Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(1)1. General
The interimunaudited condensed consolidated financial statements are presented herein and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair presentation. Interim results are not necessarily indicative of results for a full year. Iron Mountain Incorporated, a Delaware corporation ("IMI"), and its subsidiaries ("we" or "us") provide storage of physical records and data backup media, information management solutions and enterprise-class colocation and wholesale data center space that help organizations in various locations throughout North America, Europe, Latin America, Asia and Africa. We offer comprehensive records and information management services and data management services, along with the expertise and experience to address complex storage and information management challenges such as rising storage rental costs, legal and regulatory compliance and disaster recovery requirements. We provide secure and reliable data center facilities to protect digital information and ensure the continued operation of our customers’ information technology ("IT") infrastructure, with flexible deployment options, including both colocation and wholesale space.
The unaudited condensed consolidated financial statements, have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to those rules and regulations, but we believe that the disclosures included herein are adequate to make the information presented not misleading. The interim condensed consolidated financial statements are presented herein and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair presentation. Interim results are not necessarily indicative of results for a full year.
The Condensed Consolidated Financial Statements and Notes thereto, which are included herein, should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended December 31, 20182019 included in our Annual Report on Form 10-K filed with the SEC on February 14, 201913, 2020 (our "Annual Report").
We have been organized and have operated as a real estate investment trust for United States federal income tax purposes ("REIT") beginning with our taxable year ended December 31, 2014.
OnIn January 10, 2018,2020, the World Health Organization declared a novel strain of coronavirus ("COVID-19") a pandemic. This resulted in U.S. federal, state and local and foreign governments and private entities mandating various restrictions, including travel restrictions, restrictions on public gatherings and stay-at-home orders and advisories. In response, we completedtemporarily closed certain of our offices and facilities across the acquisitionworld and implemented certain travel restrictions for our employees. The preventative and protective actions that governments have ordered, or we have implemented as an organization, have resulted in a period of IO Data Centers, LLC ("IODC"reduced service operations and business disruption for us, our customers and other third parties with which we do business. Currently, certain of the restrictions have been lifted; however, other restrictions still remain and the broader impacts of the COVID-19 pandemic on our financial position, results of operations and cash flows, including impacts to estimates used throughout this Quarterly Report on Form 10-Q (this “Quarterly Report”) (the "IODC Transaction"). See Note 4.
, remain uncertain and difficult to predict as information continues to rapidly evolve, and the severity and duration of the pandemic remains unknown, as is our visibility of its effect on the markets we serve and our customers within those markets.
On January 1, 2019, we adopted Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842), as amended ("ASU 2016-02"). See Note 2.d.
(2)2. Summary of Significant Accounting Policies
This Note 2 to Notes to Condensed Consolidated Financial Statements provides information and disclosure regarding certain of our significant accounting policies and should be read in conjunction with Note 2 to Notes to Consolidated Financial Statements included in our Annual Report, which may provide additional information with regard to the accounting policies set forth herein and other of our significant accounting policies.
a. Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash on hand and cash invested in highly liquid short-term securities, which have remaining maturities at the date of purchase of less than 90 days. Cash andRestricted cash equivalents are carriedwas less than $5,000 at cost, which approximates fair value.
Atboth September 30, 20192020 and December 31, 2018, we had $8,057 and $15,141, respectively, of restricted cash held by certain financial institutions related to bank guarantees.2019.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2)2. Summary of Significant Accounting Policies (Continued)
b. Goodwill and Other Intangible Assets and Liabilities
Goodwill
Since December 31, 2018, there have been no changes to our accounting polices related to the accounting for goodwill. As of September 30, 2019 and December 31, 2018, no factors were identified that would alter our October 1, 2018 goodwill impairment analysis.
Our reporting units as of December 31, 20182019 are described in detail in Note 2.h. to Notes to Consolidated Financial Statements included in our Annual Report. On March 19, 2019, we divested the business included in our former Consumer Storage reporting unit, which had no goodwill associated with it at December 31, 2018 or at the date of the divestment. See Note 10 for additional information.
The goodwill associated with acquisitions completed during the first nine months of 2019 (which are described2020 (described in Note 4) has been incorporated into our reporting units as they existed as of December 31, 2018.2019.
During the first quarter of 2020, we concluded that we had a triggering event related to our Fine Arts reporting unit, requiring us to perform an interim goodwill impairment test. The primary factor contributing to our conclusion was the expected impact of the COVID-19 pandemic to this particular business and its customers and revenue sources, which caused us to believe it was more likely than not that the carrying value of our Fine Arts reporting unit exceeded its fair value. During the first quarter of 2020, we performed an interim goodwill impairment test for our Fine Arts reporting unit utilizing a discounted cash flow model, with updated assumptions on future revenues, operating expenditures and capital expenditures. We concluded that the fair value of our Fine Arts reporting unit was less than its carrying value, and, therefore, we recorded a $23,000 impairment charge on the goodwill associated with this reporting unit during the first quarter of 2020. Factors that may impact these assumptions include, but are not limited to: (i) our ability to maintain, or grow, storage rental and service revenues in line with current expectations and (ii) our ability to manage our fixed and variable costs in line with potential future revenue declines.
During the second and third quarters of 2020, for each of our reporting units, no factors were identified that would alter our interim goodwill impairment analysis performed during the first quarter of 2020, or change the conclusions reached at that time. Any material adverse changes to our businesses that negatively impact their fair values could result in future goodwill impairments.
The changes in the carrying value of goodwill attributable to each reportable operating segment for the nine months ended September 30, 20192020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Global RIM Business | | Global Data Center Business | | Corporate and Other Business | | Total Consolidated |
Goodwill balance, net of accumulated amortization as of December 31, 2019 | $ | 3,942,901 | | | $ | 424,568 | | | $ | 117,740 | | | $ | 4,485,209 | |
| | | | | | | |
Non-deductible goodwill acquired during the period | 51,319 | | | 0 | | | 0 | | | 51,319 | |
Goodwill impairment | 0 | | | 0 | | | (23,000) | | | (23,000) | |
Fair value and other adjustments | (4,131) | | | 0 | | | 403 | | | (3,728) | |
Currency effects | (54,428) | | | 6,026 | | | 131 | | | (48,271) | |
Goodwill balance, net accumulated amortization as of September 30, 2020 | $ | 3,935,661 | | | $ | 430,594 | | | $ | 95,274 | | | $ | 4,461,529 | |
| | | | | | | |
Accumulated goodwill impairment balance as of September 30, 2020 | $ | 132,409 | | | $ | 0 | | | $ | 26,011 | | | $ | 158,420 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North American Records and Information Management Business | | North American Data Management Business | | Western European Business | | Other International Business | | Global Data Center Business | | Corporate and Other Business | | Total Consolidated |
Goodwill balance, net of accumulated amortization as of December 31, 2018 | $ | 2,251,795 |
| | $ | 493,491 |
| | $ | 381,806 |
| | $ | 818,223 |
| | $ | 425,956 |
| | $ | 69,759 |
| | $ | 4,441,030 |
|
Deductible goodwill acquired during the year | 5,109 |
| | — |
| | 675 |
| | 10,333 |
| | — |
| | — |
| | 16,117 |
|
Non-deductible goodwill acquired during the year | — |
| | — |
| | 5,011 |
| | 4,638 |
| | — |
| | 1,904 |
| | 11,553 |
|
Fair value and other adjustments(1) | 55 |
| | — |
| | (1,012 | ) | | 1,321 |
| | 258 |
| | (417 | ) | | 205 |
|
Currency effects | 5,501 |
| | 1,495 |
| | (15,717 | ) | | (32,461 | ) | | (5,182 | ) | | (546 | ) | | (46,910 | ) |
Goodwill balance, net accumulated amortization as of September 30, 2019 | $ | 2,262,460 |
| | $ | 494,986 |
| | $ | 370,763 |
| | $ | 802,054 |
| | $ | 421,032 |
| | $ | 70,700 |
| | $ | 4,421,995 |
|
Accumulated Goodwill Impairment Balance as of December 31, 2018 | $ | 85,909 |
| | $ | — |
| | $ | 46,500 |
| | $ | — |
| | $ | — |
| | $ | 3,011 |
| | $ | 135,420 |
|
Accumulated Goodwill Impairment Balance as of September 30, 2019 | $ | 85,909 |
| | $ | — |
| | $ | 46,500 |
| | $ | — |
| | $ | — |
| | $ | 3,011 |
| | $ | 135,420 |
|
| |
(1) | Total fair value and other adjustments primarily include $867 in net adjustments related to property, plant and equipment, customer relationships and data center lease-based intangible assets and deferred income taxes and other liabilities offset by $662 of net cash received related to certain acquisitions completed in 2018. |
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2)2. Summary of Significant Accounting Policies (Continued)
c. Revenues
Finite-lived Intangible Assets and Liabilities
Finite-lived intangible assets and liabilities are primarily comprisedContract fulfillment costs consist of the costs of the initial intake of customer relationship intangible assets, customer inducementsrecords into physical storage and data center intangible assets and liabilities (which include data center in-place lease intangible assets, data center tenant relationship intangible assets, data center above-market in-place lease intangible assets and data center below-market in-place lease intangible assets). Since December 31, 2018, there have been no changes to our accounting policies related to the accounting for any of our finite-lived intangible assets and liabilities as disclosed in Note 2.i. to Notes to Consolidated Financial Statements included in our Annual Report.
The gross carrying amount and accumulated amortization of our finite-lived intangible assetscapitalized commissions asset (collectively, "Contract Fulfillment Costs"), which as of September 30, 20192020 and December 31, 20182019, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Contract Fulfillment Costs | | $ | 123,795 | | | $ | (57,538) | | | $ | 66,257 | | | $ | 109,232 | | | $ | (50,757) | | | $ | 58,475 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Assets: | | | | | | | | | | | |
Customer relationship intangible assets | $ | 1,747,535 |
| | $ | (529,164 | ) | | $ | 1,218,371 |
| | $ | 1,718,919 |
| | $ | (455,705 | ) | | $ | 1,263,214 |
|
Customer inducements | 53,097 |
| | (30,298 | ) | | 22,799 |
| | 56,478 |
| | (34,181 | ) | | 22,297 |
|
Data center lease-based intangible assets(1) | 264,382 |
| | (90,265 | ) | | 174,117 |
| | 271,818 |
| | (50,807 | ) | | 221,011 |
|
Third-party commissions asset(2) | 31,708 |
| | (3,001 | ) | | 28,707 |
| | 30,071 |
| | (1,089 | ) | | 28,982 |
|
| $ | 2,096,722 |
| | $ | (652,728 | ) | | $ | 1,443,994 |
| | $ | 2,077,286 |
| | $ | (541,782 | ) | | $ | 1,535,504 |
|
Liabilities: | | | | | | | | | | | |
Data center below-market leases | $ | 12,720 |
| | $ | (3,424 | ) | | $ | 9,296 |
| | $ | 12,318 |
| | $ | (1,642 | ) | | $ | 10,676 |
|
Deferred revenue liabilities are reflected in our Condensed Consolidated Balance Sheets as follows:
| | | | | | | | | | | | | | |
Description | | September 30, 2020 | | December 31, 2019 |
Deferred revenue - Current | | $ | 244,430 | | | $ | 274,036 | |
Deferred revenue - Long-term | | 35,187 | | | 36,029 | |
Data Center Lessor Considerations
Our Global Data Center Business features storage rental provided to customers at contractually specified rates over a fixed contractual period, which are accounted for in accordance with ASU 2016-02. Storage rental revenue, including revenue associated with power and connectivity, associated with our Global Data Center Business for the three and nine months ended September 30, 2020 and 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Storage rental revenue(1) | $ | 68,416 | | | $ | 62,001 | | | $ | 196,823 | | | $ | 182,301 | |
| |
(1) | Includes data center in-place lease intangible assets, data center tenant relationship intangible assets and data center above-market in-place lease intangible assets. |
| |
(2) | Third-party commissions asset is included in Other, a component of Other assets, net in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018. The third-party commissions asset is primarily comprised of additional payments associated with the execution of future customer contracts through the one-year anniversary of the acquisition of IODC, as described in Note 4. |
Other finite-lived intangible assets, including trade names, noncompetition agreements(1)Revenue associated with power and trademarks, are capitalizedconnectivity included within storage rental revenue was $12,033 and amortized$34,986 for the three and are included in depreciationnine months ended September 30, 2020, respectively, and amortization in the accompanying Condensed Consolidated Statements of Operations$12,001 and $31,031 for the three and nine months ended September 30, 2019, and 2018. The other finite-lived intangible assets as of September 30, 2019 and December 31, 2018 are as follows:respectively.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Other finite-lived intangible assets (included in Other, a component of Other assets, net) | $ | 19,842 |
| | $ | (17,385 | ) | | $ | 2,457 |
| | $ | 20,310 |
| | $ | (14,798 | ) | | $ | 5,512 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2)2. Summary of Significant Accounting Policies (Continued)
d. Accounts Receivable
Amortization expense associated with finite-lived intangible
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-13, Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 changes how entities will measure credit losses on most financialassets. The standard eliminates the probable initial recognition of estimated losses and provides a forward-lookingexpected credit loss model for accounts receivable, loans and other financial instruments.
On January 1, 2020 we adopted ASU 2016-13 on a modified retrospective basis for all financial assets revenue reductionmeasured at amortized cost. The adoption of ASU 2016-13 did not result in a material impact on our consolidated financial statements. We now calculate and monitor our allowance considering future potential economic and macroeconomic conditions and reasonable and supportable forecasts for expected future collectability of our outstanding receivables, in addition to considering our past loss experience, current and prior trends in our aged receivables and credit memo activity. Our considerations when calculating our allowance include, but are not limited to, the following: the location of our businesses, the composition of our customer base, our product and service lines, potential future economic unrest, and potential future macroeconomic factors, including natural disasters and any impacts associated with the amortizationCOVID-19 pandemic. Continued adjustments will be made should there be any material change to reasonable and supportable forecasts that may impact our likelihood of collection, as it becomes evident. Our highly diverse global customer inducements and netbase, with no single customer accounting for more than 1% of revenue reduction associated withduring the amortization of data center above-market leases and data center below-market leases for the three and nine months ended September 30, 2019 and 2018 are as follows:2020, limits our exposure to concentration of credit risk.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Amortization expense included in depreciation and amortization associated with: | | | | | | | | |
Customer relationship and customer inducement intangible assets | | $ | 29,064 |
| | $ | 26,782 |
| | $ | 85,228 |
| | $ | 84,401 |
|
Data center in-place leases and tenant relationships | | 11,356 |
| | 12,036 |
| | 35,337 |
| | 30,437 |
|
Third-party commissions asset and other finite-lived intangible assets | | 2,515 |
| | 642 |
| | 5,456 |
| | 3,486 |
|
Revenue reduction associated with amortization of: | | | | | | | | |
Customer inducements | | $ | 2,303 |
| | $ | 3,229 |
| | $ | 7,641 |
| | $ | 8,782 |
|
Data center above-market leases and data center below-market leases | | 936 |
| | 1,276 |
| | 2,776 |
| | 3,648 |
|
c. Revenues
Since December 31, 2018, there have been no changes to our accounting policies related to the accountingThe rollforward of allowance for revenues as disclosed in Note 2.l. to Notes to Consolidated Financial Statements included in our Annual Report.
The costs of the initial intake of customer records into physical storage ("Intake Costs")doubtful accounts and capitalized commissions asset (collectively, "Contract Fulfillment Costs") as of September 30, 2019 and December 31, 2018 are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2019 | | December 31, 2018 |
Description | | Location in Balance Sheet | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Intake Costs asset | | Other (within Other Assets, Net) | | $ | 37,938 |
| | $ | (20,974 | ) | | $ | 16,964 |
| | $ | 39,748 |
| | $ | (24,504 | ) | | $ | 15,244 |
|
Capitalized commissions asset | | Other (within Other Assets, Net) | | 56,585 |
| | (21,933 | ) | | 34,652 |
| | 58,424 |
| | (34,637 | ) | | 23,787 |
|
Amortization expense associated with the Intake Costs asset and capitalized commissions assetcredit memo reserves for the three and nine months ended September 30, 2019 and 2018 are2020 is as follows:
| | | | | | | | | | |
| | | | |
Balance at December 31, 2019 | | | | $ | 42,856 | |
Credit memos charged to revenue | | | | 42,713 | |
Allowance for bad debts charged to expense | | | | 25,715 | |
Deductions and other(1) | | | | (57,496) | |
Balance at September 30, 2020 | | | | $ | 53,788 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Intake Costs asset | $ | 2,250 |
| | $ | 2,294 |
| | $ | 7,764 |
| | $ | 7,915 |
|
Capitalized commissions asset | 4,224 |
| | 3,053 |
| | 14,105 |
| | 10,433 |
|
(1)Primarily consists of the issuance of credit memos, the write-off of accounts receivable and the impact associated with currency translation adjustments.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2)2. Summary of Significant Accounting Policies (Continued)
e. Leases
Deferred revenue liabilities are reflected as follows in our Condensed Consolidated Balance Sheets:
|
| | | | | | | | | | |
Description | | Location in Balance Sheet | | September 30, 2019 | | December 31, 2018 |
Deferred revenue - Current | | Deferred revenue | | $ | 257,328 |
| | $ | 264,823 |
|
Deferred revenue - Long-term | | Other Long-term Liabilities | | 26,572 |
| | 26,401 |
|
Data Center Lessor Considerations
Our data center business features storage rental provided to customers at contractually specified rates over a fixed contractual period. Prior to January 1, 2019, our data center revenue contracts were accounted for in accordance with Accounting Standards Codification (“ASC”) No. 840, Leases ("ASC 840"). On January 1, 2019, we adopted ASU 2016-02, as described in more detail in Note 2.d. Beginning on January 1, 2019, our data center revenue contracts are accounted for in accordance with ASU 2016-02. ASU 2016-02 provides a practical expedient which allows lessors to account for nonlease components (such as power and connectivity, in the case of our data center business) with the related lease component if both the timing and pattern of transfer are the same for nonlease components and the lease component, and the lease component would be classified as an operating lease. The single combined component is accounted for under ASU 2016-02 if the lease component is the predominant component and is accounted for under ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), if the nonlease components are the predominant components. We have elected to take this practical expedient. Storage rental revenue associated with our data center business was approximately $62,000 and $182,300 for the three and nine months ended September 30, 2019, respectively, which includes approximately $12,000 and $31,000 of revenue associated with power and connectivity for the three and nine months ended September 30, 2019, respectively. The revenue related to the service component of our data center business remains unchanged from the adoption of ASU 2016-02 and is recognized in the period the related services are provided. Our accounting treatment for data center revenue was not significantly impacted by the adoption of ASU 2016-02.
The future minimum lease payments we expect to receive under non-cancellable data center operating leases, for which we are the lessor, excluding month to month leases, for the next five years are as follows:
|
| | | | |
Year | | Future minimum lease payments |
2019 (excluding the nine months ended September 30, 2019) | | $ | 58,381 |
|
2020 | | 177,528 |
|
2021 | | 118,980 |
|
2022 | | 83,677 |
|
2023 | | 67,569 |
|
d. Leases
We lease facilities for certain of our warehouses, data centers and office space. We also have land leases, including those on which certain of our facilities are located. Operating and financing lease right-of-use assets and lease liabilities as of September 30, 2020 and December 31, 2019 are as follows:
| | | | | | | | | | | | | | |
Description | | September 30, 2020 | | December 31, 2019 |
Assets: | | | | |
Operating lease right-of-use assets | | $ | 1,963,019 | | | $ | 1,869,101 | |
Financing lease right-of-use assets, net of accumulated depreciation(1) | | 306,640 | | | 327,215 | |
Liabilities: | | | | |
Current | | | | |
Operating lease liabilities | | $ | 236,019 | | | $ | 223,249 | |
Financing lease liabilities(1) | | 42,620 | | | 46,582 | |
Long-term | | | | |
Operating lease liabilities | | 1,818,844 | | | 1,728,686 | |
Financing lease liabilities(1) | | 311,387 | | | 320,600 | |
(1)Financing lease right-of-use assets, current financing lease liabilities and long-term financing lease liabilities are included within Property, Plant and Equipment, Net, Current portion of long-term debt and Long-term Debt, net of current portion, respectively, within our Condensed Consolidated Balance Sheets.
The majority of our leased facilities are classified as operating leases that, on average, have initial lease terms of five to 10 years, with one or more lease renewal options to extend the lease term. Our lease renewal option terms generally range from one to five years. The exercisecomponents of the lease renewal optionexpense for the three and nine months ended September 30, 2020 and 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Description | | 2020 | | 2019 | | 2020 | | 2019 |
Operating lease cost(1) | | $ | 122,737 | | | $ | 114,727 | | | $ | 365,303 | | | $ | 343,282 | |
Financing lease cost: | | | | | | | | |
Depreciation of financing lease right-of-use assets | | $ | 12,973 | | | $ | 14,679 | | | $ | 38,495 | | | $ | 45,950 | |
Interest expense for financing lease liabilities | | 4,891 | | | 4,905 | | | 14,664 | | | 15,972 | |
(1) Operating lease cost, the majority of which is at our sole discretion and may contain fixed rent, fair market value based rent or Consumer Price Index rent escalation clauses. We include option periods in the lease term when our failure to renew the lease would result in an economic disincentive, thereby making it reasonably certain that we will renew the lease. We recognize straight line rental expense over the lifeCost of the lease and any fair market value or Consumer Price Index rent escalations are recognized assales, includes variable lease expense incosts of $27,486 and $82,287 for the period in whichthree and nine months ended September 30, 2020, respectively, and $26,121 and $78,712 for the obligationthree and nine months ended September 30, 2019, respectively.
Other information: Supplemental cash flow information relating to our leases for the nine months ended September 30, 2020 and 2019 is incurred. In addition, we lease certain vehicles and equipment. Vehicle and equipment leases have lease terms ranging from one to seven years.as follows:
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
Cash paid for amounts included in measurement of lease liabilities: | | 2020 | | 2019 |
Operating cash flows used in operating leases | | $ | 266,619 | | | $ | 252,277 | |
| | | | |
Operating cash flows used in financing leases (interest) | | 14,664 | | | 15,972 | |
Financing cash flows used in financing leases | | 36,008 | | | 44,808 | |
| | | | |
Operating Lease Non-cash items: | | | | |
Operating lease modifications and reassessments | | $ | 89,727 | | | $ | 42,418 | |
New operating leases (including acquisitions) | | 173,635 | | | 117,193 | |
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2)2. Summary of Significant Accounting Policies (Continued)
f. Stock-Based Compensation
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases, both operating and financing (formerly referred to as capital leases under ASC 840). ASU 2016-02 requires certain qualitative and quantitative disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases.
We adopted ASU 2016-02 on January 1, 2019 on a modified retrospective basis under which we recognized and measured leases existing at, or entered into after, the beginning of the period of adoption. Therefore, we applied ASC 840 to all earlier comparative periods (prior to the adoption of ASU 2016-02), including disclosures, and recognized the effects of applying ASU 2016-02 as a cumulative-effect adjustment to (Distributions in excess of earnings) Earnings in excess of distributions as of January 1, 2019, the effective date of the standard. As such, the comparative Condensed Consolidated Balance Sheet as of December 31, 2018 has not been restated to reflect the adoption of ASU 2016-02. Accordingly, the majority of the amount presented as deferred rent liabilities on our Consolidated Balance Sheet as of December 31, 2018 is now included in the calculation of operating lease right-of-use assets and any remaining amounts are now classified within other liability line items on our Condensed Consolidated Balance Sheet as of September 30, 2019. The transition guidance associated with ASU 2016-02 also permitted certain practical expedients. We elected the "package of 3" practical expedients permitted under the transition guidance which, among other things, allowed us to carryforward our historical lease classifications. We also adopted an accounting policy which provides that leases with an initial term of 12 months or less will not be included within the lease right-of-use assets and lease liabilities recognized on our Condensed Consolidated Balance Sheets after the adoption of ASU 2016-02. We will continue to recognize the lease payments for those leases with an initial term of 12 months or less in the Condensed Consolidated Statements of Operations on a straight-line basis over the lease term.
The lease right-of-use assets and related lease liabilities are classified as either operating or financing. Lease right-of-use assets are calculated as the net present value of future payments plus any capitalized initial direct costs less any tenant improvements or lease incentives. Lease liabilities are calculated as the net present value of future payments. In calculating the present value of the lease payments, we will utilize the rate stated within the lease (in the limited circumstances when such rate is available) or, if no rate is explicitly stated, we have elected to utilize a rate that reflects our securitized incremental borrowing rate by geography for the lease term. In July 2018, the FASB issued ASU No. 2018-11, Leases - Targeted Improvements ("ASU 2018-11"). ASU 2018-11 provides a practical expedient which allows lessees to account for nonlease components (which include common area maintenance, taxes, and insurance) with the related lease component. Any variable nonlease components are not included within the lease right-of-use asset and lease liability on the Condensed Consolidated Balance Sheets, and instead, are reflected as an expense in the period incurred. We have elected to take this practical expedient upon adoption of ASU 2016-02.
At January 1, 2019, we recognized the cumulative effect of initially applying ASU 2016-02 as an adjustment to the opening balance of (Distributions in excess of earnings) Earnings in excess of distributions, resulting in an increase of approximately $5,800 to stockholders' equity due to certain build to suit leases that were accounted for as financing leases under ASC 840, Leases,but are accounted for as operating leases under ASU 2016-02 at January 1, 2019.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
Operating and financing lease right-of-use assets and lease liabilities as of September 30, 2019 and January 1, 2019 (date of adoption of ASU 2016-02) are as follows:
|
| | | | | | | | | | |
Description | | Location in Balance Sheet | | September 30, 2019 | | January 1, 2019 (Date of Adoption of ASU 2016-02) |
Assets: | | | | | | |
Operating lease right-of-use assets(1) | | Operating lease right-of-use assets | | $ | 1,765,496 |
| | $ | 1,825,721 |
|
Financing lease right-of-use assets, net of accumulated depreciation(2) | | Property, Plant and Equipment, Net | | 327,264 |
| | 361,078 |
|
Total | | | | $ | 2,092,760 |
| | $ | 2,186,799 |
|
Liabilities: | | | | | | |
Current | | | | | | |
Operating lease liabilities | | Accrued expenses and other current liabilities | | $ | 216,176 |
| | $ | 209,911 |
|
Financing lease liabilities | | Current portion of long-term debt | | 47,112 |
| | 50,437 |
|
Total current lease liabilities | | | | 263,288 |
| | 260,348 |
|
Long-term | | | | | | |
Operating lease liabilities | | Long-term Operating Lease Liabilities, net of current portion | | 1,626,907 |
| | 1,685,771 |
|
Financing lease liabilities | | Long-term Debt, net of current portion | | 318,986 |
| | 350,263 |
|
Total long-term lease liabilities | | | | 1,945,893 |
| | 2,036,034 |
|
Total | | | | $ | 2,209,181 |
| | $ | 2,296,382 |
|
(1) At September 30, 2019, these assets are comprised of approximately 98% real estate related assets (which include land, buildings and racking) and 2% non-real estate related assets (which include warehouse equipment, vehicles, furniture and fixtures and computer hardware and software).
(2) At September 30, 2019, these assets are comprised of approximately 64% real estate related assets and 36% non-real estate related assets.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
The components of the lease expense for the three and nine months ended September 30, 2019 are as follows:
|
| | | | | | | | | | |
Description | | Location in Statement of Operations | | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
Operating lease cost(1) | | Cost of sales and Selling, general and administrative | | $ | 114,727 |
| | $ | 343,282 |
|
Financing lease cost: | | | | | | |
Depreciation of financing lease right-of-use assets | | Depreciation and amortization | | $ | 14,679 |
| | $ | 45,950 |
|
Interest expense for financing lease liabilities | | Interest Expense, Net | | 4,905 |
| | 15,972 |
|
Total financing lease cost | | | | $ | 19,584 |
| | $ | 61,922 |
|
(1) Of the $114,727 incurred for the three months ended September 30, 2019, $111,423 is included within Cost of sales and $3,304 is included within Selling, general and administrative expenses. Of the $343,282 incurred for the nine months ended September 30, 2019, $333,742 is included within Cost of sales and $9,540 is included within Selling, general and administrative expenses. Operating lease cost includes variable lease costs of $26,121 and $78,712 for the three and nine months ended September 30, 2019, respectively.
We sublease certain real estate to third parties. We recognized sublease income of $1,667 and $5,221 for the three and nine months ended September 30, 2019, respectively.
Weighted average remaining lease terms and discount rates as of September 30, 2019 are as follows:
|
| | | |
| | Remaining Lease Term |
Operating leases | | 11.0 Years |
|
Financing leases | | 11.0 Years |
|
| | Discount Rate |
Operating leases | | 7.1 | % |
Financing leases | | 5.6 | % |
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
The estimated minimum future lease payments as of September 30, 2019, are as follows:
|
| | | | | | | | | | | | |
Year | | Operating Leases(1) | | Sublease Income | | Financing Leases(1) |
2019 (excluding the nine months ended September 30, 2019) | | $ | 87,009 |
| | $ | (1,646 | ) | | $ | 32,386 |
|
2020 | | 323,448 |
| | (7,520 | ) | | 57,887 |
|
2021 | | 298,656 |
| | (5,185 | ) | | 52,685 |
|
2022 | | 274,021 |
| | (4,905 | ) | | 46,358 |
|
2023 | | 248,066 |
| | (4,795 | ) | | 38,695 |
|
Thereafter | | 1,505,195 |
| | (10,673 | ) | | 292,903 |
|
Total minimum lease payments | | 2,736,395 |
| | $ | (34,724 | ) | | 520,914 |
|
Less amounts representing interest or imputed interest | | (893,312 | ) | | |
| | (154,816 | ) |
Present value of lease obligations | | $ | 1,843,083 |
| | |
| | $ | 366,098 |
|
The estimated minimum future lease payments as of December 31, 2018 are as follows:
|
| | | | | | | | | | | | |
Year | | Operating Leases(1) | | Sublease Income | | Financing Leases(1)(2) |
2019 | | $ | 323,454 |
| | $ | (7,525 | ) | | $ | 80,513 |
|
2020 | | 293,276 |
| | (7,200 | ) | | 71,335 |
|
2021 | | 267,379 |
| | (7,063 | ) | | 61,269 |
|
2022 | | 246,128 |
| | (6,694 | ) | | 52,832 |
|
2023 | | 221,808 |
| | (6,409 | ) | | 44,722 |
|
Thereafter | | 1,287,807 |
| | (6,279 | ) | | 377,750 |
|
Total minimum lease payments | | $ | 2,639,852 |
| | $ | (41,170 | ) | | 688,421 |
|
Less amounts representing interest | | | | |
| | (241,248 | ) |
Present value of lease obligations | | | | |
| | $ | 447,173 |
|
| |
(1) | Estimated minimum future lease payments exclude variable common area maintenance charges, insurance and taxes. Differences in estimated lease payments between September 30, 2019 and December 31, 2018 are primarily related to adjustments to account for certain build to suit leases that were accounted for as financing obligations under ASC 840 but are accounted for as operating leases under ASU 2016-02 and foreign currency exchange rate impacts. |
| |
(2) | Includes capital lease and financing obligations associated with build to suit lease transactions at December 31, 2018. |
As of September 30, 2019, we do not have any material operating or financing leases that are signed but have not yet commenced and we have certain leases with related parties which are not material to our consolidated financial statements.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
Other information: Supplemental cash flow information relating to our leases for the nine months ended September 30, 2019 is as follows:
|
| | | | |
Cash paid for amounts included in measurement of lease liabilities: | | Nine Months Ended September 30, 2019 |
Operating cash flows used in operating leases | | $ | 252,277 |
|
Operating cash flows used in financing leases (interest) | | 15,972 |
|
Financing cash flows used in financing leases | | 44,808 |
|
Non-cash items: | | |
Operating lease modifications and reassessments | | $ | 42,418 |
|
New operating leases (including acquisitions) | | 117,193 |
|
New financing leases, modifications and reassessments | | 20,699 |
|
e. Stock-Based Compensation
We record stock-basedStock-based compensation expense utilizing the straight-line method, for the cost of stock options, restricted stock units ("RSUs"), performance units ("PUs") and shares of stock issued under our employee stock purchase plan (together,(collectively, "Employee Stock-Based Awards"). There have been no significant changes to our accounting policies, assumptions and valuation methodologies related to the accounting for our Employee Stock-Based Awards as disclosed in Note 2.n. to Notes to Consolidated Financial Statements included in our Annual Report.
For our Employee Stock-Based Awards made on or after February 20, 2019, we have included the following retirement provision: Upon an employee’s retirement on or after attaining age 58, if the sum of (i) the award recipient’s age at retirement and (ii) the award recipient’s years of service with the company totals at least 70, the award recipient is entitled to continued vesting of any outstanding Employee Stock-Based Awards which include the 2019 Retirement Criteria subsequent to their retirement, provided that, for awards granted in the year of retirement, their retirement occurs on or after July 1st (the “2019 Retirement Criteria”). Accordingly, (i) grants of Employee Stock-Based Awards to an employee who has met the 2019 Retirement Criteria on or before the date of grant, or will meet the Retirement Criteria before July 1st of the year of the grant, will be expensed between the date of grant and July 1st of the grant year and (ii) grants of Employee Stock-Based Awards to employees who will meet the 2019 Retirement Criteria during the award’s normal vesting period will be expensed between the date of grant and the date upon which the award recipient meets the 2019 Retirement Criteria. Stock options and RSUs granted to recipients who meet the 2019 Retirement Criteria will continue vesting on the original vesting schedule, and the stock options will remain exercisable up to three years after retirement, or the original expiration date of the stock options, if earlier. PUs granted to recipients who meet the 2019 Retirement Criteria will continue to vest and be delivered in accordance with the original vesting schedule of the applicable PU award and remain subject to the same performance conditions.
Stock-based compensation expense for Employee Stock-Based Awards for the three and nine months ended September 30, 2020 and 2019 was $7,120 ($6,632 after tax or $0.02 per basic and diluted share) and $28,140 ($26,216 after tax or $0.09 per basic and diluted share), respectively, and for the three and nine months ended September 30, 2018 was $7,279 ($6,734 after tax or $0.02 per basic and diluted share) and $23,352 ($21,599 after tax or $0.08 per basic and diluted share), respectively. The substantial majority of the stock-based compensation expense for Employee Stock-Based Awards is included in Selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Stock-based compensation expense | $ | 8,946 | | | $ | 7,120 | | | $ | 35,618 | | | $ | 28,140 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
As of September 30, 2019,2020, unrecognized compensation cost related to the unvested portion of our Employee Stock-Based Awards was $50,152$49,492.
Restricted Stock Units and Performance Units
The fair value of RSUs and earned PUs that vested during the three and nine months ended September 30, 2020 and 2019 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Fair value of RSUs vested | $ | 2,766 | | | $ | 3,092 | | | $ | 24,411 | | | $ | 20,802 | |
Fair value of earned PUs that vested | 1,370 | | | 1,176 | | | 12,421 | | | 7,679 | |
As of September 30, 2020, we expected to be recognized over a weighted-average period100% achievement of 1.9 years.each of the predefined revenue, return on invested capital and Adjusted EBITDA (as defined in Note 6) targets associated with the awards of PUs made in 2020, 2019 and 2018.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2)2. Summary of Significant Accounting Policies (Continued)
g. Income (Loss) Per Share—Basic and Diluted
Stock Options
A summary of stock option activity for the nine months ended September 30, 2019 is as follows:
|
| | |
| Stock Options |
Outstanding at December 31, 2018 | 4,271,834 |
|
Granted | 920,706 |
|
Exercised | (236,704 | ) |
Forfeited | (13,542 | ) |
Expired | (16,715 | ) |
Outstanding at September 30, 2019 | 4,925,579 |
|
Options exercisable at September 30, 2019 | 3,128,621 |
|
Options expected to vest | 1,716,446 |
|
Restricted Stock Units
The fair valuecalculation of RSUs vested duringbasic and diluted income (loss) per share for the three and nine months ended September 30, 2020 and 2019 and 2018 isare as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Income (loss) from continuing operations | $ | 38,562 | | | $ | 108,284 | | | $ | 96,341 | | | $ | 231,107 | |
Less: Net income (loss) attributable to noncontrolling interests | 168 | | | 609 | | | 1,058 | | | 1,534 | |
Income (loss) from continuing operations (utilized in numerator of Earnings Per Share calculation) | 38,394 | | | 107,675 | | | 95,283 | | | 229,573 | |
Income (loss) from discontinued operations, net of tax | 0 | | | 0 | | | 0 | | | 104 | |
Net income (loss) attributable to Iron Mountain Incorporated | $ | 38,394 | | | $ | 107,675 | | | $ | 95,283 | | | $ | 229,677 | |
| | | | | | | |
Weighted-average shares—basic | 288,403,000 | | | 287,152,000 | | | 288,105,000 | | | 286,869,000 | |
Effect of dilutive potential stock options | 14,758 | | | 93,752 | | | 28,723 | | | 157,928 | |
Effect of dilutive potential RSUs and PUs | 392,943 | | | 445,081 | | | 337,588 | | | 528,387 | |
Weighted-average shares—diluted | 288,810,701 | | | 287,690,833 | | | 288,471,311 | | | 287,555,315 | |
| | | | | | | |
Earnings (losses) per share—basic: | | | | | | | |
Income (loss) from continuing operations | $ | 0.13 | | | $ | 0.37 | | | $ | 0.33 | | | $ | 0.80 | |
Income (loss) from discontinued operations, net of tax | 0 | | | 0 | | | 0 | | | 0 | |
Net income (loss) attributable to Iron Mountain Incorporated | $ | 0.13 | | | $ | 0.37 | | | $ | 0.33 | | | $ | 0.80 | |
| | | | | | | |
Earnings (losses) per share—diluted: | | | | | | | |
Income (loss) from continuing operations | $ | 0.13 | | | $ | 0.37 | | | $ | 0.33 | | | $ | 0.80 | |
Income (loss) from discontinued operations, net of tax | 0 | | | 0 | | | 0 | | | 0 | |
Net income (loss) attributable to Iron Mountain Incorporated | $ | 0.13 | | | $ | 0.37 | | | $ | 0.33 | | | $ | 0.80 | |
| | | | | | | |
Antidilutive stock options, RSUs and PUs, excluded from the calculation | 5,529,126 | | | 4,782,661 | | | 5,959,693 | | | 4,590,645 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Fair value of RSUs vested | $ | 3,092 |
| | $ | 3,189 |
| | $ | 20,802 |
| | $ | 19,195 |
|
A summary of RSU activity for the nine months ended September 30, 2019 is as follows:
|
| | |
| RSUs |
Non-vested at December 31, 2018 | 1,196,566 |
|
Granted | 752,555 |
|
Vested | (611,828 | ) |
Forfeited | (81,437 | ) |
Non-vested at September 30, 2019 | 1,255,856 |
|
Performance Units
The fair value of earned PUs that vested during the three and nine months ended September 30, 2019 and 2018 is as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Fair value of earned PUs that vested | $ | 1,176 |
| | $ | 84 |
| | $ | 7,679 |
| | $ | 3,117 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2)2. Summary of Significant Accounting Policies (Continued)
h. Income Taxes
A summary
We provide for income taxes during interim periods based on our estimate of PU activitythe effective tax rate for the year.
Our effective tax rates for the three and nine months ended September 30, 2020 and 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Effective Tax Rate(1) | 26.5 | % | | 16.8 | % | | 25.7 | % | | 15.7 | % |
(1)The primary reconciling items between the federal statutory tax rate of 21.0% and our overall effective tax rate for the three and nine months ended September 30, 2020 and 2019 were the benefit derived from the dividends paid deduction and the impact of differences in the tax rates at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates. In addition, for the three and nine months ended September 30, 2020, the costs associated with Project Summit (as defined in Note 10) are more heavily weighted to our United States qualified REIT subsidiaries, and, therefore, provide no tax benefit.
i. Fair Value Measurements
The assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2020 and December 31, 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at September 30, 2020 Using |
Description | | Total Carrying Value at September 30, 2020 | | Quoted prices in active markets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) |
Money Market Funds | | $ | 15,030 | | | $ | 0 | | | $ | 15,030 | | | $ | 0 | |
Trading Securities | | 11,452 | | | 11,095 | | | 357 | | | 0 | |
Derivative Assets | | 4,346 | | | 0 | | | 4,346 | | | 0 | |
Derivative Liabilities | | 25,609 | | | 0 | | | 25,609 | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at December 31, 2019 Using |
Description | | Total Carrying Value at December 31, 2019 | | Quoted prices in active markets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) |
Money Market Funds | | $ | 13,653 | | | $ | 0 | | | $ | 13,653 | | | $ | 0 | |
Trading Securities | | 10,732 | | | 10,168 | | | 564 | | | 0 | |
Derivative Liabilities | | 9,756 | | | 0 | | | 9,756 | | | 0 | |
There were no material items that are measured at fair value on a non-recurring basis at September 30, 2020 and December 31, 2019, other than (i) those disclosed in Note 2.s. to Notes to Consolidated Financial Statements included in our Annual Report, (ii) those acquired in acquisitions that occurred during the nine months ended September 30, 2019 is2020, as follows:
|
| | | | | | | | |
| Original PU Awards | | PU Adjustment(1) | | Total PU Awards |
Non-vested at December 31, 2018 | 967,049 |
| | (299,948 | ) | | 667,101 |
|
Granted | 380,856 |
| | — |
| | 380,856 |
|
Vested | (202,141 | ) | | — |
| | (202,141 | ) |
Forfeited/Performance or Market Conditions Not Achieved | (13,898 | ) | | (14,850 | ) | | (28,748 | ) |
Non-vested at September 30, 2019 | 1,131,866 |
| | (314,798 | ) | | 817,068 |
|
| |
(1) | Represents an increase or decrease in the number of original PUs awarded based on either the final performance criteria or market condition achievement at the end of the performance period of such PUs. |
As of September 30, 2019, we expected 100%, 50% and 100% achievement of each of the predefined revenue, return on invested capital and Adjusted EBITDA (as defineddescribed in Note 7) targets associated with4 and (iii) the awardsFine Arts reporting unit, as described in Note 2.b., all of PUs made in 2019, 2018 and 2017, respectively.which are based on Level 3 inputs.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2)2. Summary of Significant Accounting Policies (Continued)
j. Investments
f. Income (Loss) Per Share—Basic
During 2019, we formed a joint venture entity with MakeSpace Labs, Inc. (the "MakeSpace JV"). In the second quarter of 2020, we committed to participate in a round of equity funding for the MakeSpace JV whereby we agreed tocontribute $36,000 of the $45,000 being raised in installments beginning in May 2020 through October 2021. Our equity interest in the MakeSpace JV at September 30, 2020 and DilutedDecember 31, 2019 was 37% and 34%, respectively, and the carrying value of our investment in the MakeSpace JV at September 30, 2020 and December 31, 2019 was$15,801 and $18,570, respectively.
