect of exchange rates on cash and cash equivalents |
| | (24 | ) | 105 | | 81 | ||||||||||||||
Increase (Decrease) in cash and cash equivalents |
4,915 | (307,025 | ) | 21,066 | 18,561 | | (262,483 | ) | |||||||||||||
Cash and cash equivalents, beginning of period |
| 382,588 | 3,906 | 60,162 | | 446,656 | |||||||||||||||
Cash and cash equivalents, end of period |
$ | 4,915 | $ | 75,563 | $ | 24,972 | $ | 78,723 | $ | | $ | 184,173 | |||||||||
36
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(7) Segment Information
Corporate and our five operating segments are as follows:
The Latin America, Asia Pacific and Europe operating segments have been aggregated given their similar economic characteristics, products, customers and processes and reported as one reportable segment, "International Physical Business." The Worldwide Digital Business does not meet the quantitative criteria for a reportable segment; however, management determined that it would disclose such information on a voluntary basis.
37
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 consolidated financial statements is as follows:
|
North American Physical Business |
International Physical Business |
Worldwide Digital Business |
Corporate | Total Consolidated |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three Months Ended September 30, 2009 |
|||||||||||||||||
Total Revenues |
$ | 530,327 | $ | 178,260 | $ | 56,298 | $ | | $ | 764,885 | |||||||
Depreciation and Amortization |
43,719 | 19,619 | 9,451 | 8,639 | 81,428 | ||||||||||||
Depreciation |
40,756 | 16,296 | 6,774 | 8,577 | 72,403 | ||||||||||||
Amortization |
2,963 | 3,323 | 2,677 | 62 | 9,025 | ||||||||||||
Adjusted OIBDA |
221,455 | 32,795 | 12,285 | (41,753 | ) | 224,782 | |||||||||||
Expenditures for Segment Assets |
45,351 | 28,352 | 5,726 | 5,936 | 85,365 | ||||||||||||
Capital Expenditures |
43,893 | 26,582 | 5,726 | 5,936 | 82,137 | ||||||||||||
Cash Paid for Acquisitions, Net of Cash acquired |
| 515 | | | 515 | ||||||||||||
Additions to Customer Relationship and Acquisition Costs |
1,458 | 1,255 | | | 2,713 | ||||||||||||
Three Months Ended September 30, 2010 |
|||||||||||||||||
Total Revenues |
542,962 | 183,880 | 55,732 | | 782,574 | ||||||||||||
Depreciation and Amortization |
46,852 | 21,630 | 9,851 | 8,954 | 87,287 | ||||||||||||
Depreciation |
43,982 | 18,156 | 6,245 | 8,905 | 77,288 | ||||||||||||
Amortization |
2,870 | 3,474 | 3,606 | 49 | 9,999 | ||||||||||||
Adjusted OIBDA |
255,726 | 33,599 | 5,925 | (41,418 | ) | 253,832 | |||||||||||
Expenditures for Segment Assets |
35,361 | 22,264 | 4,069 | 7,359 | 69,053 | ||||||||||||
Capital Expenditures |
31,511 | 20,079 | 4,872 | 7,359 | 63,821 | ||||||||||||
Cash Paid for Acquisitions, Net of Cash acquired |
| 1,458 | (803 | ) | | 655 | |||||||||||
Additions to Customer Relationship and Acquisition Costs |
3,850 | 727 | | | 4,577 | ||||||||||||
Nine Months Ended September 30, 2009 |
|||||||||||||||||
Total Revenues |
1,566,167 | 498,930 | 169,162 | | 2,234,259 | ||||||||||||
Depreciation and Amortization |
129,046 | 54,611 | 27,341 | 25,390 | 236,388 | ||||||||||||
Depreciation |
120,214 | 45,142 | 19,435 | 25,218 | 210,009 | ||||||||||||
Amortization |
8,832 | 9,469 | 7,906 | 172 | 26,379 | ||||||||||||
Adjusted OIBDA |
629,226 | 93,683 | 35,781 | (120,459 | ) | 638,231 | |||||||||||
Total Assets(1) |
4,518,274 | 1,649,209 | 422,260 | 116,482 | 6,706,225 | ||||||||||||
Expenditures for Segment Assets |
116,594 | 76,166 | 14,992 | 17,376 | 225,128 | ||||||||||||
Capital Expenditures |
111,383 | 72,262 | 14,992 | 17,376 | 216,013 | ||||||||||||
Cash Paid for Acquisitions, Net of Cash acquired |
186 | 1,777 | | | 1,963 | ||||||||||||
Additions to Customer Relationship and Acquisition Costs |
5,025 | 2,127 | | | 7,152 | ||||||||||||
Nine Months Ended September 30, 2010 |
|||||||||||||||||
Total Revenues |
1,627,743 | 538,249 | 172,879 | | 2,338,871 | ||||||||||||
Depreciation and Amortization |
