01—Abstract
Summary
Summary of the 10-K filed February 27, 2015. Cited figures are marked; the original filing is the authoritative source.
Iron Mountain Incorporated (NYSE: IRM) reported total 2014 revenues of $3.12 billiona, up from $3.02 billion in 2013, with storage rental revenue of $1.86 billion and service revenue of $1.26 billion.
Operating income rose to $549.3 millionb from $489.2 million, and Adjusted OIBDA increased 3.5% to $925.8 million, with an Adjusted OIBDA margin of 29.7%. Net income attributable to Iron Mountain was $326.1 million, compared with $96.5 million in 2013, driven primarily by a $212.2 million net tax benefit from the REIT conversion, which took effect January 1, 2014. The company also recorded a $46.4 million tax charge tied to no longer indefinitely reinvesting foreign earnings.
The company is highly leveraged, with total long-term debt of $4.66 billionc at December 31, 2014, up from $4.17 billion a year earlier, and total equity declined to $869.9 million. Iron Mountain paid $1,048.9 million in distributions during 2014, including a $700.0 million special distribution, and stated it expects 2015 internal revenue growth of approximately 0% to 2%. Capital expenditures were $361.9 million in 2014, and the company guided to $330.0 million to $360.0 million for 2015.
The filing also reports a January 20, 2015 merger with its predecessor to impose REIT ownership limits, and describes ongoing risks including REIT qualification, customer shifts to alternative storage technologies, declining service activity levels for less active records, foreign currency exposure, and debt covenants. The company reported no material pending legal proceedings in Item 3 and disclosed a $44.5 milliond payment to the U.S. Government and a $6.0 million Massachusetts settlement in the notes.
02—Key points
Key Highlights
- Total revenues rose 3.1% to $3,117.7 million in 2014; storage rental revenue grew 4.2% to $1,860.2 million, while service revenue grew 1.4% to $1,257.5 million.
- Operating income increased 12.3% to $549.3 million, and Adjusted OIBDA increased 3.5% to $925.8 million (29.7% margin).
- Net income attributable to Iron Mountain was $326.1 million, boosted by a $212.2 million net tax benefit from the REIT conversion effective January 1, 2014.
- Total long-term debt increased to $4.66 billion at year-end 2014 from $4.17 billion, with a weighted average interest rate of 5.6%.
- Dividends declared totaled $1,048.9 million in 2014 ($5.37 per share), including a $700.0 million special distribution paid in cash and stock.
- Management expects 2015 internal revenue growth of approximately 0% to 2% and capital expenditures of $330.0 million to $360.0 million.
- Internal storage rental revenue growth was 2.2% in 2014, while internal service revenue growth was negative 0.7%, reflecting declining activity as stored records become less active.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 27, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $3.12B$3.02B | +3.1% |
| SG&A Expenses | $869.57M$924.03M | −5.9% |
| Operating Expenses | $2.57B$2.54B | +1.3% |
| Operating Income | $549.28M$489.25M | +12.3% |
| Interest Expense | $260.72M$254.17M | +2.6% |
| Net Income | $326.12M$96.46M | +238.1% |
| EPS (Basic) | $1.67$0.51 | +227.5% |
| EPS (Diluted) | $1.66$0.50 | +232.0% |
| Shares Outstanding (Basic) | 195.28M190.99M | +2.2% |
| Shares Outstanding (Diluted) | 196.75M192.41M | +2.3% |
05—Questions
Frequently Asked Questions
Why did net income rise so sharply in 2014?
Net income attributable to Iron Mountain was $326.1 million in 2014 versus $96.5 million in 2013. The filing attributes the increase primarily to a $159.4 million decrease in the provision for income taxes as a result of the REIT conversion, including a net tax benefit of $212.2 million from revaluing deferred tax assets and liabilities, and a $60.6 million decrease in REIT Costs.
How much debt does Iron Mountain carry and how is it structured?
Total long-term debt was $4.66 billion at December 31, 2014, including $883.4 million outstanding under the Revolving Credit Facility, a $249.4 million Term Loan, and senior notes including the $1.0 billion 5 3/4% notes due 2024 and $622.96 million GBP Notes issued in September 2014. About 76% of total debt was fixed-rate. The Credit Agreement's net total lease adjusted leverage ratio was 5.4 compared with a maximum allowable of 6.5.
What risks does the REIT structure create for shareholders?
The filing states that failure to remain qualified as a REIT would subject the company to corporate income tax and disqualify it from REIT treatment for four years. REIT rules require distributing at least 90% of REIT taxable income, which may force borrowing or asset sales, and limit the ability to repatriate foreign earnings through taxable REIT subsidiaries. Foreign currency fluctuations could also affect REIT distributions.
What is driving demand and what threatens the storage business?
Demand is supported by regulatory requirements, litigation-related retention, and the need for off-site backup copies. The filing notes that storage rental has grown for 26 consecutive years, and total net volume growth was approximately 4% in 2014. Threats include customers shifting to alternative technologies that require less space, and declining service activity as stored records become less active, which has reduced service revenue growth.
What did the company pay out to shareholders and what does it expect for 2015?
In 2014, Iron Mountain declared distributions of $1,048.9 million, or $5.37 per share, including a $700.0 million special distribution paid November 4, 2014 with $140.0 million in cash. For 2015, management expects internal revenue growth of approximately 0% to 2% and capital expenditures of $330.0 million to $360.0 million, excluding potential future acquisitions.
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