Iron Mountain Incorporated (IRM)

FORM 10-Q | Quarterly Report
IRON MOUNTAIN INC (Form: 10-Q, Received: 08/01/2019 16:20:35)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Quarterly Period Ended June 30, 2019
 
OR
 
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Transition Period from                        to                       
 
Commission file number  1-13045
 
IRON MOUNTAIN INC ORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Delaware
23-2588479
(State or other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
One Federal Street , Boston , Massachusetts 02110
(Address of Principal Executive Offices, Including Zip Code)

( 617 535-4766
(Registrant's Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒    No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒    No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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):
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
Emerging growth company
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.☐ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No ☒
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $.01 par value
 
IRM
 
NYSE
As of July 26, 2019 , the registrant had 287,106,811 outstanding shares of common stock, $.01 par value.




IRON MOUNTAIN INCORPORATED
Index

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


Part I. Financial Information
Item 1.    Unaudited Condensed Consolidated Financial Statements
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except Share and Per Share Data)
(Unaudited)
 
June 30, 2019
 
December 31, 2018
ASSETS
 
 
 

Current Assets:
 
 
 

Cash and cash equivalents
$
161,996

 
$
165,485

Accounts receivable (less allowances of $41,305 and $43,584 as of June 30, 2019 and December 31, 2018, respectively)
852,330

 
846,889

Prepaid expenses and other
200,777

 
195,740

Total Current Assets
1,215,103

 
1,208,114

Property, Plant and Equipment:
 
 
 

Property, plant and equipment
7,840,423

 
7,600,949

Less—Accumulated depreciation
(3,281,864
)
 
(3,111,392
)
Property, Plant and Equipment, Net
4,558,559

 
4,489,557

Other Assets, Net:
 
 
 

Goodwill
4,473,424

 
4,441,030

Customer relationships, customer inducements and data center lease-based intangibles
1,467,025

 
1,506,522

Operating lease right-of-use assets (see Note 2.d.)
1,793,807

 

Other
213,064

 
211,995

Total Other Assets, Net
7,947,320

 
6,159,547

Total Assets
$
13,720,982

 
$
11,857,218

LIABILITIES AND EQUITY
 
 
 

Current Liabilities:
 
 
 

Current portion of long-term debt
$
123,527

 
$
126,406

Accounts payable
303,988

 
318,765

Accrued expenses and other current liabilities (includes current portion of operating lease liabilities,
see Note 2.d.)
920,493

 
780,781

Deferred revenue
268,779

 
264,823

Total Current Liabilities
1,616,787

 
1,490,775

Long-term Debt, net of current portion
8,390,183

 
8,016,417

Long-term Operating Lease Liabilities, net of current portion (see Note 2.d.)
1,655,477

 

Other Long-term Liabilities
131,909

 
111,331

Deferred Rent (see Note 2.d.)

 
121,864

Deferred Income Taxes
194,532

 
183,836

Commitments and Contingencies (see Note 7)


 


Redeemable Noncontrolling Interests
73,113

 
70,532

Equity:
 
 
 

Iron Mountain Incorporated Stockholders' Equity:
 
 
 

Preferred stock (par value $0.01; authorized 10,000,000 shares; none issued and outstanding)

 

Common stock (par value $0.01; authorized 400,000,000 shares; issued and outstanding 287,061,769 and 286,321,009 shares as of June 30, 2019 and December 31, 2018, respectively)
2,870

 
2,863

Additional paid-in capital
4,281,584

 
4,263,348

(Distributions in excess of earnings) Earnings in excess of distributions
(2,364,812
)
 
(2,139,493
)
Accumulated other comprehensive items, net
(261,821
)
 
(265,664
)
Total Iron Mountain Incorporated Stockholders' Equity
1,657,821

 
1,861,054

Noncontrolling Interests
1,160

 
1,409

Total Equity
1,658,981

 
1,862,463

Total Liabilities and Equity
$
13,720,982

 
$
11,857,218

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)
 