138,115 | 63,578 | 29,285 | 27,411 | 258,389 | ||||||||||||
Depreciation |
129,525 | 53,160 | 19,102 | 27,253 | 229,040 | ||||||||||||
Amortization |
8,590 | 10,418 | 10,183 | 158 | 29,349 | ||||||||||||
Adjusted OIBDA |
720,121 | 98,532 | 19,879 | (131,670 | ) | 706,862 | |||||||||||
Total Assets(1) |
4,268,610 | 1,703,592 | 222,529 | 156,187 | 6,350,918 | ||||||||||||
Expenditures for Segment Assets |
102,566 | 86,062 | 122,153 | 24,711 | 335,492 | ||||||||||||
Capital Expenditures |
92,605 | 72,736 | 11,777 | 24,711 | 201,829 | ||||||||||||
Cash Paid for Acquisitions, Net of Cash acquired |
1,970 | 11,252 | 110,376 | | 123,598 | ||||||||||||
Additions to Customer Relationship and Acquisition Costs |
7,991 | 2,074 | | | 10,065 |
The accounting policies of the reportable segments are the same as those described in Note 2. Adjusted OIBDA, previously referred to as Contribution, for each segment is defined as operating
38
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(7) Segment Information (Continued)
income before depreciation, amortization, goodwill impairment and (gain) loss on disposal/writedown of property, plant and equipment, net which are 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 OIBDA to income (loss) before provision (benefit) for income taxes on a consolidated basis is as follows:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2010 | 2009 | 2010 | |||||||||||
Adjusted OIBDA |
$ | 224,782 | $ | 253,832 | $ | 638,231 | $ | 706,862 | |||||||
Less: Depreciation and Amortization |
81,428 | 87,287 | 236,388 | 258,389 | |||||||||||
Goodwill Impairment (See Note 2.d.) |
| 255,000 | | 255,000 | |||||||||||
Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net |
705 | (4,480 | ) | (57 | ) | (5,677 | ) | ||||||||
Interest Expense (Income), Net |
59,469 | 55,657 | 170,165 | 168,464 | |||||||||||
Other Expense (Income), Net |
1,390 | (9,166 | ) | (9,849 | ) | 3,672 | |||||||||
Income (Loss) before Provision (Benefit) for Income Taxes |
$ | 81,790 | $ | (130,466 | ) | $ | 241,584 | $ | 27,014 | ||||||
(8) Commitments and Contingencies
a. Litigation
We are involved in litigation from time to time in the ordinary course of business with a portion of the defense and/or settlement costs being covered by various commercial liability insurance policies purchased by us. In the opinion of management, no material legal proceedings are pending to which we, or any of our properties, are subject, except as discussed below. We record legal costs associated with loss contingencies as expenses in the period in which they are incurred.
b. Pittsburgh Litigation
In May 2006, we filed an eviction lawsuit against a tenant, Digital Encoding Factory, LLC ("DEF"), leasing space in our Boyers, Pennsylvania records storage facility for its failure to make required rent payments. In October 2006, DEF and two related companies, EDA Acquisition, LLC, and Media Holdings, LLC, filed a lawsuit against us in the U.S. Federal District Court for the Western District of Pennsylvania alleging that they started a digital scanning business in our Boyers, Pennsylvania, records storage facility because we verbally agreed to refer customer digital scanning business in the facility to them (the "Pittsburgh Lawsuit") and promised substantial business. The plaintiffs contended that we breached this alleged verbal agreement and sought to recover damages in the range of $6,500 to $53,500. We disputed the plaintiffs' claims and contended that there was no such verbal agreement. A bench trial occurred in the case in March 2010. In July 2010, we executed an agreement with the plaintiffs settling the case before the judge reached a decision in the matter. The
39
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(8) Commitments and Contingencies (Continued)
legal proceedings related to this event did not have a material impact to our consolidated results of operations or financial condition.