Basic income (loss) per common share is calculated by dividing income (loss) by the weighted average number of common shares outstanding. The calculation of diluted income (loss) per share is consistent with that of basic income (loss) per share, but gives effect to all potential common shares (that is, securities such as stock options, RSUs or PUs) that were outstanding during the period, unless the effect is antidilutive.
k. Accumulated Other Comprehensive Items, Net
The calculation of basic and diluted income (loss) per sharechanges in accumulated other comprehensive items, net for the three and nine months ended September 30, 20192020 and 20182019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 |
| Foreign Currency Translation and Other Adjustments | | Change in Fair Value of Derivative Instruments | | Total | | Foreign Currency Translation and Other Adjustments | | Change in Fair Value of Derivative Instruments | | Total |
Beginning of Period | $ | (406,444) | | | $ | (21,079) | | | $ | (427,523) | | | $ | (252,825) | | | $ | (9,756) | | | $ | (262,581) | |
Other comprehensive income (loss): | | | | | | | | | | | |
Foreign currency translation and other adjustments | 44,529 | | | 0 | | | 44,529 | | | (109,090) | | | 0 | | | (109,090) | |
Change in fair value of derivative instruments | 0 | | | (184) | | | (184) | | | 0 | | | (11,507) | | | (11,507) | |
Total other comprehensive income (loss) | 44,529 | | | (184) | | | 44,345 | | | (109,090) | | | (11,507) | | | (120,597) | |
End of Period | $ | (361,915) | | | $ | (21,263) | | | $ | (383,178) | | | $ | (361,915) | | | $ | (21,263) | | | $ | (383,178) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
| Foreign Currency Translation and Other Adjustments | | Change in Fair Value of Derivative Instruments | | Total | | Foreign Currency Translation and Other Adjustments | | Change in Fair Value of Derivative Instruments | | Total |
Beginning of Period | $ | (253,243) | | | $ | (8,578) | | | $ | (261,821) | | | $ | (264,691) | | | $ | (973) | | | $ | (265,664) | |
Other comprehensive (loss) income: | | | | | | | | | | | |
Foreign currency translation and other adjustments | (82,886) | | | 0 | | | (82,886) | | | (71,438) | | | 0 | | | (71,438) | |
Change in fair value of derivative instruments | 0 | | | (1,496) | | | (1,496) | | | 0 | | | (9,101) | | | (9,101) | |
Total other comprehensive (loss) income | (82,886) | | | (1,496) | | | (84,382) | | | (71,438) | | | (9,101) | | | (80,539) | |
End of Period | $ | (336,129) | | | $ | (10,074) | | | $ | (346,203) | | | $ | (336,129) | | | $ | (10,074) | | | $ | (346,203) | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 |
| 2018 | | 2019 |
| 2018 |
Income (loss) from continuing operations | $ | 108,284 |
| | $ | 77,349 |
| | $ | 231,107 |
| | $ | 209,001 |
|
Less: Net income (loss) attributable to noncontrolling interests | 609 |
| | (125 | ) | | 1,534 |
| | 485 |
|
Income (loss) from continuing operations (utilized in numerator of Earnings Per Share calculation) | $ | 107,675 |
| | $ | 77,474 |
| | $ | 229,573 |
| | $ | 208,516 |
|
(Loss) income from discontinued operations, net of tax | $ | — |
| | $ | (11,605 | ) | | $ | 104 |
| | $ | (12,427 | ) |
Net income (loss) attributable to Iron Mountain Incorporated | $ | 107,675 |
| | $ | 65,869 |
| | $ | 229,677 |
| | $ | 196,089 |
|
| | | | | | | |
Weighted-average shares—basic | 287,152,000 |
| | 286,159,000 |
| | 286,869,000 |
| | 285,801,000 |
|
Effect of dilutive potential stock options | 93,752 |
| | 264,451 |
| | 157,928 |
| | 250,574 |
|
Effect of dilutive potential RSUs and PUs | 445,081 |
| | 558,891 |
| | 528,387 |
| | 463,583 |
|
Weighted-average shares—diluted | 287,690,833 |
| | 286,982,342 |
| | 287,555,315 |
| | 286,515,157 |
|
| | | | | | | |
Earnings (losses) per share—basic: | |
| | |
| | |
| | |
|
Income (loss) from continuing operations | $ | 0.37 |
| | $ | 0.27 |
| | $ | 0.80 |
| | $ | 0.73 |
|
(Loss) income from discontinued operations, net of tax | — |
| | (0.04 | ) | | — |
| | (0.04 | ) |
Net income (loss) attributable to Iron Mountain Incorporated(1) | $ | 0.37 |
| | $ | 0.23 |
| | $ | 0.80 |
| | $ | 0.69 |
|
| | | | | | | |
Earnings (losses) per share—diluted: | |
| | |
| | |
| | |
|
Income (loss) from continuing operations | $ | 0.37 |
| | $ | 0.27 |
| | $ | 0.80 |
| | $ | 0.73 |
|
(Loss) income from discontinued operations, net of tax | — |
| | (0.04 | ) | | — |
| | (0.04 | ) |
Net income (loss) attributable to Iron Mountain Incorporated(1) | $ | 0.37 |
| | $ | 0.23 |
| | $ | 0.80 |
| | $ | 0.68 |
|
|
|
| | | | | | |
Antidilutive stock options, RSUs and PUs, excluded from the calculation | 4,782,661 |
| | 3,253,975 |
| | 4,590,645 |
| | 3,256,206 |
|
(1) Columns may not foot due to rounding.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2)2. Summary of Significant Accounting Policies (Continued)
g. Income Taxes
We provide for income taxes during interim periods basedl. Gain on our estimateDisposal/Write-Down of the effective tax rate for the year. Our estimate of the effective tax rates for the years ending December 31, 2019Property, Plant and 2018 reflect the impact of the U.S. tax reform legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Legislation”). See Note 7 to Notes to Consolidated Financial Statements included in our Annual Report for additional information regarding the impact the Tax Reform Legislation had on us. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period they occur. Our effective tax rate is subject to variability in the future due to, among other items: (1) changes in the mix of income between our qualified REIT subsidiaries ("QRSs") and our domestic taxable REIT subsidiaries ("TRSs"), as well as among the jurisdictions in which we operate; (2) tax law changes; (3) volatility in foreign exchange gains and losses; (4) the timing of the establishment and reversal of tax reserves; and (5) our ability to utilize net operating losses that we generate.
Our effective tax rates for the three and nine months ended September 30, 2019 and 2018 are as follows:
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019(1) | | 2018(1) | | 2019(1) | | 2018(2) |
Effective Tax Rate | 16.8 | % |
| 15.3 | % |
| 15.7 | % | | 16.0 | % |
| |
(1) | The primary reconciling items between the federal statutory tax rate of 21.0% and our overall effective tax rate for the three and nine months ended September 30, 2019 and for the three months ended September 30, 2018 were the benefit derived from the dividends paid deduction and the impact of differences in the tax rates at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates. |
| |
(2) | The primary reconciling items between the federal statutory tax rate of 21.0% and our overall effective tax rate for the nine months ended September 30, 2018 were the benefit derived from the dividends paid deduction, a discrete tax benefit of approximately $14,000 associated with the resolution of a tax matter and the impact of differences in the tax rates at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates. |
h. Fair Value Measurements
Our financial assets or liabilities that are carried at fair value are required to be measured using inputs from the three levels of the fair value hierarchy. A financial asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The three levels of the fair value hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3—Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
The assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2019 and December 31, 2018, respectively, are as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at September 30, 2019 Using |
Description | | Total Carrying Value at September 30, 2019 | | Quoted prices in active markets (Level 1) | | | | Significant other observable inputs (Level 2) | | | | Significant unobservable inputs (Level 3) |
Money Market Funds(1) | | $ | 30,123 |
| | $ | — |
| | | | $ | 30,123 |
| | | | $ | — |
|
Trading Securities | | 9,996 |
| | 9,540 |
| | (2) | | 456 |
| | (3) | | — |
|
Derivative Assets(4) | | 1,972 |
| | — |
| | | | 1,972 |
| | | | — |
|
Derivative Liabilities(4) | | 12,046 |
| | — |
| | | | 12,046 |
| | | | — |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at December 31, 2018 Using |
Description | | Total Carrying Value at December 31, 2018 | | Quoted prices in active markets (Level 1) | | | | Significant other observable inputs (Level 2) | | | | Significant unobservable inputs (Level 3) |
Time Deposits(1) | | $ | 956 |
| | $ | — |
| | | | $ | 956 |
| | | | $ | — |
|
Trading Securities | | 10,753 |
| | 10,248 |
| | (2) | | 505 |
| | (3) | | — |
|
Derivative Assets(4) | | 93 |
| | — |
| | | | 93 |
| | | | — |
|
Derivative Liabilities(4) | | 973 |
| | — |
| | | | 973 |
| | | | — |
|
| |
(1) | Money market funds and time deposits are measured based on quoted prices for similar assets and/or subsequent transactions. |
| |
(2) | Certain trading securities are measured at fair value using quoted market prices. |
| |
(3) | Certain trading securities are measured based on inputs that are observable other than quoted market prices. |
| |
(4) | Derivative assets and liabilities include (i) interest rate swap agreements, including forward-starting interest rate swap agreements, to limit our exposure to changes in interest rates on a portion of our floating rate indebtedness, (ii) cross-currency swap agreements to hedge the variability of exchange rates impacts between the United States dollar and the Euro and certain of our Euro denominated subsidiaries and (iii) short-term (six months or less) foreign exchange currency forward contracts that we have entered into to hedge certain of our foreign exchange intercompany exposures. Our derivative financial instruments are measured using industry standard valuation models using market-based observable inputs, including interest rate curves, forward and spot prices for currencies and implied volatilities. Credit risk is also factored into the determination of the fair value of our derivative financial instruments. See Note 3 for additional information on our derivative financial instruments. |
Disclosures are required in the financial statements for items measured at fair value on a non-recurring basis. There were no material items that are measured at fair value on a non-recurring basis at September 30, 2019 and December 31, 2018, other than those disclosed in Note 2.s. to Notes to Consolidated Financial Statements included in our Annual Report, those acquired in acquisitions that occurred during the nine months ended September 30, 2019 and our initial investment in Makespace LLC (as disclosed in Note 10), all of which are based on Level 3 inputs.
The fair value of our long-term debt, which was determined based on either Level 1 inputs or Level 3 inputs, is disclosed in Note 5. Long-term debt is measured at cost in our Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
i. Accumulated Other Comprehensive Items,Equipment, Net
The changes in accumulated other comprehensive items,
Consolidated gain on disposal/write-down of property, plant and equipment, net, for the three and nine months ended September 30, 2019, respectively, are as follows:2020 was approximately $75,800 and $78,200, respectively. These amounts primarily consisted of gains of approximately $76,400 associated with the sale-leaseback transactions of 2 facilities during the third quarter of 2020.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
| Foreign Currency Translation Adjustments | | Change in Fair Value of Derivative Instruments | | Total | | Foreign Currency Translation Adjustments | | Change in Fair Value of Derivative Instruments | | Total |
Beginning of Period | $ | (253,243 | ) | | $ | (8,578 | ) | | $ | (261,821 | ) | | $ | (264,691 | ) | | $ | (973 | ) | | $ | (265,664 | ) |
Other comprehensive (loss) income: |
|
| |
|
| |
|
| | | | | | |
Foreign currency translation adjustment | (82,886 | ) | | — |
| | (82,886 | ) | | (71,438 | ) | | — |
| | (71,438 | ) |
Change in fair value of derivative instruments | — |
| | (1,496 | ) | | (1,496 | ) | | — |
| | (9,101 | ) | | (9,101 | ) |
Total other comprehensive (loss) income | (82,886 | ) | | (1,496 | ) | | (84,382 | ) | | (71,438 | ) | | (9,101 | ) | | (80,539 | ) |
End of Period | $ | (336,129 | ) | | $ | (10,074 | ) | | $ | (346,203 | ) | | $ | (336,129 | ) | | $ | (10,074 | ) | | $ | (346,203 | ) |
The changes in accumulated other comprehensive items, net for the three and nine months ended September 30, 2018, respectively, are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2018 | | Nine Months Ended September 30, 2018 |
| Foreign Currency Translation Adjustments | | Change in Fair Value of Derivative Instruments | | Total | | Foreign Currency Translation Adjustments | | Change in Fair Value of Derivative Instruments | | Total |
Beginning of Period | $ | (209,653 | ) | | $ | 2,203 |
| | $ | (207,450 | ) | | $ | (103,989 | ) | | $ | — |
| | $ | (103,989 | ) |
Other comprehensive (loss) income: |
|
| |
|
| |
|
| | | | | | |
Foreign currency translation adjustment | (22,790 | ) | | — |
| | (22,790 | ) | | (128,454 | ) | | — |
| | (128,454 | ) |
Change in fair value of derivative instruments | — |
| | 1,980 |
| | 1,980 |
| | — |
| | 4,183 |
| | 4,183 |
|
Total other comprehensive (loss) income | (22,790 | ) | | 1,980 |
| | (20,810 | ) | | (128,454 | ) | | 4,183 |
| | (124,271 | ) |
End of Period | $ | (232,443 | ) | | $ | 4,183 |
| | $ | (228,260 | ) | | $ | (232,443 | ) | | $ | 4,183 |
| | $ | (228,260 | ) |
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
j. Gain on Disposal/Write-Down of Property, Plant and Equipment, Net
Consolidated gain on disposal/write-down of property, plant and equipment, net, for the three and nine months ended September 30, 2019 was approximately $9,300 and $17,100, respectively.
During These amounts consisted of (i) a gain of approximately $36,000 associated with the second quartersale of 2019, we began exploring strategic options regarding how to maintaincertain land and support the infrastructure of select offerings within our Iron Mountain Iron Cloud (“Iron Cloud”) portfolio. As a result,buildings during the second quarter of 2019 we performedand (ii) a long-lived asset impairment analysis on the assetsgain of approximately $9,800 associated with these select offerings and concluded that the associated carrying value of the long-lived assets (which consisted entirely of property, plant and equipment) was not recoverable based upon the underlying cash flows associated with these select offerings. On September 30, 2019, we entered into an agreement (the “Iron Cloud Outsourcing Agreement”) with a wholesale provider of data infrastructure and data management services to outsource the operation, infrastructure management and maintenance and delivery of select offerings within our Iron Cloud portfolio. In conjunction with the entry into the Iron Cloud Outsourcing Agreement, we also sold certain IT infrastructure assets and the rights to certain hardware and software maintenance contracts used to deliver these Iron Cloud offerings. As a result of our long-lived asset impairment analysis and sale of certain IT infrastructure assets and rights to certain hardware and software maintenance contracts, we recognized an impairment charge and a loss on sale of the assets totaling approximately $800 and $24,800 during the three and nine months ended September 30, 2019, respectively.
The gain for the nine months ended September 30, 2019 consisted primarily of gains associated with (i) a sale-leaseback transaction of 5 facilities in the United States of approximately $9,800 during the third quarter of 2019, and (ii) the sale of certain land and buildings in the United Kingdom of approximately $36,000were partially offset by losses incurred during the second quarter of 2019. These gains were partially offset by losses2019 primarily associated with (i) thean impairment charge on the assets associated with the select offerings within our Iron Mountain Iron Cloud portfolio as described above, and (ii) the write-down of certain property, plant and equipment in our North American Records and Information Management Business of approximately $3,100.$24,800.
k.m. Other Expense (Income) Expense,, Net
Other
Consolidated other expense (income) expense,, net for the three and nine months ended September 30, 20192020 and 20182019 consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Description | | 2020 | | 2019 | | 2020 | | 2019 |
Foreign currency transaction losses (gains), net | | $ | 29,635 | | | $ | (18,251) | | | $ | (6,293) | | | $ | (19,885) | |
Debt extinguishment expense | | 51,260 | | | 0 | | | 68,300 | | | 0 | |
Other, net(1) | | 2,570 | | | 4,836 | | | 4,432 | | | 6,488 | |
Other Expense (Income), Net | | $ | 83,465 | | | $ | (13,415) | | | $ | 66,439 | | | $ | (13,397) | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Foreign currency transaction (gains) losses, net | $ | (18,251 | ) |
| $ | 664 |
| | $ | (19,885 | ) |
| $ | 3,825 |
|
Other, net | 4,836 |
|
| (339 | ) | | 6,488 |
|
| (2,405 | ) |
Other (Income) Expense, Net
| $ | (13,415 | ) |
| $ | 325 |
| | $ | (13,397 | ) |
| $ | 1,420 |
|
The gain or loss(1) Other, net for the nine months ended September 30, 2020 is primarily comprised of losses on foreign currency transactions, calculated as the difference between the historical exchange rate and the exchange rate at the applicable measurement date, include gains or losses related to (i) borrowings in certain foreign currencies under our Revolving Credit Facility (as defined and discussed more fully in Note 5), (ii) our Euro Notes (as defined in Note 5), (iii) certain foreign currency denominated intercompany obligations of our foreign subsidiaries to us and betweenequity method investments, partially offset by a gain on our foreign subsidiaries, which are not considered permanently invested, and (iv) amounts that are paid or received on the net settlement amount from forward contracts (aspreviously held 25% equity investment in OSG Records Management (Europe) Limited ("OSG"), as more fully discussed in Note 3).4.
n. Recent Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement of our financial assets and liabilities among the three levels of the fair value hierarchy. We adopted ASU 2018-13 on January 1, 2020. ASU 2018-13 did not have a material impact on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13. We adopted ASU 2016-13 on January 1, 2020 on a modified retrospective basis. See Note 2.d. for information regarding the impact of the adoption of ASU 2016-13 on our consolidated financial statements.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2)2. Summary of Significant Accounting Policies (Continued)
l. New Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) ("ASU 2018-15"). ASU 2018-15 aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. We adopted ASU 2018-15 on January 1, 2019. ASU 2018-15 did not have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02. We adopted ASU 2016-02 on January 1, 2019 on a modified retrospective basis. See Note 2.d. for information regarding the impact of the adoption of ASU 2016-02 on our consolidated financial statements.
m. Correctiono. Change in Presentation
Subsequent to our conversion to a REIT, weWe have historically classified gains on saleour Significant Acquisition Costs (as defined in Note 2.x. to Notes to Consolidated Financial Statements included in our Annual Report) as components of real estate, net of tax, as a separate line on our consolidated statements of operations and excluded such amounts from our reported operating income. We presented such amounts net of tax as these gains were presented below the provision (benefit) for income taxes on our consolidated statements of operations. Commencing with the first quarter of 2019, we now present gains on sale of real estate as a component of operating income in the line item (Gain) loss on disposal/write-down of property, plant and equipment, net. See Note 2.j. for details of the (gain) loss on disposal/write-down of property, plant and equipment, net recognized during the three and nine months ended September 30, 2019. Such amounts are presented gross of tax with any tax impact presented within Provision (benefit) for income taxes. All prior periods will be conformed to this presentation. During the third quarter of 2018, we recognized approximately $1,300 of gains on sale of real estate, net of tax. During the fourth quarter of 2018, we recognized approximately $54,000 of gains on sale of real estate, net of tax.
n. Immaterial Restatement
In June 2019, we received a notification of assessment from tax and customs authorities in the Netherlands related to a value-added tax (“VAT”) liability of approximately 16,800 Euros primarily related to the years ending December 31, 2018 and 2017. We have established a reserve for this matter based upon our estimate of the amount of loss that is both probable and estimable, inclusive of interest and penalties. See Note 8 for additional information on this matter.
This matter relates to periods prior to January 1, 2019, resulting in (i) an understatement of our prior years' reported selling, general and administrative expense and interest expense and (ii) an overstatement of our prior years’ reported provision for income taxes for the related tax impact. Based on our estimate of the amount of loss related to this matter that is both probable and estimable, we believe selling,Selling, general and administrative expenses and interest expense were understated by approximately $11,000 and $400, respectively, and the provision for income taxes was overstated by approximately $2,000 for the year ended December 31, 2018, which,Cost of sales. Beginning in the aggregate, would reduce net income from continuing operations by approximately $9,400 for the year ended December 31, 2018. Based on our estimatefourth quarter of the amount of loss related to this matter that is both probable and estimable,2019, we believe the selling, general and administrative expenses and interest expense were understated by approximately $16,600 and $100, respectively, and the provision for income taxes was overstated by approximately $3,000 for the year ended December 31, 2017, which,present Significant Acquisition Costs as its own line item within Operating Expenses in the aggregate, would reduce net income from continuing operations by approximately $13,700 for the year ended December 31, 2017. We have determined that no prior period financial statement was materially misstated as a result of the previously unrecorded reserves related to this matter. As a result, we have restated ending (Distributions in excess of earnings) Earnings in excess of distributions as of December 31, 2018 in the amount of approximately $23,100 for the cumulative impact of the aforementioned items. There was no material impact to the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2019, as a result of this matter.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)
Additionally, we have restated our 2018 Condensed Consolidated Balance Sheet, and each of our Condensed Consolidated Statements of Operations, our Condensed Consolidated Statements of Comprehensive Income (Loss), our Condensed Consolidated Statements of Equity and the related notes for the three and nine months ended September 30, 2018Operations. The prior periods have been conformed to reflect the impact of the reserve we have established for this matter in those periods. There was no change to the following lines of the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2018: (1) cash flows from operating activities, (2) cash flows from investing activities and (3) cash flows from financing activities.presentation.
The following table sets forth the effect of the immaterial restatementchange in presentation of Significant Acquisition Costs to certain line items of our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018:2019:
| | | | | | | | | | | |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
Cost of sales (excluding depreciation and amortization) | $ | (1,945) | | | $ | (4,136) | |
Selling, general and administrative | $ | (2,005) | | | $ | (4,461) | |
Significant Acquisition Costs | $ | 3,950 | | | $ | 8,597 | |
|
| | | | | | | | |
| | Three Months Ended September 30, 2018 | | Nine Months Ended September 30, 2018 |
Selling, general and administrative | | $ | 1,459 |
| | $ | 10,798 |
|
Total Operating Expenses | | $ | 1,459 |
| | $ | 10,798 |
|
Operating Income (Loss) | | $ | (1,459 | ) | | $ | (10,798 | ) |
Interest Expense, Net | | $ | 97 |
| | $ | 262 |
|
Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes | | $ | (1,556 | ) | | $ | (11,060 | ) |
Provision (Benefit) for Income Taxes | | $ | (277 | ) | | $ | (1,916 | ) |
Income (Loss) from Continuing Operations | | $ | (1,279 | ) | | $ | (9,144 | ) |
Net Income (Loss) | | $ | (1,279 | ) | | $ | (9,144 | ) |
Net Income (Loss) Attributable to Iron Mountain Incorporated | | $ | (1,279 | ) | | $ | (9,144 | ) |
Earnings (Losses) per Share - Basic: | | | | |
Income (Loss) from Continuing Operations | | $ | (0.01 | ) | | $ | (0.03 | ) |
Net Income (Loss) Attributable to Iron Mountain Incorporated | | $ | — |
| | $ | (0.03 | ) |
Earnings (Losses) per Share - Diluted: | | | | |
Income (Loss) from Continuing Operations | | $ | — |
| | $ | (0.03 | ) |
Net Income (Loss) Attributable to Iron Mountain Incorporated | | $ | — |
| | $ | (0.04 | ) |
The following table sets forth the effect of the immaterial restatement to certain line items of our Consolidated Balance Sheet as of December 31, 2018:
|
| | | | |
| | December 31, 2018 |
Total Other Assets, Net | | $ | 4,971 |
|
Total Assets | | $ | 4,971 |
|
Accrued expenses and other current liabilities | | $ | 28,097 |
|
Total Current Liabilities | | $ | 28,097 |
|
(Distribution in excess of earnings) Earnings in excess of distributions | | $ | (23,126 | ) |
Total Iron Mountain Incorporated Stockholders' Equity | | $ | (23,126 | ) |
The immaterial restatement changed (Distribution in excess of earnings) Earnings in excess of distributions disclosed in our Condensed Consolidated Statements of Equity for the periods ended September 30, 2018, June 30, 2018 and December 31, 2017All Significant Acquisition Costs were incurred by $(22,852), $(21,573) and $(13,708), respectively.
Prospectively, we will process an immaterial restatement of our consolidated financial statements for the quarterly period ended December 31, 2018, as well as for the annual periods ended December 31, 2018 and 2017, when those statements are reproduced on a comparative basis in our Annual Report on Form 10-K for the year ending December 31, 2019.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(3)3. Derivative Instruments and Hedging Activities
Derivative instruments we entered intoare party to include: (i) interest rate swap agreements (which are designated as cash flow hedges), and (ii) cross-currency swap agreements (which are designated as net investment hedges) and (iii) foreign exchange currency forward contracts (which are not designated as hedges).
Interest Rate Swap Agreements Designated as Cash Flow Hedges
In March 2018,
As of September 30, 2020 and December 31, 2019, we entered intohad $350,000 in notional value of interest rate swap agreements tooutstanding, which limit our exposure to changes in interest rates on a portion of our floating rate indebtedness. As of September 30, 2019 and December 31, 2018, we had $350,000 in notional value ofThese interest rate swap agreements outstanding, which expire in March 2022. Under the interest rate swap agreements, we receive variable rate interest payments associated with the notional amount of each interest rate swap, based upon one-month LIBOR, in exchange for the payment of fixed interest rate payments (at the fixed interest raterates as specified in the interest rate swap agreements).agreements.
In July 2019, we entered into
We have forward-starting interest rate swap agreements to limit our exposure to changes in interest rates on a portion of our floating rate indebtedness once our current interest rate swap agreements expire in March 2022. The forward-starting interest rate swap agreements have $350,000 in notional value, commence in March 2022 and expire in March 2024. Under the forward-starting interest rate swap agreements, we will receive variable rate interest payments based upon one-month LIBOR, in exchange for the payment of fixed interest rate payments at the rates as specified in the interest rate swap agreements.
We have designated these interest rate swap agreements, including the forward-starting interest rate swap agreements, as cash flow hedges. Unrealized gains are recognized as assets, while unrealized losses are recognized as liabilities. At September 30, 20192020 and December 31, 2018,2019, we had a derivative liability of $12,046$23,219 and $973,$8,774, respectively, which was recorded as a component of Other long-term liabilities in our Condensed Consolidated Balance Sheets. We have recorded the change in fair value of the interest rate swap agreements as a component of accumulatedAccumulated other comprehensive income. We have recorded unrealizeditems, net in our Condensed Consolidated Balance Sheets.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
3. Derivative Instruments and Hedging Activities (Continued)
Unrealized (gains) losses of $3,468 and $11,073associated with the interest rate swap agreements for the three and nine months ended September 30, 2020 and 2019 respectively. We have recorded unrealized gains of $1,980 and $4,183 for the three and nine months ended September 30, 2018, respectively. are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Unrealized (gains) losses associated with interest rate swap agreements | $ | (1,185) | | | $ | 3,468 | | | $ | 14,445 | | | $ | 11,073 | |
As of September 30, 2019,2020, cumulative net losses of $12,046$23,219 are recorded within accumulatedAccumulated other comprehensive items, net associated with these cash flow hedges.
Net Investment Hedges
a. Cross-Currency Swap Agreements Designated as a Hedge of Net Investment
In August 2019, we enteredWe enter into cross-currency swap agreements to hedge the variability of exchange rate impacts between the United States dollar and the Euro. Under the terms of the cross-currency swap agreements we notionally exchanged approximately $110,000 at an interest rate of 6.0% for approximately 99,055 Euros at a weighted average interest rate of approximately 3.65%. The cross-currency swap agreements which expire in August 2023, are designated as a hedge of net investment against certain of our Euro denominated subsidiaries and require an exchange of the notional amounts at maturity. The cross-currency swaps are marked to market at each reporting period, representing the fair values of the cross-currency swap agreements, and any changes in fair value are recognized as a component of accumulatedAccumulated other comprehensive income.items, net. Unrealized gains are recognized as assets while unrecognizedunrealized losses are recognized as liabilities.
In September 2020, we entered into cross-currency swap agreements whereby we notionally exchanged approximately $359,200 at an interest rate of 4.5% for approximately 300,000 Euros at a weighted average interest rate of approximately 3.4%. These cross-currency swap agreements expire in February 2026. At September 30, 2019,2020, we had a derivative asset of $1,972,$4,346, which was recorded as a component of Other within Other assets, net associated with these cross-currency swap agreements.
In August 2019, we entered into cross-currency swap agreements whereby we notionally exchanged approximately $110,000 at an interest rate of 6.0% for approximately 99,055 Euros at a weighted average interest rate of approximately 3.65%. These cross-currency swap agreements expire in our Condensed Consolidated Balance Sheet,August 2023. We had a derivative liability of $2,390 and $982 at September 30, 2020 and December 31, 2019, respectively, which represents the fair valuewas recorded as a component of Other long-term liabilities associated with these cross-currency swap agreements.
Unrealized losses (gains) associated with the cross-currency swap agreements. We have recorded unrealized gains of $1,972agreements for the three and nine months ended September 30, 2019.2020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Unrealized losses (gains) associated with cross-currency swap agreements | $ | 1,370 | | | $ | (1,972) | | | $ | (2,938) | | | $ | (1,972) | |
As of September 30, 2020, cumulative net gains of $1,956 are recorded within Accumulated other comprehensive items, net associated with these net investment hedges.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(3)3. Derivative Instruments and Hedging Activities (Continued)
b. Euro Notes Designated as a Hedge of Net Investment
In addition,
Prior to their redemption in August 2020, we have designated a portion of our previously outstanding Euro Notes (as defined in Note 5) as a hedge of net investment of certain of our Euro denominated subsidiaries. ForFrom January 1, 2020 through the date of redemption and for the nine months ended September 30, 2019, we designated, on average, 300,000 and 279,821 Euros, of our Euro Notes as a hedge of net investment of certain of our Euro denominated subsidiaries. For the nine months ended September 30, 2018, we designated, on average, 209,276 Eurosrespectively, of our Euro Notes as a hedge of net investment of certain of our Euro denominated subsidiaries. As a result, we recorded foreign exchange gains (losses) of $13,101 and $14,962 for the three and nine months ended September 30, 2019, respectively, and $2,139 and $6,761 for the three and nine months ended September 30, 2018, respectively,(gains) losses related to the change in fair value of such debt due to currency translation adjustments which isas a component of accumulatedAccumulated other comprehensive items, net.
Foreign exchange losses (gains) associated with this hedge of net investment for the three and nine months ended September 30, 2020 and 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Foreign exchange losses (gains) associated with net investment hedge | $ | 16,604 | | | $ | (13,101) | | | $ | 17,005 | | | $ | (14,962) | |
As of September 30, 2019,2020, cumulative net gains of $29,220,$3,256, net of tax, are recorded in accumulatedAccumulated other comprehensive items, net associated with this net investment hedge.
Foreign Exchange Currency Forward Contracts Not Designated as Hedges
We have entered into forward contracts4. Acquisitions
Prior to hedgeJanuary 9, 2020, we owned a 25% equity interest in OSG. On January 9, 2020, we acquired the remaining 75% equity interest in OSG for cash consideration of approximately $95,500 (the "OSG Acquisition"). The OSG Acquisition enabled us to extend our exposures associatedGlobal RIM Business in Russia, Ukraine, Kazakhstan, Belarus, and Armenia. The results of OSG are fully consolidated within our condensed consolidated financial statements from the closing date of the OSG Acquisition. In connection with certain foreign currencies. We have not designated any of these forward contracts as hedges. Our policy isthe OSG Acquisition, our previously held 25% equity investment in OSG was remeasured to record the fair value at the closing date of each derivative instrument on a gross basis. As of September 30, 2019, we had 0 outstanding forward contracts. As of December 31, 2018, we had outstanding forward contracts to purchase 29,000 Euros and sell $33,374 United States dollars. At December 31, 2018, we had a derivative asset of $93 which was recordedthe OSG Acquisition; as a componentresult, we recorded a gain of Prepaid expenses and other in our Condensed Consolidated Balance Sheet. We recorded losses for our derivative instruments not recognized as hedging instruments forapproximately $10,000 during the three and nine months ended September 30, 2019first quarter of $0 and $737, respectively. We recorded losses for our derivative instruments not recognized as hedging instruments for the three and nine months ended September 30, 2018 of $616 and $4,172, respectively. The gains and losses for our derivative instruments not recognized as derivative instruments are2020, which is included as a component of foreign currency transaction (gains) losses,Other expense (income), net within Other (income) expense, net inon our Condensed Consolidated StatementStatements of Operations. The fair value of the 25% equity investment in OSG was determined based on the purchase price of the OSG Acquisition.
On February 17, 2020, in order to enhance our existing operations in the United Arab Emirates, we acquired Glenbeigh Records Management DWC-LLC, a storage and records management company, for total cash consideration of approximately $29,100.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(4)4. Acquisitions (Continued)
We account for acquisitions using the acquisition method of accounting, and, accordingly, the assets and liabilities acquired are recorded at their estimated fair values and the results of operations for each acquisition have been included in our consolidated results from their respective acquisition dates.
Acquisitions Completed During the Nine Months Ended September 30, 2019
During the nine months ended September 30, 2019, in order to enhance our existing operations in the United States, the United Kingdom, Switzerland, Thailand, Colombia, Germany, Hong Kong and Latvia and to expand our operations into Bulgaria, we completed the acquisition of 9 storage and records management companies and 1 art storage company for total cash consideration of approximately $49,200.
Purchase Price Allocation
A summary of the cumulative consideration paid and the preliminary allocation of the purchase price paid for all of our 20192020 acquisitions through September 30, 20192020 is as follows:
|
| | | | |
| | Nine Months Ended September 30, 2019 |
Cash Paid (gross of cash acquired)(1) | | $ | 51,456 |
|
Purchase Price Holdbacks and Other | | 4,135 |
|
Total Consideration | | 55,591 |
|
Fair Value of Identifiable Assets Acquired: | | |
Cash | | 2,224 |
|
Accounts Receivable, Prepaid Expenses and Other Assets | | 3,228 |
|
Property, Plant and Equipment(2) | | 5,320 |
|
Customer Relationship Intangible Assets | | 21,584 |
|
Operating Lease Right-of-Use Assets | | 16,956 |
|
Accounts Payable, Accrued Expenses and Other Liabilities | | (2,716 | ) |
Operating Lease Liabilities | | (16,956 | ) |
Deferred Income Taxes | | (1,719 | ) |
Total Fair Value of Identifiable Net Assets Acquired | | 27,921 |
|
Goodwill Initially Recorded(3) | | $ | 27,670 |
|
| | | | | |
| Nine Months Ended September 30, 2020 |
Cash Paid (gross of cash acquired)(1) | $ | 124,614 | |
Fair Value of Investments Applied to Acquisitions | 27,276 | |
Total Consideration | 151,890 | |
Fair Value of Identifiable Assets Acquired: | |
Cash | 6,545 | |
Accounts Receivable, Prepaid Expenses and Other Assets | 16,815 | |
Property, Plant and Equipment(2) | 43,643 | |
Customer Relationship Intangible Assets(3) | 60,846 | |
Operating Lease Right-of-Use Assets | 111,251 | |
Debt Assumed | (11,479) | |
Accounts Payable, Accrued Expenses and Other Liabilities | (9,435) | |
Operating Lease Liabilities | (111,251) | |
Deferred Income Taxes | (6,364) | |
| |
(1)Total Fair Value of Identifiable Net Assets Acquired | Included in cash paid for acquisitions in the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2019 is net cash acquired of $2,224 and contingent and other payments, net of $7,267 related to acquisitions made in previous years. |
100,571 | |
(2)Goodwill Initially Recorded | Consists primarily of leasehold improvements, racking structures and warehouse equipment. These assets are depreciated using the straight-line method with the useful lives as noted in Note 2.f. to Notes to Consolidated Financial Statements included in our Annual Report.$ | 51,319 | |
(1)Included in cash paid for acquisitions in our Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2020 is net cash acquired of $6,545 and contingent and other payments of $512 related to acquisitions completed in 2019.
(2) Consists primarily of leasehold improvements, racking structures and warehouse equipment.
(3) The goodwillpreliminary weighted average lives of customer relationship intangible assets associated with acquisitions is primarily attributable to the assembled workforce, expanded market opportunities and costs and other operating synergies anticipated upon the integration of the operations of us and the acquired businesses.seven years.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(4) Acquisitions (Continued)
See Note 6 to Notes to Consolidated Financial Statements included in our Annual Report for additional information regarding our allocations of the purchase price for acquisitions. The preliminary purchase price allocations that are not finalized as of September 30, 20192020 primarily relate to the final assessment of the fair values of intangible assets and liabilities (primarily customer relationship intangible assets), property, plant and equipment (primarily building, building improvements and racking structures), right-of-use assets and liabilities associated with acquired operating leases, contingencies and income taxes (primarily deferred income taxes), primarily associated with the acquisitions we closed in 2019.
As the valuation of certain assets and liabilities for purposes of purchase price allocations are preliminary in nature, they are subject to adjustment as additional information is obtained about the facts and circumstances regarding these assets and liabilities that existed at the acquisition date.2020. Any adjustments to our estimates of purchase price allocation will be made in the periods in which the adjustments are determined, but no later than the one year measurement period, and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. Adjustments recorded during the three and nine months ended September 30, 20192020 were not material to our results from operations.
Acquisition of IO Data Centers in 2018
On January 10, 2018, we completed the IODC Transaction. At the closing of the IODC Transaction, we paid approximately $1,347,000. In February 2019, we paid approximately $31,000 in additional purchase price associated with the execution of customer contracts from the closing through the one-year anniversary of the IODC Transaction, which was accrued at December 31, 2018. This amount, net of amortization, is reported as a third-party commissions asset as a component of Other within Other assets, net, in our Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018.