Three Months Ended
June 30,
 
2019
 
2018
Revenues:
 

 
 

Storage rental
$
669,288


$
655,439

Service
397,619


405,384

Total Revenues
1,066,907


1,060,823

Operating Expenses:
 

 
 

Cost of sales (excluding depreciation and amortization)
465,102


451,464

Selling, general and administrative
252,764

 
252,225

Depreciation and amortization
164,331

 
156,220

(Gain) Loss on disposal/write-down of property, plant and equipment, net
(see Notes 2.j. and 2.m.)
(8,405
)
 
(546
)
Total Operating Expenses
873,792


859,363

Operating Income (Loss)
193,115


201,460

Interest Expense, Net (includes Interest Income of $1,461 and $2,280 for the three months ended June 30, 2019 and 2018, respectively)
105,314

 
102,196

Other (Income) Expense, Net
(15,192
)

(19,056
)
Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes
102,993

 
118,320

Provision (Benefit) for Income Taxes
10,646

 
26,057

Income (Loss) from Continuing Operations
92,347


92,263

Income (Loss) from Discontinued Operations, Net of Tax
128

 
(360
)
Net Income (Loss)
92,475

 
91,903

Less: Net Income (Loss) Attributable to Noncontrolling Interests
34

 
142

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
92,441


$
91,761

Earnings (Losses) per Share—Basic:
 

 
 

Income (Loss) from Continuing Operations
$
0.32

 
$
0.32

Total Income (Loss) from Discontinued Operations, Net of Tax
$

 
$

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
0.32

 
$
0.32

Earnings (Losses) per Share—Diluted:
 

 
 

Income (Loss) from Continuing Operations
$
0.32

 
$
0.32

Total Income (Loss) from Discontinued Operations, Net of Tax
$

 
$

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
0.32

 
$
0.32

Weighted Average Common Shares Outstanding—Basic
286,925

 
285,984

Weighted Average Common Shares Outstanding—Diluted
287,481

 
286,569

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)
 
Six Months Ended
June 30,
 
2019
 
2018
Revenues:
 

 
 

Storage rental
$
1,332,262

 
$
1,306,588

Service
788,508

 
796,693

Total Revenues
2,120,770

 
2,103,281

Operating Expenses:
 
 


Cost of sales (excluding depreciation and amortization)
926,646

 
900,185

Selling, general and administrative
523,323

 
529,395

Depreciation and amortization
326,814

 
316,798

(Gain) Loss on disposal/write-down of property, plant and equipment, net
(see Notes 2.j. and 2.m.)
(7,803
)
 
(1,676
)
Total Operating Expenses
1,768,980

 
1,744,702

Operating Income (Loss)
351,790

 
358,579

Interest Expense, Net (includes Interest Income of $3,246 and $3,666 for the six months ended June 30, 2019 and 2018, respectively)
207,750

 
199,898

Other Expense (Income), Net
18

 
1,095

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes
144,022

 
157,586

Provision (Benefit) for Income Taxes
21,199

 
25,934

Income (Loss) from Continuing Operations
122,823

 
131,652

Income (Loss) from Discontinued Operations, Net of Tax
104

 
(822
)
Net Income (Loss)
122,927

 
130,830

Less: Net Income (Loss) Attributable to Noncontrolling Interests
925

 
610

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
122,002

 
$
130,220

Earnings (Losses) per Share—Basic:
 

 
 

Income (Loss) from Continuing Operations
$
0.43

 
$
0.46

Total Income (Loss) from Discontinued Operations, Net of Tax
$

 
$

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
0.43

 
$
0.46

Earnings (Losses) per Share—Diluted:
 

 
 

Income (Loss) from Continuing Operations
$
0.42

 
$
0.46

Total Income (Loss) from Discontinued Operations, Net of Tax
$

 
$

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
0.42

 
$
0.45

Weighted Average Common Shares Outstanding—Basic
286,727

 
285,622

Weighted Average Common Shares Outstanding—Diluted
287,487

 
286,282

The accompanying notes are an integral part of these condensed consolidated financial statements.