c. London Fire
In July 2006, we experienced a significant fire in a leased records and information management facility in London, England, that resulted in the complete destruction of the facility and its contents. The London Fire Brigade ("LFB") issued a report in which it was concluded that the fire resulted either from human agency, i.e., arson, or an unidentified ignition device or source, and its report to the Home Office concluded that the fire resulted from a deliberate act. The LFB also concluded that the installed sprinkler system failed to control the fire due to the primary electric fire pump being disabled prior to the fire and the standby diesel fire pump being disabled in the early stages of the fire by third-party contractors. We have received notices of claims from customers or their subrogated insurance carriers under various theories of liabilities arising out of lost data and/or records as a result of the fire. Certain of those claims have resulted in litigation in courts in the United Kingdom. We deny any liability in respect of the London fire and we have referred these claims to our excess warehouse legal liability insurer, which has been defending them to date under a reservation of rights. Certain of the claims have been settled for nominal amounts, typically one to two British pounds sterling per carton, as specified in the contracts, which amounts have been or will be reimbursed to us from our primary property insurer. In early July 2010, an entity that provided certain security services related to the destroyed facility as a contractor to us and which was a defendant in an action by the owner of the property seeking damages for negligence and breach of duty, petitioned the court hearing the matter to join Iron Mountain (UK) as a third party defendant, seeking contribution in respect of its liability (if any) to the owner of the building. In August 2010, after we filed a summary argument in response, the petition was formally withdrawn by such entity. We believe we carry adequate property and liability insurance. We do not expect that legal proceedings related to this event will have a material impact to our consolidated results of operations or financial condition.
d. Chile Earthquake
As a result of the February 27, 2010 earthquake in Chile, we experienced damage to certain of our 13 owned and leased records management facilities in that region. None of our facilities were destroyed by fire or significantly impacted by water damage. However, the structural integrity of five buildings was compromised, and some of the racking included in certain buildings was damaged or destroyed. Some customer materials were impacted by this event. Revenues from this country represent less than 1% of our consolidated enterprise revenues. We believe we carry adequate property and liability insurance and do not expect that this event will have a material impact on our consolidated results of operations or financial condition. We have received cumulative year-to-date payments from our insurance carriers of approximately $21,000. Such amount represents a portion of our business personal property, business interruption, and expense claims filed with our insurance carriers. We expect to utilize cash from our insurance settlements to fund capital expenditures and for general working capital needs. Recoveries from the business interruption portion of our insurance claim will be recorded as other income in the consolidated statement of operations when received. We have recorded net gains on the
40
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(8) Commitments and Contingencies (Continued)
disposal/writedown of property, plant and equipment, net in our statement of operations of $9,368 in the three months ended September 30, 2010. Proceeds from our business personal property claims are reflected in our statement of cash flows under proceeds from sales of property and equipment and other, net included in the investing activities section when received. We have reflected approximately $13,000 of the cash proceeds received to date as proceeds from sales of property and equipment, net in our statement of cash flows for the nine months ended September 30, 2010 as a result of the settlement of a portion of the property component of our claim. Proceeds from our business interruption claims are reflected in our statement of cash flows as a component of net income included in the operating activities section when received.