The unaudited consolidated pro forma financial information (the "Pro Forma Financial Information") below summarizes the combined results of us and IODC on a pro forma basis as if the IODC Transaction had occurred on January 1, 2017. The Pro Forma Financial Information is presented for informational purposes and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2017. The Pro Forma Financial Information, for the period presented, includes purchase accounting adjustments (including amortization expenses from acquired intangible assets and depreciation of acquired property, plant and equipment). We and IODC collectively incurred $28,064 of operating expenditures to complete the IODC Transaction (including advisory and professional fees). These operating expenditures have been reflected within the results of operations in the Pro Forma Financial Information as if they were incurred on January 1, 2017.
|
| | | | | | | |
| Three Months Ended September 30, 2018 | | Nine Months Ended September 30, 2018 |
Total Revenues | $ | 1,060,991 |
| | $ | 3,167,762 |
|
Income from Continuing Operations | $ | 77,349 |
| | $ | 218,953 |
|
Per Share Income from Continuing Operations - Basic | $ | 0.27 |
| | $ | 0.76 |
|
Per Share Income from Continuing Operations - Diluted | $ | 0.27 |
| | $ | 0.76 |
|
In addition to our acquisition of IODC, we completed certain other acquisitions during the first nine months of 2019 and in fiscal year 2018. The Pro Forma Financial Information does not reflect these acquisitions due to the insignificant impact of these acquisitions on our consolidated results of operations.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5)5. Debt
Long-term debt is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2019 | | | December 31, 2018 |
| | Debt (inclusive of discount) | | Unamortized Deferred Financing Costs | | Carrying Amount | | Fair Value | | | Debt (inclusive of discount) | | Unamortized Deferred Financing Costs | | Carrying Amount | | Fair Value |
Revolving Credit Facility(1) | | $ | 354,879 |
| | $ | (11,763 | ) |
| $ | 343,116 |
| | $ | 354,879 |
| | | $ | 793,832 |
|
| $ | (14,117 | ) |
| $ | 779,715 |
| | $ | 793,832 |
|
Term Loan A(1) | | 231,250 |
| | — |
| | 231,250 |
| | 231,250 |
| | | 240,625 |
|
| — |
|
| 240,625 |
| | 240,625 |
|
Term Loan B(2) | | 688,089 |
| | (7,806 | ) | | 680,283 |
| | 688,638 |
| | | 693,169 |
| | (8,742 | ) | | 684,427 |
| | 660,013 |
|
Australian Dollar Term Loan (the "AUD Term Loan")(3) | | 219,871 |
| | (2,389 | ) | | 217,482 |
| | 221,165 |
| | | 233,955 |
|
| (3,084 | ) |
| 230,871 |
| | 235,645 |
|
UK Bilateral Revolving Credit Facility (the "UK Bilateral Facility")(4) | | 172,180 |
| | (1,845 | ) | | 170,335 |
| | 172,180 |
| | | 178,299 |
| | (2,357 | ) | | 175,942 |
| | 178,299 |
|
43/8% Senior Notes due 2021 (the "43/8% Notes")(5) | | 500,000 |
| | (2,866 | ) | | 497,134 |
| | 503,750 |
| | | 500,000 |
|
| (4,155 | ) |
| 495,845 |
| | 488,750 |
|
6% Senior Notes due 2023 (the "6% Notes due 2023")(5) | | 600,000 |
| | (4,302 | ) | | 595,698 |
| | 615,000 |
| | | 600,000 |
|
| (5,126 | ) |
| 594,874 |
| | 606,000 |
|
53/8% CAD Senior Notes due 2023 (the "CAD Notes") | | 188,811 |
| | (2,173 | ) | | 186,638 |
| | 194,475 |
| | | 183,403 |
|
| (2,506 | ) |
| 180,897 |
| | 186,154 |
|
53/4% Senior Subordinated Notes due 2024 (the "53/4% Notes")(5) | | 1,000,000 |
| | (6,752 | ) | | 993,248 |
| | 1,010,000 |
| | | 1,000,000 |
|
| (7,782 | ) |
| 992,218 |
| | 940,000 |
|
3% Euro Senior Notes due 2025 (the "Euro Notes")(5) | | 327,508 |
| | (3,622 | ) | | 323,886 |
| | 334,877 |
| | | 343,347 |
|
| (4,098 | ) |
| 339,249 |
| | 321,029 |
|
37/8% GBP Senior Notes due 2025 (the "GBP Notes") | | 491,943 |
| | (5,651 | ) | | 486,292 |
| | 493,173 |
| | | 509,425 |
|
| (6,573 | ) |
| 502,852 |
| | 453,811 |
|
53/8% Senior Notes due 2026 (the "53/8% Notes") | | 250,000 |
| | (2,863 | ) | | 247,137 |
| | 257,500 |
| | | 250,000 |
|
| (3,185 | ) |
| 246,815 |
| | 224,375 |
|
47/8% Senior Notes due 2027 (the "47/8% Notes due 2027")(5) | | 1,000,000 |
| | (11,375 | ) | | 988,625 |
| | 1,022,500 |
| | | 1,000,000 |
|
| (12,442 | ) |
| 987,558 |
| | 855,000 |
|
51/4% Senior Notes due 2028 (the "51/4% Notes")(5) | | 825,000 |
| | (10,037 | ) | | 814,963 |
| | 852,844 |
| | | 825,000 |
|
| (10,923 | ) |
| 814,077 |
| | 713,625 |
|
47/8% Senior Notes due 2029 (the "47/8% Notes due 2029")(5) | | 1,000,000 |
|
| (14,451 | ) |
| 985,549 |
| | 1,015,000 |
| | | — |
| | — |
| | — |
| | — |
|
Real Estate Mortgages, Financing Lease Liabilities and Other | | 533,549 |
| | (444 | ) | | 533,105 |
| | 533,549 |
| | | 606,702 |
|
| (171 | ) |
| 606,531 |
| | 606,702 |
|
Accounts Receivable Securitization Program(6) | | 271,562 |
| | (115 | ) | | 271,447 |
| | 271,562 |
| | | 221,673 |
|
| (218 | ) |
| 221,455 |
| | 221,673 |
|
Mortgage Securitization Program(7) | | 50,000 |
| | (1,019 | ) | | 48,981 |
| | 50,000 |
| | | 50,000 |
| | (1,128 | ) | | 48,872 |
| | 50,000 |
|
Total Long-term Debt | | 8,704,642 |
| | (89,473 | ) | | 8,615,169 |
| | |
| | | 8,229,430 |
| | (86,607 | ) | | 8,142,823 |
| | |
Less Current Portion | | (394,822 | ) | | — |
| | (394,822 | ) | | |
| | | (126,406 | ) |
| — |
|
| (126,406 | ) | | |
|
Long-term Debt, Net of Current Portion | | $ | 8,309,820 |
| | $ | (89,473 | ) | | $ | 8,220,347 |
| | |
| | | $ | 8,103,024 |
|
| $ | (86,607 | ) | | $ | 8,016,417 |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | | December 31, 2019 |
| | Debt (inclusive of discount) | | Unamortized Deferred Financing Costs | | Carrying Amount | | Fair Value | | | Debt (inclusive of discount) | | Unamortized Deferred Financing Costs | | Carrying Amount | | Fair Value |
Revolving Credit Facility(1) | | $ | 172,603 | | | $ | (9,482) | | | $ | 163,121 | | | $ | 172,603 | | | | $ | 348,808 | | | $ | (12,053) | | | $ | 336,755 | | | $ | 348,808 | |
Term Loan A(1) | | 218,750 | | | 0 | | | 218,750 | | | 218,750 | | | | 228,125 | | | 0 | | | 228,125 | | | 228,125 | |
Term Loan B | | 681,315 | | | (6,557) | | | 674,758 | | | 682,500 | | | | 686,395 | | | (7,493) | | | 678,902 | | | 686,890 | |
Australian Dollar Term Loan (the "AUD Term Loan") | | 226,690 | | | (1,731) | | | 224,959 | | | 227,602 | | | | 226,924 | | | (2,313) | | | 224,611 | | | 228,156 | |
UK Bilateral Revolving Credit Facility (the "UK Bilateral Facility") | | 180,204 | | | (1,393) | | | 178,811 | | | 180,204 | | | | 184,601 | | | (1,801) | | | 182,800 | | | 184,601 | |
43/8% Senior Notes due 2021 (the "43/8% Notes")(2) | | 0 | | | 0 | | | 0 | | | 0 | | | | 500,000 | | | (2,436) | | | 497,564 | | | 503,450 | |
6% Senior Notes due 2023 (the "6% Notes due 2023")(2) | | 0 | | | 0 | | | 0 | | | 0 | | | | 600,000 | | | (4,027) | | | 595,973 | | | 613,500 | |
53/8% CAD Senior Notes due 2023 (the "CAD Notes") | | 0 | | | 0 | | | 0 | | | 0 | | | | 192,058 | | | (2,071) | | | 189,987 | | | 199,380 | |
53/4% Senior Subordinated Notes due 2024 (the "53/4% Notes")(2) | | 0 | | | 0 | | | 0 | | | 0 | | | | 1,000,000 | | | (6,409) | | | 993,591 | | | 1,010,625 | |
3% Euro Senior Notes due 2025 (the "Euro Notes")(2) | | 0 | | | 0 | | | 0 | | | 0 | | | | 336,468 | | | (3,462) | | | 333,006 | | | 345,660 | |
37/8% GBP Senior Notes due 2025 (the "GBP Notes") | | 514,867 | | | (4,942) | | | 509,925 | | | 519,027 | | | | 527,432 | | | (5,809) | | | 521,623 | | | 539,892 | |
53/8% Senior Notes due 2026 (the "53/8% Notes") | | 0 | | | 0 | | | 0 | | | 0 | | | | 250,000 | | | (2,756) | | | 247,244 | | | 261,641 | |
47/8% Senior Notes due 2027 (the "47/8% Notes due 2027")(2) | | 1,000,000 | | | (9,954) | | | 990,046 | | | 1,012,500 | | | | 1,000,000 | | | (11,020) | | | 988,980 | | | 1,029,475 | |
51/4% Senior Notes due 2028 (the "51/4% Notes due 2028")(2) | | 825,000 | | | (8,857) | | | 816,143 | | | 851,813 | | | | 825,000 | | | (9,742) | | | 815,258 | | | 859,598 | |
5% Senior Notes due 2028 (the "5% Notes")(2) | | 500,000 | | | (5,667) | | | 494,333 | | | 507,500 | | | | 0 | | | 0 | | | 0 | | | 0 | |
47/8% Senior Notes due 2029 (the "47/8% Notes due 2029")(2) | | 1,000,000 | | | (13,019) | | | 986,981 | | | 1,012,500 | | | | 1,000,000 | | | (14,104) | | | 985,896 | | | 1,015,640 | |
51/4% Senior Notes due 2030 (the "51/4 Notes due 2030")(2) | | 1,300,000 | | | (14,792) | | | 1,285,208 | | | 1,352,000 | | | | 0 | | | 0 | | | 0 | | | 0 | |
41/2% Senior Notes due 2031 (the "41/2% Notes")(2) | | 1,100,000 | | | (12,970) | | | 1,087,030 | | | 1,102,750 | | | | 0 | | | 0 | | | 0 | | | 0 | |
55/8% Senior Notes due 2032 (the "55/8% Notes")(2) | | 600,000 | | | (6,873) | | | 593,127 | | | 630,000 | | | | 0 | | | 0 | | | 0 | | | 0 | |
Real Estate Mortgages, Financing Lease Liabilities and Other | | 468,906 | | | (215) | | | 468,691 | | | 468,906 | | | | 523,671 | | | (406) | | | 523,265 | | | 523,671 | |
Accounts Receivable Securitization Program | | 270,600 | | | (168) | | | 270,432 | | | 270,600 | | | | 272,062 | | | (81) | | | 271,981 | | | 272,062 | |
Mortgage Securitization Program | | 50,000 | | | (873) | | | 49,127 | | | 50,000 | | | | 50,000 | | | (982) | | | 49,018 | | | 50,000 | |
Total Long-term Debt | | 9,108,935 | | | (97,493) | | | 9,011,442 | | | | | | 8,751,544 | | | (86,965) | | | 8,664,579 | | | |
Less Current Portion | | (392,586) | | | 0 | | | (392,586) | | | | | | (389,013) | | | 0 | | | (389,013) | | | |
Long-term Debt, Net of Current Portion | | $ | 8,716,349 | | | $ | (97,493) | | | $ | 8,618,856 | | | | | | $ | 8,362,531 | | | $ | (86,965) | | | $ | 8,275,566 | | | |
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5)5. Debt (Continued)
| |
(1) | Collectively, the credit agreement ("Credit Agreement"). The Credit Agreement consists of a revolving credit facility (the "Revolving Credit Facility") and a term loan (the "Term Loan A"). The Credit Agreement is scheduled to mature on June 3, 2023. Of the $354,879 of outstanding borrowings under the Revolving Credit Facility as of September 30, 2019, 221,900 was denominated in United States dollars, 72,000 was denominated in Canadian dollars and 72,000 was denominated in Euros. In addition, we also had various outstanding letters of credit totaling $16,843. The remaining amount available for borrowing under the Revolving Credit Facility as of September 30, 2019 was $1,378,278 (which amount represents the maximum availability as of such date). The average interest rate in effect under the Credit Agreement was 3.5% as of September 30, 2019. The average interest rate in effect under the Revolving Credit Facility as of September 30, 2019 was 3.3% and the interest rate in effect under Term Loan A as of September 30, 2019 was 3.8%. |
| |
(2) | In connection with the 2018 First Amendment (as defined in Note 5 to Notes to Consolidated Financial Statements included in our Annual Report), Iron Mountain Information Management, LLC ("IMIM") entered into an incremental term loan activation notice (the "Activation Notice") with certain lenders pursuant to which the lenders party to the Activation Notice agreed to provide commitments to fund an incremental term loan B in the amount of $700,000 (the "Term Loan B"). On March 26, 2018, IMIM borrowed the full amount of the Term Loan B. The Term Loan B is scheduled to mature on January 2, 2026. The interest rate in effect as of September 30, 2019 was 3.8%. The amount of debt for the Term Loan B reflects an unamortized original issue discount of $1,411 and $1,581 as of September 30, 2019 and December 31, 2018, respectively. |
| |
(3) | The interest rate in effect as of September 30, 2019 was 4.9%. We had 327,500 Australian dollars outstanding on the AUD Term Loan as of September 30, 2019. The amount of debt for the AUD Term Loan reflects an unamortized original issue discount of $1,294 and $1,690 as of September 30, 2019 and December 31, 2018, respectively. |
| |
(4) | The interest rate in effect as of September 30, 2019 was 3.0%. |
| |
(5) | Collectively, the "Parent Notes". |
| |
(6) | The interest rate in effect as of September 30, 2019 was 3.1%. The Accounts Receivable Securitization Program terminates on July 30, 2020, at which point all obligations under the program become due. The full amount outstanding under the Accounts Receivable Securitization Program is classified within the current portion of long-term debt in our Condensed Consolidated Balance Sheet as of September 30, 2019. |
| |
(7) | The interest rate in effect as of September 30, 2019 was 3.5%. |
(1)Collectively, the credit agreement (the "Credit Agreement"). The Credit Agreement consists of a revolving credit facility (the "Revolving Credit Facility") and a term loan (the "Term Loan A"). The Credit Agreement is scheduled to mature on June 3, 2023. Of the $172,603 of outstanding borrowings under the Revolving Credit Facility as of September 30, 2020, $128,000 was denominated in United States dollars, 3,200 was denominated in Canadian dollars and 36,000 was denominated in Euros. In addition, we also had various outstanding letters of credit totaling $3,202. The remaining amount available for borrowing under the Revolving Credit Facility as of September 30, 2020 was $1,574,195 (which amount represents the maximum availability as of such date). The average interest rate in effect under the Credit Agreement was 2.3% as of September 30, 2020 and the average interest rate in effect under the Revolving Credit Facility as of September 30, 2020 was 2.9%.
(2)Collectively, the "Parent Notes".
See Note 4 to Notes to Consolidated Financial Statements included in our Annual Report for additional information regarding ourthe Credit Agreement and our other long-term debt, including the direct obligors of each of our debt instruments as well as information regarding the fair value of our debt instruments (including the levels of the fair value hierarchy used to determine the fair value of our debt instruments). The levels of the fair value hierarchy used to determine the fair value of our debt as of September 30, 20192020 are consistent with the levels of the fair value hierarchy used to determine the fair value of our debt as of December 31, 20182019 (which are disclosed in our Annual Report). Additionally, see Note
June 2020 Offerings
On June 22, 2020, IMI completed private offerings of (i) $500,000 in aggregate principal amount of the 5% Notes, (ii) $1,300,000 in aggregate principal amount of the 51/4% Notes due 2030 and (iii) $600,000 in aggregate principal amount of the 55/8% Notes (collectively, the "June 2020 Offerings"). The 5% Notes, the 51/4% Notes due 2030 and the 55/8% Notes were issued at 100.000% of par. The total net proceeds of approximately $2,376,000 from the June 2020 Offerings, after deducting the initial purchasers' commissions, were used to redeem all of the 43/8% Notes, the 6% Notes due 2023 and the 53/4% Notes and to Consolidated Financial Statements includedrepay a portion of the outstanding borrowings under the Revolving Credit Facility.
On June 29, 2020, we redeemed all of the $500,000 in our Annual Report for information regarding whichaggregate principal outstanding of our consolidated subsidiaries guarantee certainthe 43/8% Notes at 100.000% of ourpar and all of the $600,000 in aggregate principal outstanding of the 6% Notes due 2023 at 102.000% of par, plus, in each case, accrued and unpaid interest to, but excluding, the redemption date. We recorded a charge of $17,040 to Other expense (income), net during the second quarter of 2020 related to the early extinguishment of this debt, instruments. There have been no material changesrepresenting the call premium associated with the early redemption of the 6% Notes due 2023, as well as a write-off of unamortized deferred financing costs associated with the early redemption of the 43/8% Notes and the 6% Notes due 2023.
On July 2, 2020, we redeemed all of the $1,000,000 in aggregate principal outstanding of the 53/4% Notes at 100.958% of par, plus accrued and unpaid interest to, our long-termbut excluding, the redemption date. We recorded a charge of $15,310 to Other expense (income), net during the third quarter of 2020 related to the early extinguishment of this debt, since December 31, 2018 other thanrepresenting the call premium and write-off of unamortized deferred financing fees.
August 2020 Offering
On August 18, 2020, IMI completed a private offering of $1,100,000 in aggregate principal amount of the 41/2% Notes. The 41/2% Notes were issued at 100.000% of par. The total net proceeds of approximately $1,089,000 from the issuance of the 471/82% Senior Notes, due 2029, as described below.
See Note 3 for information regardingafter deducting the forward-starting interest rate swap agreementsinitial purchasers' commissions, were used to redeem all of the CAD Notes, the Euro Notes, and the cross-currency swap agreements53/8% Notes and to repay a portion of the outstanding at September 30, 2019.borrowings under the Revolving Credit Facility.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5)5. Debt (Continued)
IssuanceOn August 21, 2020, we redeemed all of the 47/8% Senior Notes due 2029
In September 2019, IMI completed a private offering of $1,000,000250,000 CAD in aggregate principal amountoutstanding of the 4CAD Notes at 104.031% of par, 300,000 Euro in aggregate principal outstanding of the Euro Notes at 101.500% of par and $250,000 in aggregate principal outstanding of the 573/8% Notes due 2029. The 4at 106.628% of par, plus, in each case accrued and unpaid interest to, but excluding, the redemption date. We recorded a charge of $35,950 to Other expense (income), net during the third quarter of 2020 related to the early extinguishment of the CAD Notes, the Euro Notes and the 573/8% Notes, due 2029 were issuedrepresenting the call premiums and write off unamortized deferred financing costs associated with the early redemption of these debt instruments.
Accounts Receivable Securitization Program
On March 31, 2020, we amended the Accounts Receivable Securitization Program to (i) increase the maximum amount available from $275,000 to $300,000 and (ii) extend the maturity date from July 30, 2020 to July 30, 2021, at par.which point all obligations become due. The net proceeds of approximately $987,500 from the 47/8% Notes due 2029, after deducting the initial purchasers' commissions, were used to repayfull amount outstanding borrowings under the Revolving Credit Facility.Accounts Receivable Securitization Program is classified within the current portion of long-term debt in our Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019.
Cash Pooling
As described in greater detail in Note 4 to Notes to Consolidated Financial Statements included in our Annual Report, certain of our subsidiaries participate in cash pooling arrangements (the “Cash Pools”) in order to help manage global liquidity requirements.
We currently utilize 2 separate cash pools,pooling arrangements, 1 of which we utilize to manage global liquidity requirements for our QRSsqualified REIT subsidiaries (the "QRS Cash Pool") and the other for our TRSstaxable REIT subsidiaries (the "TRS Cash Pool").
The approximate amount of the net cash position for our QRS Cash Pool and the TRS Cash Pool and the approximate amount of the gross position and outstanding debit balances for each of these pools as of September 30, 20192020 and December 31, 20182019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Gross Cash Position | | Outstanding Debit Balances | | Net Cash Position | | Gross Cash Position | | Outstanding Debit Balances | | Net Cash Position |
QRS Cash Pool | $ | 573,600 | | | $ | (573,000) | | | $ | 600 | | | $ | 372,100 | | | $ | (369,000) | | | $ | 3,100 | |
TRS Cash Pool | 363,800 | | | (362,600) | | | 1,200 | | | 319,800 | | | (301,300) | | | 18,500 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| Gross Cash Position | | Outstanding Debit Balances | | Net Cash Position | | Gross Cash Position | | Outstanding Debit Balances | | Net Cash Position |
QRS Cash Pool | $ | 358,200 |
| | $ | (355,800 | ) | | $ | 2,400 |
| | $ | 300,800 |
| | $ | (298,800 | ) | | $ | 2,000 |
|
TRS Cash Pool | 302,200 |
| | (296,300 | ) | | 5,900 |
| | 281,500 |
| | (279,300 | ) | | 2,200 |
|
The net cash position balances as of September 30, 20192020 and December 31, 20182019 are reflected as cash and cash equivalents in theour Condensed Consolidated Balance Sheets.
Letters of Credit
As of September 30, 2019,2020, we had outstanding letters of credit totaling $35,241,$34,761, of which $16,843$3,202 reduce our borrowing capacity under the Revolving Credit Facility (as described above). The letters of credit expire at various dates between December 2019October 2020 and August 2027.January 2033.
Debt Covenants
The Credit Agreement, our bond indentures and other agreements governing our indebtedness contain certain restrictive financial and operating covenants, including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take certain other corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under the Credit Agreement, our bond indentures or other agreements governing our indebtedness. The Credit Agreement uses EBITDAR-based calculations as the primary measures of financial performance, including leverage andrequires that we satisfy a fixed charge coverage ratios.ratio, a net total lease adjusted leverage ratio and a net secured debt lease adjusted leverage ratio on a quarterly basis and our bond indentures require that, among other things, we satisfy a leverage ratio (not lease adjusted) or a fixed charge coverage ratio (not lease adjusted), as a condition to taking actions such as paying dividends and incurring indebtedness.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5)5. Debt (Continued)
OurThe Credit Agreement uses EBITDAR-based calculations and the bond indentures use EBITDA-based calculations as the primary measures of financial performance for purposes of calculating leverage and fixed charge coverage ratios. The bond indenture EBITDA-based calculations include our consolidated subsidiaries, other than those we have designated as “Unrestricted Subsidiaries” as defined in the bond indentures. Generally, the Credit Agreement and the bond indentures use a trailing four fiscal quarter basis for purposes of the relevant calculations and require certain adjustments and exclusions for purposes of those calculations, which make the calculation of financial performance for purposes of those calculations under the Credit Agreement and bond indentures not directly comparable to Adjusted EBITDA as presented herein. We are in compliance with our leverage and fixed charge coverage ratios under the Credit Agreement, our bond indentures and other agreements governing our indebtedness as of September 30, 20192020 and December 31, 2018, as well as our leverage ratio under our indentures as of September 30, 2019 and December 31, 2018 are as follows:
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 | | Maximum/Minimum Allowable |
Net total lease adjusted leverage ratio | 5.8 |
| | 5.6 |
| | Maximum allowable of 6.5 |
Net secured debt lease adjusted leverage ratio | 2.3 |
| | 2.6 |
| | Maximum allowable of 4.0 |
Bond leverage ratio (not lease adjusted) | 6.1 |
| | 5.8 |
| | Maximum allowable of 6.5-7.0(1) |
Fixed charge coverage ratio | 2.1 |
| | 2.2 |
| | Minimum allowable of 1.5 |
| |
(1) | The maximum allowable leverage ratio under our indentures for the 47/8% Notes due 2029, the 47/8% Notes due 2027, the GBP Notes and the 51/4% Notes is 7.0, while the maximum allowable leverage ratio under the indentures pertaining to our remaining senior and senior subordinated notes is 6.5. In certain instances as provided in our indentures, we have the ability to incur additional indebtedness that would result in our bond leverage ratio exceeding the maximum allowable ratio under our indentures and still remain in compliance with the covenant.
|
2019. Noncompliance with these leverage and fixed charge coverage ratios would have a material adverse effect on our financial condition and liquidity.condition.
(6) Selected
6. Segment Information
Our 3 reportable operating segments as of December 31, 2019 are described in Note 9 to Notes to Consolidated Financial Statements of Parent, Guarantorsincluded in our Annual Report and Non-Guarantorsare as follows:
•Global Records and Information Management ("Global RIM") Business
•Global Data Center Business
•Corporate and Other Business
The following data summarizesoperations associated with acquisitions completed during the consolidating results of IMI on the equity method of accounting as of September 30, 2019 and December 31, 2018 and for the three andfirst nine months ended September 30, 2019 and 2018 and are prepared on the same basis as the consolidated financial statements.of 2020 have been incorporated into our existing reportable operating segments.
The Parent Notes, the CAD Notes, the GBP Notes, and the 53/8% Notes are guaranteed by the subsidiaries referred to below as the Guarantors. These subsidiaries are 100% owned by IMI. The guarantees are full and unconditional, as well as joint and several.
Additionally, IMI guarantees the CAD Notes, which were issued by Iron Mountain Canada Operations ULC ("Canada Company"), the GBP Notes, which were issued by Iron Mountain (UK) PLC ("IM UK"), and the 53/8% Notes, which were issued by Iron Mountain US Holdings, Inc., which is one of the Guarantors. Canada Company and IM UK do not guarantee the Parent Notes. The subsidiaries that do not guarantee the Parent Notes, the CAD Notes, the GBP Notes, and the 53/8% Notes are referred to below as the Non-Guarantors.
In the normal course of business, we periodically change the ownership structureAn analysis of our subsidiaries to meet the requirements of our business. In the event of such changes, we recast the prior period financialbusiness segment information within this footnote to conformand reconciliation to the current period presentation in the period such changes occur. Generally, these changes do not alter the designation of the underlying subsidiaries as Guarantors or Non-Guarantors. However, they may change whether the underlying subsidiary is owned by the Parent, a Guarantor or a Non-Guarantor. If such a change occurs, the amount of investment in subsidiaries in the belowaccompanying Condensed Consolidated Balance Sheets and equity in the earnings (losses) of subsidiaries, net of tax in the below Condensed ConsolidatedFinancial Statements of Operations and Comprehensive Income (Loss) with respect to the relevant Parent, Guarantors, Non-Guarantors and Eliminations columns also would change.is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Global RIM Business | | | | | | | |
Total Revenues | $ | 921,773 | | | $ | 949,564 | | | $ | 2,755,294 | | | $ | 2,850,303 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Adjusted EBITDA | 393,883 | | | 395,181 | | | 1,169,671 | | | 1,156,596 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Global Data Center Business | | | | | | | |
Total Revenues | $ | 72,814 | | | $ | 64,418 | | | $ | 206,939 | | | $ | 188,245 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Adjusted EBITDA | 33,359 | | | 32,261 | | | 94,812 | | | 85,913 | |
Corporate and Other Business | | | | | | | |
Total Revenues | $ | 42,060 | | | $ | 48,242 | | | $ | 125,384 | | | $ | 144,446 | |
Adjusted EBITDA | (57,195) | | | (51,741) | | | (188,475) | | | (191,360) | |
Total Consolidated | | | | | | | |
Total Revenues | $ | 1,036,647 | | | $ | 1,062,224 | | | $ | 3,087,617 | | | $ | 3,182,994 | |
Adjusted EBITDA | 370,047 | | | 375,701 | | | 1,076,008 | | | 1,051,149 | |
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2019 |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated |
Assets | |
| | |
| | |
| | |
| | |
|
Current Assets: | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents(1) | $ | 10 |
| | $ | 157,771 |
| | $ | 162,024 |
| | $ | (133,027 | ) | | $ | 186,778 |
|
Accounts receivable | — |
| | 58,400 |
| | 763,526 |
| | — |
| | 821,926 |
|
Intercompany receivable | — |
| | 456,222 |
| | — |
| | (456,222 | ) | | — |
|
Prepaid expenses and other | — |
| | 96,737 |
| | 98,481 |
| | (29 | ) | | 195,189 |
|
Total Current Assets | 10 |
| | 769,130 |
| | 1,024,031 |
| | (589,278 | ) | | 1,203,893 |
|
Property, Plant and Equipment, Net | 122 |
| | 3,049,090 |
| | 1,507,507 |
| | — |
| | 4,556,719 |
|
Other Assets, Net: | |
| | |
| | |
| | |
| | |
|
Long-term notes receivable from affiliates and intercompany receivable | 5,180,133 |
| | — |
| | — |
| | (5,180,133 | ) | | — |
|
Investment in subsidiaries | 1,940,454 |
| | 1,051,609 |
| | — |
| | (2,992,063 | ) | | — |
|
Goodwill | — |
| | 2,853,466 |
| | 1,568,529 |
| | — |
| | 4,421,995 |
|
Operating lease right-of-use assets | — |
| | 939,631 |
| | 825,865 |
| | — |
| | 1,765,496 |
|
Other | 1,972 |
| | 945,025 |
| | 682,067 |
| | — |
| | 1,629,064 |
|
Total Other Assets, Net | 7,122,559 |
| | 5,789,731 |
| | 3,076,461 |
| | (8,172,196 | ) | | 7,816,555 |
|
Total Assets | $ | 7,122,691 |
| | $ | 9,607,951 |
| | $ | 5,607,999 |
| | $ | (8,761,474 | ) | | $ | 13,577,167 |
|
Liabilities and Equity | |
| | |
| | |
| | |
| | |
|
Intercompany Payable | $ | 167,220 |
| | $ | — |
| | $ | 289,002 |
| | $ | (456,222 | ) | | $ | — |
|
Debit Balances Under Cash Pools | — |
| | — |
| | 133,027 |
| | (133,027 | ) | | — |
|
Current Portion of Long-Term Debt | — |
| | 54,028 |
| | 340,823 |
| | (29 | ) | | 394,822 |
|
Total Other Current Liabilities (includes current portion of operating lease liabilities) | 233,492 |
| | 685,486 |
| | 516,311 |
| | — |
| | 1,435,289 |
|
Long-Term Debt, Net of Current Portion | 5,199,103 |
| | 1,457,499 |
| | 1,563,745 |
| | — |
| | 8,220,347 |
|
Long-Term Operating Lease Liabilities, Net of Current Portion | — |
| | 871,377 |
| | 755,530 |
| | — |
| | 1,626,907 |
|
Long-Term Notes Payable to Affiliates and Intercompany Payable | — |
| | 5,180,133 |
| | — |
| | (5,180,133 | ) | | — |
|
Other Long-term Liabilities | 12,046 |
| | 52,842 |
| | 254,966 |
| | — |
| | 319,854 |
|
Commitments and Contingencies (See Note 8) |
|
| |
|
| |
|
| |
|
| |
|
|
Redeemable Noncontrolling Interests | — |
| | — |
| | 68,099 |
| | — |
| | 68,099 |
|
Total Iron Mountain Incorporated Stockholders' Equity | 1,510,830 |
| | 1,306,586 |
| | 1,685,477 |
| | (2,992,063 | ) | | 1,510,830 |
|
Noncontrolling Interests | — |
| | — |
| | 1,019 |
| | — |
| | 1,019 |
|
Total Equity | 1,510,830 |
| | 1,306,586 |
| | 1,686,496 |
| | (2,992,063 | ) | | 1,511,849 |
|
Total Liabilities and Equity | $ | 7,122,691 |
| | $ | 9,607,951 |
| | $ | 5,607,999 |
| | $ | (8,761,474 | ) | | $ | 13,577,167 |
|
| |
(1) | Included within Cash and Cash Equivalents at September 30, 2019 is approximately $141,300 and $0 of cash on deposit associated with our Cash Pools for the Guarantors and Non-Guarantors, respectively. |
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated |
Assets | |
| | |
| | |
| | |
| | |
|
Current Assets: | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents(1) | $ | 132 |
| | $ | 63,407 |
| | $ | 169,318 |
| | $ | (67,372 | ) | | $ | 165,485 |
|
Accounts receivable | — |
| | 47,472 |
| | 799,417 |
| | — |
| | 846,889 |
|
Intercompany receivable | — |
| | 821,324 |
| | — |
| | (821,324 | ) | | — |
|
Prepaid expenses and other | 93 |
| | 109,480 |
| | 86,196 |
| | (29 | ) | | 195,740 |
|
Total Current Assets | 225 |
| | 1,041,683 |
| | 1,054,931 |
| | (888,725 | ) | | 1,208,114 |
|
Property, Plant and Equipment, Net | 190 |
| | 3,010,767 |
| | 1,478,600 |
| | — |
| | 4,489,557 |
|
Other Assets, Net: | |
| | |
| | |
| | |
| | |
|
Long-term notes receivable from affiliates and intercompany receivable | 4,954,686 |
| | — |
| | — |
| | (4,954,686 | ) | | — |
|
Investment in subsidiaries | 1,862,048 |
| | 983,018 |
| | — |
| | (2,845,066 | ) | | — |
|
Goodwill | — |
| | 2,861,381 |
| | 1,579,649 |
| | — |
| | 4,441,030 |
|
Other | — |
| | 982,932 |
| | 735,585 |
| | — |
| | 1,718,517 |
|
Total Other Assets, Net | 6,816,734 |
| | 4,827,331 |
| | 2,315,234 |
| | (7,799,752 | ) | | 6,159,547 |
|
Total Assets | $ | 6,817,149 |
| | $ | 8,879,781 |
| | $ | 4,848,765 |
| | $ | (8,688,477 | ) | | $ | 11,857,218 |
|
Liabilities and Equity | |
| | |
| | |
| | |
| | |
|
Intercompany Payable | $ | 462,927 |
| | $ | — |
| | $ | 358,397 |
| | $ | (821,324 | ) | | $ | — |
|
Debit Balances Under Cash Pools | — |
| | 10,612 |
| | 56,760 |
| | (67,372 | ) | | — |
|
Current Portion of Long-Term Debt | — |
| | 63,859 |
| | 62,576 |
| | (29 | ) | | 126,406 |
|
Total Other Current Liabilities | 268,373 |
| | 618,513 |
| | 477,483 |
| | — |
| | 1,364,369 |
|
Long-Term Debt, Net of Current Portion | 4,223,822 |
| | 1,878,079 |
| | 1,914,516 |
| | — |
| | 8,016,417 |
|
Long-Term Notes Payable to Affiliates and Intercompany Payable | — |
| | 4,954,686 |
| | — |
| | (4,954,686 | ) | | — |
|
Other Long-term Liabilities | 973 |
| | 116,895 |
| | 299,163 |
| | — |
| | 417,031 |
|
Commitments and Contingencies (See Note 8) |
|
| |
|
| |
|
| |
|
| |
|
|
Redeemable Noncontrolling Interests | — |
| | — |
| | 70,532 |
| | — |
| | 70,532 |
|
Total Iron Mountain Incorporated Stockholders' Equity | 1,861,054 |
| | 1,237,137 |
| | 1,607,929 |
| | (2,845,066 | ) | | 1,861,054 |
|
Noncontrolling Interests | — |
| | — |
| | 1,409 |
| | — |
| | 1,409 |
|
Total Equity | 1,861,054 |
| | 1,237,137 |
| | 1,609,338 |
| | (2,845,066 | ) | | 1,862,463 |
|
Total Liabilities and Equity | $ | 6,817,149 |
| | $ | 8,879,781 |
| | $ | 4,848,765 |
| | $ | (8,688,477 | ) | | $ | 11,857,218 |
|
| |
(1) | Included within Cash and Cash Equivalents at December 31, 2018 is approximately $58,900 and $12,700 of cash on deposit associated with our Cash Pools for the Guarantors and Non-Guarantors, respectively. |
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated |
Revenues: | |
| | |
| | |
| | |
| | |
|
Storage rental | $ | — |
| | $ | 416,967 |
| | $ | 256,351 |
| | $ | — |
| | $ | 673,318 |
|
Service | — |
| | 245,584 |
| | 143,322 |
|
| — |
| | 388,906 |
|
Intercompany revenues | — |
| | 1,173 |
| | 5,631 |
| | (6,804 | ) | | — |
|
Total Revenues | — |
| | 663,724 |
| | 405,304 |
| | (6,804 | ) | | 1,062,224 |
|
Operating Expenses: | |
| | |
| | |
| | |
| | |
|
Cost of sales (excluding depreciation and amortization) | — |
| | 262,183 |
| | 189,134 |
| | — |
| | 451,317 |
|
Intercompany | — |
| | 5,631 |
| | 1,173 |
| | (6,804 | ) | | — |
|
Selling, general and administrative | 161 |
| | 162,052 |
| | 76,943 |
|
| — |
|
| 239,156 |
|
Depreciation and amortization | 23 |
| | 100,023 |
| | 57,515 |
| | — |
| | 157,561 |
|
(Gain) Loss on disposal/write-down of property, plant and equipment, net | — |
| | (8,922 | ) | | (362 | ) | | — |
| | (9,284 | ) |
Total Operating Expenses | 184 |
| | 520,967 |
| | 324,403 |
| | (6,804 | ) | | 838,750 |
|
Operating (Loss) Income | (184 | ) | | 142,757 |
| | 80,901 |
| | — |
| | 223,474 |
|
Interest Expense (Income), Net(1) | 52,166 |
| | 6,074 |
| | 48,437 |
| | — |
| | 106,677 |
|
Other (Income) Expense, Net | (596 | ) | | 11,577 |
| | (24,396 | ) | | — |
| | (13,415 | ) |
(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes | (51,754 | ) |
| 125,106 |
| | 56,860 |
| | — |
| | 130,212 |
|
Provision (Benefit) for Income Taxes | — |
| | 12,814 |
| | 9,114 |
| | — |
| | 21,928 |
|
Equity in the (Earnings) Losses of Subsidiaries, Net of Tax | (159,429 | ) | | (46,345 | ) | | — |
| | 205,774 |
| | — |
|
Income (Loss) from Continuing Operations | 107,675 |
| | 158,637 |
| | 47,746 |
| | (205,774 | ) | | 108,284 |
|
Income (Loss) from Discontinued Operations, Net of Tax | — |
| | — |
| | — |
| | — |
| | — |
|
Net Income (Loss) | 107,675 |
| | 158,637 |
| | 47,746 |
| | (205,774 | ) | | 108,284 |
|
Less: Net Income (Loss) Attributable to Noncontrolling Interests | — |
| | — |
| | 609 |
| | — |
| | 609 |
|
Net Income (Loss) Attributable to Iron Mountain Incorporated | $ | 107,675 |
| | $ | 158,637 |
| | $ | 47,137 |
| | $ | (205,774 | ) | | $ | 107,675 |
|
Net Income (Loss) | $ | 107,675 |
| | $ | 158,637 |
| | $ | 47,746 |
| | $ | (205,774 | ) | | $ | 108,284 |
|
Other Comprehensive (Loss) Income: | | | | | | | | | |
Foreign Currency Translation Adjustments | 13,101 |
| | — |
| | (96,696 | ) | | — |
| | (83,595 | ) |
Change in Fair Value of Derivative Instruments | (1,496 | ) | | — |
| | — |
| | — |
| | (1,496 | ) |
Equity in Other Comprehensive (Loss) Income of Subsidiaries | (95,987 | ) | | (81,135 | ) | | — |
| | 177,122 |
| | — |
|
Total Other Comprehensive (Loss) Income | (84,382 | ) | | (81,135 | ) | | (96,696 | ) | | 177,122 |