5


IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
(Unaudited)
 
Three Months Ended
June 30,
 
2019
 
2018
Net Income (Loss)
$
92,475

 
$
91,903

Other Comprehensive (Loss) Income:
 

 
 

Foreign Currency Translation Adjustment
(5,791
)
 
(139,172
)
Change in Fair Value of Interest Rate Swap Agreements
(4,931
)
 
2,388

Total Other Comprehensive (Loss) Income
(10,722
)
 
(136,784
)
Comprehensive Income (Loss)
81,753

 
(44,881
)
Comprehensive Income (Loss) Attributable to Noncontrolling Interests
173

 
(3,274
)
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated
$
81,580

 
$
(41,607
)
 
Six Months Ended
June 30,
 
2019
 
2018
Net Income (Loss)
$
122,927

 
$
130,830

Other Comprehensive Income (Loss):
 

 
 

Foreign Currency Translation Adjustment
12,400

 
(107,521
)
Change in Fair Value of Interest Rate Swap Agreements
(7,605
)
 
2,203

Total Other Comprehensive Income (Loss)
4,795

 
(105,318
)
Comprehensive Income (Loss)
127,722

 
25,512

Comprehensive Income (Loss) Attributable to Noncontrolling Interests
1,877

 
(1,247
)
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated
$
125,845

 
$
26,759

The accompanying notes are an integral part of these condensed consolidated financial statements.


6


IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In Thousands, except Share Data)
(Unaudited)
Three Month Period Ended June 30, 2019
 
 
 
Iron Mountain Incorporated Stockholders' Equity
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-in Capital
 
(Distributions in Excess of Earnings) Earnings in Excess of Distributions
 
 
 
Noncontrolling
Interests
 
 
 
 
Total
 
Shares
 
Amounts
 
 
 
Accumulated
Other
Comprehensive
Items, Net
 
 
Redeemable Noncontrolling Interests
Balance, March 31, 2019
$
1,737,608

 
286,829,854

 
$
2,868

 
$
4,264,978

 
$
(2,280,611
)
 
$
(250,960
)
 
$
1,333

 
 
$
73,102

Issuance of shares under employee stock purchase plan and option plans and stock-based compensation
16,774

 
231,915

 
2

 
16,772

 

 

 

 
 

Change in equity related to redeemable noncontrolling interests
(166
)
 

 

 
(166
)
 

 

 

 
 
166

Parent cash dividends declared (see Note 8)
(176,642
)
 

 

 

 
(176,642
)
 

 

 
 

Foreign currency translation adjustment
(5,930
)
 

 

 

 

 
(5,930
)
 

 
 
139

Change in fair value of interest rate swap agreements
(4,931
)
 

 

 

 

 
(4,931
)
 

 
 

Net income (loss)
92,268

 

 

 

 
92,441

 

 
(173
)
 
 
207

Noncontrolling interests dividends

 

 

 

 

 

 

 
 
(501
)
Balance, June 30, 2019
$
1,658,981

 
287,061,769

 
$
2,870

 
$
4,281,584

 
$
(2,364,812
)
 
$
(261,821
)
 
$
1,160

 
 
$
73,113

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Month Period Ended June 30, 2019
 
 
 
Iron Mountain Incorporated Stockholders' Equity
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-in Capital
 
(Distributions in Excess of Earnings) Earnings in Excess of Distributions
 
 
 
Noncontrolling
Interests
 
 
 
 
Total
 
Shares
 
Amounts
 
 
 
Accumulated
Other
Comprehensive
Items, Net
 
 
Redeemable Noncontrolling Interests
Balance, December 31, 2018
$
1,862,463

 
286,321,009

 
$
2,863

 
$
4,263,348

 
$
(2,139,493
)
 
$
(265,664
)
 