e. New Zealand Earthquake
As a result of the September 2010 earthquake in New Zealand, we experienced damage to one of our leased records management facilities in that region. The facility was not destroyed by fire or significantly impacted by water damage. However, some of the racking included in the building was damaged or destroyed. Some customer materials were impacted by this event. Revenues from this country represent less than 1% of our consolidated enterprise revenues. We believe we carry adequate property and liability insurance and do not expect that this event will have a material impact on our consolidated results of operations or financial condition. We expect to utilize cash from our insurance settlements to fund capital expenditures and for general working capital needs. Recoveries from the business interruption portion of our insurance claim will be recorded as other income in the consolidated statement of operations when received. We expect to receive proceeds from our property claims that exceed the carrying value of the related assets. We, therefore, expect to recognize gains on the disposal/writedown of property, plant and equipment, net in our statement of operations in future periods when the cash received to date exceeds the carrying value of the related property, plant and equipment, net. Proceeds from our business personal property claims are reflected in our statement of cash flows under proceeds from sales of property, plant and equipment and other, net included in the investing activities section when received. Proceeds from our business interruption claims are reflected in our statement of cash flows as a component of net income included in the operating activities section when received.
f. Brazilian Litigation
In September 2010, Iron Mountain do Brasil Ltda., our Brazilian operating subsidiary ("IMB"), was sued in Curitiba, Brazil in the 11th Lower Labor Claim Court. The plaintiff in the six related lawsuits, Sindicato dos Trabalhadores em Empresas de Serviços Contábeis, Assessoramento, Perícias, Informações, Pesquisas, e em Empresas Prestadoras de Serviços do Estado do Paraná (Union of Workers in Business Services Accounting, Advice, Expertise, Information, Research and Services Companies in the State of Parana), a labor union in Brazil, purports to represent approximately 1,700 individuals who provided services for IMB. The complaint alleges that these individuals were incorrectly classified as non-employees by IMB and seeks unspecified monetary damages, including attorneys' fees, unpaid wages, unpaid benefits and certain penalties. We intend to defend this case vigorously. While we
41
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(8) Commitments and Contingencies (Continued)
are unable to predict the final outcome of this matter at this time, we do not expect this lawsuit will have a material impact on our consolidated results of operations or financial condition.
(9) Stockholders' Equity Matters
In February 2010, our board of directors approved a share repurchase program authorizing up to $150,000 in repurchases of our common stock and in October 2010, our board of directors authorized up to an additional $200,000 of such purchases, for a total of $350,000. This represented less than 10% of our outstanding common stock based on the closing price on the dates the programs were announced. All purchases are subject to stock price, market conditions, corporate and legal requirements and other factors. In addition, in February 2010, our board of directors adopted a dividend policy under which we intend to pay quarterly cash dividends on our common stock. The first quarterly dividend of $0.0625 per share was paid on April 15, 2010 to shareholders of record on March 25, 2010 in the aggregate amount of $12,720. The second quarterly dividend of $0.0625 per share was paid on July 15, 2010 to shareholders of record on June 25, 2010 in the aggregate amount of $12,641. The third quarterly dividend of $0.0625 per share was paid on October 15, 2010 to shareholders of record on September 28, 2010 in the aggregate amount of $12,532. Declaration and payment of future quarterly dividends is at the discretion of our board of directors.
(10) Divestiture
In August 2010, we divested the domain name management product line of our Worldwide Digital Business segment for approximately $11,400 in cash at closing. The assets sold primarily consisted of customer contracts. Total revenues of this product line for the year ending December 31, 2009 and the seven months ending July 31, 2010 were approximately $6,300 and $3,500, respectively. We have concluded that the asset sale is not a discontinued operation and, therefore, have recorded a pretax gain on sale in other (income) expense, net of approximately $6,900 in the statement of operations in the third quarter of 2010. Approximately $4,800 of goodwill was allocated to this domain name management product line, utilizing the relative fair value approach. The estimated tax expense associated with this transaction of approximately $4,400 was recorded in the third quarter of 2010 in the provision for income taxes.
(11) Subsequent Events
We have evaluated subsequent events through the date our financial statements were issued.
42
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, 2010 should be read in conjunction with our Consolidated Financial Statements and Notes thereto for the three and nine months ended September 30, 2010, included herein, and for the year ended December 31, 2009, included in our Annual Report on Form 10-K dated February 26, 2010.