| | (85,091 | ) |
Comprehensive Income (Loss) | 23,293 |
| | 77,502 |
| | (48,950 | ) | | (28,652 | ) | | 23,193 |
|
Comprehensive (Loss) Income Attributable to Noncontrolling Interests | — |
| | — |
| | (100 | ) | | — |
| | (100 | ) |
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated | $ | 23,293 |
| | $ | 77,502 |
| | $ | (48,850 | ) | | $ | (28,652 | ) | | $ | 23,293 |
|
| |
(1) | Included within Interest Expense (Income), Net are intercompany management fees and royalty fees, which are eliminated in our consolidated financial statements. |
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Continued)
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2018 |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated |
Revenues: | |
| | |
| | |
| | |
| | |
|
Storage rental | $ | — |
| | $ | 404,397 |
| | $ | 252,576 |
| | $ | — |
| | $ | 656,973 |
|
Service | — |
| | 250,471 |
| | 153,547 |
| | — |
| | 404,018 |
|
Intercompany revenues | — |
| | 1,192 |
| | 4,330 |
| | (5,522 | ) | | — |
|
Total Revenues | — |
| | 656,060 |
| | 410,453 |
| | (5,522 | ) | | 1,060,991 |
|
Operating Expenses: | |
| | |
| | |
| | |
| |
|
|
Cost of sales (excluding depreciation and amortization) | — |
| | 254,068 |
| | 193,950 |
| | — |
| | 448,018 |
|
Intercompany cost of sales | — |
| | 4,330 |
| | 1,192 |
| | (5,522 | ) | | — |
|
Selling, general and administrative | (427 | ) | | 177,777 |
| | 82,579 |
| | — |
| | 259,929 |
|
Depreciation and amortization | 31 |
| | 100,210 |
| | 57,556 |
| | — |
| | 157,797 |
|
(Gain) Loss on disposal/write-down of property, plant and equipment, net | — |
| | (1,669 | ) | | 1,281 |
| | — |
| | (388 | ) |
Total Operating Expenses | (396 | ) | | 534,716 |
| | 336,558 |
| | (5,522 | ) | | 865,356 |
|
Operating Income (Loss) | 396 |
| | 121,344 |
| | 73,895 |
| | — |
| | 195,635 |
|
Interest Expense (Income), Net(1) | 49,964 |
| | 3,151 |
| | 50,823 |
| | — |
| | 103,938 |
|
Other Expense (Income), Net | 439 |
| | 4,155 |
| | (4,269 | ) | | — |
| | 325 |
|
(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes | (50,007 | ) | | 114,038 |
| | 27,341 |
| | — |
| | 91,372 |
|
Provision (Benefit) for Income Taxes | — |
| | 9,012 |
| | 5,011 |
| | — |
| | 14,023 |
|
Equity in the (Earnings) Losses of Subsidiaries, Net of Tax | (115,876 | ) | | (25,414 | ) | | — |
| | 141,290 |
| | — |
|
Income (Loss) from Continuing Operations | 65,869 |
| | 130,440 |
| | 22,330 |
| | (141,290 | ) | | 77,349 |
|
(Loss) Income from Discontinued Operations | — |
| | (11,588 | ) | | (17 | ) | | — |
| | (11,605 | ) |
Net Income (Loss) | 65,869 |
| | 118,852 |
| | 22,313 |
| | (141,290 | ) | | 65,744 |
|
Less: Net (Loss) Income Attributable to Noncontrolling Interests | — |
| | — |
| | (125 | ) | | — |
| | (125 | ) |
Net Income (Loss) Attributable to Iron Mountain Incorporated | $ | 65,869 |
| | $ | 118,852 |
| | $ | 22,438 |
| | $ | (141,290 | ) | | $ | 65,869 |
|
Net Income (Loss) | $ | 65,869 |
| | $ | 118,852 |
| | $ | 22,313 |
| | $ | (141,290 | ) | | $ | 65,744 |
|
Other Comprehensive (Loss) Income: | | | | | | | | | |
Foreign Currency Translation Adjustment | 2,139 |
| | — |
| | (26,908 | ) | | — |
| | (24,769 | ) |
Change in Fair Value of Derivative Instruments | 1,980 |
| | — |
| | — |
| | — |
| | 1,980 |
|
Equity in Other Comprehensive (Loss) Income of Subsidiaries | (24,929 | ) | | (14,443 | ) | | — |
| | 39,372 |
| | — |
|
Total Other Comprehensive (Loss) Income | (20,810 | ) | | (14,443 | ) | | (26,908 | ) | | 39,372 |
| | (22,789 | ) |
Comprehensive Income (Loss) | 45,059 |
| | 104,409 |
| | (4,595 | ) | | (101,918 | ) | | 42,955 |
|
Comprehensive (Loss) Income Attributable to Noncontrolling Interests | — |
| | — |
| | (2,104 | ) | | — |
| | (2,104 | ) |
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated | $ | 45,059 |
| | $ | 104,409 |
| | $ | (2,491 | ) | | $ | (101,918 | ) | | $ | 45,059 |
|
_____________________________________________________________ | |
(1) | Included within Interest Expense (Income), Net are intercompany management fees and royalty fees, which are eliminated in our consolidated financial statements. |
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Continued)
|
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated |
Revenues: | |
| | |
| | |
| | |
| | |
|
Storage rental | $ | — |
| | $ | 1,235,353 |
| | $ | 770,227 |
| | $ | — |
| | $ | 2,005,580 |
|
Service | — |
| | 733,247 |
| | 444,167 |
| | — |
| | 1,177,414 |
|
Intercompany revenues | — |
| | 3,485 |
| | 15,094 |
| | (18,579 | ) | | — |
|
Total Revenues | — |
| | 1,972,085 |
| | 1,229,488 |
| | (18,579 | ) | | 3,182,994 |
|
Operating Expenses: | |
| | |
| | |
| | |
| | |
Cost of sales (excluding depreciation and amortization) | — |
| | 788,864 |
| | 589,099 |
| | — |
| | 1,377,963 |
|
Intercompany cost of sales | — |
| | 15,094 |
| | 3,485 |
| | (18,579 | ) | | — |
|
Selling, general and administrative | 310 |
| | 523,844 |
| | 238,325 |
| | — |
| | 762,479 |
|
Depreciation and amortization | 68 |
| | 308,284 |
| | 176,023 |
| | — |
| | 484,375 |
|
Loss (Gain) on disposal/write-down of property, plant and equipment, net | — |
| | 18,436 |
| | (35,523 | ) | | — |
| | (17,087 | ) |
Total Operating Expenses | 378 |
| | 1,654,522 |
| | 971,409 |
| | (18,579 | ) | | 2,607,730 |
|
Operating (Loss) Income | (378 | ) | | 317,563 |
| | 258,079 |
|
| — |
|
| 575,264 |
|
Interest Expense (Income), Net(1) | 151,392 |
| | 19,128 |
| | 143,907 |
| | — |
| | 314,427 |
|
Other (Income) Expense, Net | (55 | ) | | 16,636 |
| | (29,978 | ) | | — |
| | (13,397 | ) |
(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes | (151,715 | ) | | 281,799 |
| | 144,150 |
|
| — |
|
| 274,234 |
|
Provision (Benefit) for Income Taxes | — |
| | 15,268 |
| | 27,859 |
| | — |
| | 43,127 |
|
Equity in the (Earnings) Losses of Subsidiaries, Net of Tax | (381,392 | ) | | (111,897 | ) | | — |
| | 493,289 |
| | — |
|
Income (Loss) from Continuing Operations | 229,677 |
| | 378,428 |
| | 116,291 |
|
| (493,289 | ) |
| 231,107 |
|
Income (Loss) from Discontinued Operations | — |
| | 120 |
| | (16 | ) | | — |
| | 104 |
|
Net Income (Loss) | 229,677 |
| | 378,548 |
| | 116,275 |
| | (493,289 | ) | | 231,211 |
|
Less: Net Income (Loss) Attributable to Noncontrolling Interests | — |
| | — |
| | 1,534 |
| | — |
| | 1,534 |
|
Net Income (Loss) Attributable to Iron Mountain Incorporated | $ | 229,677 |
| | $ | 378,548 |
| | $ | 114,741 |
| | $ | (493,289 | ) | | $ | 229,677 |
|
Net Income (Loss) | $ | 229,677 |
| | $ | 378,548 |
| | $ | 116,275 |
| | $ | (493,289 | ) | | $ | 231,211 |
|
Other Comprehensive (Loss) Income: | | | | | | | | | |
Foreign Currency Translation Adjustments | 14,962 |
| | — |
| | (86,157 | ) | | — |
| | (71,195 | ) |
Change in Fair Value of Derivative Instruments | (9,101 | ) | | — |
| | — |
| | — |
| | (9,101 | ) |
Equity in Other Comprehensive (Loss) Income of Subsidiaries | (86,400 | ) | | (72,858 | ) | | — |
| | 159,258 |
| | — |
|
Total Other Comprehensive (Loss) Income | (80,539 | ) | | (72,858 | ) | | (86,157 | ) | | 159,258 |
| | (80,296 | ) |
Comprehensive Income (Loss) | 149,138 |
| | 305,690 |
| | 30,118 |
| | (334,031 | ) | | 150,915 |
|
Comprehensive Income (Loss) Attributable to Noncontrolling Interests | — |
| | — |
| | 1,777 |
| | — |
| | 1,777 |
|
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated | $ | 149,138 |
| | $ | 305,690 |
| | $ | 28,341 |
| | $ | (334,031 | ) | | $ | 149,138 |
|
| |
(1) | Included within Interest Expense (Income), Net are intercompany management fees and royalty fees, which are eliminated in our consolidated financial statements. |
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Continued)
|
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated |
Revenues: | |
| | |
| | |
| | |
| | |
|
Storage rental | $ | — |
| | $ | 1,201,035 |
| | $ | 762,526 |
| | $ | — |
| | $ | 1,963,561 |
|
Service | — |
| | 726,915 |
| | 473,796 |
| | — |
| | 1,200,711 |
|
Intercompany revenues | — |
| | 3,613 |
| | 13,126 |
| | (16,739 | ) | | — |
|
Total Revenues | — |
| | 1,931,563 |
| | 1,249,448 |
| | (16,739 | ) | | 3,164,272 |
|
Operating Expenses: | |
| | |
| | |
| | |
| | |
Cost of sales (excluding depreciation and amortization) | — |
| | 753,837 |
| | 594,366 |
| | — |
| | 1,348,203 |
|
Intercompany cost of sales | — |
| | 13,126 |
| | 3,613 |
| | (16,739 | ) | | — |
|
Selling, general and administrative | (348 | ) | | 531,507 |
| | 258,165 |
| | — |
| | 789,324 |
|
Depreciation and amortization | 96 |
| | 299,372 |
| | 175,127 |
| | — |
| | 474,595 |
|
(Gain) Loss on disposal/write-down of property, plant and equipment, net | — |
| | (2,491 | ) | | 427 |
| | — |
| | (2,064 | ) |
Total Operating Expenses | (252 | ) | | 1,595,351 |
| | 1,031,698 |
| | (16,739 | ) | | 2,610,058 |
|
Operating Income (Loss) | 252 |
| | 336,212 |
| | 217,750 |
| | — |
| | 554,214 |
|
Interest Expense (Income), Net(1) | 150,218 |
| | 4,863 |
| | 148,755 |
| | — |
| | 303,836 |
|
Other Expense (Income), Net | 2,049 |
| | 12,323 |
| | (12,952 | ) | | — |
| | 1,420 |
|
(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes | (152,015 | ) | | 319,026 |
| | 81,947 |
| | — |
| | 248,958 |
|
Provision (Benefit) for Income Taxes | — |
| | 14,810 |
| | 25,147 |
| | — |
| | 39,957 |
|
Equity in the (Earnings) Losses of Subsidiaries, Net of Tax | (348,104 | ) | | (54,395 | ) | | — |
| | 402,499 |
| | — |
|
Income (Loss) from Continuing Operations | 196,089 |
| | 358,611 |
| | 56,800 |
| | (402,499 | ) | | 209,001 |
|
(Loss) Income from Discontinued Operations | — |
| | (12,283 | ) | | (144 | ) | | — |
| | (12,427 | ) |
Net Income (Loss) | 196,089 |
| | 346,328 |
| | 56,656 |
| | (402,499 | ) | | 196,574 |
|
Less: Net Income (Loss) Attributable to Noncontrolling Interests | — |
| | — |
| | 485 |
| | — |
| | 485 |
|
Net Income (Loss) Attributable to Iron Mountain Incorporated | $ | 196,089 |
| | $ | 346,328 |
| | $ | 56,171 |
| | $ | (402,499 | ) | | $ | 196,089 |
|
Net Income (Loss) | $ | 196,089 |
| | $ | 346,328 |
| | $ | 56,656 |
| | $ | (402,499 | ) | | $ | 196,574 |
|
Other Comprehensive (Loss) Income: | | | | | | | | | |
Foreign Currency Translation Adjustment | 6,761 |
| | — |
| | (139,051 | ) | | — |
| | (132,290 | ) |
Change in Fair Value of Derivative Instruments | 4,183 |
| | — |
| | — |
| | — |
| | 4,183 |
|
Equity in Other Comprehensive (Loss) Income of Subsidiaries | (135,215 | ) | | (105,967 | ) | | — |
| | 241,182 |
| | — |
|
Total Other Comprehensive (Loss) Income | (124,271 | ) | | (105,967 | ) | | (139,051 | ) | | 241,182 |
| | (128,107 | ) |
Comprehensive Income (Loss) | 71,818 |
| | 240,361 |
| | (82,395 | ) | | (161,317 | ) | | 68,467 |
|
Comprehensive (Loss) Income Attributable to Noncontrolling Interests | — |
| | — |
| | (3,351 | ) | | — |
| | (3,351 | ) |
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated | $ | 71,818 |
| | $ | 240,361 |
| | $ | (79,044 | ) | | $ | (161,317 | ) | | $ | 71,818 |
|
| |
(1) | Included within Interest Expense (Income), Net are intercompany management fees and royalty fees, which are eliminated in our consolidated financial statements. |
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated |
Cash Flows from Operating Activities: | |
| | |
| | |
| | |
| | |
|
Cash Flows from Operating Activities—Continuing Operations | $ | (161,288 | ) | | $ | 596,529 |
| | $ | 212,904 |
| | $ | — |
| | $ | 648,145 |
|
Cash Flows from Operating Activities—Discontinued Operations | — |
| | — |
| | — |
| | — |
| | — |
|
Cash Flows from Operating Activities | (161,288 | ) | | 596,529 |
| | 212,904 |
| | — |
| | 648,145 |
|
Cash Flows from Investing Activities: | |
| | |
| | |
| | |
| | |
|
Capital expenditures | — |
| | (306,567 | ) | | (227,047 | ) | | — |
| | (533,614 | ) |
Cash paid for acquisitions, net of cash acquired | — |
| | (9,508 | ) | | (46,991 | ) | | — |
| | (56,499 | ) |
Intercompany loans to subsidiaries | (295,124 | ) | | 6,526 |
| | — |
| | 288,598 |
| | — |
|
Acquisitions of customer relationships, customer inducements and data center lease-based intangibles | — |
| | (86,052 | ) | | (27,457 | ) | | — |
| | (113,509 | ) |
Investments in joint ventures (see Note 10) | — |
| | (19,222 | ) | | — |
| | — |
| | (19,222 | ) |
Proceeds from sales of property and equipment and other, net | — |
| | 33,031 |
| | 49,117 |
| | — |
| | 82,148 |
|
Cash Flows from Investing Activities—Continuing Operations | (295,124 | ) | | (381,792 | ) | | (252,378 | ) | | 288,598 |
| | (640,696 | ) |
Cash Flows from Investing Activities—Discontinued Operations | — |
| | 2,564 |
| | 2,497 |
| | — |
| | 5,061 |
|
Cash Flows from Investing Activities | (295,124 | ) | | (379,228 | ) | | (249,881 | ) | | 288,598 |
| | (635,635 | ) |
Cash Flows from Financing Activities: | |
| | |
| | |
| | |
| | |
|
Repayment of revolving credit facility, term loan facilities and other debt | — |
| | (9,507,136 | ) | | (3,183,555 | ) | | — |
| | (12,690,691 | ) |
Proceeds from revolving credit facility, term loan facilities and other debt | — |
| | 9,068,245 |
| | 3,188,031 |
| | — |
| | 12,256,276 |
|
Net proceeds from sales of senior notes | 987,500 |
| | — |
| | — |
| | — |
| | 987,500 |
|
Debit (payments) balances under cash pools | — |
| | (10,612 | ) | | 76,267 |
| | (65,655 | ) | | — |
|
Debt (repayment to) financing from and equity (distribution to) contribution from noncontrolling interests, net | — |
| | — |
| | (1,464 | ) | | — |
| | (1,464 | ) |
Intercompany loans from parent | — |
| | 326,566 |
| | (37,968 | ) | | (288,598 | ) | | — |
|
Parent cash dividends | (528,908 | ) | | — |
| | — |
| | — |
| | (528,908 | ) |
Net (payments) proceeds associated with employee stock-based awards | (2,059 | ) | | — |
| | — |
| | — |
| | (2,059 | ) |
Payment of debt financing and stock issuance costs | (243 | ) | | — |
| | (526 | ) | | — |
| | (769 | ) |
Cash Flows from Financing Activities—Continuing Operations | 456,290 |
| | (122,937 | ) | | 40,785 |
| | (354,253 | ) | | 19,885 |
|
Cash Flows from Financing Activities—Discontinued Operations | — |
| | — |
| | — |
| | — |
| | — |
|
Cash Flows from Financing Activities | 456,290 |
| | (122,937 | ) | | 40,785 |
| | (354,253 | ) | | 19,885 |
|
Effect of exchange rates on cash and cash equivalents | — |
| | — |
| | (11,102 | ) | | — |
| | (11,102 | ) |
(Decrease) Increase in cash and cash equivalents | (122 | ) | | 94,364 |
| | (7,294 | ) | | (65,655 | ) | | 21,293 |
|
Cash and cash equivalents, including Restricted Cash, beginning of period | 132 |
| | 63,407 |
| | 169,318 |
| | (67,372 | ) | | 165,485 |
|
Cash and cash equivalents, including Restricted Cash, end of period | $ | 10 |
| | $ | 157,771 |
| | $ | 162,024 |
|
| $ | (133,027 | ) | | $ | 186,778 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)
|
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
| Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated |
Cash Flows from Operating Activities: | |
| | |
| | |
| | |
| | |
|
Cash Flows from Operating Activities—Continuing Operations | $ | (208,384 | ) | | $ | 644,493 |
| | $ | 189,429 |
| | $ | — |
| | $ | 625,538 |
|
Cash Flows from Operating Activities—Discontinued Operations | — |
| | (995 | ) | | — |
| | — |
| | (995 | ) |
Cash Flows from Operating Activities | (208,384 | ) | | 643,498 |
| | 189,429 |
| | — |
| | 624,543 |
|
Cash Flows from Investing Activities: | |
| | |
| | |
| | |
| | |
|
Capital expenditures | — |
| | (224,594 | ) | | (105,359 | ) | | — |
| | (329,953 | ) |
Cash paid for acquisitions, net of cash acquired | — |
| | (1,332,235 | ) | | (378,776 | ) | | — |
| | (1,711,011 | ) |
Intercompany loans to subsidiaries | 629,918 |
| | (23,092 | ) | | — |
| | (606,826 | ) | | — |
|
Acquisitions of customer relationships, customer inducements and data center lease-based intangibles | — |
| | (47,531 | ) | | (16,030 | ) | | — |
| | (63,561 | ) |
Net proceeds from Divestments | — |
| | 1,019 |
| | — |
| | — |
| | 1,019 |
|
Proceeds from sales of property and equipment and other, net | — |
| | 283 |
| | 430 |
| | — |
| | 713 |
|
Cash Flows from Investing Activities—Continuing Operations | 629,918 |
| | (1,626,150 | ) | | (499,735 | ) | | (606,826 | ) | | (2,102,793 | ) |
Cash Flows from Investing Activities—Discontinued Operations | — |
| | — |
| | — |
| | — |
| | — |
|
Cash Flows from Investing Activities | 629,918 |
| | (1,626,150 | ) | | (499,735 | ) | | (606,826 | ) | | (2,102,793 | ) |
Cash Flows from Financing Activities: | |
| | |
| | |
| | |
| | |
|
Repayment of revolving credit facility, term loan facilities and other debt | — |
| | (5,386,024 | ) | | (5,840,147 | ) | | — |
| | (11,226,171 | ) |
Proceeds from revolving credit facility, term loan facilities and other debt | — |
| | 6,456,050 |
| | 5,980,967 |
| | — |
| | 12,437,017 |
|
Debit (payments) balances under cash pools | — |
| | (832 | ) | | (389 | ) | | 1,221 |
| | — |
|
Debt (repayment to) financing from and equity (distribution to) contribution from noncontrolling interests, net | — |
| | — |
| | (2,035 | ) | | — |
| | (2,035 | ) |
Intercompany loans from parent | — |
| | (664,591 | ) | | 57,765 |
| | 606,826 |
| | — |
|
Parent cash dividends | (505,403 | ) | | — |
| | — |
| | — |
| | (505,403 | ) |
Net (payments) proceeds associated with employee stock-based awards | (2,800 | ) | | — |
| | — |
| | — |
| | (2,800 | ) |
Net proceeds associated with the Over-Allotment Option exercise | 76,192 |
| | — |
| | — |
| | — |
| | 76,192 |
|
Net proceeds associated with the At the Market (ATM) Program | 8,716 |
| | — |
| | — |
| | — |
| | 8,716 |
|
Payment of debt financing and stock issuance costs | (412 | ) | | (12,388 | ) | | (3,157 | ) | | — |
| | (15,957 | ) |
Cash Flows from Financing Activities—Continuing Operations | (423,707 | ) | | 392,215 |
| | 193,004 |
| | 608,047 |
| | 769,559 |
|
Cash Flows from Financing Activities—Discontinued Operations | — |
| | — |
| | — |
| | — |
| | — |
|
Cash Flows from Financing Activities | (423,707 | ) | | 392,215 |
| | 193,004 |
| | 608,047 |
| | 769,559 |
|
Effect of exchange rates on cash and cash equivalents | — |
| | — |
| | (19,332 | ) | | — |
| | (19,332 | ) |
(Decrease) Increase in cash and cash equivalents | (2,173 | ) | | (590,437 | ) | | (136,634 | ) | | 1,221 |
| | (728,023 | ) |
Cash and cash equivalents, including Restricted Cash, beginning of period | 2,433 |
| | 642,408 |
| | 375,584 |
| | (94,726 | ) | | 925,699 |
|
Cash and cash equivalents, including Restricted Cash, end of period | $ | 260 |
| | $ | 51,971 |
| | $ | 238,950 |
| | $ | (93,505 | ) | | $ | 197,676 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(7) Segment Information
Our 6 reportable operating segments as of December 31, 2018 are described in Note 9 to Notes to Consolidated Financial Statements included in our Annual Report and are as follows:
North American Records and Information Management Business
North American Data Management Business
Western European Business
Other International Business
Global Data Center Business
Corporate and Other Business
There have been no changes made to our reportable operating segments since December 31, 2018, other than the impact of the Consumer Storage Transaction (as defined in Note 10). Prior to the Consumer Storage Transaction, our consumer storage business was a component of our Corporate and Other Business Segment. The previously reported segment information has been restated to conform to the current presentation and reflects the changes to our reportable operating segments that occurred in fourth quarter of 2018 as described in Note 9 to Notes to Consolidated Financial Statements included in our Annual Report. The operations associated with acquisitions completed during the first nine months of 2019 have been incorporated into our existing reportable operating segments.
An analysis of our business segment information and reconciliation to the accompanying Condensed Consolidated Financial Statements is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | North American Records and Information Management Business | | North American Data Management Business | | Western European Business | | Other International Business | | Global Data Center Business | | Corporate and Other Business | | Total Consolidated |
For the Three Months Ended September 30, 2019 | | | | | | | | | | | | | | |
Total Revenues | | $ | 542,044 |
| | $ | 96,552 |
| | $ | 121,437 |
| | $ | 197,728 |
| | $ | 64,418 |
| | $ | 40,045 |
| | $ | 1,062,224 |
|
Storage Rental | | 317,820 |
| | 66,497 |
| | 78,009 |
| | 128,715 |
| | 62,001 |
| | 20,276 |
| | 673,318 |
|
Service | | 224,224 |
| | 30,055 |
| | 43,428 |
| | 69,013 |
| | 2,417 |
| | 19,769 |
| | 388,906 |
|
Depreciation and Amortization | | 58,801 |
| | 6,709 |
| | 13,257 |
| | 30,008 |
| | 34,067 |
| | 14,719 |
| | 157,561 |
|
Depreciation | | 45,394 |
| | 4,620 |
| | 9,137 |
| | 17,512 |
| | 20,193 |
| | 11,296 |
| | 108,152 |
|
Amortization | | 13,407 |
| | 2,089 |
| | 4,120 |
| | 12,496 |
| | 13,874 |
| | 3,423 |
| | 49,409 |
|
Adjusted EBITDA | | 246,415 |
| | 54,378 |
| | 38,639 |
| | 62,120 |
| | 32,261 |
| | (58,112 | ) | | 375,701 |
|
Expenditures for Segment Assets | | 64,098 |
| | 2,822 |
| | 18,125 |
| | 43,290 |
| | 58,060 |
| | 14,883 |
| | 201,278 |
|
Capital Expenditures (see Liquidity and Capital Resources section of Management's Discussion & Analysis of Financial Condition and Results of Operations) | | 46,376 |
| | 2,822 |
| | 16,191 |
| | 28,944 |
| | 57,267 |
| | 14,883 |
| | 166,483 |
|
Cash Paid for Acquisitions, Net of Cash Acquired | | — |
| | — |
| | — |
| | 11,848 |
| | — |
| | — |
| | 11,848 |
|
Acquisitions of Customer Relationships, Customer Inducements and Contract Fulfillment Costs and third-party commissions | | 17,722 |
| | — |
| | 1,934 |
| | 2,498 |
| | 793 |
| | — |
| | 22,947 |
|
For the Three Months Ended September 30, 2018 | | |
| | |
| | | | |
| | | | |
| | |
|
Total Revenues | | $ | 539,603 |
| | $ | 97,477 |
| | $ | 126,354 |
| | $ | 200,639 |
| | $ | 63,380 |
| | $ | 33,538 |
| | $ | 1,060,991 |
|
Storage Rental | | 306,633 |
| | 67,779 |
| | 79,492 |
| | 124,920 |
| | 60,039 |
| | 18,110 |
| | 656,973 |
|
Service | | 232,970 |
| | 29,698 |
| | 46,862 |
| | 75,719 |
| | 3,341 |
| | 15,428 |
| | 404,018 |
|
Depreciation and Amortization | | 59,869 |
| | 9,472 |
| | 14,316 |
| | 31,487 |
| | 27,965 |
| | 14,688 |
| | 157,797 |
|
Depreciation | | 46,756 |
| | 7,277 |
| | 9,996 |
| | 19,272 |
| | 16,431 |
| | 13,258 |
| | 112,990 |
|
Amortization | | 13,113 |
| | 2,195 |
| | 4,320 |
| | 12,215 |
| | 11,534 |
| | 1,430 |
| | 44,807 |
|
Adjusted EBITDA | | 248,600 |
| | 53,484 |
| | 40,817 |
| | 60,106 |
| | 27,299 |
| | (67,976 | ) | | 362,330 |
|
Expenditures for Segment Assets | | 53,665 |
| | 5,033 |
| | 2,774 |
| | 49,330 |
| | 42,585 |
| | 29,435 |
| | 182,822 |
|
Capital Expenditures (see Liquidity and Capital Resources section of Management's Discussion & Analysis of Financial Condition and Results of Operations) | | 31,373 |
| | 5,033 |
| | 551 |
| | 21,929 |
| | 41,896 |
| | 11,570 |
| | 112,352 |
|
Cash Paid for Acquisitions, Net of Cash Acquired | | — |
| | — |
| | — |
| | 26,277 |
| | — |
| | 17,865 |
| | 44,142 |
|
Acquisitions of Customer Relationships, Customer Inducements and Contract Fulfillment Costs | | 22,292 |
| | — |
| | 2,223 |
| | 1,124 |
| | 689 |
| | — |
| | 26,328 |
|
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(7)6. Segment Information (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | North American Records and Information Management Business | | North American Data Management Business | | Western European Business | | Other International Business | | Global Data Center Business | | Corporate and Other Business | | Total Consolidated |
As of and for the Nine Months Ended September 30, 2019 | | |
| | |
| | | | |
| | | | |
| | |
|
Total Revenues | | $ | 1,608,697 |
| | $ | 289,714 |
| | $ | 377,517 |
| | $ | 598,507 |
| | $ | 188,245 |
| | $ | 120,314 |
| | $ | 3,182,994 |
|
Storage Rental | | 938,161 |
| | 199,819 |
| | 237,258 |
| | 387,086 |
| | 182,301 |
| | 60,955 |
| | 2,005,580 |
|
Service | | 670,536 |
| | 89,895 |
| | 140,259 |
| | 211,421 |
| | 5,944 |
| | 59,359 |
| | 1,177,414 |
|
Depreciation and Amortization | | 181,494 |
| | 27,011 |
| | 42,842 |
| | 91,367 |
| | 98,370 |
| | 43,291 |
| | 484,375 |
|
Depreciation | | 137,801 |
| | 20,451 |
| | 30,560 |
| | 53,563 |
| | 58,233 |
| | 35,877 |
| | 336,485 |
|
Amortization | | 43,693 |
| | 6,560 |
| | 12,282 |
| | 37,804 |
| | 40,137 |
| | 7,414 |
| | 147,890 |
|
Adjusted EBITDA | | 715,683 |
| | 157,998 |
| | 122,011 |
| | 178,993 |
| | 85,913 |
| | (209,449 | ) | | 1,051,149 |
|
Total Assets(1) | | 5,742,593 |
| | 860,101 |
| | 1,319,442 |
| | 2,620,709 |
| | 2,349,917 |
| | 684,405 |
| | 13,577,167 |
|
Expenditures for Segment Assets | | 166,908 |
| | 13,708 |
| | 72,560 |
| | 93,373 |
| | 314,242 |
| | 42,831 |
| | 703,622 |
|
Capital Expenditures (see Liquidity and Capital Resources section of Management's Discussion & Analysis of Financial Condition and Results of Operations) | | 103,660 |
| | 13,708 |
| | 41,031 |
| | 56,048 |
| | 279,856 |
| | 39,311 |
| | 533,614 |
|
Cash Paid for Acquisitions, Net of Cash Acquired | | 9,876 |
| | — |
| | 11,850 |
| | 31,253 |
| | — |
| | 3,520 |
| | 56,499 |
|
Acquisitions of Customer Relationships and Customer Inducements and Contract Fulfillment Costs and third-party commissions | | 53,372 |
| | — |
| | 19,679 |
| | 6,072 |
| | 34,386 |
| | — |
| | 113,509 |
|
As of and for the Nine Months Ended September 30, 2018 | | |
| | |
| | | | |
| | | | |
| | |
|
Total Revenues | | $ | 1,605,526 |
| | $ | 297,472 |
| | $ | 393,869 |
| | $ | 618,933 |
| | $ | 164,878 |
| | $ | 83,594 |
| | $ | 3,164,272 |
|
Storage Rental | | 917,347 |
| | 205,833 |
| | 245,883 |
| | 386,278 |
| | 157,479 |
| | 50,741 |
| | 1,963,561 |
|
Service | | 688,179 |
| | 91,639 |
| | 147,986 |
| | 232,655 |
| | 7,399 |
| | 32,853 |
| | 1,200,711 |
|
Depreciation and Amortization | | 183,591 |
| | 29,114 |
| | 49,372 |
| | 93,724 |
| | 72,736 |
| | 46,058 |
| | 474,595 |
|
Depreciation | | 144,146 |
| | 22,517 |
| | 34,575 |
| | 56,535 |
| | 40,931 |
| | 39,219 |
| | 337,923 |
|
Amortization | | 39,445 |
| | 6,597 |
| | 14,797 |
| | 37,189 |
| | 31,805 |
| | 6,839 |
| | 136,672 |
|
Adjusted EBITDA | | 719,199 |
| | 162,616 |
| | 131,377 |
| | 181,305 |
| | 72,990 |
| | (202,027 | ) | | 1,065,460 |
|
Total Assets(1) | | 4,961,149 |
| | 823,868 |
| | 1,104,221 |
| | 2,328,574 |
| | 2,159,955 |
| | 433,103 |
| | 11,810,870 |
|
Expenditures for Segment Assets | | 138,210 |
| | 15,529 |
| | 37,813 |
| | 111,777 |
| | 1,745,770 |
| | 55,426 |
| | 2,104,525 |
|
Capital Expenditures (see Liquidity and Capital Resources section of Management's Discussion & Analysis of Financial Condition and Results of Operations) | | 86,365 |
| | 15,529 |
| | 31,694 |
| | 60,992 |
| | 98,169 |
| | 37,204 |
| | 329,953 |
|
Cash Paid for Acquisitions, Net of Cash Acquired | | 1,551 |
| | — |
| | — |
| | 45,673 |
| | 1,645,922 |
| | 17,865 |
| | 1,711,011 |
|
Acquisitions of Customer Relationships, Customer Inducements and Contract Fulfillment Costs | | 50,294 |
| | — |
| | 6,119 |
| | 5,112 |
| | 1,679 |
| | 357 |
| | 63,561 |
|
| |
(1) | Excludes all intercompany receivables or payables and investment in subsidiary balances. Total assets as of September 30, 2019 reflects the adoption of ASU 2016-02. |
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(7) Segment Information (Continued)
The accounting policies of the reportable operating segments are the same as those described in Note 2 and in Note 2 to Notes to Consolidated Financial Statements included in our Annual Report. Adjusted EBITDA for each segment is defined as income (loss) from continuing operations before interest expense, net, provision (benefit) for income taxes, depreciation and amortization, and also excludes certain items that we believe are not indicative of our core operating results, specifically: (i)(1) (gain) loss on disposal/write-down of property, plant and equipment, net (including real estate); (ii)(2) intangible impairments; (iii)(3) other expense (income) expense,, net (which includes foreign currency transaction (gains) losses, net)net, and debt extinguishment expense); (4) Significant Acquisition Costs; (5) Restructuring Charges (as defined in Note 10); and (iv) Significant Acquisition(6) COVID-19 Costs (as defined below). Internally, we use Adjusted EBITDA as the basis for evaluating the performance of, and allocating resources to, our operating segments.
A reconciliation of Income (Loss) from Continuing Operations to Adjusted EBITDA to income (loss) from continuing operations on a consolidated basis for the three and nine months ended September 30, 20192020 and 20182019 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Income (Loss) from Continuing Operations | $ | 38,562 | | | $ | 108,284 | | | $ | 96,341 | | | $ | 231,107 | |
Add/(Deduct): | | | | | | | |
Provision (Benefit) for Income Taxes | 13,934 | | | 21,928 | | | 33,304 | | | 43,127 | |
Other Expense (Income), Net | 83,465 | | | (13,415) | | | 66,439 | | | (13,397) | |
Interest Expense, Net | 104,303 | | | 106,677 | | | 313,408 | | | 314,427 | |
(Gain) Loss on disposal/write-down of property, plant and equipment, net | (75,840) | | | (9,284) | | | (78,170) | | | (17,087) | |
Depreciation and amortization | 157,252 | | | 157,561 | | | 483,686 | | | 484,375 | |
Significant Acquisition Costs | 0 | | | 3,950 | | | 0 | | | 8,597 | |
Restructuring Charges | 48,371 | | | 0 | | | 128,715 | | | 0 | |
COVID-19 Costs(1) | 0 | | | 0 | | | 9,285 | | | 0 | |
Intangible impairments | 0 | | | 0 | | | 23,000 | | | 0 | |
Adjusted EBITDA | $ | 370,047 | | | $ | 375,701 | | | $ | 1,076,008 | | | $ | 1,051,149 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Adjusted EBITDA | $ | 375,701 |
| | $ | 362,330 |
| | $ | 1,051,149 |
| | $ | 1,065,460 |
|
(Add)/Deduct: | | | | | | | |
Provision (Benefit) for Income Taxes | 21,928 |
| | 14,023 |
| | 43,127 |
| | 39,957 |
|
Other (Income) Expense, Net | (13,415 | ) | | 325 |
| | (13,397 | ) | | 1,420 |
|
Interest Expense, Net | 106,677 |
| | 103,938 |
| | 314,427 |
| | 303,836 |
|
(Gain) Loss on disposal/write-down of property, plant and equipment, net | (9,284 | ) | | (388 | ) | | (17,087 | ) | | (2,064 | ) |
Depreciation and amortization | 157,561 |
| | 157,797 |
| | 484,375 |
| | 474,595 |
|
Significant Acquisition Costs(1) | 3,950 |
| | 9,286 |
| | 8,597 |
| | 38,715 |
|
Income (Loss) from Continuing Operations | $ | 108,284 |
| | $ | 77,349 |
| | $ | 231,107 |
| | $ | 209,001 |
|
| |
(1) | As defined in Note 9 to Notes to Consolidated Financial Statements included in our Annual Report. |
_______________________________________________________________
(1)Costs that are incremental and directly attributable to the COVID-19 pandemic which are not expected to recur once the pandemic ends ("COVID-19 Costs"). For the nine months ended September 30, 2020, approximately $7,600 and $1,600 of COVID-19 Costs are included within Cost of Sales and Selling, general and administrative expenses, respectively, on our Condensed Consolidated Statement of Operations. These costs include the purchase of personal protective equipment for our employees and incremental cleaning costs of our facilities, among other direct costs.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(7)6. Segment Information (Continued)
Information as to our revenues by product and service lines by segment for the three and nine months ended September 30, 20192020 and 20182019 are as follows:
| | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | North American Records and Information Management Business | | North American Data Management Business | �� | Western European Business | | Other International Business | | Global Data Center Business | | Corporate and Other Business | | Total Consolidated | | 2020 | | 2019 | | 2020 | | 2019 |
For the Three Months Ended September 30, 2019 | | | | | | | | | | | | | | | |
Global RIM Business | | Global RIM Business | | | | | | | |
Records Management(1) | | $ | 452,336 |
| | $ | — |
| | $ | 103,683 |
| | $ | 169,748 |
| | $ | — |
| | $ | 23,837 |
| | $ | 749,604 |
| Records Management(1) | $ | 712,182 | | | $ | 717,570 | | | $ | 2,118,767 | | | $ | 2,135,273 | |
Data Management(1) | | — |
| | 93,016 |
| | 17,551 |
| | 18,884 |
| | — |
| | 16,208 |
| | 145,659 |
| Data Management(1) | 121,936 | | | 129,451 | | | 367,093 | | | 391,400 | |
Information Destruction(1)(2) | | 89,708 |
| | 3,536 |
| | 203 |
| | 9,096 |
| | — |
| | — |
| | 102,543 |
| Information Destruction(1)(2) | 87,655 | | | 102,543 | | | 269,434 | | | 323,630 | |
Data Center | | — |
| | — |
| | — |
| | — |
| | 64,418 |
| | — |
| | 64,418 |
| Data Center | 0 | | | 0 | | | 0 | | | 0 | |
Total Revenues | | $ | 542,044 |
| | $ | 96,552 |
| | $ | 121,437 |
| | $ | 197,728 |
| | $ | 64,418 |
| | $ | 40,045 |
| | $ | 1,062,224 |
| Total Revenues | $ | 921,773 | | | $ | 949,564 | | | $ | 2,755,294 | | | $ | 2,850,303 | |
For the Three Months Ended September 30, 2018 | | | | | | | | | | | | | | | |
Global Data Center Business | | Global Data Center Business | | | | | | | |
Records Management(1) | | $ | 441,102 |
| | $ | — |
| | $ | 107,388 |
| | $ | 173,426 |
| | $ | — |
| | $ | 19,183 |
| | $ | 741,099 |
| Records Management(1) | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Data Management(1) | | — |
| | 94,917 |
| | 18,914 |
| | 18,541 |
| | — |
| | 14,355 |
| | 146,727 |
| Data Management(1) | 0 | | | 0 | | | 0 | | | 0 | |
Information Destruction(1)(2) | | 98,501 |
| | 2,560 |
| | 52 |
| | 8,672 |
| | — |
| | — |
| | 109,785 |
| Information Destruction(1)(2) | 0 | | | 0 | | | 0 | | | 0 | |
Data Center | | — |
| | — |
| | — |
| | — |
| | 63,380 |
| | — |
| | 63,380 |
| Data Center | 72,814 | | | 64,418 | | | 206,939 | | | 188,245 | |
Total Revenues | | $ | 539,603 |
| | $ | 97,477 |
| | $ | 126,354 |
| | $ | 200,639 |
| | $ | 63,380 |
| | $ | 33,538 |
| | $ | 1,060,991 |
| Total Revenues | $ | 72,814 | | | $ | 64,418 | | | $ | 206,939 | | | $ | 188,245 | |
For the Nine Months Ended September 30, 2019 | | | | | | | | | | | | | | | |
Corporate and Other Business | | Corporate and Other Business | | | | | | | |
Records Management(1) | | $ | 1,322,488 |
| | $ | — |
| | $ | 321,759 |
| | $ | 515,158 |
| | $ | — |
| | $ | 74,377 |
| | $ | 2,233,782 |
| Records Management(1) | $ | 25,720 | | | $ | 32,034 | | | $ | 75,675 | | | $ | 98,509 | |
Data Management(1) | | — |
| | 280,157 |
| | 54,345 |
| | 56,898 |
| | — |
| | 45,937 |
| | 437,337 |
| Data Management(1) | 16,340 | | | 16,208 | | | 49,709 | | | 45,937 | |
Information Destruction(1)(2) | | 286,209 |
| | 9,557 |
| | 1,413 |
| | 26,451 |
| | — |
| | — |
| | 323,630 |
| Information Destruction(1)(2) | 0 | | | 0 | | | 0 | | | 0 | |
Data Center | | — |
| | — |
| | — |
| | — |
| | 188,245 |
| | — |
| | 188,245 |
| Data Center | 0 | | | 0 | | | 0 | | | 0 | |
Total Revenues | | $ | 1,608,697 |
| | $ | 289,714 |
| | $ | 377,517 |
| | $ | 598,507 |
| | $ | 188,245 |
| | $ | 120,314 |
| | $ | 3,182,994 |
| Total Revenues | $ | 42,060 | | | $ | 48,242 | | | $ | 125,384 | | | $ | 144,446 | |
For the Nine Months Ended September 30, 2018 | | | | | | | | | | | | | | | |
Total Consolidated | | Total Consolidated | | | | | | | |
Records Management(1) | | $ | 1,317,505 |
| | $ | — |
| | $ | 335,072 |
| | $ | 533,950 |
| | $ | — |
| | $ | 41,388 |
| | $ | 2,227,915 |
| Records Management(1) | $ | 737,902 | | | $ | 749,604 | | | $ | 2,194,442 | | | $ | 2,233,782 | |
Data Management(1) | | — |
| | 290,279 |
| | 58,526 |
| | 58,246 |
| | — |
| | 42,206 |
| | 449,257 |
| Data Management(1) | 138,276 | | | 145,659 | | | 416,802 | | | 437,337 | |
Information Destruction(1)(2) | | 288,021 |
| | 7,193 |
| | 271 |
| | 26,737 |
| | — |
| | — |
| | 322,222 |
| Information Destruction(1)(2) | 87,655 | | | 102,543 | | | 269,434 | | | 323,630 | |
Data Center | | — |
| | — |
| | — |
| | — |
| | 164,878 |
| | — |
| | 164,878 |
| Data Center | 72,814 | | | 64,418 | | | 206,939 | | | 188,245 | |
Total Revenues | | $ | 1,605,526 |
| | $ | 297,472 |
| | $ | 393,869 |
| | $ | 618,933 |
| | $ | 164,878 |
| | $ | 83,594 |
| | $ | 3,164,272 |
| Total Revenues | $ | 1,036,647 | | | $ | 1,062,224 | | | $ | 3,087,617 | | | $ | 3,182,994 | |
(1)Each of the offerings within our product and service lines has a component of revenue that is storage rental related and a component that is service revenues, except for information destruction, which does not have a storage rental component.
