Iron Mountain Incorporated 2011 Form 10-K Summary
Business context and reporting period
Iron Mountain provides records management, data protection and recovery, information destruction, hybrid records, and related information management services. The company operated in more than 35 countries, served more than 155,000 clients, employed over 17,000 people, and operated more than 975 facilities as of December 31, 2011. Approximately 88% of 2011 revenue came from storage and core services.
The filing covers the fiscal year ended December 31, 2011. The company reports North American Business, International Business, and Corporate segments. Fourth-quarter 2011 results were also presented, but this is an annual filing rather than a standalone quarterly filing.
Financial performance and key metrics
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Total revenue | $3.015 billion | $2.892 billion | 4.2% increase |
| Storage revenue | $1.683 billion | $1.599 billion | 5.3% increase |
| Service revenue | $1.332 billion | $1.294 billion | 2.9% increase |
| Operating income | $571.2 million | $547.5 million | 4.3% increase |
| Income from continuing operations | $246.4 million | $166.7 million | 47.8% increase |
| Net income attributable to Iron Mountain | $395.5 million | $(57.6) million | Improved, primarily due to discontinued-operation items |
| Diluted EPS from continuing operations | $1.26 | $0.83 | Increase |
| Diluted EPS attributable to Iron Mountain | $2.02 | $(0.29) | Improved, primarily due to discontinued-operation items |
| Adjusted OIBDA | $934.9 million | $926.7 million | 0.9% increase |
| Adjusted OIBDA margin | 31.0% | 32.0% | 100 basis-point decline |
Operating income margin was 18.9% in both years. The company reported $663.5 million of cash flow from continuing operations, compared with $603.2 million in 2010, and Free Cash Flow before Acquisitions and Discretionary Investments of $457.8 million, compared with $370.1 million.
Capital expenditures were $209.2 million on a cash basis, while accrued total capital expenditures were $218 million, or approximately 7.2% of revenue. Cash paid for acquisitions was $75.2 million, and additions to customer relationship and acquisition costs were $21.7 million.
At December 31, 2011, cash and cash equivalents were $179.8 million and restricted cash was $35.1 million. Total long-term debt, including the current portion, was $3.354 billion, compared with $3.008 billion at year-end 2010. Total equity was $1.254 billion, and the reported debt-to-equity ratio was 2.67x. Revolving credit availability was approximately $623.2 million, subject to borrowing-base and covenant limitations.
Fourth-quarter 2011 information
| Metric | Fourth quarter 2011 |
|---|---|
| Total revenue | $741.8 million |
| Operating income | $149.5 million |
| Income from continuing operations | $47.4 million |
| Net income attributable to Iron Mountain | $32.1 million |
| Diluted EPS from continuing operations | $0.26 |
| Diluted EPS attributable to Iron Mountain | $0.18 |
Material changes versus the prior comparable period
- Internal revenue growth was 1.9% for 2011, with foreign currency translation contributing approximately 1.5% and net acquisitions and divestitures contributing approximately 0.8% to reported revenue growth.
- Storage revenue growth remained stronger than service revenue growth. Core service internal growth was negative 0.8%, while complementary service internal growth was 3.7%, aided by higher recycled-paper prices and hybrid services.
- North American Business revenue increased 1.6%, but its Adjusted OIBDA margin declined from 44.2% to 43.2% because of planned sales and marketing investments, higher incentive compensation, and other costs.
- International Business revenue increased 12.4%, including 4.3% internal growth, and its Adjusted OIBDA margin improved from 18.7% to 20.9%.
- Cash flow from continuing operations increased 10.0%, while cash and cash equivalents declined from $258.7 million to $179.8 million after substantial shareholder distributions and financing activity.
- The company repurchased approximately $985.0 million of common stock and paid $172.6 million of dividends during 2011. At year-end, approximately $100.7 million remained under the repurchase authorization.
Strategic actions, outlook, risks, and unusual items
- Iron Mountain sold its Digital Business to Autonomy for approximately $395.4 million in cash and recorded a net-of-tax gain of approximately $198.7 million. The working-capital adjustment remained disputed and was referred to an independent accounting firm.
- The company sold its New Zealand operations for approximately $10.0 million and committed to sell its Italian Business. The Italian Business generated a $33.2 million loss from discontinued operations in 2011 and was subject to additional asset and goodwill write-downs.
- Management expected 2012 consolidated internal revenue growth of approximately negative 1% to 2%. It expected 2012 operating cash flow to decline because of lower recycled-paper revenue, higher interest costs, and higher incentive compensation payouts.
- Management expected approximately $215 million of 2012 capital expenditures, including approximately $25 million for real estate, excluding potential acquisitions.
- The company targeted leverage around the midpoint of a 3x to 4x EBITDA range and planned approximately $2.2 billion of shareholder payouts through 2013. It expected to fund future payouts with operating cash flow and additional borrowing.
- Iron Mountain recorded a $46.5 million continuing-operations goodwill impairment charge for Western Europe. It also recorded a $49.0 million total Western Europe goodwill impairment, including $2.5 million allocated to the Italian Business.
- The filing disclosed a material weakness in internal control over financial reporting relating to identifying and monitoring price-reduction clauses in certain U.S. government contracts. The weakness contributed to an immaterial restatement of prior-period financial statements. Remediation was expected to continue through 2012.
- The company voluntarily disclosed potential noncompliance with GSA contract price-reduction clauses. It had not finalized the potential refund, and the GSA or its Office of Inspector General could seek additional adjustments, refunds, civil penalties, treble damages, and interest.
- Other significant risks include high leverage and restrictive debt covenants, data-security incidents, paper-to-digital substitution, foreign-currency exposure, international operating risk, real-estate and environmental liabilities, commodity-price volatility, litigation, and potential future goodwill impairment.
- Aggregate contractual obligations totaled approximately $7.674 billion, including debt, interest, operating leases, capital leases, and purchase or asset-retirement obligations. Management reported no off-balance-sheet arrangements under the applicable SEC definition.
Most important facts for investors to verify
- Confirm the final resolution and cash impact of the disputed Autonomy working-capital adjustment.
- Monitor remediation and auditor conclusions regarding the material weakness in government-contract pricing controls.
- Assess compliance with debt covenants, including the 3.4x revolving-credit leverage ratio, 3.9x bond leverage ratio, and 1.5x fixed-charge coverage ratio reported at year-end.
- Evaluate the sustainability of dividends and share repurchases given reduced cash balances, approximately $3.354 billion of debt, and planned additional leverage.
- Track the sale of the Italian Business, including timing, proceeds, further losses, and potential obligations remaining after divestiture.
- Separate recurring operating performance from discontinued-operation gains, goodwill impairments, foreign-currency effects, recycled-paper pricing, and other unusual items.
- Review the company’s continuing exposure to data-security claims, the London fire litigation, the GSA contract matter, Massachusetts tax notices, and other contingencies.