FORWARD-LOOKING STATEMENTS
We have made statements in this Quarterly Report on Form 10-Q that constitute "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements concern our operations, economic performance, financial condition, goals, beliefs, future growth strategies, investment objectives, plans and current expectations, including our expected improvements in our digital business, our intent to repurchase shares and to pay dividends, our financial ability and sources to fund the repurchase program and dividend policy, and the amounts of such repurchases and dividends. The 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. Important factors that could cause actual results to differ from expectations include, among others: (1) the cost to comply with current and future laws, regulations and customer demands relating to privacy issues; (2) the impact of litigation that may arise in connection with incidents in which we fail to protect our customers' information; (3) changes in the price for our services relative to the cost of providing such services; (4) changes in customer preferences and demand for our services; (5) in the various digital businesses in which we are engaged, the cost of capital and technical requirements, demand for our services or competition for customers; (6) the impact of legal restrictions or limitations under stock repurchase plans on price, volume or timing of stock repurchases; (7) the impact of alternative, more attractive investments on dividends or stock repurchases; (8) our ability or inability to complete acquisitions on satisfactory terms and to integrate acquired companies efficiently; (9) the cost or potential liabilities associated with real estate necessary for our business; (10) the performance of business partners upon whom we depend for technical assistance or management expertise outside the U.S.; (11) changes in the political and economic environments in the countries in which our international subsidiaries operate; (12) claims that our technology violates the intellectual property rights of a third party; and (13) 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. Other risks may adversely impact us, as described more fully under "Item 1A. Risk Factors" in our Annual Report on Form 10-K dated February 26, 2010. 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 document, as well as our other periodic reports filed with the Securities and Exchange Commission (the "SEC").
43
Non-GAAP Measures
Adjusted Operating Income Before Depreciation, Amortization and Goodwill Impairment, or Adjusted OIBDA
Adjusted OIBDA is defined as operating income before depreciation, amortization, goodwill impairment and (gain) loss on disposal/writedown of property, plant and equipment, net. Adjusted OIBDA Margin is calculated by dividing Adjusted OIBDA by total revenues. We use multiples of current or projected Adjusted OIBDA in conjunction with our discounted cash flow models to determine our overall enterprise valuation and to evaluate acquisition targets. We believe Adjusted OIBDA and Adjusted OIBDA Margin provide 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 does not include certain items that we believe are not indicative of our core operating results, specifically: (1) (gains) and losses on disposal/writedown of property, plant and equipment, net; (2) goodwill impairment; (3) other (income) expense, net; (4) cumulative effect of change in accounting principle; and (5) net income (loss) attributable to noncontrolling interests.
Adjusted OIBDA also does not include 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 OIBDA 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 OIBDA and Adjusted OIBDA 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 or net income (loss) or cash flows from operating activities (as determined in accordance with GAAP).
Reconciliation of Adjusted OIBDA to Operating Income (Loss) and Net Income (Loss) (in thousands):
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2010 | 2009 | 2010 | |||||||||||
Adjusted OIBDA |
$ | 224,782 | $ | 253,832 | $ | 638,231 | $ | 706,862 | |||||||
Less: Depreciation and Amortization |
81,428 | 87,287 | 236,388 | 258,389 | |||||||||||
Goodwill Impairment |
| 255,000 | | 255,000 | |||||||||||
Loss (gain) on disposal/writedown of property, plant and equipment, net |
705 | (4,480 | ) | (57 | ) | (5,677 | ) | ||||||||
Operating Income (Loss) |
142,649 | (83,975 | ) | 401,900 | 199,150 | ||||||||||
Less: Interest Expense, Net |
59,469 | 55,657 | 170,165 | 168,464 | |||||||||||
Other (Income) Expense, Net |
1,390 | (9,166 | ) | (9,849 | ) | 3,672 | |||||||||
Provision (Benefit) for Income Taxes |
38,613 | 20,351 | 83,951 | 110,240 | |||||||||||
Net Income (Loss) Attributable to Noncontrolling interests |
(9 | ) | 2,959 | (1,990 | ) | 3,692 | |||||||||
Net Income (Loss) Attributable to Iron Mountain Incorporated |
$ | 43,186 | $ | (153,776 | ) | $ | 159,623 | $ | (86,918 | ) | |||||
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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 on-going 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:
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" and the consolidated financial statements and the notes included in our Annual Report on Form 10-K, as filed with the SEC on February 26, 2010. Management has determined that no material changes concerning our critical accounting policies have occurred since December 31, 2009.