$
1,409

 
 
$
70,532

Cumulative-effect adjustment for adoption of ASU 2016-02 (see Note 2.d.)
5,781

 

 

 

 
5,781

 

 

 
 

Issuance of shares under employee stock purchase plan and option plans and stock-based compensation
19,697

 
740,760

 
7

 
19,690

 

 

 

 
 

Change in equity related to redeemable noncontrolling interests
(1,454
)
 

 

 
(1,454
)
 

 

 

 
 
1,454

Parent cash dividends declared (see Note 8)
(353,102
)
 

 

 

 
(353,102
)
 

 

 
 

Foreign currency translation adjustment
11,448

 

 

 

 

 
11,448

 

 
 
952

Change in fair value of interest rate swap agreements
(7,605
)
 

 

 

 

 
(7,605
)
 

 
 

Net income (loss)
121,753

 

 

 

 
122,002

 

 
(249
)
 
 
1,174

Noncontrolling interests dividends

 

 

 

 

 

 

 
 
(999
)
Balance, June 30, 2019
$
1,658,981

 
287,061,769

 
$
2,870

 
$
4,281,584

 
$
(2,364,812
)
 
$
(261,821
)
 
$
1,160

 
 
$
73,113

The accompanying notes are an integral part of these condensed consolidated financial statements.


7


IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In Thousands, except Share Data)
(Unaudited)
Three Month Period Ended June 30, 2018
 
 
 
Iron Mountain Incorporated Stockholders' Equity
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-in Capital
 
(Distributions in Excess of Earnings) Earnings in Excess of Distributions
 
 
 
Noncontrolling
Interests
 
 
 
 
Total
 
Shares
 
Amounts
 
 
 
Accumulated
Other
Comprehensive
Items, Net
 
 
Redeemable Noncontrolling Interests
Balance, March 31, 2018
$
2,241,342

 
285,923,405

 
$
2,859

 
$
4,250,757

 
$
(1,939,720
)
 
$
(74,082
)
 
$
1,528

 
 
$
92,877

Cumulative-effect adjustment for adoption of ASU 2014-09 (see Note 2.c.)
(772
)
 

 

 

 
(772
)
 

 

 
 

Issuance of shares under employee stock purchase plan and option plans and stock-based compensation
12,373

 
175,822

 
2

 
12,371

 

 

 

 
 

Change in value of redeemable noncontrolling interests
(6,234
)
 

 

 
(6,234
)
 

 

 

 
 
6,234

Parent cash dividends declared (see Note 8)
(169,207
)
 

 

 

 
(169,207
)
 

 

 
 

Foreign currency translation adjustment
(135,758
)
 

 

 

 

 
(135,756
)
 
(2
)
 
 
(3,414
)
Change in fair value of interest rate swap agreements
2,388

 

 

 

 

 
2,388

 

 
 

Net income (loss)
91,742

 

 

 

 
91,761

 

 
(19
)
 
 
161

Noncontrolling interests dividends

 

 

 

 

 

 

 
 
(518
)
Balance, June 30, 2018
$
2,035,874

 
286,099,227

 
$
2,861

 
$
4,256,894

 
$
(2,017,938
)
 
$
(207,450
)
 
$
1,507

 
 
$
95,340

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Month Period Ended June 30, 2018
 
 
 
Iron Mountain Incorporated Stockholders' Equity
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-in Capital
 
(Distributions in Excess of Earnings) Earnings in Excess of Distributions
 
 
 
Noncontrolling
Interests
 
 
 
 
Total
 
Shares
 
Amounts
 
 
 
Accumulated
Other
Comprehensive
Items, Net
 
 
Redeemable Noncontrolling Interests
Balance, December 31, 2017
$
2,285,134

 
283,110,183

 
$
2,831

 
$
4,164,562

 
$
(1,779,674
)
 
$
(103,989
)
 
$
1,404

 
 