(2)Includes secure shredding services.
| |
(1) | Each of the offerings within our product and service lines has a component of revenue that is storage rental related and a component that is service revenues, except for information destruction, which does not have a storage rental component. |
| |
(2) | Includes secure shredding services. |
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(8)7. Commitments and Contingencies
We are involved in litigation from time to time in the ordinary course of business. A portion of the defense and/or settlement costs associated with such litigation is covered by various commercial liability insurance policies purchased by us and, in limited cases, indemnification from third parties. Our policy is to establish reserves for loss contingencies when the losses are both probable and reasonably able to be estimated. We record legal costs associated with loss contingencies as expenses in the period in which they are incurred. There have been no material updates or changes to the matters disclosed in Note 10 to Notes to Consolidated Financial Statements included in our Annual Report. WeReport, and we continue to believe that the resolution of the matters disclosed in Note 10 to Notes to Consolidated Financial Statements included in our Annual Report will not have a material impact on our consolidated financial condition, results of operations or cash flows.
We have estimated a reasonably possible range for all loss contingencies, including those disclosed in Note 10 to Notes to Consolidated Financial Statements included in our Annual Report and the item below, and believe it is reasonably possible that we could incur aggregate losses in addition to amounts currently accrued for all matters up to an additional $17,000$5,000 over the next several years, of which certain amounts would be covered by insurance or indemnity arrangements.
In June 2019, we received a notification of assessment from tax and customs authorities in the Netherlands related to a VAT liability of approximately 16,800 Euros. The notification of assessment is related to our customs clearing and logistics business in the Netherlands, which we acquired through the acquisition of Bonded Services of America, Inc. and Bonded Services Acquisition, Ltd. (collectively, “Bonded”) in September 2017. As part of the import and declaration services we provide in the Netherlands, we file import declaration forms to the customs authorities for all goods imported in a particular month and calculate the amount of VAT that is due on the goods being imported. In certain instances, we remit import VAT to the Dutch tax authorities and subsequently are reimbursed by the entity the goods are being imported on behalf of. In other instances, however, the payment of VAT may be deferred and paid upon the sale of the goods to the ultimate end customer in cases where the entity receiving the goods holds a valid license allowing for the deferment of VAT (referred to as an Article 23 license). In the notification of assessment, the Dutch tax authorities have asserted that (i) we inappropriately deferred VAT for goods imported under Article 23 for certain of our customers between March 2017 and August 2018 and (ii) we are liable for the amount of VAT related to those goods for which VAT was inappropriately deferred. We have responded to the notification of assessment and have requested additional information regarding the matter from the Dutch tax authorities.
We believe that the assessed amount will be subject to interest and potential penalties. We have established a reserve for this matter based upon our estimate of the amount of loss that is both probable and estimable. We are in the process of exploring potential recoveries (including insurance recoveries and/or claims against other third parties) against any losses we incur associated with this matter.
(9)8. Stockholders' Equity Matters
Our board of directors has adopted a dividend policy under which we have paid, and in the future intend to pay, quarterly cash dividends on our common stock. The amount and timing of future dividends will continue to be subject to the approval of our board of directors, in its sole discretion, and to applicable legal requirements.
In fiscal year 20182019 and the first nine months of 2019,2020, our board of directors declared the following dividends:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Declaration Date | | Dividend Per Share | | Record Date | | Total Amount | | Payment Date |
February 7, 2019 | | $ | 0.6110 | | | March 15, 2019 | | $ | 175,242 | | | April 2, 2019 |
May 22, 2019 | | 0.6110 | | | June 17, 2019 | | 175,389 | | | July 2, 2019 |
July 26, 2019 | | 0.6110 | | | September 16, 2019 | | 175,434 | | | October 2, 2019 |
October 31, 2019 | | 0.6185 | | | December 16, 2019 | | 177,687 | | | January 2, 2020 |
February 13, 2020 | | 0.6185 | | | March 16, 2020 | | 178,047 | | | April 6, 2020 |
May 5, 2020 | | 0.6185 | | | June 15, 2020 | | 178,212 | | | July 2, 2020 |
August 5, 2020 | | 0.6185 | | | September 15, 2020 | | 178,224 | | | October 2, 2020 |
|
| | | | | | | | | | | | |
Declaration Date | | Dividend Per Share | | Record Date | | Total Amount | | Payment Date |
February 14, 2018 | | $ | 0.5875 |
| | March 15, 2018 | | $ | 167,969 |
| | April 2, 2018 |
May 24, 2018 | | 0.5875 |
| | June 15, 2018 | | 168,078 |
| | July 2, 2018 |
July 24, 2018 | | 0.5875 |
| | September 17, 2018 | | 168,148 |
| | October 2, 2018 |
October 25, 2018 | | 0.6110 |
| | December 17, 2018 | | 174,935 |
| | January 3, 2019 |
February 7, 2019 | | 0.6110 |
| | March 15, 2019 | | 175,242 |
| | April 2, 2019 |
May 22, 2019 | | 0.6110 |
| | June 17, 2019 | | 175,389 |
| | July 2, 2019 |
July 26, 2019 | | 0.6110 |
| | September 16, 2019 | | 175,434 |
| | October 2, 2019 |
On November 4, 2020, we declared a dividend to our stockholders of record as of December 15, 2020 of $0.6185 per share, payable on January 6, 2021.
9. Related Parties
In connection with the formation of the MakeSpace JV, we entered into a storage and service agreement with the MakeSpace JV to provide certain storage and related services to the MakeSpace JV (the “MakeSpace Agreement”). Revenues and expenses associated with the MakeSpace Agreement are presented as a component of our Global RIM Business segment. We recognized approximately $8,400 and $22,300 of revenue for the three and nine months ended September 30, 2020, respectively, and approximately $7,300 and $15,200 of revenue for the three and nine months ended September 30, 2019, respectively, associated with the MakeSpace Agreement.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(9) Stockholders' Equity Matters (Continued)10. Project Summit
At The Market (ATM) Equity Program
As described in greater detail in Note 12In October 2019, we announced our global program designed to Notes to Consolidated Financial Statements included in our Annual Report, we entered into a distribution agreement with a syndicate of 10 banks (the “Agents”) pursuant to which we may sell, from time to time, up to an aggregate sales price of $500,000better position us for future growth and achievement of our common stock throughstrategic objectives (“Project Summit”). Since Project Summit was announced, we have identified additional opportunities to streamline our business and operations, as well as accelerated the Agents (the “Attiming of certain opportunities previously identified. Such opportunities include leveraging new technology solutions to enable us to modernize our service delivery model and more efficiently utilize our fleet, labor and real estate, which has broadened the initial scope of Project Summit. The Market (ATM) Equity Program”). There were 0 sharesactivities associated with Project Summit began in the fourth quarter of common stock sold under2019 and are expected to be substantially complete by the At The Market (ATM) Equity Program duringend of 2021.
Including the expanded scope of Project Summit, we estimate that the implementation of Project Summit will result in total costs of approximately $450,000, which includes (1) operating expenditures (“Restructuring Charges”) that primarily consist of: (i) employee severance costs; (ii) internal costs associated with the development and implementation of Project Summit initiatives; (iii) professional fees, primarily related to third party consultants who are assisting with the design and execution of various initiatives as well as project management activities and (iv) system implementation and data conversion costs, and (2) capital expenditures. For the three and nine months ended September 30, 2019. As2020, Restructuring Charges primarily related to employee severance costs, internal costs associated with the development and implementation of September 30, 2019, the remaining aggregate sale price of shares of our common stock available for distribution under the At The Market (ATM) Equity Program was approximately $431,200.Project Summit initiatives and professional fees.
(10) Divestments
On March 19, 2019, we contributed our customer contracts and certain intellectual property and other assets used by us to operate our consumer storage businessRestructuring Charges included in the United States and Canada (the "IM Consumer Storage Assets") and approximately $20,000 in cash (gross of certain transaction expenses) (the "Cash Contribution") to a joint venture entity, Makespace LLC (the "Makespace JV"), established by us and Makespace Labs, Inc. ("Makespace"), a consumer storage services provider (the "Consumer Storage Transaction"). Upon the closing of the Consumer Storage Transaction on March 19, 2019, the Makespace JV owned (i) the IM Consumer Storage Assets, (ii) the Cash Contribution and (iii) the customer contracts, intellectual property and certain other assets used by Makespace to operate its consumer storage business in the United States. As part of the Consumer Storage Transaction, we received an equity interest of approximately 34% in the Makespace JV (the "Makespace Investment"). In connection with the Consumer Storage Transaction and the Makespace Investment, we also entered into a storage and service agreement with the Makespace JV to provide certain storage and related services to the Makespace JV (see Note 12).
We have concluded that the divestment of the IM Consumer Storage Assets in the Consumer Storage Transaction does not meet the criteria to be reported as a discontinued operation in our consolidated financial statements, as our decision to divest this business does not represent a strategic shift that will have a major effect on our operations and financial results. Accordingly, the revenues and expenses associated with this business are presented as a component of Income (loss) from continuing operations in ouraccompanying Condensed Consolidated Statements of Operations for the nine months ended September 30, 2019 through the closing date of the Consumer Storage Transaction andby segment for the three and nine months ended September 30, 20182020 and from the cash flows associated with this businessinception of Project Summit through September 30, 2020 are presentedas follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 | | From the inception of Project Summit through September 30, 2020 |
Global RIM Business | $ | 16,183 | | | $ | 37,245 | | | $ | 59,145 | |
Global Data Center Business | 296 | | | 986 | | | 1,292 | |
Corporate and Other Business | 31,892 | | | 90,484 | | | 116,875 | |
Restructuring Charges | $ | 48,371 | | | $ | 128,715 | | | $ | 177,312 | |
A rollforward of the accrued Restructuring Charges, which is included as a component of cash flows from continuing operationsAccrued expenses and other current liabilities in our Condensed Consolidated Statements of Cash FlowsBalance Sheet, for the nine months ended September 30, 2020 is as follows:
| | | | | |
| |
Balance as of December 31, 2019(1) | $ | 17,777 | |
Amounts accrued | 128,715 | |
| |
Payments | (97,646) | |
Other, including currency translation adjustments | (3,604) | |
Balance as of September 30, 2020(2) | $ | 45,242 | |
(1) Accrued Restructuring Charges at December 31, 2019 through the closing date of the Consumer Storage Transaction and for the nine months ended September 30, 2018.
As a result of the Consumer Storage Transaction, we recorded a gain on saleconsist of approximately $4,200 to Other (income) expense, net, in the first quarter$13,000 of 2019, representing the excessaccrued professional fees and approximately $4,800 of the fair value of the consideration received over the sum of (i) the carrying value of our consumer storage operations and (ii) the Cash Contribution. At the closing date of the Consumer Storage Transaction, the fair value of the Makespace Investment was approximately $27,500. We account for the Makespace Investment as an equity method investment. The carrying value of the Makespace Investmentaccrued employee severance costs.
(2) Accrued Restructuring Charges at September 30, 2019 is $21,152,2020 consist of approximately $33,400 of accrued professional fees and is presented as a componentapproximately $11,800 of Other within Other assets, net in our Condensed Consolidated Balance Sheet.accrued employee severance costs.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(11) Significant Acquisition Costs11. Subsequent Events
Significant Acquisition Costs includedOn October 1, 2020, we formed a joint venture (the “Frankfurt JV Transaction”) with AGC Equity Partners (“AGC”) to design and develop a 280,000 square foot, 27 megawatt, hyperscale data center currently under development in Frankfurt, Germany (the “Frankfurt JV”). AGC acquired an 80% equity interest in the accompanying Condensed Consolidated Statements of OperationsFrankfurt JV, while we retained a 20% equity interest (the “Frankfurt JV Investment”). The total cash consideration for the three80% equity interest sold to AGC was approximately $100,000. The substantial majority of the consideration was received upon the closing of the Frankfurt JV, and nine months ended September 30, 2019 and 2018we are as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Cost of sales (excluding depreciation and amortization) | $ | 1,945 |
| | $ | 2,892 |
| | $ | 4,136 |
| | $ | 5,015 |
|
Selling, general and administrative expenses | 2,005 |
| | 6,394 |
| | 4,461 |
| | 33,700 |
|
Total Significant Acquisition Costs | $ | 3,950 |
| | $ | 9,286 |
| | $ | 8,597 |
| | $ | 38,715 |
|
Significant Acquisition Costs includedentitled to receive an additional approximately $10,000 upon the completion of development of the data center, which we expect to occur in the accompanying Condensed Consolidated Statementssecond quarter of Operations by segment for the three and nine months ended September 30, 2019 and 2018 are as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
North American Records and Information Management Business | $ | 796 |
| | $ | 950 |
| | $ | 1,174 |
| | $ | 4,551 |
|
North American Data Management Business | 11 |
| | 83 |
| | 11 |
| | 434 |
|
Western European Business | 4 |
| | 1,806 |
| | 85 |
| | 5,385 |
|
Other International Business | 1,307 |
| | 2,001 |
| | 2,760 |
| | 3,434 |
|
Global Data Center Business | 70 |
| | 232 |
| | 337 |
| | 11,572 |
|
Corporate and Other Business | 1,762 |
| | 4,214 |
| | 4,230 |
| | 13,339 |
|
Total Significant Acquisition Costs | $ | 3,950 |
| | $ | 9,286 |
| | $ | 8,597 |
| | $ | 38,715 |
|
(12) Related Party Transactions
2021. In connection with the Consumer StorageFrankfurt JV Transaction, and the Makespace Investment (both as described more fully in Note 10), we also entered into a storageagreements whereby we will earn various fees, including property management and service agreement with the Makespace JV to provide certain storageconstruction and relateddevelopment fees, for services we are providing to the MakespaceFrankfurt JV.
The assets included in the Frankfurt JV (the "Makespace Agreement"). RevenuesTransaction have a carrying value of approximately $100,000 at September 30, 2020, and expenses associated withare primarily land and land development assets which are included within our Global Data Center Business segment. The assets are classified as held for sale and are included within Other, a component of Other assets, net in our Condensed Consolidated Balance Sheet at September 30, 2020.
We will account for the Makespace Agreement areFrankfurt JV Investment as an equity method investment, and the carrying value will be presented as a component of Other within Other assets, net in our North American Records and Information Management Business segment. We recognized approximately $7,300 and $15,200 of revenue, respectively, for the three and nine months ended September 30, 2019, associated with the Makespace Agreement.
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(13) Subsequent Events
In October 2019, we announced a global program designed to better position us for future growth and achievement of our strategic objectives (“Project Summit”). Project Summit will focus on simplifying our global structure by combining our core records and information management operations under one global leader and rebalancing our resources, streamlining managerial structures and leveraging our global and regional customer facing resources. The activities associated with Project Summit will beginConsolidated Balance Sheet beginning in the fourth quarter of 2019 and are expected to be substantially complete by the end of 2021. We expect the total program benefits associated with Project Summit to be fully realized by the end of 2022. We estimate that the implementation of Project Summit will result in total restructuring charges (including operating and capital expenditures) of approximately $240,000. We expect to incur restructuring charges associated with Project Summit of approximately $60,000 during2020. During the fourth quarter of 2019, substantially all of which will consist of employee severance costs and professional fees that will be settled in cash during the fourth quarter of 2019 and 2020.
As a result of the realignment of our global managerial structure and changes to our internal financial reporting associated with Project Summit, during the fourth quarter of 2019, we reassessed the composition of our reportable operating segments. Subsequent to the implementation of the planned managerial structure changes associated with Project Summit,2020, we expect to have three reportable operating segments: (i) Global Records and Information Management Business (which will consistrecognize a gain of approximately $25,000 associated with the Frankfurt JV Transaction, representing the excess of the fair value of the consideration received over the carrying value of the assets. The gain remains subject to customary closing adjustments. At the closing date of the Frankfurt JV Transaction, the fair value of our existing North American Records and Information Management Business, North American Data Management Business, Western European Business and Other International Business operating segments); (ii) Global Data Center Business; and (iii) Corporate and Other Business (which includes our Adjacent Businesses operating segment). We also are in the processFrankfurt JV Investment was approximately $25,000.
IRON MOUNTAIN INCORPORATED
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 20192020 should be read in conjunction with our Condensed Consolidated Financial Statements and Notes thereto for the three and nine months ended September 30, 2019,2020, included herein, and our Consolidated Financial Statements and Notes thereto for the year ended December 31, 2018,2019, included in our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission ("SEC") on February 14, 201913, 2020 (our "Annual Report").
FORWARD-LOOKING STATEMENTS
We have made statements in this Quarterly Report on Form 10-Q ("Quarterly(this "Quarterly Report") that constitute "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements concern our operations, economic performance, financial condition, goals, beliefs, future growth strategies, investment objectives, plans and current expectations, such as our (1) commitment to future dividend payments,expectations and assumptions regarding the possible impact from the COVID-19 (as defined below) pandemic on us and our customers, including on our businesses, financial position, results of operations and cash flows and the goodwill associated with our reporting units, (2) expected growth of records stored with us from existing customers, (3) expected 2019 consolidated organic storage rental revenue growth rate, consolidated organic total revenue growth rate and capital expenditures, (4) expectation that profits will increase in our emerging markets, (5) expectation that our growth portfolio will become a large part of our business over time, (6) statements regarding our expectation to reduce our leverage ratio, (7) ability to close pending acquisitions and (8) expected benefits, costs and actions related to, and timing of, Project Summit (as defined and discussed below)., (3) anticipated capital expenditures and possible funding sources, (4) expected total consolidated revenue declines in 2020 and (5) other forward-looking statements related to our business, results of operations and financial condition. These forward-looking statements are subject to various known and unknown risks, uncertainties and other factors.factors, and you should not rely upon them except as statements of our present intentions and of our present expectations, which may or may not occur. When we use words such as "believes," "expects," "anticipates," "estimates" or similar expressions, we are making forward-looking statements. Although we believe that our forward-looking statements are based on reasonable assumptions, our expected results may not be achieved, and actual results may differ materially from our expectations. In addition, important factors that could cause actual results to differ from expectations include, among others:
•the severity and duration of the COVID-19 pandemic and its effects on the global economy, including its effects on us, the markets we serve and our customers and the third parties with whom we do business within those markets;
•our ability to execute on Project Summit and the potential impacts of Project Summit on our ability to retain and recruit employees and execute on our strategic growth plan;
•our ability to remain qualified for taxation as a real estate investment trust for United States federal income tax purposes ("REIT");
the adoption of alternative technologies and shifts by our customers to storage of data through non-paper based technologies;
•changes in customer preferences and demand for our storage and information management services;services, including as a result of the adoption of alternative technologies and shifts to storage of data through non-paper based technologies;
•our ability or inability to execute our strategic growth plan, including our ability to invest according to plan, expand internationally, complete acquisitions on satisfactory terms, integrate acquired companies efficiently and grow our business through joint ventures;
•changes in the amount of our capital expenditures;
•our ability to raise debt or equity capital and changes in the cost of our debt;
•the cost and our ability to comply with current and future laws, regulations and customer demands, including those relating to data security and privacy issues, as well as fire and safety standards;
•the impact of litigation or disputes that may arise in connection with incidents in which we fail to protect our customers' information or our internal records or information technology ("IT") systems and the impact of such incidents on our reputation and ability to compete;
•changes in the price for our storage and information management services relative to the cost of providing such storage and information management services;
•changes in the political and economic environments in the countries in which our international subsidiaries operate and changes in the global political climate;
our ability or inability to manage growth, expand internationally, complete acquisitions on satisfactory terms, to close pending acquisitions and to integrate acquired companies efficiently;
changes in the amount of our growth and recurring capital expenditures and our ability to invest according to plan;
•our ability to comply with our existing debt obligations and restrictions in our debt instruments or to obtain additional financing to meet our working capital needs;instruments;
•the impact of service interruptions or equipment damage and the cost of power on our data center operations;
changes in the cost of our debt;
the impact of alternative, more attractive investments on dividends;
•the cost or potential liabilities associated with real estate necessary for our business;
•the performance of business partners upon whom we depend for technical assistance or management expertise;
our ability to execute on Project Summit and potential impacts of Project Summit on our ability to retain and recruit employees and execute on our strategy; and
•other trends in competitive or economic conditions affecting our financial condition or results of operations not presently contemplated.contemplated; and
You should not rely upon forward-looking statements except as statements•the other risks described in our periodic reports filed with the SEC, including under the caption "Risk Factors" in Part I, Item 1A of our present intentionsAnnual Report and in Part II, Item 1A of our present expectations, which may or may not occur. You should read these cautionary statements as being applicable to all forward-looking statements wherever they appear. Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the "March 31, 2020 Quarterly Report").
Except as required by law, we undertake no obligation to release publicly the result ofupdate 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 madeappearing in this Quarterly Report, as well as our other periodic reports filed with the SEC including under "Risk Factors" in this Quarterly Report and in our Annual Report.report.
Overview
The following discussions set forth, for the periods indicated, management's discussion and analysis of financial condition and results of operations. Significant trends and changes are discussed for the three and nine months ended September 30, 20192020 within each section. Trends and changes that are consistent with the three and nine month periods are not repeated and are discussed on a year to date basis only.
COVID-19
In January 2020, the World Health Organization declared a novel strain of coronavirus ("COVID-19") a pandemic. This resulted in U.S. federal, state and local and foreign governments and private entities mandating various restrictions, including travel restrictions, restrictions on public gatherings, stay-at-home orders and advisories. In response, we temporarily closed certain of our offices and facilities across the world and implemented certain travel restrictions for our employees. The preventative and protective actions that governments have ordered, or we have implemented as an organization, have resulted in a period of reduced service operations and business disruption for us, our customers and other third parties with which we do business. While we have broad geographic and customer diversification with operations in approximately 50 countries, and no single customer accounting for more than 1% of our revenue during the nine months ended September 30, 2020, COVID-19 is a global pandemic impacting numerous industries and geographies. While we do not currently believe that the implications of the COVID-19 pandemic have had a material adverse impact on our ability to collect our accounts receivable, global economic conditions related to the COVID-19 pandemic may have a material adverse effect on our customers, which could impact our future ability to collect our accounts receivable. We continue to monitor the credit worthiness of our customers and customer payment trends, as well as the related impact on our liquidity.
We have taken certain actions during the nine months ended September 30, 2020 to manage our costs and capital expenditures, including, but not limited to: (i) the termination of nearly all of our temporary and contract workers; (ii) reductions in our full-time and part-time work forces; (iii) temporary furloughs, reduced hours or other temporary reduction measures; (iv) the deferral of certain previously planned non-essential capital investments and (v) the implementation of a temporary freeze on future acquisitions. We can provide no assurance that the cost savings measures we have taken, or may take in future periods, will be sufficient to offset any future service level declines, and we continue to evaluate the need for these cost saving measures and additional cost saving measures as additional information regarding the COVID-19 pandemic and the related economic downturn become known. We have incurred certain costs due to the COVID-19 pandemic which are direct, incremental and not expected to recur once the pandemic ends, which include the purchase of personal protective equipment for our employees and incremental cleaning costs of our facilities, among other direct costs. We have excluded these costs in calculating our various non-GAAP measures (as described below).
Project Summit
In October 2019, we announced aour global program designed to better position us for future growth and achievement of our strategic objectives (“("Project Summit”Summit"). Since Project Summit will focus on simplifying our global structure by combining our core records and information management operations under one global leader and rebalancing our resources, streamlining managerial structures and leveraging our global and regional customer facing resources. We also planwas announced, we have identified additional opportunities to implement systems and process changes designed to make our organization more agile and dynamic, streamline our organizationbusiness and reallocateoperations, as well as accelerated the timing of certain opportunities previously identified. Such opportunities include leveraging new technology solutions to enable us to modernize our resources to better align withservice delivery model and more efficiently utilize our strategic goals as partfleet, labor and real estate, which has broadened the initial scope of Project Summit. As a result of the program, we expect to reduce the number of vice president level and above positions by approximately 45%. The total program is expected to reduce our total managerial and administrative workforce by approximately 700 positions over the next two years.
The activities associated with Project Summit will beginbegan in the fourth quarter of 2019 and are expected to be substantially complete by the end of 2021. We expect the total program benefits associated with Project Summit to be fully realized byexiting 2021. Including the endexpanded scope of 2022. WeProject Summit described above, we estimate that Project Summit will improve annual Adjusted EBITDA (as defined below) by approximately $200.0$375.0 million by the end of 2022 as program benefits are realized. Weexiting 2021. In addition, we expect Project Summit to improve annual Adjusted EBITDA by approximately $80.0$165.0 million in 2020, of which we expect to realize approximately $50.0 million of Adjusted EBITDA improvement as a result of the actions initiated during the fourth quarter of 2019.2020. We will continue to evaluate our overall operating model, as well as various opportunities and initiatives, including those associated with real estate consolidation, system implementation and process changes, which could result in the identification and implementation of additional actions associated with Project Summit and incremental costs and benefits.
Including the expanded scope of Project Summit described above, we estimate that the implementation of Project Summit will result in total restructuring charges (including operating and capital expenditures)costs of approximately $240.0 million, including approximately $60.0$450.0 million, of restructuring chargeswhich we expect to incur during the fourth quarter of 2019. We expect to substantially complete all actionsapproximately $200.0 million in 2020. These costs include (1) operating expenditures ("Restructuring Charges") that primarily consist of: (i) employee severance costs; (ii) internal costs associated with the development and implementation of Project Summit byinitiatives; (iii) professional fees, primarily related to third party consultants who are assisting with the enddesign and execution of 2021. We expect substantially allvarious initiatives as well as project management activities and (iv) system implementation and data conversion costs, and (2) capital expenditures. The following table presents (in thousands) the total costs related to Project Summit, comprised of the restructuring chargesRestructuring Charges (primarily related to employee severance costs, internal costs associated with the development and implementation of Project Summit that we will incurinitiatives and professional fees) and capital expenditures for both the three and nine months ended September 30, 2020 and from the inception of Project Summit through September 30, 2020.
| | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, 2020 | | For the Nine Months Ended September 30, 2020 | | From the inception of Project Summit through September 30, 2020 |
Restructuring Charges | $ | 48,371 | | | $ | 128,715 | | | $ | 177,312 | |
Capital Expenditures associated with Project Summit | 2,567 | | | 4,672 | | | 4,672 | |
Total | $ | 50,938 | | | $ | 133,387 | | | $ | 181,984 | |
See Note 10 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for more information on the Restructuring Charges.
During the fourth quarter of 2019, substantially all of which will consist of employee severance costs and professional fees, will be settled in cash during the fourth quarter of 2019 and 2020. In addition, we expect a significant portion of the remaining restructuring charges we will incur as a result of Project Summit will be settled in cash, primarily as a result of employee severance, professional fees, program management and implementation of various technology systems and hardware.
As a result ofthe realignment of our global managerial structure and changes to our internal financial reporting associated with Project Summit, during the fourth quarter of 2019, we reassessed the composition of our reportable operating segments. Subsequent to the implementation of the planned managerial structure changes associated with Project Summit, we expect to have three reportable operating segments: (i) Global Recordssegments and Information Management Business (which will consist of our existing North American Records and Information Management Business, North American Data Management Business, Western European Business and Other International Business operating segments); (ii) Global Data Center Business; and (iii) Corporate and Other Business (which includes our Adjacent Businesses operating segment). We also are in the process of reassessing the composition of our reporting units, at which level we assess goodwill for impairment.
IODC Acquisition
On January 10, 2018, we completed the acquisition of the United States operations of IODC (the "IODC Transaction"). At the closing of the IODC Transaction, we paid approximately $1,347.0 million. In February 2019, we paid approximately $31.0 millionas discussed in additional purchase price associated with the execution of customer contracts from the closing through the one-year anniversary of the IODC Transaction. See Note 62.h. to Notes to Consolidated Financial Statements included in our Annual Report for additional information.
Divestments
a. Consumer Storage Transaction
On March 19, 2019, we contributed our customer contracts and certain intellectual property and other assets used by us to operate our consumer storage business in the United States and Canada (the "IM Consumer Storage Assets") and approximately $20.0 million in cash (gross of certain transaction expenses) (the "Cash Contribution") to a joint venture entity, Makespace LLC (the "Makespace JV"), established by us and Makespace Labs, Inc. ("Makespace"), a consumer storage services provider (the "Consumer Storage Transaction"). Upon the closing of the Consumer Storage Transaction on March 19, 2019, the Makespace JV owned (i) the IM Consumer Storage Assets, (ii) the Cash Contribution and (iii) the customer contracts, intellectual property and certain other assets used by Makespace to operate its consumer storage business in the United States. As part of the Consumer Storage Transaction, we received an equity interest of approximately 34% in the Makespace JV (the "Makespace Investment").
As described in Note 10 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report, the divestment of the IM Consumer Storage Assets in the Consumer Storage Transaction does not meet the criteria to be reported as a discontinued operations in our consolidated financial statements. In connection with the Consumer Storage Transaction and the Makespace Investment, we also entered into a storage and service agreement with the Makespace JV to provide certain storage and related services to the Makespace JV (the "Makespace Agreement"). Revenues and expenses associated with the Makespace Agreement are presented as a component of our North American Records and Information Management Business segment. We recognized approximately $7.3 million and $15.2 million of revenue, respectively, for the three and nine months ended September 30, 2019 associated with the Makespace Agreement.
Report. As a result of these changes, previously reported segment information has been restated to conform to the Consumer Storage Transaction, we recorded a gain on sale of approximately $4.2 million to Other (income) expense, net,current presentation.
Change in the first quarter of 2019, representing the excess of the fair value of the consideration received over the sum of (i) carrying value of our consumer storage operations and (ii) the Cash Contribution.Presentation
b. IMFS Divestment
On September 28, 2018, we sold substantially all of the assets associated with our fulfillment services business in the United States for total consideration of approximately $3.0 million (the "IMFS Divestment"). As described in Note 13 to Notes to Consolidated Financial Statements in our Annual Report, we have concluded that the IMFS Divestment does not meet the criteria to be reported as discontinued operations in our consolidated financial statements, as our decision to divest this business does not represent a strategic shift that will have a major effect on our operations and financial results. Our fulfillment services business represented approximately $6.1 million and $20.2 million of total revenues and approximately $(0.4) million and $0.8 million of (loss) income from continuing operations for the three and nine months ended September 30, 2018, respectively.
Significant Acquisition Costs
We currently estimate total acquisition and integration expenditures associated withhave historically classified our acquisition of Recall Holdings Limited ("Recall") (the "Recall Transaction") and acquisition expenditures associated with the IODC Transaction to be approximately $405.0 million, the substantial majority of which was incurred prior to the end of 2018. From January 1, 2015 through September 30, 2019, we have incurred cumulative operating and capital expenditures associated with the Recall Transaction and the IODC Transaction of $398.9 million, including $323.1 million of Significant Acquisition Costs (as defined in Note 112.x. to Notes to Consolidated Financial Statements included in our Annual Report) as components of Selling, general and $75.8 millionadministrative expenses and Cost of capital expenditures. We expectsales. Beginning in the remaining amountfourth quarter of these operating and capital expenditures will be primarily related to moving costs associated with facility consolidation and system upgrade costs.
Immaterial Restatement
In June 2019, we received a notification of assessment from tax and customs authorities in the Netherlands related to a value-added tax (“VAT”) liability which relates to periods prior to January 1, 2019. We have established a reserve for this matter based upon our estimate of the amount of loss that is both probable and estimable, and have reflected this reserve through an immaterial restatement of our consolidated financial statements. As a result, certainpresent Significant Acquisition Costs as its own line itemsitem within Operating Expenses in our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018Operations. The prior periods have been restatedconformed to reflect the immaterial restatement. See Note 2.n. to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for additional information regarding the effect of the immaterial restatement on certain line items in our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018.presentation.
General
Our revenues consist of storage rental revenues as well as service revenues and are reflected net of sales and value added taxes. Storage rental revenues, which are considered a key driver of financial performance for the storage and information management services industry, consist primarily of recurring periodic rental charges related to the storage of materials or data (generally on a per unit basis) that are typically retainedAll Significant Acquisition Costs were incurred by customers for many years, technology escrow services that protect and manage source code and revenues associated with our data center operations. Service revenues include charges for related service activities, the most significant of which include: (1) the handling of records, including the addition of new records, temporary removal of records from storage, refiling of removed records and courier operations, consisting primarily of the pickup and delivery of records upon customer request; (2) destruction services, consisting primarily of secure shredding of sensitive documents and the related sale of recycled paper, the price of which can fluctuate from period to period, and customer termination and permanent removal fees; (3) other services, including the scanning, imaging and document conversion services of active and inactive records and project revenues; and (4) consulting services. Our service revenue growth has been negatively impacted by declining activity rates as stored records are becoming less active. While customers continue to store their records and tapes with us, they are less likely than they have been in the past to retrieve records for research and other purposes, thereby reducing service activity levels.
Cost of sales (excluding depreciation and amortization) consists primarily of wages and benefits for field personnel, facility occupancy costs (including rent and utilities), transportation expenses (including vehicle leases and fuel), other product cost of sales and other equipment costs and supplies. Of these, wages and benefits and facility occupancy costs are the most significant. Selling, general and administrative expenses consist primarily of wages and benefits for management, administrative, IT, sales, account management and marketing personnel, as well as expenses related to communications and data processing, travel, professional fees, bad debts, training, office equipment and supplies.
The expansion of our international businesses has impacted the major cost of sales components and selling, general and administrative expenses. Our international operations are more labor intensive relative to revenue than our operations in North America and, therefore, labor costs are a higher percentage of international segment revenue. In addition, the overhead structure of our expanding international operations has generally not achieved the same level of overhead leverage as our North American segments, which may result in an increase in selling, general and administrative expenses as a percentage of consolidated revenue as our international operations become a larger percentage of our consolidated results.
Our consolidated revenues and expenses are subject to the net effect of foreign currency translation related to our operations outside the United States. It is difficult to predict the future fluctuations of foreign currency exchange rates and how those fluctuations will impact our Consolidated Statements of Operations. As a result of the relative size of our international operations, these fluctuations may be material on individual balances. Our revenues and expenses from our international operations are generally denominated in the local currency of the country in which they are derived or incurred. Therefore, the impact of currency fluctuations on our operating income and operating margin is partially mitigated. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we compare the percentage change in the results from one period to another period in this report using constant currency presentation. The constant currency growth rates are calculated by translating the 2018 results at the 2019 average exchange rates. Constant currency growth rates are a non-GAAP measure.
The following table is a comparison of underlying average exchange rates of the foreign currencies that had the most significant impact on our United States dollar-reported revenues and expenses:
|
| | | | | | | | | | | | | | | | |
| Percentage of United States Dollar-Reported Revenue for the Three Months Ended September 30, | | Average Exchange Rates for the Three Months Ended September 30, | | Percentage Strengthening / (Weakening) of Foreign Currency |
| 2019 | | 2018 | | 2019 | | 2018 | |
Australian dollar | 3.4 | % | | 3.6 | % | | $ | 0.685 |
| | $ | 0.731 |
| | (6.3 | )% |
Brazilian real | 2.6 | % | | 2.7 | % | | $ | 0.252 |
| | $ | 0.254 |
| | (0.8 | )% |
British pound sterling | 6.2 | % | | 6.4 | % | | $ | 1.233 |
| | $ | 1.303 |
| | (5.4 | )% |
Canadian dollar | 5.7 | % | | 5.8 | % | | $ | 0.757 |
| | $ | 0.765 |
| | (1.0 | )% |
Euro | 7.3 | % | | 7.5 | % | | $ | 1.112 |
| | $ | 1.163 |
| | (4.4 | )% |
|
| | | | | | | | | | | | | | | | |
| Percentage of United States Dollar-Reported Revenue for the Nine Months Ended September 30, | | Average Exchange Rates for the Nine Months Ended September 30, | | Percentage Strengthening / (Weakening) of Foreign Currency |
| 2019 | | 2018 | | 2019 | | 2018 | |
Australian dollar | 3.4 | % | | 3.8 | % | | $ | 0.699 |
| | $ | 0.758 |
| | (7.8 | )% |
Brazilian real | 2.6 | % | | 2.9 | % | | $ | 0.258 |
| | $ | 0.280 |
| | (7.9 | )% |
British pound sterling | 6.4 | % | | 6.7 | % | | $ | 1.273 |
| | $ | 1.352 |
| | (5.8 | )% |
Canadian dollar | 5.7 | % | | 6.0 | % | | $ | 0.752 |
| | $ | 0.777 |
| | (3.2 | )% |
Euro | 7.4 | % | | 7.2 | % | | $ | 1.124 |
| | $ | 1.195 |
| | (5.9 | )% |
The percentage of United States dollar-reported revenues for all other foreign currencies was 12.5% and 12.6%December 31, 2019. Significant Acquisition Costs for the three and nine months ended September 30, 2019 respectively,were approximately $4.0 million and 12.4% and 12.6% for the three and nine months ended September 30, 2018,$8.6 million, respectively.
Non-GAAP Measures
Adjusted EBITDA
Adjusted EBITDA is defined as income (loss) from continuing operations before interest expense, net, provision (benefit) for income taxes, depreciation and amortization, and also excludes certain items that we believe are not indicative of our core operating results, specifically: (1) (gain) loss on disposal/write-down of property, plant and equipment, net (including real estate); (2) intangible impairments; (3) other expense (income) expense,, net (which includes foreign currency transaction (gains) losses, net)net, and debt extinguishment expense); and (4) Significant Acquisition Costs.Costs; (5) Restructuring Charges; and (6) COVID-19 Costs (as defined below). Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by total revenues. We use multiples of current or projected Adjusted EBITDA in conjunction with our discounted cash flow models to determine our estimated overall enterprise valuation and to evaluate acquisition targets. We believe Adjusted EBITDA and Adjusted EBITDA Margin provide our current and potential investors with relevant and useful information regarding our ability to generate cash flowflows 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. We also show Adjusted EBITDA and Adjusted EBITDA Margin for each of our reportable operating segments under “Results of Operations – Segment Analysis” below.
Adjusted EBITDA excludes both interest expense, net and the provision (benefit) for income taxes. These expenses are associated with our capitalization and tax structures, which we do not consider when evaluating the operating profitability of our core operations. Finally, Adjusted EBITDA 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 EBITDA and Adjusted EBITDA 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 income, income (loss) from continuing operations, net income (loss) or cash flows from operating activities from continuing operations (as determined in accordance with GAAP).
Reconciliation of Income (Loss) from Continuing Operations to Adjusted EBITDA (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Income (Loss) from Continuing Operations | $ | 38,562 | | | $ | 108,284 | | | $ | 96,341 | | | $ | 231,107 | |
Add/(Deduct): | | | | | | | |
Provision (Benefit) for Income Taxes | 13,934 | | | 21,928 | | | 33,304 | | | 43,127 | |
Other Expense (Income), Net | 83,465 | | | (13,415) | | | 66,439 | | | (13,397) | |
Interest Expense, Net | 104,303 | | | 106,677 | | | 313,408 | | | 314,427 | |
(Gain) Loss on disposal/write-down of property, plant and equipment, net | (75,840) | | | (9,284) | | | (78,170) | | | (17,087) | |
Depreciation and amortization | 157,252 | | | 157,561 | | | 483,686 | | | 484,375 | |
Significant Acquisition Costs | — | | | 3,950 | | | — | | | 8,597 | |
Restructuring Charges | 48,371 | | | — | | | 128,715 | | | — | |
COVID-19 Costs(1) | — | | | — | | | 9,285 | | | — | |
Intangible impairments | — | | | — | | | 23,000 | | | — | |
Adjusted EBITDA | $ | 370,047 | | | $ | 375,701 | | | $ | 1,076,008 | | | $ | 1,051,149 | |
(1) Costs that are incremental and directly attributable to the COVID-19 pandemic which are not expected to recur once the pandemic ends ("COVID-19 Costs"). These costs include the purchase of personal protective equipment for our employees and incremental cleaning costs of our facilities, among other direct costs.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Income (Loss) from Continuing Operations | $ | 108,284 |
| | $ | 77,349 |
| | $ | 231,107 |
| | $ | 209,001 |
|
Add/(Deduct): | | |
|
| | | | |
Provision (Benefit) for Income Taxes | 21,928 |
| | 14,023 |
| | 43,127 |
| | 39,957 |
|
Other (Income) Expense, Net | (13,415 | ) | | 325 |
| | (13,397 | ) | | 1,420 |
|
Interest Expense, Net | 106,677 |
| | 103,938 |
| | 314,427 |
| | 303,836 |
|
(Gain) Loss on disposal/write-down of property, plant and equipment, net | (9,284 | ) | | (388 | ) | | (17,087 | ) | | (2,064 | ) |
Depreciation and amortization | 157,561 |
| | 157,797 |
| | 484,375 |
| | 474,595 |
|
Significant Acquisition Costs | 3,950 |
| | 9,286 |
| | 8,597 |
| | 38,715 |
|
Adjusted EBITDA | $ | 375,701 |
| | $ | 362,330 |
| | $ | 1,051,149 |
| | $ | 1,065,460 |
|
Adjusted EPS
Adjusted EPS is defined as reported earnings per share fully diluted from continuing operations excluding: (1) (gain) loss on disposal/write-down of property, plant and equipment, net (including real estate); (2) intangible impairments; (3) other expense (income) expense,, net (which includes foreign currency transaction (gains) losses, net)net, and debt extinguishment expense); (4) Significant Acquisition Costs; (5) Restructuring Charges; (6) COVID-19 Costs; and (5)(7) the tax impact of reconciling items and discrete tax items. Adjusted EPS includes income (loss) attributable to noncontrolling interests. We do not believe these excluded items to be indicative of our ongoing operating results, and they are not considered when we are forecasting our future results. We believe Adjusted EPS is of value to our current and potential investors when comparing our results from past, present and future periods.