Prior to January 1, 2010, the financial position and results of operations of the operating subsidiaries of Iron Mountain Europe (Group) Limited (collectively referred to as "IME"), our European business, were consolidated based on IME's fiscal year ended October 31. Effective January 1, 2010, we changed the fiscal year-end (and the reporting period for consolidation purposes) of IME to coincide with Iron Mountain Incorporated's ("IMI") fiscal year-end of December 31. We believe that the change in accounting principle related to the elimination of the two-month reporting lag for IME is preferable because it will result in more contemporaneous reporting of events and results related to IME. In accordance with applicable accounting literature, a change in subsidiary year-end is treated as a change in accounting principle and requires retrospective application. The cumulative effect of the change was an increase in retained earnings of $12.2 million as of January 1, 2008. We also recorded a corresponding decrease in other long-term liabilities for the same amount. The impact of the change was not material to the results of operations for the previously reported annual and interim periods after January 1, 2008, and, thus, those results have not been revised. There is, however, a charge of $4.7 million recorded to other (income) expense, net in the nine months ended September 30, 2010 to recognize the immaterial differences arising in 2008 and 2009.
Recent Accounting Pronouncements
Effective at the start of a reporting entity's first fiscal year beginning after November 15, 2009, or January 1, 2010, for a calendar year-end entity, the Financial Accounting Standards Board (the
45
"FASB") Accounting Standards Codification (the "Codification") will require more information about transfers of financial assets, including securitization transactions, and transactions where entities have continuing exposure to the risks related to transferred financial assets. The Codification eliminates the concept of a "qualifying special-purpose entity", changes the requirements for derecognizing financial assets, and requires additional disclosures about an entity's involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects such reporting entity's financial statements. The adoption of these Codification updates did not have a material impact on our consolidated financial statements and results of operations.
In October 2009, the FASB issued amended guidance on multiple-deliverable revenue arrangements and software revenue recognition. The multiple-deliverable revenue arrangements updates to the Codification apply to all deliverables in contractual arrangements in all industries in which a vendor will perform multiple revenue-generating activities. The change to the Codification creates a selling price hierarchy that an entity must use as evidence of fair value in separately accounting for all deliverables on a relative-selling-price basis which qualify for separation. The selling price hierarchy includes: (1) vendor-specific objective evidence; (2) third-party evidence and (3) estimated selling price. Broadly speaking, this update to the Codification will result in the possibility for some entities to recognize revenue earlier and more closely align with the economics of certain revenue arrangements if the other criteria for separation (e.g. standalone value to the customer) are met. The software revenue recognition guidance was issued to address factors that entities should consider when determining whether the software and non-software components of a product function together to deliver the product's essential functionality. The software revenue recognition updates to the Codification will allow revenue arrangements in which software and non-software components deliver together a product's essential functionality to follow the multiple-deliverable revenue recognition criteria as opposed to the criteria applicable to software revenue recognition. Both updates are effective for fiscal years beginning on or after June 15, 2010 and apply prospectively to new or materially modified revenue arrangements after its effective date. Early adoption is permitted; however, we do not anticipate early adopting. We do not expect adoption to have a material impact on our consolidated financial statements and results of operations.
In January 2010, the FASB issued amended guidance improving disclosures about fair value measurements to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. The new guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The change in the Codification requires an entity, in determining the appropriate classes of assets and liabilities, to consider the nature and risks of the assets and liabilities as well as their placement in the fair value hierarchy (Level 1, 2 or 3). The Codification update is effective for the first reporting period, including interim periods, beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010. In the period of initial adoption, entities will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. However, those disclosures are required for periods ending after initial adoption. Early adoption is permitted for the requirement to provide the Level 3 activity of purchases, sales, issuances and settlements on a gross basis; however, we do not anticipate early adopting. We do not expect adoption to have a material impact on our consolidated financial statements and results of operations.
Overview
The following discussions set forth, for the periods indicated, management's discussion and analysis of results. Significant trends and changes are discussed for the three and nine month periods ended
46
September 30, 2010 within each section. Trends and changes that are consistent within the three and nine months periods are not repeated and are discussed on a year-to-date basis.