$
91,418

Cumulative-effect adjustment for adoption of ASU 2014-09 (see Note 2.c.)
(30,233
)
 

 

 

 
(30,233
)
 

 

 
 

Issuance of shares under employee stock purchase plan and option plans and stock-based compensation
13,805

 
540,558

 
6

 
13,799

 

 

 

 
 

Issuance of shares associated with the Over-Allotment Option, net of underwriting discounts and offering expenses (see Note 12 to Notes to Consolidated Financial Statements included in our Annual Report)
76,192

 
2,175,000

 
22

 
76,170

 

 

 

 
 

Issuance of shares through the At the Market (ATM) Equity Program, net of underwriting discounts and offering expenses (see Note 8)
8,716

 
273,486

 
2

 
8,714

 

 

 

 
 


Change in value of redeemable noncontrolling interests
(6,351
)
 

 

 
(6,351
)
 

 

 

 
 
6,351

Parent cash dividends declared (see Note 8)
(338,251
)
 

 

 

 
(338,251
)
 

 

 
 

Foreign currency translation adjustment
(105,512
)
 

 

 

 

 
(105,664
)
 
152

 
 
(2,009
)
Change in fair value of interest rate swap agreements
2,203

 

 

 

 

 
2,203

 

 
 

Net income (loss)
130,171

 

 

 

 
130,220

 

 
(49
)
 
 
659

Noncontrolling interests dividends

 

 

 

 

 

 

 
 
(1,079
)
Balance, June 30, 2018
$
2,035,874

 
286,099,227

 
$
2,861

 
$
4,256,894

 
$
(2,017,938
)
 
$
(207,450
)
 
$
1,507

 
 
$
95,340


The accompanying notes are an integral part of these condensed consolidated financial statements.


8


IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
Six Months Ended
June 30,
 
2019
 
2018
Cash Flows from Operating Activities:
 
 
 

Net income (loss)
$
122,927

 
$
130,830

Loss (income) from discontinued operations
(104
)
 
822

Adjustments to reconcile net income (loss) to cash flows from operating activities:
 

 
 

Depreciation
228,333

 
224,933

Amortization (includes amortization of deferred financing costs and discounts of $8,208 and $7,580 for the six months ended June 30, 2019 and 2018, respectively)
106,689

 
99,445

Revenue reduction associated with amortization of customer inducements and above- and below-market leases
7,178

 
7,925

Stock-based compensation expense
21,020

 
16,073

Provision (benefit) for deferred income taxes
2,753

 
(741
)
(Gain) loss on disposal/write-down of property, plant and equipment, net (see Note 2.j.)
(7,803
)
 
(1,676
)
Foreign currency transactions and other, net
(7,505
)
 
497

(Increase) decrease in assets
(53,038
)
 
(54,729
)
Increase (decrease) in liabilities
9,281

 
(29,573
)
Cash Flows from Operating Activities - Continuing Operations
429,731

 
393,806

Cash Flows from Operating Activities - Discontinued Operations

 
(477
)
Cash Flows from Operating Activities
429,731

 
393,329

Cash Flows from Investing Activities:
 

 
 

Capital expenditures (see Liquidity and Capital Resources section of Management's Discussion & Analysis of Financial Condition and Results of Operations)
(367,131
)
 
(217,601
)
Cash paid for acquisitions, net of cash acquired
(44,651
)
 
(1,666,869
)
Acquisition of customer relationships
(33,375
)
 
(23,383
)
Customer inducements
(5,841
)
 
(4,041
)
Contract fulfillment costs and third-party commissions
(51,346
)
 
(9,809
)
Investments in joint ventures (see Note 9)
(19,222
)
 

Proceeds from sales of property and equipment and other, net
46,832

 
207

Cash Flows from Investing Activities - Continuing Operations
(474,734
)
 
(1,921,496
)
Cash Flows from Investing Activities - Discontinued Operations
5,061

 

Cash Flows from Investing Activities
(469,673
)
 