Reconciliation of Reported EPS—Fully Diluted from Continuing Operations to Adjusted EPS—Fully Diluted from Continuing Operations:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 | | 2020 | | 2019 |
Reported EPS—Fully Diluted from Continuing Operations | $ | 0.37 |
| | $ | 0.27 |
| | $ | 0.80 |
| | $ | 0.73 |
| Reported EPS—Fully Diluted from Continuing Operations | $ | 0.13 | | | $ | 0.37 | | | $ | 0.33 | | | $ | 0.80 | |
Add/(Deduct): | | | | | | | | Add/(Deduct): | |
Income (Loss) Attributable to Noncontrolling Interests | — |
| | — |
| | 0.01 |
| | — |
| Income (Loss) Attributable to Noncontrolling Interests | — | | | — | | | — | | | 0.01 | |
Other (Income) Expense, Net | (0.05 | ) | | — |
| | (0.05 | ) | | — |
| |
Other Expense (Income), Net | | Other Expense (Income), Net | 0.29 | | | (0.05) | | | 0.23 | | | (0.05) | |
(Gain) Loss on disposal/write-down of property, plant and equipment, net | (0.03 | ) | | — |
| | (0.06 | ) | | — |
| (Gain) Loss on disposal/write-down of property, plant and equipment, net | (0.26) | | | (0.03) | | | (0.27) | | | (0.06) | |
Significant Acquisition Costs | 0.01 |
| | 0.03 |
| | 0.03 |
| | 0.14 |
| Significant Acquisition Costs | — | | | 0.01 | | | — | | | 0.03 | |
Restructuring Charges | | Restructuring Charges | 0.17 | | | — | | | 0.45 | | | — | |
COVID-19 Costs | | COVID-19 Costs | — | | | — | | | 0.03 | | | — | |
Intangible impairments | | Intangible impairments | — | | | — | | | 0.08 | | | — | |
Tax Impact of Reconciling Items and Discrete Tax Items(1) | — |
| | (0.02 | ) | | (0.01 | ) | | (0.06 | ) | Tax Impact of Reconciling Items and Discrete Tax Items(1) | (0.01) | | | — | | | (0.05) | | | (0.01) | |
Adjusted EPS—Fully Diluted from Continuing Operations(2) | $ | 0.32 |
| | $ | 0.28 |
| | $ | 0.71 |
| | $ | 0.80 |
| Adjusted EPS—Fully Diluted from Continuing Operations(2) | $ | 0.31 | | | $ | 0.32 | | | $ | 0.80 | | | $ | 0.71 | |
| |
(1) | The difference between our effective tax rates and our structural tax rate (or adjusted effective tax rates) for the three and nine months ended September 30, 2019 and 2018 is primarily due to (i) the reconciling items above, which impact our reported income (loss) from continuing operations before provision (benefit) for income taxes but have an insignificant impact on our reported provision (benefit) for income taxes and (ii) other discrete tax items. Our structural tax rate for purposes of the calculation of Adjusted EPS for the three and nine months ended September 30, 2019 and 2018 was 18.6% and 20.3%, respectively. |
| |
(2) | Columns may not foot due to rounding. |
(1)The difference between our effective tax rates and our structural tax rate (or adjusted effective tax rates) for the three and nine months ended September 30, 2020 and 2019 is primarily due to (i) the reconciling items above, which impact our reported income (loss) from continuing operations before provision (benefit) for income taxes but have an insignificant impact on our reported provision (benefit) for income taxes and (ii) other discrete tax items. Our structural tax rate for purposes of the calculation of Adjusted EPS for the three and nine months ended September 30, 2020 and 2019 was 16.8% and 18.6%, respectively.
(2) Columns may not foot due to rounding.
FFO (Nareit) and FFO (Normalized)
Funds from operations (“FFO”) is defined by the National Association of Real Estate Investment Trusts ("Nareit") and us as net income (loss) excluding depreciation on real estate assets, gains on sale of real estate, net of tax and amortization of data center leased-based intangibles ("FFO (Nareit)"). FFO (Nareit) does not give effect to real estate depreciation because these amounts are computed, under GAAP, to allocate the cost of a property over its useful life. Because values for well-maintained real estate assets have historically increased or decreased based upon prevailing market conditions, we believe that FFO (Nareit) provides investors with a clearer view of our operating performance. Our most directly comparable GAAP measure to FFO (Nareit) is net income (loss). Although Nareit has published a definition of FFO, modifications to FFO (Nareit) are common among REITs as companies seek to provide financial measures that most meaningfully reflect their particular business. Our definition of FFO (Normalized) excludes certain items included in FFO (Nareit) that we believe are not indicative of our core operating results, specifically: (1) (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net; (2) intangible impairments; (3) other expense (income) expense,, net (which includes foreign currency transaction (gains) losses, net)net, and debt extinguishment expense); (4) real estate financing lease depreciation; (5) Significant Acquisition Costs; (6) Restructuring Charges; (7) COVID-19 Costs; (8) the tax impact of reconciling items and discrete tax items; (7)(9) (income) loss (income) from discontinued operations, net of tax; and (8)(10) (gain) loss (gain) on sale of discontinued operations, net of tax.
Reconciliation of Net Income (Loss) to FFO (Nareit) and FFO (Normalized) (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 | | 2020 | | 2019 |
Net Income (Loss) | $ | 108,284 |
| | $ | 65,744 |
| | $ | 231,211 |
| | $ | 196,574 |
| Net Income (Loss) | $ | 38,562 | | | $ | 108,284 | | | $ | 96,341 | | | $ | 231,211 | |
Add/(Deduct): | | | | | | | | Add/(Deduct): | |
Real Estate Depreciation(1) | 72,939 |
| | 72,058 |
| | 220,179 |
| | 211,499 |
| |
Real Estate Depreciation | | Real Estate Depreciation | 72,019 | | | 72,939 | | | 224,325 | | | 220,179 | |
Gains on Sale of Real Estate, Net of Tax | (9,740 | ) | | (1,348 | ) | | (40,252 | ) | | (1,348 | ) | Gains on Sale of Real Estate, Net of Tax | (75,880) | | | (9,740) | | | (77,461) | | | (40,252) | |
Data Center Lease-Based Intangible Assets Amortization(2) | 11,356 |
| | 12,036 |
| | 35,337 |
| | 30,437 |
| |
Data Center Lease-Based Intangible Assets Amortization | | Data Center Lease-Based Intangible Assets Amortization | 10,441 | | | 11,356 | | | 32,173 | | | 35,337 | |
FFO (Nareit) | 182,839 |
| | 148,490 |
| | 446,475 |
| | 437,162 |
| FFO (Nareit) | 45,142 | | | 182,839 | | | 275,378 | | | 446,475 | |
Add/(Deduct): | | | | | | | | Add/(Deduct): | |
(Gain) Loss on disposal/write-down of property, plant and equipment (excluding real estate), net | 369 |
| | 960 |
| | 28,558 |
| | (716 | ) | |
Other (Income) Expense, Net(3) | (13,415 | ) | | 325 |
| | (13,397 | ) | | 1,420 |
| |
Loss (Gain) on disposal/write-down of property, plant and equipment (excluding real estate), net | | Loss (Gain) on disposal/write-down of property, plant and equipment (excluding real estate), net | 40 | | | 369 | | | (359) | | | 28,558 | |
Other Expense (Income), Net(1) | | Other Expense (Income), Net(1) | 83,465 | | | (13,415) | | | 66,439 | | | (13,397) | |
Real Estate Financing Lease Depreciation | 3,115 |
| | 3,374 |
| | 9,732 |
| | 10,323 |
| Real Estate Financing Lease Depreciation | 3,501 | | | 3,115 | | | 10,095 | | | 9,732 | |
Significant Acquisition Costs | 3,950 |
| | 9,286 |
| | 8,597 |
| | 38,715 |
| Significant Acquisition Costs | — | | | 3,950 | | | — | | | 8,597 | |
Tax Impact of Reconciling Items and Discrete Tax Items(4) | 1,283 |
| | (6,347 | ) | | (9,202 | ) | | (18,165 | ) | |
Loss (Income) from Discontinued Operations, Net of Tax(5) | — |
| | 11,605 |
| | (104 | ) | | 12,427 |
| |
Restructuring Charges | | Restructuring Charges | 48,371 | | | — | | | 128,715 | | | — | |
COVID-19 Costs | | COVID-19 Costs | — | | | — | | | 9,285 | | | — | |
Intangible impairments | | Intangible impairments | — | | | — | | | 23,000 | | | — | |
Tax Impact of Reconciling Items and Discrete Tax Items(2) | | Tax Impact of Reconciling Items and Discrete Tax Items(2) | (4,314) | | | 1,283 | | | (13,959) | | | (9,202) | |
(Income) Loss from Discontinued Operations, Net of Tax(3) | | (Income) Loss from Discontinued Operations, Net of Tax(3) | — | | | — | | | — | | | (104) | |
FFO (Normalized) | $ | 178,141 |
| | $ | 167,693 |
| | $ | 470,659 |
| | $ | 481,166 |
| FFO (Normalized) | $ | 176,205 | | | $ | 178,141 | | | $ | 498,594 | | | $ | 470,659 | |
| |
(1) | Includes depreciation expense related to owned real estate assets (land improvements, buildings, building improvements, leasehold improvements and racking), excluding depreciation related to real estate financing leases. |
| |
(2) | Includes amortization expense for data center in-place lease intangible assets and data center tenant relationship intangible assets as discussed in Note 2.b. to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report. |
| |
(3) | Includes foreign currency transaction (gains) losses, net of $(18.3) million and $(19.9) million in the three and nine months ended September 30 2019, respectively, and $0.7 million and $3.8 million in the three and nine months ended September 30, 2018, respectively. See Note 2.k. to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for additional information regarding the components of Other (income) expense, net. |
| |
(4) | Represents the tax impact of (i) the reconciling items above, which impact our reported income (loss) from continuing operations before provision (benefit) for income taxes but have an insignificant impact on our reported provision (benefit) for income taxes and (ii) other discrete tax items. Discrete tax items resulted in a (benefit) provision for income taxes of $1.0 million and $(5.5) million for the three and nine months ended September 30, 2019, respectively, and $(4.0) million and $(14.6) million for the three and nine months ended September 30, 2018, respectively. |
| |
(5) | Net of a de minimis tax benefit for the three and nine months ended September 30, 2019 and 2018. |
(1)Includes (i) foreign currency transaction losses (gains), net of $29.6 million and $(6.3) million for the three and nine months ended September 30, 2020, respectively, and $(18.3) million and $(19.9) million for the three and nine months ended September 30, 2019, respectively and (ii) debt extinguishment expense of $51.3 million and $68.3 million for the three and nine months ended September 30, 2020, respectively.
(2)Represents the tax impact of (i) the reconciling items above, which impact our reported income (loss) from continuing operations before provision (benefit) for income taxes but have an insignificant impact on our reported provision (benefit) for income taxes and (ii) other discrete tax items. Discrete tax items resulted in a (benefit) provision for income taxes of $(3.8) million and $(1.6) million for the three and nine months ended September 30, 2020, respectively, and $1.0 million and $(5.5) million for the three and nine months ended September 30, 2019, respectively.
(3)Net of a de minimis tax benefit for the nine months ended September 30, 2019.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended. On an ongoing basis, we evaluate the estimates used. We base our estimates on historical experience, actuarial estimates, current conditions and various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities and are not readily apparent from other sources. Actual results may differ from these estimates. Our critical accounting policies include the following, which are listed in no particular order:
•Revenue Recognition
•Accounting for Acquisitions
•Impairment of Tangible and Intangible Assets
•Income Taxes
Further detail regarding our critical accounting policies can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report, and the Consolidated Financial Statements and the Notes included therein and should be read in conjunction with the disclosure below which addresses updates in light of the COVID-19 pandemic.
Impairment of Tangible and Intangible Assets
Income Taxes
FurtherGoodwill and other indefinite-lived intangible assets not subject to amortization: Our reporting units as of December 31, 2019 are described in detail regarding our critical accounting policies can be found in "Item 7. Management's Discussion and Analysis ofNote 2.h. to Notes to Consolidated Financial Condition and Results of Operations"Statements included in our Annual Report, andReport. The goodwill associated with acquisitions completed during the Consolidated Financial Statements and the Notes included therein. We have determined that no material changes concerning our critical accounting policies have occurred since December 31, 2018, other than the adoptionfirst nine months of Accounting Standards Update No. 2016-02, Leases (Topic 842), as amended ("ASU 2016-02"), as2020 (which are described in Note 2.d.4 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report.Report) has been incorporated into our reporting units as they existed as of December 31, 2019.
During the first quarter of 2020, we concluded that we had a triggering event related to our Fine Arts reporting unit, requiring us to perform an interim goodwill impairment test. The primary factor contributing to our conclusion was the expected impact of the COVID-19 pandemic to this particular business and its customers and revenue sources, which caused us to believe it was more likely than not that the carrying value of our Fine Arts reporting unit exceeded its fair value. During the first quarter of 2020, we performed an interim goodwill impairment test for our Fine Arts reporting unit utilizing a discounted cash flow model, with updated assumptions on future revenues, operating expenditures and capital expenditures. We concluded that the fair value of the Fine Arts reporting unit was less than its carrying value, primarily due to near-term revenue declines that are unable to be fully mitigated by the cost reduction measures we have taken. Therefore, we recorded a $23.0 million impairment charge on the goodwill associated with this reporting unit during the first quarter of 2020. As disclosed in our Annual Report, our Global Data Center reporting unit had an estimated fair value that exceeded its carrying value by less than 20%. At March 31, 2020, we determined we did not have a triggering event requiring an interim impairment test on the goodwill associated with our Global Data Center reporting unit. During the second and third quarters of 2020, for each of our reporting units, no factors were identified that would alter our interim goodwill impairment analysis performed during the first quarter of 2020, or change the conclusions reached at that time.
Reporting unit valuations have generally been determined using a combined approach based on the present value of future cash flows (the “Discounted Cash Flow Model”) and market multiples. There are inherent uncertainties and judgments involved when determining the fair value of our reporting units for purposes of our annual impairment testing or upon a triggering event. The success of each of these businesses and the achievement of certain key assumptions developed by management and used in the Discounted Cash Flow Model are contingent upon various factors, which may be impacted by the economic effects of the COVID-19 pandemic. Such factors include, but are not limited to: (i) our ability to maintain, or grow, storage rental and service revenues in line with current expectations and (ii) our ability to manage our fixed and variable costs in line with potential future revenue declines. These factors are incremental to those previously outlined in our Annual Report, which included, but were not limited to: (i) achieving growth from existing customers, (ii) sales to new customers, (iii) increased market penetration and (iv) accurately timing the capital investments related to expansions. In addition, the discount rates utilized in our valuation models could be impacted by changes in the underlying interest rates and risk premiums which could also result in future goodwill impairments. However, the duration and severity of the COVID-19 pandemic, as well as the related economic impact on both our business and the businesses of our customers, remain uncertain as of the filing of this Quarterly Report. As such, the current assumptions we used in determining the fair values of our reporting units may materially change as we gain additional visibility into the impact to our business and our customers’ businesses. If our reporting units are not able to meet the assumptions we used in the Discounted Cash Flow Model, or there are any future adverse market conditions that are not currently known or are more severe than we currently expect, including relating to the COVID-19 pandemic, it could potentially lead to a fair value that is less than the carrying value in any one of our reporting units and cause future goodwill impairments.
Recent Accounting Pronouncements
See Note 2.l.2.n. to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for a description of recently issuedadopted accounting pronouncements, including those recently adopted.pronouncements.
Results of Operations
Comparison of the three and nine months ended September 30, 20192020 to the three and nine months ended September 30, 20182019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | |
| | Dollar Change | | Percentage Change |
| 2020 | | 2019 | | |
Revenues | $ | 1,036,647 | | $ | 1,062,224 | | $ | (25,577) | | | (2.4) | % |
Operating Expenses | 796,383 | | 838,750 | | (42,367) | | | (5.1) | % |
Operating Income | 240,264 | | 223,474 | | 16,790 | | | 7.5 | % |
Other Expenses, Net | 201,702 | | 115,190 | | 86,512 | | | 75.1 | % |
Income (Loss) from Continuing Operations | 38,562 | | 108,284 | | (69,722) | | | (64.4) | % |
Income (Loss) from Discontinued Operations, Net of Tax | — | | — | | — | | | — | % |
Net Income (Loss) | 38,562 | | 108,284 | | (69,722) | | | (64.4) | % |
Net Income (Loss) Attributable to Noncontrolling Interests | 168 | | 609 | | (441) | | | (72.4) | % |
Net Income (Loss) Attributable to Iron Mountain Incorporated | $ | 38,394 | | $ | 107,675 | | $ | (69,281) | | | (64.3) | % |
Adjusted EBITDA | $ | 370,047 | | $ | 375,701 | | $ | (5,654) | | | (1.5) | % |
Adjusted EBITDA Margin | 35.7 | % | | 35.4 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | |
| | Dollar Change | | Percentage Change |
| 2020 | | 2019 | | |
Revenues | $ | 3,087,617 | | $ | 3,182,994 | | $ | (95,377) | | | (3.0) | % |
Operating Expenses | 2,578,125 | | 2,607,730 | | (29,605) | | | (1.1) | % |
Operating Income | 509,492 | | 575,264 | | (65,772) | | | (11.4) | % |
Other Expenses, Net | 413,151 | | 344,157 | | 68,994 | | | 20.0 | % |
Income (Loss) from Continuing Operations | 96,341 | | 231,107 | | (134,766) | | | (58.3) | % |
Income (Loss) from Discontinued Operations, Net of Tax | — | | 104 | | (104) | | | (100.0) | % |
Net Income (Loss) | 96,341 | | 231,211 | | (134,870) | | | (58.3) | % |
Net Income (Loss) Attributable to Noncontrolling Interests | 1,058 | | 1,534 | | (476) | | | (31.0) | % |
Net Income (Loss) Attributable to Iron Mountain Incorporated | $ | 95,283 | | $ | 229,677 | | $ | (134,394) | | | (58.5) | % |
Adjusted EBITDA | $ | 1,076,008 | | $ | 1,051,149 | | $ | 24,859 | | | 2.4 | % |
Adjusted EBITDA Margin | 34.8 | % | | 33.0 | % | | | | |
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | |
| Dollar Change | | Percentage Change |
| 2019 | | 2018 | | |
Revenues | $ | 1,062,224 |
| | $ | 1,060,991 |
| | $ | 1,233 |
| | 0.1 | % |
Operating Expenses | 838,750 |
| | 865,356 |
| | (26,606 | ) | | (3.1 | )% |
Operating Income | 223,474 |
| | 195,635 |
| | 27,839 |
| | 14.2 | % |
Other Expenses, Net | 115,190 |
| | 118,286 |
| | (3,096 | ) | | (2.6 | )% |
Income from Continuing Operations | 108,284 |
| | 77,349 |
| | 30,935 |
| | 40.0 | % |
(Loss) Income from Discontinued Operations, Net of Tax | — |
| | (11,605 | ) | | 11,605 |
| | (100.0 | )% |
Net Income | 108,284 |
| | 65,744 |
| | 42,540 |
| | 64.7 | % |
Net Income (Loss) Attributable to Noncontrolling Interests | 609 |
| | (125 | ) | | 734 |
| | (587.2 | )% |
Net Income Attributable to Iron Mountain Incorporated | $ | 107,675 |
| | $ | 65,869 |
| | $ | 41,806 |
| | 63.5 | % |
Adjusted EBITDA(1) | $ | 375,701 |
| | $ | 362,330 |
| | $ | 13,371 |
| | 3.7 | % |
Adjusted EBITDA Margin(1) | 35.4 | % | | 34.2 | % | | | | |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | |
| | Dollar Change | | Percentage Change |
| 2019 | | 2018 | | |
Revenues | $ | 3,182,994 |
| | $ | 3,164,272 |
| | $ | 18,722 |
| | 0.6 | % |
Operating Expenses | 2,607,730 |
| | 2,610,058 |
| | (2,328 | ) | | (0.1 | )% |
Operating Income | 575,264 |
| | 554,214 |
| | 21,050 |
| | 3.8 | % |
Other Expenses, Net | 344,157 |
| | 345,213 |
| | (1,056 | ) | | (0.3 | )% |
Income from Continuing Operations | 231,107 |
| | 209,001 |
| | 22,106 |
| | 10.6 | % |
Income (Loss) from Discontinued Operations, Net of Tax | 104 |
| | (12,427 | ) | | 12,531 |
| | (100.8 | )% |
Net Income | 231,211 |
| | 196,574 |
| | 34,637 |
| | 17.6 | % |
Net Income Attributable to Noncontrolling Interests | 1,534 |
| | 485 |
| | 1,049 |
| | 216.3 | % |
Net Income Attributable to Iron Mountain Incorporated | $ | 229,677 |
| | $ | 196,089 |
| | $ | 33,588 |
| | 17.1 | % |
Adjusted EBITDA(1) | $ | 1,051,149 |
| | $ | 1,065,460 |
| | $ | (14,311 | ) | | (1.3 | )% |
Adjusted EBITDA Margin(1) | 33.0 | % | | 33.7 | % | | | | |
| |
(1) | See "Non-GAAP Measures—Adjusted EBITDA" in this Quarterly Report for the definitions of Adjusted EBITDA and Adjusted EBITDA Margin, a reconciliation of Adjusted EBITDA to Income (Loss) from Continuing Operations and a discussion of why we believe these non-GAAP measures provide relevant and useful information to our current and potential investors. |
REVENUES
Consolidated revenues consistsconsist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Percentage Change | | | | |
| | Dollar Change | | Actual | | Constant Currency(1) | | Organic Growth(2) | | Impact of Acquisitions |
| 2020 | | 2019 | | | | | |
Storage Rental | $ | 696,294 | | | $ | 673,318 | | | $ | 22,976 | | | 3.4 | % | | 3.8 | % | | 2.5 | % | | 1.3 | % |
Service | 340,353 | | | 388,906 | | | (48,553) | | | (12.5) | % | | (12.2) | % | | (13.5) | % | | 1.3 | % |
Total Revenues | $ | 1,036,647 | | | $ | 1,062,224 | | | $ | (25,577) | | | (2.4) | % | | (2.1) | % | | (3.4) | % | | 1.3 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency(1) | | Organic Growth(2) |
| 2019 | | 2018 | | | | |
Storage Rental | $ | 673,318 |
| | $ | 656,973 |
| | $ | 16,345 |
| | 2.5 | % | | 4.0 | % | | 3.0 | % |
Service | 388,906 |
| | 404,018 |
| | (15,112 | ) | | (3.7 | )% | | (2.1 | )% | | (3.0 | )% |
Total Revenues | $ | 1,062,224 |
| | $ | 1,060,991 |
| | $ | 1,233 |
| | 0.1 | % | | 1.7 | % | | 0.7 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency(1) | | Organic Growth(2) |
| 2019 | | 2018 | | | | |
Storage Rental | $ | 2,005,580 |
| | $ | 1,963,561 |
| | $ | 42,019 |
| | 2.1 | % | | 4.5 | % | | 2.5 | % |
Service | 1,177,414 |
| | 1,200,711 |
| | (23,297 | ) | | (1.9 | )% | | 0.7 | % | | (1.2 | )% |
Total Revenues | $ | 3,182,994 |
| | $ | 3,164,272 |
| | $ | 18,722 |
| | 0.6 | % | | 3.1 | % | | 1.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | Percentage Change | | | | |
| | Dollar Change | | Actual | | Constant Currency(1) | | Organic Growth(2) | | Impact of Acquisitions |
| 2020 | | 2019 | | | | | |
Storage Rental | $ | 2,056,797 | | | $ | 2,005,580 | | | $ | 51,217 | | | 2.6 | % | | 4.2 | % | | 2.6 | % | | 1.6 | % |
Service | 1,030,820 | | | 1,177,414 | | | (146,594) | | | (12.5) | % | | (11.1) | % | | (13.0) | % | | 1.9 | % |
Total Revenues | $ | 3,087,617 | | | $ | 3,182,994 | | | $ | (95,377) | | | (3.0) | % | | (1.5) | % | | (3.2) | % | | 1.7 | % |
| |
(1) | Constant currency growth rates are calculated by translating the 2018 results at the 2019 average exchange rates. |
| |
(2) | (1)Constant currency growth rates, which are a non-GAAP measure, are calculated by translating the 2019 results at the 2020 average exchange rates. (2)Our organic revenue growth rate, which is a non-GAAP measure, represents the year-over-year growth rate of our revenues excluding the impact of business acquisitions, divestitures and foreign currency exchange rate fluctuations. Our organic revenue growth rate includes the impact of acquisitions of customer relationships. |
Storage Rental Revenues
In the three and nine months ended September 30, 2019, the increase in reported consolidated storage rental revenues was driven by the favorable impact of acquisitions/divestitures and consolidated organic storage rental revenue growth, partially offset by unfavorable fluctuations in foreign currency exchange rates. The netrate fluctuations. Our organic revenue growth rate includes the impact of acquisitions/divestitures contributed 2.0% to the reported storage rental revenue growth rates foracquisitions of customer relationships.
Total Revenues
For the nine months ended September 30, 2019 compared to2020, the prior year period, primarilydecrease in reported consolidated revenue was driven by acquisitionsdeclines in our Global Data Center Business segment. Organicreported service revenue, partially offset by reported storage rental revenue growth of 2.5% in the nine months ended September 30, 2019 compared to the prior year period was driven by organic storage rental revenue growth of 2.0% in our North American Records and Information Management Business segment due to revenue management partially offset by volume decreases, as well as organic storage rental revenue growth of 3.1% and 4.3% in our Western European Business and Other International Business segments, respectively, primarily a result of volume increases and, to a lesser extent, revenue management. Organic storage rental revenue growth in our Global Data Center Business segment was 5.1% for the nine months ended September 30, 2019 compared to the prior year period, primarily related to a $3.4 million lease modification fee that benefited organic storage rental revenue growth for the segment by 2.2%. Organic storage rental revenue growth in our North American Data Management Business segment was negative 2.1% for the nine months ended September 30, 2019 compared to the prior year period due to lower storage volume, partially offset by the impact of revenue management. Excluding the impact of acquisitions/divestitures, global records management net volumes as of September 30, 2019 increased by 0.4% over the ending volume as of September 30, 2018. Including the impact of acquisitions/divestitures, global records management net volumes as of September 30, 2019 increased by 1.0% over the ending volume at September 30, 2018, supported by net volume increases of 1.5% and 5.2% in our Western European Business and Other International Business segments, respectively, partially offset by a net volume decrease of 1.0% in our North American Records and Information Management Business segment.growth. Foreign currency exchange rate fluctuations decreased our reported storage rentalconsolidated revenue growth rate for the nine months ended September 30, 20192020 by 2.4%,1.5% compared to the prior year period. We expect low single digit total consolidated revenue declines for the full year 2020.
Storage Rental Revenues
Primary factors influencing the change in reported consolidated storage rental revenue for the nine months ended September 30, 2020 include the following:
•organic storage rental revenue growth driven by volume growth in faster growing markets and revenue management;
•a 2.1% increase in global records management net volume due to acquisitions (excluding acquisitions, global records management net volume decreased 1.2%); and
•a decrease of $30.9 million due to foreign currency exchange rate fluctuations.
Service Revenues
InPrimary factors influencing the three and nine months ended September 30, 2019, the decreasechange in reported consolidated service revenues was driven by unfavorable fluctuations in foreign currency exchange rates and negative organic service revenue growth, partially offset by the favorable impact of acquisitions/divestitures. Foreign currency exchange rate fluctuations decreased our reported service revenue growth rate for the nine months ended September 30, 2019 by 2.6%, compared to2020 include the prior year period. Infollowing:
•a decrease in service activity as a result of the nine months ended September 30, 2019, organic service revenue growth was negative 1.2% compared to the prior year period, primarily driven by continued declines in organic service revenue activity levels in our North American Data Management Business segment resulting in negative 3.4% organic service revenue growth in this segment, as the storage business in this segment becomes more archival in nature and tape volumes decline, and negative organic service revenue growth of 1.1% in our North American Records and Information Management Business segment reflecting recent declines in recycled paper prices and lower destruction activity. The net impact of acquisitions/divestitures contributed 1.9% to the reported service revenue growth rates for the nine months ended September 30, 2019, compared to the prior year period.
Total Revenues
For the reasons stated above, our reported consolidated revenues increased $1.2 million, or 0.1%, to $1,062.2 million and $18.7 million, or 0.6%, to $3,183.0 million for the three and nine months ended September 30, 2019, respectively, from $1,061.0 million and $3,164.3 million for the three and nine months ended September 30, 2018, respectively. The net impact of acquisitions/divestitures contributed 2.0% to the reported consolidated revenue growth rate for the nine months ended September 30, 2019 compared to the prior year period. Consolidated organic revenue growth was 1.1% in the nine months ended September 30, 2019 compared to the prior year period. Foreign currency exchange rate fluctuations decreased our reported consolidated revenue growth rate for the nine months ended September 30, 2019 by 2.5%, compared to the prior year period.
Organic Growth—Eight-Quarter Trend
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| | 2017 | | 2018 | | 2019 |
| | Fourth Quarter | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | First Quarter | | Second Quarter | | Third Quarter |
Storage Rental Revenue | | 4.2 | % | | 3.7 | % | | 1.9 | % | | 2.3 | % | | 1.9 | % | | 2.0 | % | | 2.4 | % | | 3.0 | % |
Service Revenue | | (0.1 | )% | | 1.4 | % | | 7.6 | % | | 7.1 | % | | 6.1 | % | | 1.8 | % | | (2.0 | )% | | (3.0 | )% |
Total Revenues | | 2.5 | % | | 2.8 | % | | 4.1 | % | | 4.1 | % | | 3.5 | % | | 1.9 | % | | 0.7 | % | | 0.7 | % |
We expect our consolidated organic storage rental revenue growth rate for 2019 to be approximately 2.5% and our consolidated organic total revenue growth rate to be approximately 1.0%. During the past eight quarters, our organic storage rental revenue growth rate has ranged between 1.9% and 4.2%. Consolidated organic storage rental revenue growth and consolidated total organic revenue growth for the second quarter of 2018 were negatively impacted by 0.8% and 0.5%, respectively, related to a $4.2 million customer termination fee in our Global Data Center Business segmentCOVID-19 pandemic in the second quarter of 2017. Consolidated organic storage rental revenue growth and, consolidated total organic revenue growth were benefited by 0.3% and 0.2%, respectively, for the second quarter of 2019 and by 0.3% and 0.2%, respectively, forto a lesser extent, the third quarter of 2019,2020, particularly in each case related to a $1.7 million customer lease modification fee in our Global Data Center Business segment. We expect similar benefits in the fourth quarter of 2019 related to this lease modification fee, which will total approximately $5.4 million for the full year 2019. Our organic storage rental revenue growth ratesregions where governments have declined over the past two fiscal years, as organic storage rental revenue growth for full year 2017 and 2018 was 3.9% and 2.4%, respectively. At various points in the economic cycle, organic storage rental revenue growth may be influenced by changes in pricing and volume. In 2018 and in the nine months ended September 30, 2019, we experienced modest volume declines in our North American Records and Information Management Business and North American Data Management Business segments, with organic storage rental revenue growth in these segments coming primarily from revenue management and volume growth in our Western European Business and Other International Business segments. Within theseimposed restrictions on non-essential business segments, we expect these trends to continue into the next few years.operations;
The organic growth rate for service revenue is inherently more volatile than the organic growth rate for storage rental revenues due to the more discretionary nature of certain services we offer, such as large special projects, and, as a commodity, the volatility of pricing for recycled paper. These revenues, which are often event-driven and impacted to a greater extent by economic downturns as customers defer or cancel the purchase of certain services as a way to reduce their short-term costs, may be difficult to replicate in future periods. The organic growth rate for total service revenues over the past eight quarters reflects reduced retrieval/re-file activity and a related decrease in transportation revenues within our North American Records and Information Management Business and Western European Business segments, as well as continued declines in service revenue activity levels in our North American Data Management Business segment, as the storage business becomes more archival in nature and tape volumes decline. The recent increases in •organic service revenue growth ratesdeclines reflecting lower service activity levels; and
•a decrease of 7.6%, 7.1%$18.0 million due to foreign currency exchange rate fluctuations.
The severity of future service level declines is uncertain and 6.1%is dependent on the duration and severity of the COVID-19 pandemic, the resulting governmental and business actions and the duration and strength of any ensuing economic recovery that may follow, specifically within the markets in the second, thirdwhich we operate and fourth quartersamong our customers.
OPERATING EXPENSES
Cost of Sales
Consolidated costCost of sales (excluding depreciation and amortization) consists of the following expenses (in thousands):
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| Three Months Ended September 30, | | | | Percentage Change | | % of Consolidated Revenues | | Percentage Change (Favorable)/ Unfavorable |
| | Dollar Change | | Actual | | Constant Currency | | |
| 2020 | | 2019 | | | | | 2020 | | 2019 | |
Labor | $ | 183,878 | | | $ | 200,471 | | | $ | (16,593) | | | (8.3) | % | | (7.4) | % | | 17.7 | % | | 18.9 | % | | (1.2) | % |
Facilities | 179,031 | | | 171,700 | | | 7,331 | | | 4.3 | % | | 4.5 | % | | 17.3 | % | | 16.2 | % | | 1.1 | % |
Transportation | 30,890 | | | 40,137 | | | (9,247) | | | (23.0) | % | | (23.4) | % | | 3.0 | % | | 3.8 | % | | (0.8) | % |
Product Cost of Sales and Other | 40,706 | | | 37,064 | | | 3,642 | | | 9.8 | % | | 10.9 | % | | 3.9 | % | | 3.5 | % | | 0.4 | % |
| | | | | | | | | | | | | | | |
Total Cost of sales | $ | 434,505 | | | $ | 449,372 | | | $ | (14,867) | | | (3.3) | % | | (2.8) | % | | 41.9 | % | | 42.3 | % | | (0.4) | % |
| | | Three Months Ended September 30, | | | Percentage Change | | % of Consolidated Revenues | | Percentage Change (Favorable)/ Unfavorable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended September 30, | | Percentage Change | | % of Consolidated Revenues | | Percentage Change (Favorable)/ Unfavorable |
| Dollar Change | | Actual | | Constant Currency | | | Dollar Change | | Actual | | Constant Currency | |
| 2019 | | 2018 | | 2019 | | 2018 | | | 2020 | | 2019 | | 2020 | | 2019 | |
Labor | $ | 200,471 |
| | $ | 199,892 |
| | $ | 579 |
| | 0.3 | % | | 2.2 | % | | 18.9 | % | | 18.8 | % | | 0.1 | % | Labor | $ | 552,396 | | | $ | 612,385 | | | $ | (59,989) | | | (9.8) | % | | (7.8) | % | | 17.9 | % | | 19.2 | % | | (1.3) | % |
Facilities | 171,700 |
| | 161,634 |
| | 10,066 |
| | 6.2 | % | | 8.0 | % | | 16.2 | % | | 15.2 | % | | 1.0 | % | Facilities | 537,181 | | | 523,369 | | | 13,812 | | | 2.6 | % | | 4.3 | % | | 17.4 | % | | 16.4 | % | | 1.0 | % |
Transportation | 40,137 |
| | 40,573 |
| | (436 | ) | | (1.1 | )% | | 0.6 | % | | 3.8 | % | | 3.8 | % | | — | % | Transportation | 97,990 | | | 123,136 | | | (25,146) | | | (20.4) | % | | (19.6) | % | | 3.2 | % | | 3.9 | % | | (0.7) | % |
Product Cost of Sales and Other | 37,064 |
| | 43,027 |
| | (5,963 | ) | | (13.9 | )% | | (12.1 | )% | | 3.5 | % | | 4.1 | % | | (0.6 | )% | Product Cost of Sales and Other | 112,904 | | | 114,937 | | | (2,033) | | | (1.8) | % | | 0.6 | % | | 3.7 | % | | 3.6 | % | | 0.1 | % |
Significant Acquisition Costs | 1,945 |
| | 2,892 |
| | (947 | ) | | (32.7 | )% | | (30.1 | )% | | 0.2 | % | | 0.3 | % | | (0.1 | )% | |
Total Cost of Sales | $ | 451,317 |
| | $ | 448,018 |
| | $ | 3,299 |
| | 0.7 | % | | 2.6 | % | | 42.5 | % | | 42.2 | % | | 0.3 | % | |
COVID-19 Costs | | COVID-19 Costs | 7,648 | | | — | | | 7,648 | | | 100.0 | % | | 100.0 | % | | 0.2 | % | | — | % | | 0.2 | % |
Total Cost of sales | | Total Cost of sales | $ | 1,308,119 | | | $ | 1,373,827 | | | $ | (65,708) | | | (4.8) | % | | (3.0) | % | | 42.4 | % | | 43.2 | % | | (0.8) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | Percentage Change | | % of Consolidated Revenues | | Percentage Change (Favorable)/ Unfavorable |
| | | | |
| Dollar Change | | Actual | | Constant Currency | | |
| 2019 | | 2018 | | | | | 2019 | | 2018 | |
Labor | $ | 612,385 |
| | $ | 615,898 |
| | $ | (3,513 | ) | | (0.6 | )% | | 2.6 | % | | 19.2 | % | | 19.5 | % | | (0.3 | )% |
Facilities | 523,369 |
| | 486,196 |
| | 37,173 |
| | 7.6 | % | | 10.5 | % | | 16.4 | % | | 15.4 | % | | 1.0 | % |
Transportation | 123,136 |
| | 118,930 |
| | 4,206 |
| | 3.5 | % | | 6.3 | % | | 3.9 | % | | 3.8 | % | | 0.1 | % |
Product Cost of Sales and Other | 114,937 |
| | 122,164 |
| | (7,227 | ) | | (5.9 | )% | | (2.6 | )% | | 3.6 | % | | 3.9 | % | | (0.3 | )% |
Significant Acquisition Costs | 4,136 |
| | 5,015 |
| | (879 | ) | | (17.5 | )% | | (14.1 | )% | | 0.1 | % | | 0.2 | % | | (0.1 | )% |
Total Cost of Sales | $ | 1,377,963 |
| | $ | 1,348,203 |
| | $ | 29,760 |
| | 2.2 | % | | 5.2 | % | | 43.3 | % | | 42.6 | % | | 0.7 | % |
Labor
Labor expenses decreased to 19.2%Primary factors influencing the change in reported consolidated Cost of consolidated revenues in the nine months ended September 30, 2019 compared to 19.5% in the nine months ended September 30, 2018. The decrease in labor expenses as a percentage of consolidated revenues was primarily driven by improvements across our North American Data Management Business, Western European Business and Other International Business segments, partially attributable to ongoing cost management actions. On a constant dollar basis, labor expensessales for the nine months ended September 30, 2019 increased2020 include the following:
•a decrease in labor costs driven by $15.4 million, or 2.6%, comparedcost containment actions taken in response to lower service activity levels due to the prior year period,COVID-19 pandemic, partially offset by incremental labor costs associated with recent acquisitions;
•a decrease in transportation costs, primarily driven by acquisitionslower third-party carrier costs and fuel costs, reflecting cost containment actions taken in our Adjacent Businesses operating segment within our Corporate and Other Business segment, as well as increased labor costs relatedresponse to growth of our shredding operations within our North American Records and Information Management Business segment.lower service activity levels;
Facilities
Facilities expenses increased to 16.4% of consolidated revenues in the nine months ended September 30, 2019 compared to 15.4% in the nine months ended September 30, 2018. The 100 basis point•an increase in facilities expenses as a percentage of consolidated revenues was driven primarily by acquisitions in our Global Data Center Business segment and our Adjacent Businesses operating segment within our Corporate and Other Business segment. On a constant dollar basis, facilities expenses for the nine months ended September 30, 2019 increased by $49.6 million, or 10.5%, compared to the prior year period, driven by higher rent expense, insurance costs, utilities and building maintenance, in part driven by the acquisitions mentioned above.
Transportation
Transportation expenses increased to 3.9% of consolidated revenues in the nine months ended September 30, 2019 compared to 3.8% in the nine months ended September 30, 2018. The increase in transportation expenses as a percentage of consolidated revenues was primarily driven by increases in third party carrier expenses,rent expense, in part due to recent acquisitions in our Adjacent Businesses operating segment within our Corporateacquisitions; and Other Business segment. On
•a constant dollar basis, transportation expenses for the nine months ended September 30, 2019 increased by $7.3decrease of $25.4 million or 6.3%, compareddue to the prior year period, primarily driven by acquisitions in our Adjacent Businesses operating segment within our Corporate and Other Business segment.foreign currency exchange rate fluctuations.
Product Cost
Product cost of sales and other, which includes cartons, media and other service, storage and supply costs and is highly correlated to service revenue streams, particularly project revenues, were 3.6% of consolidated revenues for the nine months ended September 30, 2019 compared to 3.9% in the nine months ended September 30, 2018. On a constant dollar basis, product cost of sales and other decreased by $3.1 million, or 2.6%, compared to the prior year period, primarily driven by lower special project costs.
Significant Acquisition Costs
Significant Acquisition Costs included in cost of sales were $4.1 million and $5.0 million in the nine months ended September 30, 2019 and 2018, respectively, and primarily consisted of employee severance costs and facility integration costs associated with the Recall Transaction.