Our revenues consist of storage revenues as well as service revenues. Storage revenues, both physical and digital, which are considered a key performance indicator for the information management services industry, consist of largely recurring periodic charges related to the storage of materials or data (generally on a per unit basis), which are typically retained by customers for many years. Service revenues are comprised of charges for related core service activities and a wide array of complementary products and services. Included in core service revenues are: (1) the handling of records including the addition of new records, temporary removal of records from storage, refiling of removed records, destruction of records, and permanent withdrawals from storage; (2) courier operations, consisting primarily of the pickup and delivery of records upon customer request; (3) secure shredding of sensitive documents; and (4) other recurring services including maintenance and support contracts. Our complementary services revenues include special project work, data restoration projects, fulfillment services, consulting services and product sales (including software licenses, specially designed storage containers and related supplies). Our secure shredding business generates the sale of recycled paper (included in complementary services revenues), the price of which can fluctuate from period to period, adding to the volatility and reducing the predictability of that revenue stream.
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 U.S. In 2009, we saw decreases in both revenues and expenses as a result of the weakening of the British pound sterling, Canadian dollar and Euro against the U.S. dollar, based on an analysis of weighted average rates for the comparable periods. It is difficult to predict how much foreign currency exchange rates will fluctuate in the future and how those fluctuations will impact our consolidated statement of operations. Due to the expansion of our international operations, these fluctuations have become material on individual balances. However, because both the revenues and expenses are denominated in the local currency of the country in which they are derived or incurred, the impact of currency fluctuations on our operating income and operating margin is 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 disclosure. The constant currency growth rates are calculated by translating the 2009 results at the 2010 average exchange rates.
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The following table is a comparison of underlying average exchange rates of the foreign currencies that had the most significant impact on our U.S. dollar-reported revenues and expenses:
|
Average Exchange Rates for the Three Months Ended September 30, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Percentage (Strengthening) / Weakening of the U.S. dollar |
|||||||||
|
2009(1) | 2010 | ||||||||
British pound sterling |
$ | 1.604 | 1.550 | (3.4 | )% | |||||
Canadian dollar |
$ | 0.910 | 0.962 | 5.7 | % | |||||
Euro |
$ | 1.391 | 1.292 | (7.1 | )% |
|
Average Exchange Rates for the Nine Months Ended September 30, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Percentage (Strengthening) / Weakening of the U.S. dollar |
|||||||||
|
2009(1) | 2010 | ||||||||
British pound sterling |
$ | 1.514 | 1.534 | 1.3 | % | |||||
Canadian dollar |
$ | 0.858 | 0.965 | 12.5 | % | |||||
Euro |
$ | 1.337 | 1.317 | (1.5 | )% |
48
Results of Operations
Comparison of Three and Nine Months Ended September 30, 2010 to Three and Nine Months Ended September 30, 2009 (in thousands):
|
Three Months Ended September 30, |
|
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Dollar Change |
Percentage Change |
||||||||||||
|
2009 | 2010 | ||||||||||||
Revenues |
$ | 764,885 | $ | 782,574 | $ | 17,689 | 2.3 | % | ||||||
Operating Expenses(1) |
622,236 | 866,549 | 244,313 | 39.3 | % | |||||||||
Operating Income (Loss) |
142,649 | (83,975 | ) | (226,624 | ) | (158.9 | )% | |||||||
Other Expenses, Net |
99,472 | 66,842 | (32,630 | ) | (32.8 | )% | ||||||||
Net Income (Loss) |
43,177 | (150,817 | ) | (193,994 | ) | (449.3 | )% | |||||||
Net Income (Loss) Attributable to Noncontrolling Interests |
(9 | ) | 2,959 | 2,968 | N/A | |||||||||
Net Income (Loss) Attributable to Iron Mountain Incorporated |
$ | 43,186 | $ | (153,776 | ) | $ | (196,962 | ) | (456.1 | )% | ||||
Adjusted OIBDA(2) |
$ | 224,782 | $ | 253,832 | $ | 29,050 | 12.9 | % | ||||||
Adjusted OIBDA Margin(2) |
29.4 | % | 32.4 | % |