(1,921,496
)
Cash Flows from Financing Activities:
 

 
 

Repayment of revolving credit facility, term loan facilities and other debt
(2,602,922
)
 
(7,876,796
)
Proceeds from revolving credit facility, term loan facilities and other debt
2,998,107

 
8,944,416

Debt repayment and equity distribution to noncontrolling interests
(999
)
 
(1,079
)
Parent cash dividends
(353,357
)
 
(337,052
)
Net proceeds associated with the Over-Allotment Option

 
76,192

Net proceeds associated with the At the Market (ATM) Program

 
8,716

Net (payments) proceeds associated with employee stock-based awards
(1,727
)
 
(2,259
)
Payment of debt financing and stock issuance costs

 
(13,385
)
Cash Flows from Financing Activities - Continuing Operations
39,102

 
798,753

Cash Flows from Financing Activities - Discontinued Operations

 

Cash Flows from Financing Activities
39,102

 
798,753

Effect of Exchange Rates on Cash and Cash Equivalents
(2,649
)
 
(8,093
)
(Decrease) Increase in Cash and Cash Equivalents
(3,489
)
 
(737,507
)
Cash and Cash Equivalents, including Restricted Cash, Beginning of Period
165,485

 
925,699

Cash and Cash Equivalents, including Restricted Cash, End of Period
$
161,996

 
$
188,192

 
 
 
 
Supplemental Information:
 

 
 

Cash Paid for Interest
$
201,602

 
$
185,804

Cash Paid for Income Taxes, Net
$
38,302

 
$
33,858

Non-Cash Investing and Financing Activities:
 

 
 

Financing Leases (see Note 2.d.)
$
13,662

 
$
34,260

Accrued Capital Expenditures
$
66,154

 
$
49,320

Accrued Purchase Price and Other Holdbacks
$
2,394

 
$
26,089

Dividends Payable
$
181,731

 
$
173,301

 
 
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

9


IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(1) General
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. 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 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 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, 2018 included in our Annual Report on Form 10-K filed with the SEC on February 14, 2019 (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.

On January 10, 2018, we completed the acquisition of IO Data Centers, LLC ("IODC") (the "IODC Transaction"). See Note 3.
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) 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 and cash equivalents are carried at cost, which approximates fair value.
At June 30, 2019 and December 31, 2018, we had approximately $9,059 and $15,141 , respectively, of restricted cash held by certain financial institutions related to bank guarantees.

10

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)

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 June 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, 2018 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 9 for additional information.
The goodwill associated with acquisitions completed during the first six months of 2019 (which are described in Note 3) has been incorporated into our reporting units as they existed as of December 31, 2018.
The changes in the carrying value of goodwill attributable to each reportable operating segment for the six months ended June 30, 2019 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
 
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
5,501

 

 

 
2,758

 

 

 
8,259

Non-deductible goodwill acquired during the year

 

 
5,011

 
4,387

 

 
1,904

 
11,302

Fair value and other adjustments(1)
55

 

 
959

 
2,842

 
258

 
(422
)
 
3,692

Currency effects
7,704

 
2,093

 
(2,851
)
 
1,907

 
193

 
95

 
9,141

Goodwill balance, net accumulated amortization as of June 30, 2019
$
2,265,055

 
$
495,584

 
$
384,925

 
$
830,117

 
$
426,407

 
$
71,336

 
$
4,473,424

Accumulated Goodwill Impairment Balance as of December 31, 2018
$
85,909

 
$

 
$
46,500

 
$

 
$

 
$
3,011

 
$
135,420

Accumulated Goodwill Impairment Balance as of June 30, 2019
$
85,909

 
$

 
$
46,500

 
$

 
$

 
$
3,011

 
$
135,420

_______________________________________________________________________________
(1)
Total fair value and other adjustments primarily include $3,755 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 $63 of cash received related to certain acquisitions completed in 2018.