Selling, General and Administrative Expenses
Consolidated Selling, general and administrative expenses consists of the following expenses (in thousands):
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| Three Months Ended September 30, | | | | Percentage Change | | % of Consolidated Revenues | | Percentage Change (Favorable)/ Unfavorable |
| | | | | |
| | Dollar Change | | Actual | | Constant Currency | | |
| 2020 | | 2019 | | | | | 2020 | | 2019 | |
General and Administrative | $ | 131,911 | | | $ | 133,796 | | | $ | (1,885) | | | (1.4) | % | | (1.0) | % | | 12.7 | % | | 12.6 | % | | 0.1 | % |
Sales, Marketing and Account Management | 55,294 | | | 58,011 | | | (2,717) | | | (4.7) | % | | (4.6) | % | | 5.3 | % | | 5.5 | % | | (0.2) | % |
Information Technology | 40,351 | | | 37,781 | | | 2,570 | | | 6.8 | % | | 6.9 | % | | 3.9 | % | | 3.6 | % | | 0.3 | % |
Bad Debt Expense | 4,539 | | | 7,563 | | | (3,024) | | | (40.0) | % | | (40.5) | % | | 0.4 | % | | 0.7 | % | | (0.3) | % |
| | | | | | | | | | | | | | | |
Total Selling, general and administrative expenses | $ | 232,095 | | | $ | 237,151 | | | $ | (5,056) | | | (2.1) | % | | (1.9) | % | | 22.4 | % | | 22.3 | % | | 0.1 | % |
| | | Three Months Ended September 30, | | | | Percentage Change | | % of Consolidated Revenues | | Percentage Change (Favorable)/ Unfavorable | | Nine Months Ended September 30, | | Percentage Change | | % of Consolidated Revenues | | Percentage Change (Favorable)/ Unfavorable |
| | | | |
| | Dollar Change | | Actual | | Constant Currency | | | Dollar Change | | Actual | | Constant Currency | |
| 2019 | | 2018 | | 2019 | | 2018 | | | 2020 | | 2019 | | 2020 | | 2019 | |
General and Administrative | $ | 133,796 |
| | $ | 148,456 |
| | $ | (14,660 | ) | | (9.9 | )% | | (8.6 | )% | | 12.6 | % | | 14.0 | % | | (1.4 | )% | General and Administrative | $ | 397,290 | | | $ | 428,970 | | | $ | (31,680) | | | (7.4) | % | | (6.1) | % | | 12.9 | % | | 13.5 | % | | (0.6) | % |
Sales, Marketing and Account Management | 58,011 |
| | 59,031 |
| | (1,020 | ) | | (1.7 | )% | | (0.3 | )% | | 5.5 | % | | 5.6 | % | | (0.1 | )% | Sales, Marketing and Account Management | 167,138 | | | 186,717 | | | (19,579) | | | (10.5) | % | | (9.3) | % | | 5.4 | % | | 5.9 | % | | (0.5) | % |
Information Technology | 37,781 |
| | 39,588 |
| | (1,807 | ) | | (4.6 | )% | | (3.7 | )% | | 3.6 | % | | 3.7 | % | | (0.1 | )% | Information Technology | 120,995 | | | 125,981 | | | (4,986) | | | (4.0) | % | | (3.0) | % | | 3.9 | % | | 4.0 | % | | (0.1) | % |
Bad Debt Expense | 7,563 |
| | 6,460 |
| | 1,103 |
| | 17.1 | % | | 20.6 | % | | 0.7 | % | | 0.6 | % | | 0.1 | % | Bad Debt Expense | 25,715 | | | 16,350 | | | 9,365 | | | 57.3 | % | | 57.4 | % | | 0.8 | % | | 0.5 | % | | 0.3 | % |
Significant Acquisition Costs | 2,005 |
| | 6,394 |
| | (4,389 | ) | | (68.6 | )% | | (68.4 | )% | | 0.2 | % | | 0.6 | % | | (0.4 | )% | |
Total Selling, General and Administrative Expenses | $ | 239,156 |
| | $ | 259,929 |
| | $ | (20,773 | ) | | (8.0 | )% | | (6.7 | )% | | 22.5 | % | | 24.5 | % | | (2.0 | )% | |
COVID-19 Costs | | COVID-19 Costs | 1,637 | | | — | | | 1,637 | | | 100.0 | % | | 100.0 | % | | 0.1 | % | | — | % | | 0.1 | % |
Total Selling, general and administrative expenses | | Total Selling, general and administrative expenses | $ | 712,775 | | | $ | 758,018 | | | $ | (45,243) | | | (6.0) | % | | (4.7) | % | | 23.1 | % | | 23.8 | % | | (0.7) | % |
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| Nine Months Ended September 30, | | | | Percentage Change | | % of Consolidated Revenues | | Percentage Change (Favorable)/ Unfavorable |
| | | | | |
| | Dollar Change | | Actual | | Constant Currency | | |
| 2019 | | 2018 | | | | | 2019 | | 2018 | |
General and Administrative | $ | 428,970 |
| | $ | 429,670 |
| | $ | (700 | ) | | (0.2 | )% | | 2.1 | % | | 13.5 | % | | 13.6 | % | | (0.1 | )% |
Sales, Marketing and Account Management | 186,717 |
| | 191,441 |
| | (4,724 | ) | | (2.5 | )% | | (0.4 | )% | | 5.9 | % | | 6.1 | % | | (0.2 | )% |
Information Technology | 125,981 |
| | 116,340 |
| | 9,641 |
| | 8.3 | % | | 9.8 | % | | 4.0 | % | | 3.7 | % | | 0.3 | % |
Bad Debt Expense | 16,350 |
| | 18,173 |
| | (1,823 | ) | | (10.0 | )% | | (7.9 | )% | | 0.5 | % | | 0.6 | % | | (0.1 | )% |
Significant Acquisition Costs | 4,461 |
| | 33,700 |
| | (29,239 | ) | | (86.8 | )% | | (86.6 | )% | | 0.1 | % | | 1.1 | % | | (1.0 | )% |
Total Selling, General and Administrative Expenses | $ | 762,479 |
| | $ | 789,324 |
| | $ | (26,845 | ) | | (3.4 | )% | | (1.4 | )% | | 24.0 | % | | 24.9 | % | | (0.9 | )% |
General and Administrative
General and administrative expenses decreased to 13.5% ofPrimary factors influencing the change in reported consolidated revenues in the nine months ended September 30, 2019 compared to 13.6% in the nine months ended September 30, 2018. GeneralSelling, general and administrative expenses for the ninethree months ended September 30, 2018 includes $10.82020 include the following:
•a decrease in bad debt expense, primarily driven by improved collection activity; and
•a decrease of $0.5 million of indirect expenses associated with a value-added tax matterdue to foreign currency exchange rate fluctuations.
Primary factors influencing the change in the Netherlands (the "Netherlands VAT Matter"), as described in Note 2.n. to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report. On a constant dollar basis, excluding the impact of the Netherlands VAT Matter,reported consolidated Selling, general and administrative expenses for the nine months ended September 30, 2019 increased by $19.6 million, or 4.8%, compared to2020 include the prior year period. The increasefollowing:
•a decrease in general and administrative expenses, as a percentage of consolidated revenues was driven mainly by higher compensationdecreased wages and benefits expense and professional fees within the Corporate and Other Business segment, primarily associated with our new global operations support team that is tasked with driving operational improvements and continued investment in innovation and product development,other employee related costs, as well as acquisitions in the Adjacent Businesses operating segment within our Corporatelower professional fees, reflecting benefits from Project Summit and Other Business segment. The increase in compensation expense is primarily the result of merit-based increases as well as increased headcount,ongoing cost containment measures, partially offset by a reduction in variablehigher bonus compensation expense. For the three months ended September 30, 2019, excluding the impact of the Netherlands VAT Matter, general and administrative expenses decreased by $11.1 million, or 7.6%, compared to the prior year period on a constant dollar basis, primarily driven by a reduction in variable compensation expense as well as cost management actions.accruals;
Sales, Marketing and Account Management
Sales, marketing and account management expenses decreased to 5.9% of consolidated revenues in the nine months ended September 30, 2019 compared to 6.1% in the nine months ended September 30, 2018. The•a decrease in sales, marketing and account management expenses, as a percentage of consolidated revenues was driven by a decrease indecreased compensation expense primarily due to lower commissionsand other employee related costs, reflecting benefits from Project Summit and ongoing cost containment measures;
•higher bad debt expense, as well as a decrease in marketing costs. On a constant dollar basis, sales, marketing and account management expenses for the nine months ended September 30, 2019 decreased by $0.7 million, or 0.4%, compared to the prior year period, primarily driven by lower marketing costs.increased collectability risk resulting from the COVID-19 pandemic; and
Information Technology
IT expenses increased to 4.0% of•foreign currency exchange rate fluctuations decreased reported consolidated revenues in the nine months ended September 30, 2019 compared to 3.7% in the nine months ended September 30, 2018. IT expenses as a percentage of consolidated revenues reflect an increase in professional fees and compensation expense, primarily related to information security costs and investments in innovation and product development. On a constant dollar basis, IT expenses for the nine months ended September 30, 2019 increased by $11.3 million, or 9.8%, compared to the prior year period, primarily driven by an increase in professional fees and compensation expense, primarily related to information security costs and investments in innovation and product development.
Bad Debt Expense
We maintain an allowance for doubtful accounts that is calculated based on our past loss experience, current and prior trends in our aged receivables, current economic conditions, and specific circumstances of individual receivable balances. We continue to monitor our customers' payment activity and make adjustments based on their financial condition and in light of historical and expected trends. Bad debt expense for the nine months ended September 30, 2019 decreased by $1.4 million on a constant dollar basis compared to the prior year period, primarily driven by lower bad debt expense associated with our Western European Business and Other International Business segments.
Significant Acquisition Costs
Significant Acquisition Costs included in selling,Selling, general and administrative expenses were $4.5 million and $33.7 million in the nine months ended September 30, 2019 and 2018, respectively, and primarily consistedby $9.8 million.
Depreciation and Amortization
Our depreciation and amortization charges result primarily from depreciation related to storage systems, which include racking structures, buildings, building and leasehold improvements and computer systems hardware and software. Amortization relates primarily to customer relationship intangible assets, contract fulfillment costs and data center lease-based intangible assets. Both depreciation and amortization are impacted by the timing of acquisitions.
Depreciation expense decreased $1.4by $1.7 million, or 0.4%0.5%, on a reported dollar basis for the nine months ended September 30, 20192020 compared to the nine months ended September 30, 2018.prior year period. See Note 2.f. to Notes to Consolidated Financial Statements included in our Annual Report for additional information regarding the useful lives over which our property, plant and equipment is depreciated.
Amortization expense increased $11.2by $1.0 million, or 8.2%0.7%, on a reported dollar basis for the nine months ended September 30, 20192020 compared to the prior year period.
Restructuring Charges
Restructuring Charges for the nine months ended September 30, 2018.2020 were approximately $128.7 million and primarily consist of employee severance costs, internal costs associated with the development and implementation of Project Summit initiatives and professional fees.
Intangible impairments
The intangible impairment charge for the nine months ended September 30, 2020 was $23.0 million and related to the write-down of goodwill associated with our Fine Arts reporting unit in the first quarter of 2020, as discussed above.
Gain on disposal/write-down of property, plant and equipment, net
Consolidated gain on disposal/write-down of property, plant and equipment, net, for the three and nine months ended September 30, 2020 was approximately $75.8 million and $78.2 million, respectively. These amounts primarily consisted of gains of approximately $76.4 million associated with the sale-leaseback transactions of two facilities during the third quarter of 2020.
Consolidated gain on disposal/write-down of property, plant and equipment, net, for the three and nine months ended September 30, 2019 was approximately $9.3 million and $17.1 million, respectively.
During These amounts consisted of (i) a gain of approximately $36.0 million associated with the second quartersale of 2019, we began exploring strategic options regarding how to maintaincertain land and support the infrastructure of select offerings within our Iron Mountain Iron Cloud (“Iron Cloud”) portfolio. As a result,buildings during the second quarter of 2019 we performedand (ii) a long-lived asset impairment analysis on the assetsgain of approximately $9.8 million associated with these select offerings and concluded that the associated carrying value of the long-lived assets (which consisted entirely of property, plant and equipment) was not recoverable based upon the underlying cash flows associated with these select offerings. On September 30, 2019, we entered into an agreement (the “Iron Cloud Outsourcing Agreement”) with a wholesale provider of data infrastructure and data management services to outsource the operation, infrastructure management and maintenance and delivery of select offerings within our Iron Cloud portfolio. In conjunction with the entry into the Iron Cloud Outsourcing Agreement, we also sold certain IT infrastructure assets and the rights to certain hardware and software maintenance contracts used to deliver these Iron Cloud offerings. As a result of our long-lived asset impairment analysis and sale of certain IT infrastructure assets and rights to certain hardware and software maintenance contracts, we recognized an impairment charge and a loss on sale of the assets totaling approximately $0.8 million and $24.8 million during the three and nine months ended September 30, 2019, respectively.
The gain for the nine months ended September 30, 2019 consisted primarily of gains associated with (i) a sale-leaseback transaction of five facilities in the United States of approximately $9.8 million during the third quarter of 2019, and (ii) the sale of certain land and buildings in the United Kingdom of approximately $36.0 millionwere partially offset by losses incurred during the second quarter of 2019. These gains were partially offset by losses2019 primarily associated with (i) thean impairment charge on the assets associated with the select offerings within our Iron Mountain Iron Cloud portfolio as described above, and (ii) the write-down of certain property, plant and equipment in our North American Records and Information Management Business of approximately $3.1$24.8 million.
OTHER EXPENSES, NET
Interest Expense, Net
Consolidated interest expense, net increased $10.6decreased by $1.0 million, or 3.5%, to $314.4$313.4 million in the nine months ended September 30, 20192020 from $303.8$314.4 million in the nine months ended September 30, 2018.prior year period. This increasedecrease was mainly driven by a result ofdecrease in the weighted average interest rate on our outstanding debt, partially offset by higher average debt outstanding during the nine months ended September 30, 2019.2020. See Note 5 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for additional information regarding our indebtedness.
Other Expense (Income) Expense,, Net
OtherConsolidated other expense (income) expense,, net consists of the following (in thousands):
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| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Dollar Change | | Nine Months Ended September 30, | | Dollar Change |
| 2019 | | 2018 | | | 2019 | | 2018 | |
Foreign currency transaction (gains) losses, net | $ | (18,251 | ) | | $ | 664 |
| | $ | (18,915 | ) | | $ | (19,885 | ) | | $ | 3,825 |
| | $ | (23,710 | ) |
Other, net | 4,836 |
| | (339 | ) | | 5,175 |
| | 6,488 |
| | (2,405 | ) | | 8,893 |
|
Other (Income) Expense, Net | $ | (13,415 | ) | | $ | 325 |
| | $ | (13,740 | ) | | $ | (13,397 | ) | | $ | 1,420 |
| | $ | (14,817 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Dollar Change | | Nine Months Ended September 30, | | Dollar Change |
Description | | 2020 | | 2019 | | | 2020 | | 2019 | |
Foreign currency transaction losses (gains), net | | $ | 29,635 | | | $ | (18,251) | | | $ | 47,886 | | | $ | (6,293) | | | $ | (19,885) | | | $ | 13,592 | |
Debt extinguishment expense | | 51,260 | | | — | | | 51,260 | | | 68,300 | | | — | | | 68,300 | |
Other, net | | 2,570 | | | 4,836 | | | (2,266) | | | 4,432 | | | 6,488 | | | (2,056) | |
Other Expense (Income), Net | | $ | 83,465 | | | $ | (13,415) | | | $ | 96,880 | | | $ | 66,439 | | | $ | (13,397) | | | $ | 79,836 | |
Foreign Currency Transaction (Gains) Lossescurrency transaction losses (gains), net
We recorded net foreign currency transaction gains of $6.3 million in the nine months ended September 30, 2020, based on period-end exchange rates. These gains resulted primarily from the impact of changes in the exchange rate of the British pound sterling against the United States dollar compared to December 31, 2019 on our intercompany balances with and between certain of our subsidiaries.
We recorded net foreign currency transaction gains of $19.9 million in the nine months ended September 30, 2019, based on period-end exchange rates. These gains resulted primarily from the impact of changes in the exchange rate of the British pound sterling against the United States dollar compared to December 31, 2018 on our intercompany balances with and between certain of our subsidiaries.
We recorded net foreign currency transaction losses
Debt extinguishment expense
Debt extinguishment expense represents the call premiums and write-off of $3.8 million inunamortized deferred financing costs associated with the nine months ended September 30, 2018, based on period-end exchange rates. These losses resulted primarily from the impact of changes in the exchange rate of eachearly redemption of the Australian dollar, Brazilian real and Turkish lira against6% Notes due 2023, the United States dollar compared to December 31, 2017 on our intercompany balances with and between certain of our subsidiaries. These losses were partially offset by gains resulting primarily from43/8% Notes, the impact of changes in53/4% Notes, the exchange rate of each ofCAD Notes, the British pound sterling and Canadian dollar against the United States dollar compared to December 31, 2017 on our intercompany balances with and between certain of our subsidiariesEuro Notes and the Euro53/8% Notes (as defined below).
Other, net
Included in Other, net are losses on certain of our equity method investments, which are partially offset by a gain of approximately $10.0 million recorded during the first quarter of 2020 in connection with our acquisition of the remaining 75% equity interest in OSG Records Management (Europe) Limited ("OSG" and such acquisition, the "OSG Acquisition"), as our previously held 25% equity investment in OSG was remeasured to fair value at the closing date of the OSG Acquisition.
Provision for Income Taxes
We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Our estimate of the effective tax rate for the years ending December 31, 2019 and 2018 reflect the impact of the U.S. tax reform legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Legislation”). See Note 7 to Notes to Consolidated Financial Statements included in our Annual Report for additional information regarding the impact the Tax Reform Legislation had on us. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period they occur. Our effective tax rate is subject to variability in the future due to, among other items: (1) changes in the mix of income between our qualified REIT subsidiaries and our domestic taxable REIT subsidiaries, as well as among the jurisdictions in which we operate; (2) tax law changes; (3) volatility in foreign exchange gains and losses; (4) the timing of the establishment and reversal of tax reserves; and (5) our ability to utilize net operating losses that we generate.
Our effective tax rates for the three and nine months ended September 30, 20192020 and 20182019 are as follows:
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| | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019(1) | | 2018(1) | | 2019(1) | | 2018(2) |
Effective Tax Rate | 16.8 | % | | 15.3 | % | | 15.7 | % | | 16.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Effective Tax Rate(1) | 26.5 | % | | 16.8 | % | | 25.7 | % | | 15.7 | % |
(1)The primary reconciling items between the federal statutory tax rate of 21.0% and our overall effective tax rate for the three and nine months ended September 30, 2020 and 2019 were the benefit derived from the dividends paid deduction and the impact of differences in the tax rates at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates. In addition, for the three and nine months ended September 30, 2020, the costs associated with Project Summit are more heavily weighted to our United States qualified REIT subsidiaries, and, therefore, provide no tax benefit.
| |
(1) | The primary reconciling items between the federal statutory tax rate of 21.0% and our overall effective tax rate for the three and nine months ended September 30, 2019 and for the three months ended September 30, 2018 were the benefit derived from the dividends paid deduction and the impact of differences in the tax rates at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates. |
| |
(2) | The primary reconciling items between the federal statutory tax rate of 21.0% and our overall effective tax rate for the nine months ended September 30, 2018 were the benefit derived from the dividends paid deduction, a discrete tax benefit of approximately $14.0 million associated with the resolution of a tax matter and the impact of differences in the tax rates at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates. |
INCOME (LOSS) FROM CONTINUING OPERATIONS AND ADJUSTED EBITDA
The following table reflects the effect of the foregoing factors on our consolidated income (loss) from continuing operationsIncome (Loss) From Continuing Operations and Adjusted EBITDA (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Dollar Change | | Percentage Change |
| 2020 | | 2019 | |
Income (Loss) from Continuing Operations | $ | 38,562 | | | $ | 108,284 | | | $ | (69,722) | | | (64.4) | % |
Income (Loss) from Continuing Operations as a percentage of Consolidated Revenue | 3.7 | % | | 10.2 | % | | | | |
Adjusted EBITDA | $ | 370,047 | | | $ | 375,701 | | | $ | (5,654) | | | (1.5) | % |
Adjusted EBITDA Margin | 35.7 | % | | 35.4 | % | | | | |
| | | Three Months Ended September 30, | | Dollar Change | | Percentage Change | | Nine Months Ended September 30, | | Dollar Change | | Percentage Change |
| 2019 | | 2018 | | | 2020 | | 2019 | |
Income (Loss) from Continuing Operations | $ | 108,284 |
| | $ | 77,349 |
| | $ | 30,935 |
| | 40.0 | % | Income (Loss) from Continuing Operations | $ | 96,341 | | | $ | 231,107 | | | $ | (134,766) | | | (58.3) | % |
Income (Loss) from Continuing Operations as a percentage of Consolidated Revenue | 10.2 | % | | 7.3 | % | | | | | Income (Loss) from Continuing Operations as a percentage of Consolidated Revenue | 3.1 | % | | 7.3 | % | |
Adjusted EBITDA | $ | 375,701 |
| | $ | 362,330 |
| | $ | 13,371 |
| | 3.7 | % | Adjusted EBITDA | $ | 1,076,008 | | | $ | 1,051,149 | | | $ | 24,859 | | | 2.4 | % |
Adjusted EBITDA Margin | 35.4 | % | | 34.2 | % | | | | | Adjusted EBITDA Margin | 34.8 | % | | 33.0 | % | |
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Dollar Change | | Percentage Change |
| 2019 | | 2018 | | |
Income (Loss) from Continuing Operations | $ | 231,107 |
| | $ | 209,001 |
| | $ | 22,106 |
| | 10.6 | % |
Income (Loss) from Continuing Operations as a percentage of Consolidated Revenue | 7.3 | % | | 6.6 | % | | | | |
Adjusted EBITDA | $ | 1,051,149 |
| | $ | 1,065,460 |
| | $ | (14,311 | ) | | (1.3 | )% |
Adjusted EBITDA Margin | 33.0 | % | | 33.7 | % | | | | |
ConsolidatedAdjusted EBITDA Margin increased by 180 basis points for the nine months ended September 30, 2020 compared to the same prior year period, reflecting benefits from Project Summit, revenue management, favorable revenue mix and ongoing cost containment measures, partially offset by fixed cost deleverage on lower service revenue and higher bonus compensation accruals. Adjusted EBITDA for the nine months ended September 30, 2019 decreased by $14.32020 excludes $9.3 million or 1.3%,of direct and consolidatedincremental costs related to COVID-19 incurred in the second quarter.
The decrease in Adjusted EBITDA Margin decreased by 70 basis pointsfor the three months ended September 30, 2020 compared to the same prior year period.period, reflects the impact of lower service activity levels and higher bonus compensation accruals, partially offset by benefits from Project Summit. Adjusted EBITDA for the nine months ended September 30, 2018 was negatively impacted by $10.8 million of indirect tax expenses associated with the Netherlands VAT Matter. Excluding the impact of the Netherlands VAT Matter, consolidated Adjusted EBITDA decreased $25.1 million in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily as a result of increased labor costs in our secure shredding business, higher technology costs associated with information security investments and higher overhead expenses associated with the growth of our data center business, partially offset by a reduction in variable compensation expense and the impact of cost management actions. For the three months ended September 30, 2019, excluding the impact of the Netherlands VAT Matter, consolidated Adjusted EBITDA increased by $11.9 million compared to the prior year period, primarily driven by cost management actions as well as a reduction in variable compensation expense.
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
Loss from discontinued operations, net of tax was $12.4 million for the nine months ended September 30, 2018, primarily2020 includes direct and incremental costs related to the costs associated with the Recall Divestments (as defined and discussed in Note 13 to Notes to Consolidated Financial Statements in our Annual Report).COVID-19.
NONCONTROLLING INTERESTS
For the nine months ended September 30, 2019 and 2018, net income attributable to noncontrolling interests resulted in a decrease in net income attributable to IMI
Segment Analysis (in thousands)
See Note 9 to Notes to Consolidated Financial Statements included in our Annual Report for a description of our reportable operating segments.
North American Records and Information Management
Global RIM Business
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Percentage Change | | | | |
| | Dollar Change | | Actual | | Constant Currency | | Organic Growth | | Impact of Acquisitions |
| 2020 | | 2019 | | | | | |
Storage Rental | $ | 598,949 | | $ | 582,844 | | $ | 16,105 | | | 2.8 | % | | 3.4 | % | | 1.8 | % | | 1.6 | % |
Service | 322,824 | | 366,720 | | (43,896) | | | (12.0) | % | | (11.7) | % | | (13.0) | % | | 1.3 | % |
Segment Revenue | $ | 921,773 | | $ | 949,564 | | $ | (27,791) | | | (2.9) | % | | (2.5) | % | | (3.9) | % | | 1.4 | % |
Segment Adjusted EBITDA | $ | 393,883 | | $ | 395,181 | | $ | (1,298) | | | | | | | | | |
Segment Adjusted EBITDA Margin | 42.7 | % | | 41.6 | % | | | | | | | | | | |
| | | Three Months Ended September 30, | | | | Percentage Change | | | | Nine Months Ended September 30, | | Percentage Change | |
| | Dollar Change | | Actual | | Constant Currency | | Organic Growth | | Dollar Change | | Actual | | Constant Currency | | Organic Growth | | Impact of Acquisitions |
| 2019 | | 2018 | | | 2020 | | 2019 | |
Storage Rental | $ | 317,820 |
| | $ | 306,633 |
| | $ | 11,187 |
| | 3.6 | % | | 3.7 | % | | 2.8 | % | Storage Rental | $ | 1,773,364 | | $ | 1,738,192 | | $ | 35,172 | | | 2.0 | % | | 3.9 | % | | 2.0 | % | | 1.9 | % |
Service | 224,224 |
| | 232,970 |
| | (8,746 | ) | | (3.8 | )% | | (3.6 | )% | | (3.2 | )% | Service | 981,930 | | 1,112,111 | | (130,181) | | | (11.7) | % | | (10.3) | % | | (12.3) | % | | 2.0 | % |
Segment Revenue | $ | 542,044 |
| | $ | 539,603 |
| | $ | 2,441 |
| | 0.5 | % | | 0.6 | % | | 0.2 | % | Segment Revenue | $ | 2,755,294 | | $ | 2,850,303 | | $ | (95,009) | | | (3.3) | % | | (1.7) | % | | (3.6) | % | | 1.9 | % |
Segment Adjusted EBITDA(1) | $ | 246,415 |
| | $ | 248,600 |
| | $ | (2,185 | ) | | | | | | | |
Segment Adjusted EBITDA Margin(2) | 45.5 | % | | 46.1 | % | | | | | | | | | |
Segment Adjusted EBITDA | | Segment Adjusted EBITDA | $ | 1,169,671 | | $ | 1,156,596 | | $ | 13,075 | | |
Segment Adjusted EBITDA Margin | | Segment Adjusted EBITDA Margin | 42.5 | % | | 40.6 | % | | | |
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| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Organic Growth |
| 2019 | | 2018 | | | | |
Storage Rental | $ | 938,161 |
| | $ | 917,347 |
| | $ | 20,814 |
| | 2.3 | % | | 2.6 | % | | 2.0 | % |
Service | 670,536 |
| | 688,179 |
| | (17,643 | ) | | (2.6 | )% | | (2.2 | )% | | (1.1 | )% |
Segment Revenue | $ | 1,608,697 |
| | $ | 1,605,526 |
| | $ | 3,171 |
| | 0.2 | % | | 0.5 | % | | 0.7 | % |
Segment Adjusted EBITDA(1) | $ | 715,683 |
| | $ | 719,199 |
| | $ | (3,516 | ) | | | | | | |
Segment Adjusted EBITDA Margin(2) | 44.5 | % | | 44.8 | % | | | | | | | | |
| |
(1) | See "Non-GAAP Measures—Adjusted EBITDA"Primary factors influencing the change in this Quarterly Report for the definitions of Adjusted EBITDA and Adjusted EBITDA Margin, a reconciliation of Adjusted EBITDA to Income (Loss) from Continuing Operations and a discussion of why we believe these non-GAAP measures provide relevant and useful information to our current and potential investors. |
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(2) | Segment Adjusted EBITDA Margin is calculated by dividing Segment Adjusted EBITDA by total segment revenues. |
For the nine months ended September 30, 2019, reported revenue in our North American Records and Information Management Business segment increased 0.2%, compared to the nine months ended September 30, 2018, due to organic revenue growth, offset by the unfavorable net impact of acquisitions/dispositions (due to the IMFS Divestment) and foreign currency exchange rates. Organic revenue growth of 0.7% was primarily the result of organic storage rental revenue growth of 2.0% driven by revenue management, partially offset by volume decreases. In addition, negative organic service revenue growth of 1.1% was driven by recent declines in recycled paper prices, lower destructions and reduced retrieval/re-file and related transportation activity, partially offset by growth in secure shredding revenue and increased project activity. Adjusted EBITDA Margin decreased 30 basis points during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by lower recycled paper prices, increased facility rent expense and higher professional fees, partially offset by lower compensation expense and other employee related costs. The decrease in compensation expense is primarily due to a reduction in variable compensation expense, partially offset by increased labor costs related to growth in our shredding operations.
North American Data Management Business
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| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Organic Growth |
| 2019 | | 2018 | | | | |
Storage Rental | $ | 66,497 |
| | $ | 67,779 |
| | $ | (1,282 | ) | | (1.9 | )% | | (1.8 | )% | | (1.2 | )% |
Service | 30,055 |
| | 29,698 |
| | 357 |
| | 1.2 | % | | 1.3 | % | | (0.5 | )% |
Segment Revenue | $ | 96,552 |
| | $ | 97,477 |
| | $ | (925 | ) | | (0.9 | )% | | (0.9 | )% | | (1.0 | )% |
Segment Adjusted EBITDA(1) | $ | 54,378 |
| | $ | 53,484 |
| | $ | 894 |
| | | | | | |
Segment Adjusted EBITDA Margin(2) | 56.3 | % | | 54.9 | % | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Organic Growth |
| 2019 | | 2018 | | | | |
Storage Rental | $ | 199,819 |
| | $ | 205,833 |
| | $ | (6,014 | ) | | (2.9 | )% | | (2.7 | )% | | (2.1 | )% |
Service | 89,895 |
| | 91,639 |
| | (1,744 | ) | | (1.9 | )% | | (1.7 | )% | | (3.4 | )% |
Segment Revenue | $ | 289,714 |
| | $ | 297,472 |
| | $ | (7,758 | ) | | (2.6 | )% | | (2.4 | )% | | (2.5 | )% |
Segment Adjusted EBITDA(1) | $ | 157,998 |
| | $ | 162,616 |
| | $ | (4,618 | ) | | | | | | |
Segment Adjusted EBITDA Margin(2) | 54.5 | % | | 54.7 | % | | | | | | | | |
| |
(1) | See "Non-GAAP Measures—Adjusted EBITDA" in this Quarterly Report for the definitions of Adjusted EBITDA and Adjusted EBITDA Margin, a reconciliation of Adjusted EBITDA to Income (Loss) from Continuing Operations and a discussion of why we believe these non-GAAP measures provide relevant and useful information to our current and potential investors. |
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(2) | Segment Adjusted EBITDA Margin is calculated by dividing Segment Adjusted EBITDA by total segment revenues. |
For the nine months ended September 30, 2019, reported revenue in our North American Data ManagementGlobal RIM Business segment decreased 2.6%, compared to the nine months ended September 30, 2018, primarily due to negative organic revenue growth. The negative organic revenue growth of 2.5% was primarily attributable to a decline in organic service revenue growth of 3.4% due to continued declines in service revenue activity levels as the business becomes more archival in nature and tape volumes decrease, as well as a decline in organic storage rental revenue of 2.1%, primarily attributable to volume decreases, partially offset by the impact of revenue management. Adjusted EBITDA Margin increased 140 basis points for the three months ended September 30, 2019 compared to the three months ended September 30. 2018, primarily driven by cost management actions. Adjusted EBITDA Margin decreased 20 basis points during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily associated with investments in new products and services, as well as lower revenue not being offset by lower fixed costs, partially offset by cost management actions.
Western European Business
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| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Organic Growth |
| 2019 | | 2018 | | | | |
Storage Rental | $ | 78,009 |
| | $ | 79,492 |
| | $ | (1,483 | ) | | (1.9 | )% | | 2.9 | % | | 3.7 | % |
Service | 43,428 |
| | 46,862 |
| | (3,434 | ) | | (7.3 | )% | | (2.7 | )% | | (3.8 | )% |
Segment Revenue | $ | 121,437 |
| | $ | 126,354 |
| | $ | (4,917 | ) | | (3.9 | )% | | 0.8 | % | | 0.9 | % |
Segment Adjusted EBITDA(1) | $ | 38,639 |
| | $ | 40,817 |
| | $ | (2,178 | ) | | | | | | |
Segment Adjusted EBITDA Margin(2) | 31.8 | % | | 32.3 | % | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Organic Growth |
| 2019 | | 2018 | | | | |
Storage Rental | $ | 237,258 |
| | $ | 245,883 |
| | $ | (8,625 | ) | | (3.5 | )% | | 2.3 | % | | 3.1 | % |
Service | 140,259 |
| | 147,986 |
| | (7,727 | ) | | (5.2 | )% | | 0.5 | % | | 0.2 | % |
Segment Revenue | $ | 377,517 |
| | $ | 393,869 |
| | $ | (16,352 | ) | | (4.2 | )% | | 1.6 | % | | 2.0 | % |
Segment Adjusted EBITDA(1) | $ | 122,011 |
| | $ | 131,377 |
| | $ | (9,366 | ) | | | | | | |
Segment Adjusted EBITDA Margin(2) | 32.3 | % | | 33.4 | % | | | | | | | | |
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(1) | See "Non-GAAP Measures—Adjusted EBITDA" in this Quarterly Report for the definitions of Adjusted EBITDA and Adjusted EBITDA Margin, a reconciliation of Adjusted EBITDA to Income (Loss) from Continuing Operations and a discussion of why we believe these non-GAAP measures provide relevant and useful information to our current and potential investors. |
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(2) | Segment Adjusted EBITDA Margin is calculated by dividing Segment Adjusted EBITDA by total segment revenues. |
For the nine months ended September 30, 2019, reported revenue in our Western European Business segment decreased 4.2%, compared to the nine months ended September 30, 2018, due to unfavorable fluctuations in foreign currency exchange rates, partially offset by organic revenue growth. Organic revenue growth was 2.0%, primarily attributable to organic storage rental revenue growth of 3.1%, primarily associated with volume increases and, to a lesser extent, revenue management, as well as organic service revenue growth of 0.2%, reflecting higher destruction activity partially offset by reduced project activity and core service declines. For the nine months ended September 30, 2019, foreign currency exchange rate fluctuations decreased our reported revenues for the Western European Business segment by 5.8% compared to the prior year period due to the weakening of the British pound sterling and Euro against the United States dollar. Adjusted EBITDA Margin decreased 110 basis points during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by higher facilities costs, compensation expense and professional fees. The higher facilities costs reflect increased rent and utility costs, partially offset by lower property taxes.
Other International Business
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| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Organic Growth |
| 2019 | | 2018 | | | | |
Storage Rental | $ | 128,715 |
| | $ | 124,920 |
| | $ | 3,795 |
| | 3.0 | % | | 7.2 | % | | 4.5 | % |
Service | 69,013 |
| | 75,719 |
| | (6,706 | ) | | (8.9 | )% | | (3.8 | )% | | (5.7 | )% |
Segment Revenue | $ | 197,728 |
| | $ | 200,639 |
| | $ | (2,911 | ) | | (1.5 | )% | | 3.0 | % | | 0.6 | % |
Segment Adjusted EBITDA(1) | $ | 62,120 |
| | $ | 60,106 |
| | $ | 2,014 |
| | | | | | |
Segment Adjusted EBITDA Margin(2) | 31.4 | % | | 30.0 | % | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | Percentage Change | | |
| | Dollar Change | | Actual | | Constant Currency | | Organic Growth |
| 2019 | | 2018 | | | | |
Storage Rental | $ | 387,086 |
| | $ | 386,278 |
| | $ | 808 |
| | 0.2 | % | | 7.6 | % | | 4.3 | % |
Service | 211,421 |
| | 232,655 |
| | (21,234 | ) | | (9.1 | )% | | (1.0 | )% | | (2.8 | )% |
Segment Revenue | $ | 598,507 |
| | $ | 618,933 |
| | $ | (20,426 | ) | | (3.3 | )% | | 4.4 | % | | 1.6 | % |
Segment Adjusted EBITDA(1) | $ | 178,993 |
| | $ | 181,305 |
| | $ | (2,312 | ) | | | | | | |
Segment Adjusted EBITDA Margin(2) | 29.9 | % | | 29.3 | % | | | | | | | | |
| |
(1) | See "Non-GAAP Measures—Adjusted EBITDA" in this Quarterly Report for the definitions of Adjusted EBITDA and Adjusted EBITDA Margin, a reconciliation of Adjusted EBITDA to Income (Loss) from Continuing Operations and a discussion of why we believe these non-GAAP measures provide relevant and useful information to our current and potential investors. |
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(2) | Segment Adjusted EBITDA Margin is calculated by dividing Segment Adjusted EBITDA by total segment revenues. |
In the nine months ended September 30, 2019, reported revenue in our Other International Business segment decreased 3.3% compared to the nine months ended September 30, 2018, due to unfavorable fluctuations in foreign currency exchange rates, partially offset by organic revenue growth and the favorable impact of acquisitions/divestitures. Organic revenue growth was 1.6%, supported by 4.3% organic storage rental revenue growth, primarily due to volume increases and, to a lesser extent, revenue management, partially offset by negative 2.8% organic service revenue growth, primarily due to a decrease in project activity. The net impact of acquisitions/divestitures contributed 2.8% to reported revenue growth for the nine months ended September 30, 2019, compared2020 include the following:
•a decline in organic service revenue mainly driven by reduced service activity levels, primarily related to the prior year period. For the nine months ended September 30, 2019,COVID-19 pandemic;
•organic storage rental revenue growth driven by revenue management;
•a decrease in revenue of $48.7 million due to foreign currency exchange rate fluctuations decreased our reported revenues for the Other International Business segment by 7.7% compared to the prior year period primarilyfluctuations;
•a 2.1% increase in global records management net volume due to the weakening of the Australian dollaracquisitions (excluding acquisitions, global records management net volume decreased 1.2%); and Brazilian real against the United States dollar.
•a 190 basis point increase in Adjusted EBITDA Margin increased 60 basis points for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily due to compensation expense growing at a lower rate thandriven by benefits from Project Summit, revenue management, favorable revenue mix and a decrease in transportation costs,ongoing cost containment measures, partially offset by fixed cost deleverage on lower service revenue and higher facilities costs, mainly rent expense, and building maintenance costs.bonus compensation accruals.
Global Data Center Business
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Percentage Change | | | | |
| | Dollar Change | | Actual | | Constant Currency | | Organic Growth | | Impact of Acquisitions |
| 2020 | | 2019 | | | | | |
Storage Rental | $ | 68,416 | | $ | 62,001 | | $ | 6,415 | | | 10.3 | % | | 9.5 | % | | 9.5 | % | | — | % |
Service | 4,398 | | 2,417 | | 1,981 | | | 82.0 | % | | 79.9 | % | | 79.9 | % | | — | % |
Segment Revenue | $ | 72,814 | | $ | 64,418 | | $ | 8,396 | | | 13.0 | % | | 12.1 | % | | 12.1 | % | | — | % |
Segment Adjusted EBITDA | $ | 33,359 | | $ | 32,261 | | $ | 1,098 | | | | | | | | | |
Segment Adjusted EBITDA Margin | 45.8 | % | | 50.1 | % | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Percentage Change | | | | Nine Months Ended September 30, | | Percentage Change | |
| Dollar Change | | Actual | | Constant Currency | | Organic Growth | | Dollar Change | | Actual | | Constant Currency | | Organic Growth | | Impact of Acquisitions |
| 2019 | | 2018 | | | 2020 | | 2019 | |
Storage Rental | $ | 62,001 |
| | $ | 60,039 |
| | $ | 1,962 |
| | 3.3 | % | | 4.1 | % | | 4.1 | % | Storage Rental | $ | 196,823 | | $ | 182,301 | | $ | 14,522 | | | 8.0 | % | | 8.0 | % | | 8.0 | % | | — | % |
Service | 2,417 |
| | 3,341 |
| | (924 | ) | | (27.7 | )% | | (27.5 | )% | | (27.2 | )% | Service | 10,116 | | 5,944 | | 4,172 | | | 70.2 | % | | 69.6 | % | | 69.6 | % | | — | % |
Segment Revenue | $ | 64,418 |
| | $ | 63,380 |
| | $ | 1,038 |
| | 1.6 | % | | 2.5 | % | | 2.4 | % | Segment Revenue | $ | 206,939 | | $ | 188,245 | | $ | 18,694 | | | 9.9 | % | | 9.9 | % | | 9.9 | % | | — | % |
Segment Adjusted EBITDA(1) | $ | 32,261 |
| | $ | 27,299 |
| | $ | 4,962 |
| | | | | | | |
Segment Adjusted EBITDA Margin(2) | 50.1 | % | | 43.1 | % | | | | | | | | | |
Segment Adjusted EBITDA | | Segment Adjusted EBITDA | $ | 94,812 | | $ | 85,913 | | $ | 8,899 | | |
Segment Adjusted EBITDA Margin | | Segment Adjusted EBITDA Margin | 45.8 | % | | 45.6 | % | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | Percentage Change | | |
| Dollar Change | | Actual | | Constant Currency | | Organic Growth |
| 2019 | | 2018 | | | | |
Storage Rental | $ | 182,301 |
| | $ | 157,479 |
| | $ | 24,822 |
| | 15.8 | % | | 16.4 | % | | 5.1 | % |
Service | 5,944 |
| | 7,399 |
| | (1,455 | ) | | (19.7 | )% | | (19.6 | )% | | (25.3 | )% |
Segment Revenue | $ | 188,245 |
| | $ | 164,878 |
| | $ | 23,367 |
| | 14.2 | % | | 14.7 | % | | 3.7 | % |
Segment Adjusted EBITDA(1) | $ | 85,913 |
| | $ | 72,990 |
| | $ | 12,923 |
| | | | | | |
Segment Adjusted EBITDA Margin(2) | 45.6 | % | | 44.3 | % | | | | | | | | |
| |
(1) | See "Non-GAAP Measures—Adjusted EBITDA" in this Quarterly Report for the definitions of Adjusted EBITDAPrimary factors influencing the change in revenue and Adjusted EBITDA Margin a reconciliation of Adjusted EBITDA to Income (Loss) from Continuing Operations and a discussion of why we believe these non-GAAP measures provide relevant and useful information to our current and potential investors. |
| |
(2) | Segment Adjusted EBITDA Margin is calculated by dividing Segment Adjusted EBITDA by total segment revenues. |
For the nine months ended September 30, 2019, reported revenue in our Global Data Center Business segment increased 14.2% compared to the nine months ended September 30, 2018, primarily due to the impact of acquisitions (see Note 6 of Notes to Consolidated Financial Statements included in our Annual Report for additional acquisition details). The impact of acquisitions contributed 11.0% to the reported revenue growth rate in our Global Data Center Business segment for the nine months ended September 30, 2019 compared to2020 include the following:
•organic total revenue growth from leases signed in prior periods and service revenue growth partially offset by churn of 290 basis points;
•non-recurring revenue benefits in the prior year period. Organic storage rental revenue growth in our Global Data Center Business segment was 5.1% for the nine months ended September 30, 2019 compared to the prior year period, primarily related toinclude a $3.4 million lease modification fee that benefited organic storage rental revenue growth by 2.2%. For the three months ended September 30, 2019 the impact of thepreviously disclosed lease modification fee of $1.7$3.4 million, benefited organic storage rentalwhile non-recurring revenue growth by 2.9%.benefits in the current year were $1.8 million; and
•a 20 basis point increase in Adjusted EBITDA Margin increased 700 basis points for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, primarily driven by the impact of the lease modification fee andongoing cost management actions. Adjusted EBITDA increased $12.9 million for the nine months ended September 30, 2019 compared to the prior year period, primarily due to the impact of acquisitions and the lease modification fee described above. Adjusted EBITDA Margin increased 130 basis points during the nine months ended September 30, 2019 compared to the prior year period primarily due to the impact of cost management actions,containment measures, partially offset by higher facilities costs, in part due to recent acquisitions, and increased overhead to support the growthheadwinds from flow through of this business.non-recurring revenue items described above.
Corporate and Other Business
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Percentage Change | | | | |
| | Dollar Change | | Actual | | Constant Currency | | Organic Growth | | Impact of Acquisitions |
| 2020 | | 2019 | | | | | |
Storage Rental | $ | 28,929 | | $ | 28,473 | | $ | 456 | | | 1.6 | % | | 1.0 | % | | 1.1 | % | | (0.1) | % |
Service | 13,131 | | 19,769 | | (6,638) | | | (33.6) | % | | (34.1) | % | | (34.0) | % | | (0.1) | % |
Segment Revenue | $ | 42,060 | | $ | 48,242 | | $ | (6,182) | | | (12.8) | % | | (13.4) | % | | (13.3) | % | | (0.1) | % |
Segment Adjusted EBITDA | $ | (57,195) | | $ | (51,741) | | $ | (5,454) | | | | | | | | | |
Segment Adjusted EBITDA as a percentage of Consolidated Revenue | (5.5) | % | | (4.9) | % | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Percentage Change | | | | Nine Months Ended September 30, | | Percentage Change | |
| Dollar Change | | Actual | | Constant Currency | | Organic Growth | | Dollar Change | | Actual | | Constant Currency | | Organic Growth | | Impact of Acquisitions |
| 2019 | | 2018 | | | 2020 | | 2019 | |
Storage Rental | $ | 20,276 |
| | $ | 18,110 |
| | $ | 2,166 |
| | 12.0 | % | | 12.6 | % | | 5.2 | % | Storage Rental | $ | 86,610 | | $ | 85,087 | | $ | 1,523 | | | 1.8 | % | | 1.8 | % | | 3.3 | % | | (1.5) | % |
Service | 19,769 |
| | 15,428 |
| | 4,341 |
| | 28.1 | % | | 29.5 | % | | 15.7 | % | Service | 38,774 | | 59,359 | | (20,585) | | | (34.7) | % | | (34.4) | % | | (34.9) | % | | 0.5 | % |
Segment Revenue | $ | 40,045 |
| | $ | 33,538 |
| | $ | 6,507 |
| | 19.4 | % | | 20.4 | % | | 10.0 | % | Segment Revenue | $ | 125,384 | | $ | 144,446 | | $ | (19,062) | | | (13.2) | % | | (13.0) | % | | (12.5) | % | | (0.5) | % |
Segment Adjusted EBITDA(1) | $ | (58,112 | ) | | $ | (67,976 | ) | | $ | 9,864 |
| | | | | | | |
Segment Adjusted EBITDA(1) as a percentage of Consolidated Revenue | (5.5 | )% | | (6.4 | )% | | | | | | | | | |
Segment Adjusted EBITDA | | Segment Adjusted EBITDA | $ | (188,475) | | $ | (191,360) | | $ | 2,885 | | |
Segment Adjusted EBITDA as a percentage of Consolidated Revenue | | Segment Adjusted EBITDA as a percentage of Consolidated Revenue | (6.1) | % | | (6.0) | % | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | Percentage Change | | |
| Dollar Change | | Actual | | Constant Currency | | Organic Growth |
| 2019 | | 2018 | | | | |
Storage Rental | $ | 60,955 |
| | $ | 50,741 |
| | $ | 10,214 |
| | 20.1 | % | | 21.2 | % | | 4.9 | % |
Service | 59,359 |
| | 32,853 |
| | 26,506 |
| | 80.7 | % | | 85.1 | % | | 14.5 | % |
Segment Revenue | $ | 120,314 |
| | $ | 83,594 |
| | $ | 36,720 |
| | 43.9 | % | | 46.1 | % | | 8.6 | % |
Segment Adjusted EBITDA(1) | $ | (209,449 | ) | | $ | (202,027 | ) | | $ | (7,422 | ) | | | | | | |
Segment Adjusted EBITDA(1) as a percentage of Consolidated Revenue | (6.6 | )% | | (6.4 | )% | | | | | | | | |
| |
(1) | See "Non-GAAP Measures—Adjusted EBITDA" in this Quarterly Report for the definitions of Adjusted EBITDAPrimary factors influencing the change in revenue and Adjusted EBITDA Margin, a reconciliation of Adjusted EBITDA to Income (Loss) from Continuing Operations and a discussion of why we believe these non-GAAP measures provide relevant and useful information to our current and potential investors. |
Adjusted EBITDA in theour Corporate and Other Business segment decreased $7.4 million in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. Adjusted EBITDA for the nine months ended September 30, 2018 was negatively impacted2020 include the following:
•a decline in organic service revenue due to lower service activity levels in our Fine Arts business, primarily related to the COVID-19 pandemic; and
•an increase in Adjusted EBITDA driven by $10.8 million of indirect tax expenses associated with the Netherlands VAT Matter. Excludingbenefits from Project Summit and ongoing cost containment measures, partially offset by the impact of the Netherlands VAT Matter, Adjusted EBITDA in the Corporate and Other Business segment decreased $18.2 million in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, primarily driven by higher compensation expense and professional fees associated with investmentslower service activity in our global operations support team that is tasked with driving operational improvements and continued investmentFine Arts business in innovation and product development, partially offset by profitability associated with recent acquisitions in our Adjacent Businesses operating segment. The increase inaddition to higher corporate bonus compensation expense is primarily the resultaccruals.
Liquidity and Capital Resources
Project Summit
As disclosed in Note 13 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report,above, in October 2019, we announced Project Summit. We estimate that the implementation of Project Summit will result in total restructuring charges (including operating and capital expenditures)costs of $450.0 million. During the nine months ended September 30, 2020, we incurred approximately $240.0 million, including approximately $60.0$133.4 million of restructuring charges we expectcosts related to incur during the fourth quarterProject Summit which were comprised of 2019. We expect$128.7 million of Restructuring Charges, primarily related to substantially complete all actionsemployee severance costs, internal costs associated with Project Summit by the end of 2021. We expect a significant portion of the restructuring charges we will incur as a resultdevelopment and implementation of Project Summit to be settled in cash, including substantially allinitiatives and professional fees, and $4.7 million of the restructuring charges we expect to incur during the fourth quarter of 2019.capital expenditures.
Cash Flows
The following is a summary of our cash balances and cash flows (in thousands) as of and for the nine months ended September 30,
| | | | | | | | | | | |
| 2020 | | 2019 |
Cash Flows from Operating Activities - Continuing Operations | $ | 627,218 | | | $ | 648,145 | |
Cash Flows from Investing Activities - Continuing Operations | (360,131) | | | (640,696) | |
Cash Flows from Financing Activities - Continuing Operations | (307,174) | | | 19,885 | |
Cash and Cash Equivalents, including Restricted Cash, End of Period | 151,972 | | | 186,778 | |
|
| | | | | | | |
| 2019 | | 2018 |
Cash flows from operating activities - continuing operations | $ | 648,145 |
| | $ | 625,538 |
|
Cash flows from investing activities - continuing operations | (640,696 | ) | | (2,102,793 | ) |
Cash flows from financing activities - continuing operations | 19,885 |
| | 769,559 |
|
Cash and cash equivalents at the end of period | 186,778 |
| | 197,676 |
|
a. Cash Flows from Operating Activities
For the nine months ended September 30, 2019,2020, net cash flows provided by operating activities increaseddecreased by $22.6$20.9 million compared to the prior year period, primarily due to a decrease in net income (including non-cash charges) of $76.1 million partially offset by an increase in cash used infrom working capital of $20.9$55.2 million, primarily related to the timing of collections of accounts receivable and certain prepaid and accrued expenses and an increase in net income (including non-cash charges) of $1.7 million.expenses.
b. Cash Flows from Investing Activities
Our significant investing activities during the nine months ended September 30, 20192020 are highlighted below:
•We paid cash for capital expenditures of $309.2 million. Additional details of our capital spending are included in the "Capital Expenditures" section below.
•We paid cash for acquisitions (net of cash acquired) of $56.5$118.6 million, primarily funded by borrowings under ourthe revolving credit facility (the "Revolving Credit Facility").
•We paid cash for capital expendituresreceived $117.0 million in proceeds from sales of $533.6 million. Our business requires capital expendituresproperty, plant and equipment, primarily related to maintain our ongoing operations, support our expected revenue growth and new products and services, and increase our profitability. Allthe sale-leaseback transactions of these expenditures are included intwo facilities during the cash flows from investing activities. Additional detailsthird quarter of 2020. We plan to monetize a small portion of our capital spending is included in the Capital Expenditures section below.total industrial real estate assets going forward.
•We acquired customer relationships and incurred both (i) customer inducements (which primarily consist primarily of permanent withdrawal fees) and (ii) Contract Fulfillment Costs (as defined in Note 2.c. to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report) and third-party commissions during the nine months ended September 30, 20192020 of $43.0$3.5 million, $7.4$8.3 million and $63.1$30.7 million, respectively.
We paid $19.2 million as part of our investment in Makespace (as discussed above).
We received proceeds of $82.1 million primarily related to the sale of three facilities in the United Kingdom and five facilities in in the United States.
c. Cash Flows from Financing Activities
Our significant financing activities during the nine months ended September 30, 20192020 included:
| |
• | Net proceeds of $987.5
•Net proceeds of $2,376.0 million associated with the June 2020 Offerings (as defined below). •Net proceeds of $1,089.0 million associated with the issuance of the 41/2% Notes (as defined below). •Payments, including call premiums, of $2,942.6 million associated with the early redemption of the 43/8% Notes, the 6% Notes due 2023, the 53/4% Notes, the CAD Notes, the Euro Notes and the 53/8% Notes. •7/8% Senior Notes due 2029 (as defined below). |
Net payments of $434.4$263.9 million primarily associated with the repayments on ourthe Revolving Credit Facility.
•Payment of dividends in the amount of $528.9$537.9 million on our common stock.
Capital Expenditures
The following table presents our capital spend for the nine months ended September 30, 20192020 and 2018,2019, organized by the type of the spending as described in our Annual Report:Report (in thousands):
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
Nature of Capital Spend | | 2020 | | 2019 |
Growth Investment Capital Expenditures: | | | | |
Real Estate | | $ | 45,888 | | | $ | 107,895 | |
Non-Real Estate | | 35,538 | | | 20,813 | |
Data Center | | 151,692 | | | 316,932 | |
Innovation | | 1,145 | | | 14,596 | |
Total Growth Investment Capital Expenditures | | 234,263 | | | 460,236 | |
Recurring Capital Expenditures: | | | | |
Real Estate | | 28,242 | | | 42,997 | |
Non-Real Estate | | 12,183 | | | 19,255 | |
Data Center | | 8,083 | | | 4,951 | |
Total Recurring Capital Expenditures | | 48,508 | | | 67,203 | |
Total Capital Spend (on accrual basis) | | 282,771 | | | 527,439 | |
Net increase (decrease) in prepaid capital expenditures | | 2,221 | | | 361 | |
Net decrease (increase) in accrued capital expenditures | | 24,170 | | | 5,814 | |
Total Capital Spend (on cash basis) | | $ | 309,162 | | | $ | 533,614 | |
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| |
Nature of Capital Spend (in thousands) | | 2019 | | 2018 |
Growth Investment Capital Expenditures: | | |
Real Estate(1) | | $ | 107,895 |
| | $ | 109,246 |
|
Non-Real Estate(2) | | 20,813 |
| | 35,942 |
|
Data Center(3) | | 316,932 |
| | 106,282 |
|
Innovation(1) | | 14,596 |
| | 9,535 |
|
Total Growth Investment Capital Expenditures | | 460,236 |
| | 261,005 |
|
Recurring Capital Expenditures: | | |
| | |
|
Real Estate(2) | | 42,997 |
| | 40,618 |
|
Non-Real Estate(2) | | 19,255 |
| | 13,675 |
|
Data Center(3) | | 4,951 |
| | 6,381 |
|
Total Recurring Capital Expenditures | | 67,203 |
| | 60,674 |
|
Total Capital Spend (on accrual basis) | | 527,439 |
| | 321,679 |
|
Net increase (decrease) in prepaid capital expenditures | | 361 |
| | (2,762 | ) |
Net decrease (increase) in accrued capital expenditures | | 5,814 |
| | 11,036 |
|
Total Capital Spend (on cash basis) | | $ | 533,614 |
| | $ | 329,953 |
|
For the year ending December 31, 2019, excludingExcluding capital expenditures associated with potential future acquisitions, opportunistic real estate investments and capital expenditures associated with the integrations of Recall and IODC,Project Summit, we expect our capital expenditures to be approximately $450.0 million in the following:year ending December 31, 2020.
| |
(1) | Growth investment capital expenditures on real estate and innovation to be approximately $175.0 million; |
| |
(2) | Recurring capital expenditures on real estate and non-real estate, as well as non-real estate growth investment capital expenditures, to be approximately $145.0 million to $155.0 million; and |
| |
(3) | Growth investment capital expenditures on our data center business to be approximately $350.0 million. |
Dividends
See Note 98 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for a listing of dividends that werewe declared during the first nine months of 20192020 and fiscal year 2018.2019.
On November 4, 2020, we declared a dividend to our stockholders of record as of December 15, 2020 of $0.6185 per share, payable on January 6, 2021.
Financial Instruments and Debt
Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents (including money market funds and time deposits)funds) and accounts receivable. The only significant concentration of liquid investment as of September 30, 20192020 is related to cash and cash equivalents. See Note 2.h.2.i. to Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report for information on our money market funds and time deposits.funds.
Long-term debt as of September 30, 20192020 is as follows (in thousands):
| | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| Debt (inclusive of discount) | | Unamortized Deferred Financing Costs | | Carrying Amount | |
Revolving Credit Facility | $ | 172,603 | | | $ | (9,482) | | | $ | 163,121 | | |
Term Loan A | 218,750 | | | — | | | 218,750 | | |
Term Loan B | 681,315 | | | (6,557) | | | 674,758 | | |
Australian Dollar Term Loan | 226,690 | | | (1,731) | | | 224,959 | | |
UK Bilateral Revolving Credit Facility | 180,204 | | | (1,393) | | | 178,811 | | |
| | | | | | |
37/8% GBP Senior Notes due 2025 (the "GBP Notes") | 514,867 | | | (4,942) | | | 509,925 | | |
47/8% Senior Notes due 2027 (the "47/8% Notes due 2027")(1) | 1,000,000 | | | (9,954) | | | 990,046 | | |
51/4% Senior Notes due 2028 (the "51/4% Notes due 2028")(1) | 825,000 | | | (8,857) | | | 816,143 | | |
5% Senior Notes due 2028 (the "5% Notes")(1) | 500,000 | | | (5,667) | | | 494,333 | | |
47/8% Senior Notes due 2029 (the "47/8% Notes due 2029")(1) | 1,000,000 | | | (13,019) | | | 986,981 | | |
51/4% Senior Notes due 2030 (the "51/4 Notes due 2030")(1) | 1,300,000 | | | (14,792) | | | 1,285,208 | | |
41/2% Senior Notes due 2031 (the "41/2 Notes")(1) | 1,100,000 | | | (12,970) | | | 1,087,030 | | |
55/8% Senior Notes due 2032 (the "55/8% Notes")(1) | 600,000 | | | (6,873) | | | 593,127 | | |
Real Estate Mortgages, Financing Lease Liabilities and Other | 468,906 | | | (215) | | | 468,691 | | |
Accounts Receivable Securitization Program | 270,600 | | | (168) | | | 270,432 | | |
Mortgage Securitization Program | 50,000 | | | (873) | | | 49,127 | | |
Total Long-term Debt | 9,108,935 | | | (97,493) | | | 9,011,442 | | |
Less Current Portion | (392,586) | | | — | | | (392,586) | | |
Long-term Debt, Net of Current Portion | $ | 8,716,349 | | | $ | (97,493) | | | $ | 8,618,856 | | |
|
| | | | | | | | | | | | |
| | September 30, 2019 |
| | Debt (inclusive of discount) | | Unamortized Deferred Financing Costs | | Carrying Amount |
Revolving Credit Facility | | $ | 354,879 |
| | $ | (11,763 | ) | | $ | 343,116 |
|
Term Loan A | | 231,250 |
| | — |
| | 231,250 |
|
Term Loan B | | 688,089 |
| | (7,806 | ) | | 680,283 |
|
Australian Dollar Term Loan | | 219,871 |
| | (2,389 | ) | | 217,482 |
|
UK Bilateral Revolving Credit Facility | | 172,180 |
| | (1,845 | ) | | 170,335 |
|
43/8% Senior Notes due 2021 | | 500,000 |
| | (2,866 | ) | | 497,134 |
|
6% Senior Notes due 2023 | | 600,000 |
| | (4,302 | ) | | 595,698 |
|
53/8% CAD Senior Notes due 2023 | | 188,811 |
| | (2,173 | ) | | 186,638 |
|
53/4% Senior Subordinated Notes due 2024 | | 1,000,000 |
| | (6,752 | ) | | 993,248 |
|
3% Euro Senior Notes due 2025 | | 327,508 |
| | (3,622 | ) | | 323,886 |
|
37/8% GBP Senior Notes due 2025 (the "GBP Notes") | | 491,943 |
| | (5,651 | ) | | 486,292 |
|
53/8% Senior Notes due 2026 | | 250,000 |
| | (2,863 | ) | | 247,137 |
|
47/8% Senior Notes due 2027 (the "47/8% Notes due 2027") | | 1,000,000 |
| | (11,375 | ) | | 988,625 |
|
51/4% Senior Notes due 2028 (the "51/4% Notes") | | 825,000 |
| | (10,037 | ) | | 814,963 |
|
47/8% Senior Notes due 2029 (the "47/8% Notes due 2029") | | 1,000,000 |
| | (14,451 | ) | | 985,549 |
|
Real Estate Mortgages, Financing Lease Liabilities and Other | | 533,549 |
| | (444 | ) | | 533,105 |
|
Accounts Receivable Securitization Program | | 271,562 |
| | (115 | ) | | 271,447 |
|
Mortgage Securitization Program | | 50,000 |
| | (1,019 | ) | | 48,981 |
|
Total Long-term Debt | | 8,704,642 |
| | (89,473 | ) | | 8,615,169 |
|
Less Current Portion | | (394,822 | ) | | — |
| | (394,822 | ) |
Long-term Debt, Net of Current Portion | | $ | 8,309,820 |
| | $ | (89,473 | ) | | $ | 8,220,347 |
|
(1)Collectively, the "Parent Notes".In September 2019, IMI completed a private offering of $1.0 billion in aggregate principal amount of the 47/8% Notes due 2029. The 47/8% Notes due 2029 were issued at par. The net proceeds of approximately $987.5 million from the 47/8% Notes due 2029, after deducting the initial purchasers' commissions, were used to repay outstanding borrowings under the Revolving Credit Facility.
See Note 4 to Notes to Consolidated Financial Statements included in our Annual Report and Note 5 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for additional information regarding our long-term debt.
June 2020 Offerings
On June 22, 2020, IMI completed private offerings of (i) $500.0 million in aggregate principal amount of the 5% Notes, (ii) $1,300.0 million in aggregate principal amount of the 51/4% Notes due 2030 and (iii) $600.0 million in aggregate principal amount of the 55/8% Notes (collectively, the "June 2020 Offerings"). The 5% Notes, the 51/4% Notes due 2030 and the 55/8% Notes were issued at 100.000% of par. The total net proceeds of approximately $2,376.0 million from the June 2020 Offerings, after deducting the initial purchasers' commissions, were used to redeem all of the 43/8% Senior Notes due 2021 ("the 43/8% Notes"), the 6% Senior Notes due 2023 (the "6% Notes due 2023") and the 53/4% Senior Subordinated Notes due 2024 (the "53/4% Notes") and to repay a portion of the outstanding borrowings under the Revolving Credit Facility.
On June 29, 2020, we redeemed all of the $500.0 million in aggregate principal outstanding of the 43/8% Notes at 100.000% of par and all of the $600.0 million in aggregate principal outstanding of the 6% Notes due 2023 at 102.000% of par, plus, in each case, accrued and unpaid interest to, but excluding, the redemption date. We recorded a charge of $17.0 million to Other expense (income), net during the second quarter of 2020 related to the early extinguishment of this debt, representing the call premium associated with the early redemption of the 6% Notes due 2023, as well as a write-off of unamortized deferred financing costs associated with the early redemption of the 43/8% Notes and the 6% Notes due 2023.
On July 2, 2020, we redeemed all of the $1,000.0 million in aggregate principal outstanding of the 53/4% Notes at 100.958% of par, plus accrued and unpaid interest to, but excluding, the redemption date. We recorded a charge of $15.3 million to Other expense (income), net during the third quarter of 2020 related to the early extinguishment of this debt, representing the call premium and write-off of unamortized deferred financing fees.
August 2020 Offering
On August 18, 2020, IMI completed a private offering of $1,100.0 million in aggregate principal amount of the 41/2% Notes. The 41/2% Notes were issued at 100.000% of par. The total net proceeds of approximately $1,089.0 million from the issuance of the 41/2% Notes, after deducting the initial purchasers' commissions, were used to redeem all of the 53/8% CAD Senior Notes due 2023 (the "CAD Notes"), the 3% Euro Senior Notes due 2025 (the "Euro Notes") and the 53/8% Senior Notes due 2026 (the "53/8% Notes") and to repay a portion of the outstanding borrowings under the Revolving Credit Facility.
On August 21, 2020, we redeemed all of the 250.0 million CAD in aggregate principal outstanding of the CAD Notes at 104.031% of par, 300.0 million Euro in aggregate principal outstanding of the Euro Notes at 101.500% of par and $250.0 million in aggregate principal outstanding of the 53/8% Notes at 106.628% of par, plus, in each case accrued and unpaid interest to, but excluding, the redemption date. We recorded a charge of approximately $36.0 million to Other expense (income), net during the third quarter of 2020 related to the early extinguishment of the CAD Notes, the Euro Notes and the 53/8% Notes, representing the call premiums and write off unamortized deferred financing costs associated with the early redemption of these debt instruments.
Accounts Receivable Securitization Program
On March 31, 2020, we amended the Accounts Receivable Securitization Program to (i) increase the maximum amount available from $275.0 million to $300.0 million and (ii) extend the maturity date from July 30, 2020 to July 30, 2021, at which point all obligations become due. The full amount outstanding under the Accounts Receivable Securitization Program is classified within the current portion of long-term debt in our Condensed Consolidated Balance Sheet as of September 30, 2020.
Letters of Credit
As of September 30, 2019,2020, we had outstanding letters of credit totaling $35.2$34.8 million, of which $16.8$3.2 million reduce our borrowing capacity under the Revolving Credit Facility. The letters of credit expire at various dates between December 2019October 2020 and August 2027.January 2033.
Debt Covenants
The Credit Agreement (as defined in Note 5 to Notes of Condensed Consolidated Financial Statements included in this Quarterly Report), our bond indentures and other agreements governing our indebtedness contain certain restrictive financial and operating covenants, including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take certain other corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under the Credit Agreement, our bond indentures or other agreements governing our indebtedness. The Credit Agreement requires that we satisfy a fixed charge coverage ratio, a net total lease adjusted leverage ratio and a net secured debt lease adjusted leverage ratio on a quarterly basis and our bond indentures require that, among other things, we satisfy a leverage ratio (not lease adjusted) or a fixed charge coverage ratio (not lease adjusted), as a condition to taking actions such as paying dividends and incurring indebtedness.
The Credit Agreement uses EBITDAR-based calculations and the bond indentures use EBITDA-based calculations as the primary measures of financial performance includingfor purposes of calculating leverage and fixed charge coverage ratios. The bond indenture EBITDA-based calculations include our consolidated subsidiaries, other than those we have designated as “Unrestricted Subsidiaries” as defined in the bond indentures. Generally, the Credit Agreement and the bond indentures use a trailing four fiscal quarter basis for purposes of the relevant calculations and require certain adjustments and exclusions for purposes of those calculations which make the calculation of financial performance for purposes of those calculations under the Credit Agreement and bond indentures not directly comparable to Adjusted EBITDA as presented herein. These adjustments can be significant. For example, the calculation of financial performance under the Credit Agreement and the 47/8% Notes due 2029 includes (subject to specified exceptions and caps) adjustments for non-cash charges and for expected benefits associated with (i) completed acquisitions, (ii) certain executed lease agreements associated with our data center business that have yet to commence, and (iii) restructuring and other strategic initiatives, such as Project Summit. The calculation of financial performance under our other bond indentures includes, for example, adjustments for non-cash charges and for expected benefits associated with (i) completed acquisitions, and (ii) to exclude the effects of events that are extraordinary, unusual or non-recurring, such as the COVID-19 pandemic.
Our leverage and fixed charge coverage ratios under the Credit Agreement as of September 30, 2019 and December 31, 2018, as well as our leverage ratio under our indentures as of September 30, 2019 and December 31, 20182020 are as follows:
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 | | Maximum/Minimum Allowable |
Net total lease adjusted leverage ratio | 5.8 |
| | 5.6 |
| | Maximum allowable of 6.5 |
Net secured debt lease adjusted leverage ratio | 2.3 |
| | 2.6 |
| | Maximum allowable of 4.0 |
Bond leverage ratio (not lease adjusted) | 6.1 |
| | 5.8 |
| | Maximum allowable of 6.5-7.0(1) |
Fixed charge coverage ratio | 2.1 |
| | 2.2 |
| | Minimum allowable of 1.5 |
| | | | | | | | | | | | | |
(1) | The maximum allowableSeptember 30, 2020
| | | | Maximum/Minimum Allowable |
Net total lease adjusted leverage ratio under our indentures for the 4 | 75.3 | | | | | /Maximum allowable of 6.5 |
8Net secured debt lease adjusted leverage ratio | % Notes due 2029, the 42.0 | | | | | 7Maximum allowable of 4.0 |
/Fixed charge coverage ratio | 82.4 | | | | | % Notes due 2027, the GBP Notes and the 5Minimum allowable of 1.5 |
1/4% Notes is 7.0, while the maximum allowableBond leverage ratio under the indentures pertaining to our remaining senior and senior subordinated notes is 6.5. In certain instances as provided in our indentures, we have the ability to incur additional indebtedness that would result in our bond leverage(not lease adjusted) | 5.9 | | | | | Maximum allowable of 7.0(1) |
Bond fixed charge coverage ratio exceeding the maximum(not lease adjusted) | 3.3 | | | | | Minimum allowable ratio under our indentures and still remain in compliance with the covenant.of 2.0(1) |
(1)The maximum leverage ratio permitted under our indentures for the GBP Notes, the 47/8% Notes due 2027, the 51/4% Notes due 2028 and the 47/8% Notes due 2029 is 7.0. As of September 30, 2020, we no longer have any indentures subject to a maximum leverage ratio of 6.5. The indentures for the 5% Notes, the 51/4% Notes due 2030, the 41/2% Notes and the 55/8% Notes do not include a maximum leverage ratio covenant; the indentures for these notes instead require us to maintain a minimum fixed charge coverage ratio of 2.0. In certain instances as provided in our indentures, we have the ability to incur additional indebtedness that would result in our bond leverage ratio or bond fixed charge coverage ratio exceeding or falling below the maximum or minimum permitted ratio under our indentures and still remain in compliance with the applicable covenant.
Noncompliance with these leverage and fixed charge coverage ratios would have a material adverse effect on our financial condition and liquidity.
Our ability to pay interest on or to refinance our indebtedness depends on our future performance, working capital levels and capital structure, which are subject to general economic, financial, competitive, legislative, regulatory and other factors which may be beyond our control. There can be no assurance that we will generate sufficient cash flow from our operations or that future financings will be available on acceptable terms or in amounts sufficient to enable us to service or refinance our indebtedness or to make necessary capital expenditures.
Derivative Instruments
a. Interest Rate Swap Agreements
In July 2019, we entered into forward-starting interest rate swap agreements to limit our exposure to changes in interest rates on a portion of our floating rate indebtedness once our current interest rate swapsswap agreements expire in March 2022. The forward-starting interest rate swap agreements have $350.0 million in notional value, commence in March 2022 and expire in March 2024. Under the swap agreements we will receive variable rate interest payments based upon one-month LIBOR, in exchange for the payment of fixed interest rate payments at the rates as specified in the interest rate swap agreements. We have designated these interest rate swap agreements as cash flow hedges.
In August 2019, we entered
b. Cross-Currency Swap Agreements
We enter into cross-currency swap agreements to hedge the variability of exchange rate impacts between the United States dollar and the Euro. Under the termsThe cross-currency swap agreements are designated as a hedge of net investment against certain of our Euro denominated subsidiaries and require an exchange of the notional amounts at maturity.
In September 2020, we entered into cross-currency swap agreements whereby we notionally exchanged approximately $359.2 million at an interest rate of 4.5% for approximately 300.0 million Euros at a weighted average interest rate of approximately 3.4%. These cross-currency swap agreements expire in February 2026.
In August 2019, we entered into cross-currency swap agreements whereby we notionally exchanged approximately $110.0 million at an interest rate of 6.0% for approximately 99.1 million Euros at a weighted average interest rate of approximately 3.65%. TheThese cross-currency swap agreements which expire in August 2023, are designated as a hedge of net investment against certain of our Euro denominated subsidiaries and require and exchange of the notional amounts at maturity. We have designated these cross-currency swap agreements as net investment hedges.2023.
See Note 3 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for additional information on our derivative instruments.
At The Market (ATM) Equity ProgramFinancing
As described in greater detail in Note 12 to Notes to Consolidated Financial Statements included in our Annual Report,
In 2017, we entered into a distribution agreement with a syndicate of 10 banks (the “Agents”) pursuant to which we may sell, from time to time, up to an aggregate sales price of $500.0 million of our common stock through the Agentsagents under the agreement (the “At The Market (ATM) Equity Program”). ThereDuring the nine months ended September 30, 2020, there were no shares of common stock sold under the At the Market (ATM) Equity Program during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, under the At The Market (ATM) Equity Program, we sold an aggregate of 273,486 shares of common stock for gross proceeds of approximately $8.8 million, generating net proceeds of $8.7 million, after deducting commissions of $0.1 million.Program. As of September 30, 2019,2020, the remaining aggregate sale price of shares of our common stock available for distribution under the At The Market (ATM) Equity Program was approximately $431.2 million.
Acquisitions and Joint Ventures
See Note 4 and Note 11 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for information regarding our 2020 acquisitions and joint ventures.
a. OSG Acquisition
On January 9, 2020, we completed the OSG Acquisition for cash consideration of approximately $95.5 million. The OSG Acquisition enabled us to extend our Global RIM Business in Russia, Ukraine, Kazakhstan, Belarus, and Armenia. The results of OSG are fully consolidated within our condensed consolidated financial statements from the closing date of the OSG Acquisition.
b. Glenbeigh Acquisition
On February 17, 2020, in order to enhance our existing operations in the United Arab Emirates, we acquired Glenbeigh Records Management DWC-LLC, a storage and records management company, for total cash consideration of approximately $29.1 million.
c. MakeSpace Capital Contribution
During 2019, acquisitions.we formed a joint venture entity with MakeSpace Labs, Inc. (the "MakeSpace JV"). In the second quarter of 2020, we committed to participate in a round of equity funding for the MakeSpace JV whereby we agreed tocontribute $36.0 million of the $45.0 million being raised in installments beginning in May 2020 through October 2021. Our equity interest in the MakeSpace JV at September 30, 2020 and December 31, 2019 was 37% and 34%, respectively, and the carrying value of our investment in the MakeSpace JV at September 30, 2020 and December 31, 2019 was approximately $15.8 million and $18.6 million, respectively.
Includedd. Frankfurt Joint Venture
On October 1, 2020, we formed a joint venture (the “Frankfurt JV Transaction”) with AGC Equity Partners (“AGC”) to design and develop a 280,000 square foot, 27 megawatt, hyperscale data center currently under development in Significant Acquisition CostsFrankfurt, Germany (the “Frankfurt JV”). AGC acquired an 80% equity interest in the Frankfurt JV, while we retained a 20% equity interest (the “Frankfurt JV Investment”). The total cash consideration for the 80% equity interest sold to AGC was approximately $100.0 million. The substantial majority of the consideration was received upon the closing of the Frankfurt JV, and we are certain costsentitled to receive an additional approximately $10.0 million upon the completion of development of the data center, which we expect to occur in the second quarter of 2021. In connection with the Frankfurt JV Transaction, we also entered into agreements whereby we will earn various fees, including property management and construction and development fees, for services we are providing to the Frankfurt JV.
The assets included in the Frankfurt JV Transaction have a carrying value of approximately $100.0 million at September 30, 2020, and are primarily land and land development assets which are included within our Global Data Center Business segment. The assets are classified as held for sale and are included within Other, a component of Other assets, net in our Condensed Consolidated Balance Sheet at September 30, 2020.
During the fourth quarter of 2020, we expect to recognize a gain of approximately $25.0 million associated with the RecallFrankfurt JV Transaction, andrepresenting the IODC Transaction. This amount consistsexcess of (i) Significant Acquisition Costs and (ii) capital expendituresthe fair value of the consideration received over the carrying value of the assets. The gain remains subject to integrate Recall with our existing operations. We currently estimate total acquisition and integration expenditures associated with the Recall Transaction and acquisition expenditures associated with the IODC Transaction to be approximately $405.0 million, the substantial majoritycustomary closing adjustments.
The following table presents the cumulative amount of operating and capital expenditures incurred during the nine months ended September 30, 2019 and 2018, as well as the cumulative amount incurred through September 30, 2019, associated with the Recall Transaction and the IODC Transaction (in thousands):
|
| | | | | | | | | | | | |
| | Cumulative Total Through September 30, 2019 | | Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2018 |
Significant Acquisition Costs | | $ | 323,121 |
| | $ | 8,597 |
| | $ | 38,715 |
|
Recall Capital Expenditures | | 75,735 |
| | 2,198 |
| | 14,226 |
|
Total | | $ | 398,856 |
| | $ | 10,795 |
| | $ | 52,941 |
|
Contractual Obligations
We expect to meet our cash flow requirements for the next twelve months by utilizing cash on hand, cash generated from operations, borrowings under the Credit Agreement and other financings (including the issuance of equity under the At The Market (ATM) Equity Program). We expect to meet our long-term cash flow requirements using the same resources described above. We are currently operating above our long-term targeted leverage ratio and expect to reduce our leverage ratio over time through business growth and effective capital allocation strategies.
Inflation
Certain of our expenses, such as wages and benefits, insurance, occupancy costs and equipment repair and replacement, are subject to normal inflationary pressures. Although to date we have been able to offset inflationary cost increases with increased operating efficiencies, the negotiation of favorable long-term real estate leases and an ability to increase prices in our customer contracts (many of which contain provisions for inflationary price escalators), we can give no assurance that we will be able to offset any future inflationary cost increases through similar efficiencies, leases or increased storage rental or service charges.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These rules refer to the controls and other procedures of a company that are designed to ensure that information is recorded, processed, accumulated, summarized, communicated and reported to management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding what is required to be disclosed by a company in the reports that it files under the Exchange Act. As of September 30, 20192020 (the "Evaluation Date"), we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, our chief executive officer and chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
Our management, with the participation of our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements.
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 20192020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. In March 2020, many of our employees began working remotely due to the COVID-19 pandemic. We have not implemented any material changes in our internal control over financial reporting due to the changes in the way we are working. We are monitoring and assessing the effects of the COVID-19 pandemic to determine any potential impacts on the design and operating effectiveness of our internal controls over financial reporting.
Part II. Other Information
Item 1A. Risk Factors
We face many risks. You should carefully consider the risks and uncertainties described below and under “Forward Looking Statements” in this Quarterly Report on Form 10-Q as well as in Part I, Item 1A under the heading “Risk Factors” and the information contained under the heading “Cautionary Note Regarding Forward Looking Statements” in our Annual Report, and the other information included or incorporated by reference in this Quarterly Report on Form 10-Q and in other documents that we file with the SEC from time to time before making an investment decision regarding our securities. If any of the events or circumstances described in such risks and uncertainties actually occurs, our businesses, financial condition or results of operations could suffer and the trading price of our debt or equity securities could decline.
Our program to simplify our global structure may not be successful.
In October 2019, we announced Project Summit, a global program designed to better position us for future growth and achievement of our strategic objectives. Project Summit will focus on simplifying our global records and information management structure and streamlining our managerial structure. As a result of the program, we expect to reduce the number of vice president level and above positions by approximately 45%. The total program is expected to reduce our total managerial and administrative workforce by approximately 700 positions over the next two years. We also plan to implement systems and process changes designed to make our organization more agile and dynamic, streamline our organization and reallocate our resources to better align with our strategic goals. We expect the total program benefits associated with Project Summit to be fully realized by the end of 2022. We have included in this Quarterly Report on Form 10-Q estimates of expected improvements to our Adjusted EBITDA and the restructuring charges (including operating and capital expenditures) we expect to incur. However, we may not be able to realize the full amount of our expected improvements to Adjusted EBITDA in a timely manner, or at all, and the restructuring charges associated Project Summit may exceed our expectations. In addition, this program may yield unintended consequences, such as attrition beyond our intended reduction in force and distraction of our employees. As a result, Project Summit could have a material adverse effect on our results of operations or financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not sell any unregistered equity securities during the three months ended September 30, 2019,2020, nor did we repurchase any shares of our common stock during the three months ended September 30, 2019.2020.
Item 6. Exhibits
(a) Exhibits
Certain exhibits indicated below are incorporated by reference to documents we have filed with the SEC.
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| | | | | | | |
Exhibit No. | | Description |
4.1 |
| | 2031 Senior Indenture,Notes Indenture, dated as of September 9, 2019,August 18, 2020, among the Company, the Subsidiary Guarantors and Wells Fargo Bank, National Association, as trustee, relating to the 4.500% Senior Notes due 2031. (Incorporated by reference to the Company's Current Report on Form 8-K dated September 9, 2019.August 18, 2020.) |
31.1 |
| | |
31.2 |
| |
31.2 | | | |
32.1 |
| | |
32.2 |
| | |
101.INS |
| | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
| | Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
| | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
| | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
| | Inline XBRL Taxonomy Label Linkbase Document. |
101.PRE |
| | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | |
| IRON MOUNTAIN INCORPORATED |
| By: | /s/ DANIEL BORGES |
| | |
| | |
| | Daniel Borges Senior Vice President, Chief Accounting Officer |
Dated: October 31, 2019
November 5, 2020