11

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)

Finite-lived Intangible Assets and Liabilities

Finite-lived intangible assets and liabilities are primarily comprised of customer relationship intangible assets, customer inducements 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 assets as of June 30, 2019 and December 31, 2018 are as follows:
 
June 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
$
1,766,769

 
$
(511,672
)
 
$
1,255,097

 
$
1,718,919

 
$
(455,705
)
 
$
1,263,214

Customer inducements
52,542

 
(29,091
)
 
23,451

 
56,478

 
(34,181
)
 
22,297

Data center lease-based intangible assets(1)
266,263

 
(77,786
)
 
188,477

 
271,818

 
(50,807
)
 
221,011

Third-party commissions asset(2)
31,391

 
(1,874
)
 
29,517

 
30,071

 
(1,089
)
 
28,982

 
$
2,116,965

 
$
(620,423
)
 
$
1,496,542

 
$
2,077,286

 
$
(541,782
)
 
$
1,535,504

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Data center below-market leases
$
12,765

 
$
(2,954
)
 
$
9,811

 
$
12,318

 
$
(1,642
)
 
$
10,676

_______________________________________________________________________________
 
(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 June 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 3.

Other finite-lived intangible assets, including trade names, noncompetition agreements and trademarks, are capitalized and amortized and are included in depreciation and amortization in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018. The other finite-lived intangible assets as of June 30, 2019 and December 31, 2018 are as follows:
 
June 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)
$
19,960

 
$
(16,482
)
 
$
3,478

 
$
20,310

 
$
(14,798
)
 
$
5,512



12

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)

Amortization expense associated with finite-lived intangible assets, revenue reduction associated with the amortization of customer inducements and net revenue reduction associated with the amortization of data center above-market leases and data center below-market leases for the three and six months ended June 30, 2019 and 2018 are as follows:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Amortization expense included in depreciation and amortization associated with:
 
 
 
 
 
 
 
 
Customer relationship and customer inducement intangible assets
 
$
28,283

 
$
28,813

 
$
56,164

 
$
57,619

Data center in-place leases and tenant relationships
 
11,372

 
7,563

 
23,981

 
18,401

Third-party commissions asset and other finite-lived intangible assets
 
2,184

 
1,659

 
2,941

 
2,844

Revenue reduction associated with amortization of:
 
 
 
 
 
 
 
 
Customer inducements
 
$
2,598

 
$
2,968

 
$
5,338

 
$
5,553

Data center above-market leases and data center below-market leases
 
935

 
1,293

 
1,840

 
2,372


c.    Revenues

Since December 31, 2018, there have been no changes to our accounting policies related to the accounting 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") and capitalized commissions asset (collectively, "Contract Fulfillment Costs") as of June 30, 2019 and December 31, 2018 are as follows:
 
 
 
 
June 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)
 
$
34,915

 
$
(19,398
)
 
$
15,517

 
$
39,748

 
$
(24,504
)
 
$
15,244

Capitalized commissions asset
 
Other (within Other Assets, Net)
 
48,564

 
(17,895
)
 
30,669

 
58,424

 
(34,637
)
 
23,787



Amortization expense associated with the Intake Costs asset and capitalized commissions asset for the three and six months ended June 30, 2019 and 2018 are as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Intake Costs asset
$
2,835

 
$
2,891

 
$
5,514

 
$
5,621

Capitalized commissions asset
5,935

 
3,793

 
9,881

 
7,380




13

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)

Deferred revenue liabilities are reflected as follows in our Condensed Consolidated Balance Sheets:
Description
 
Location in Balance Sheet
 
June 30, 2019
 
December 31, 2018
Deferred revenue - Current
 
Deferred revenue
 
$
268,779

 
$
264,823

Deferred revenue - Long-term
 
Other Long-term Liabilities
 
25,436

 
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 will be 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 $60,582 and $120,300 for the three and six months ended June 30, 2019, respectively, which includes approximately $9,900 and $19,000 of revenue associated with power and connectivity for the three and six months ended June 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:
 
Future minimum lease payments
2019 (excluding the six months ended June 30, 2019)
$
103,016

2020
155,581

2021
111,945

2022
79,763

2023
61,684



d. Leases
We lease facilities for certain warehouses, data centers and office space. We also have land leases, including those on which certain facilities are located. 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 exercise of the lease renewal option 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 life of the lease and any fair market value or Consumer Price Index rent escalations are recognized as variable lease expense in the period in which the obligation is incurred. In addition, we lease certain vehicles and equipment. Vehicle and equipment leases have lease terms ranging from one to seven years .

14

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)

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 retained earnings 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 June 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 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.

15

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 June 30, 2019 and January 1, 2019 (date of adoption of ASU 2016-02) are as follows:
Description
 
Location in Balance Sheet
 
June 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
 
$
1,793,807

 
$
1,825,721

Financing lease right-of-use assets, net of accumulated depreciation(2)
 
Property, plant and equipment, net
 
344,320

 
361,078

Total
 
 
 
$
2,138,127

 
$
2,186,799

 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Current
 
 
 
 
 
 
   Operating lease liabilities
 
Accrued expenses and other current liabilities
 
$
212,968

 
$
209,911

   Financing lease liabilities
 
Current portion of long-term debt
 
50,116

 
50,437

      Total current lease liabilities
 
 
 
263,084

 
260,348

Long-term
 
 
 
 
 
 
   Operating lease liabilities
 
Long-term operating lease liabilities, net of current portion
 
1,655,477

 
1,685,771

   Financing lease liabilities
 
Long-term Debt, net of current portion
 
331,233

 
350,263

      Total long-term lease liabilities
 
 
 
1,986,710

 
2,036,034

Total
 
 
 
$
2,249,794

 
$
2,296,382

______________________________________________________________
(1) At June 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 June 30, 2019, these assets are comprised of approximately 62% real estate related assets and 38% non-real estate related assets.


16

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 six months ended June 30, 2019 are as follows:
Description
 
Location in Statement of Operations
 
Three Months Ended
June 30, 2019
 
Six Months Ended June 30, 2019
Operating lease cost(1)
 
Cost of sales and Selling, general and administrative
 
$
113,392

 
$
222,571

Financing lease cost:
 
 
 
 
 
 
Depreciation of financing lease right-of-use assets
 
Depreciation and amortization
 
$
14,942

 
$
31,271

Interest expense for financing lease liabilities
 
Interest expense, net
 
4,925

 
11,067

Total financing lease cost
 
 
 
$
19,867

 
$
42,338

______________________________________________________________
(1) Of the $113,392 incurred for the three months ended June 30, 2019, $110,441 is included within Cost of sales and $2,951 is included within Selling, general and administrative expenses. Of the $222,571 incurred for the six months ended June 30, 2019, $216,335 is included within Cost of sales and $6,236 is included within Selling, general and administrative expenses. Operating lease cost includes variable lease costs of $23,847 and $46,610 for the three and six months ended June 30, 2019, respectively.

We sublease certain real estate to third parties. We recognized sublease income of $1,671 and $3,554 for the three and six months ended June 30, 2019, respectively.
Weighted average remaining lease terms and discount rates as of June 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%



17

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 June 30, 2019, are as follows:
Year
 
Operating Leases(1)
 
Sublease
Income
 
Financing Leases(1)
2019 (excluding the six months ended June 30, 2019)
 
$
171,378

 
$
(3,494
)
 
$
40,635

2020
 
321,670

 
(5,728
)
 
60,377

2021
 
295,696

 
(4,828
)
 
54,766

2022
 
271,552

 
(4,462
)
 
48,071

2023
 
246,252

 
(4,333
)
 
40,351

Thereafter
 
1,482,286

 
(10,185
)
 
296,260

Total minimum lease payments
 
2,788,834

 
$
(33,030
)
 
540,460

Less amounts representing interest or imputed interest