UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
March 31, 2016
IRON MOUNTAIN INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
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1-13045
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23-2588479
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(Commission File Number)
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(IRS Employer Identification No.)
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One Federal Street, Boston, Massachusetts
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02110
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(Address of Principal Executive Offices)
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(Zip Code)
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(617) 535-4766
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01.
Entry into a Material Definitive Agreement
On March 31, 2016, Iron Mountain Incorporated, or Iron Mountain, entered into an amendment, or the Amendment, to its Scheme Implementation Deed dated as of June 8, 2015, as amended, or the Recall Agreement, with Recall Holdings Limited, or Recall, pursuant to which Iron Mountain will acquire 100% of the issued share capital of Recall, or the Transaction, by way of a recommended court approved Scheme of Arrangement, or the Scheme. As a result of the Amendment, Iron Mountain has agreed to increase the threshold for sales, divestitures, holding separate or other dispositions of any assets of the records management business of Iron Mountain, Recall or any of their respective subsidiaries in the United States and Canada required to address antitrust concerns to $62 million in revenues during the twelve month period ended May 31, 2015.
The above description of the Amendment is not complete and is subject to and qualified in its entirety by reference to the Recall Agreement, a copy of which is attached as Exhibit 2.1 to Iron Mountain’s Current Report on Form 8-K dated June 8, 2015, to the amendment to the Recall Agreement, a copy of which is attached as Exhibit 2.1 to Iron Mountain’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, and to the Amendment, a copy of which is attached hereto as Exhibit 2.1, each of which is incorporated herein by reference.
Item 7.01.
Regulation FD Disclosure.
On March 30, 2016 and March 31, 2016, Iron Mountain issued press releases announcing regulatory outcomes in the United States, Canada and Australia related to the Transaction and the associated changes to synergy and accretion assumptions. Iron Mountain also posted on its website an investor presentation that includes, among other matters, information relating to synergies and accretion, including Iron Mountain’s expanded growth plan, as well as updates to Iron Mountain’s 2016 guidance. Copies of the press releases are furnished as Exhibits 99.1 and 99.2 hereto and a copy of the investor presentation is furnished as Exhibit 99.3 hereto.
In connection with the Transaction, the Federal Court of Sydney registry has ordered that a meeting of Recall shareholders to be held at 10:00 AM (Sydney, Australia time) on April 19, 2016 to consider and approve the Scheme and Recall will mail to Recall shareholders and has lodged with the Australian Securities and Investments Commission a Supplementary Scheme Booklet relating to such meeting and the approval of the Scheme.
Iron Mountain is furnishing the information described below which was provided to Recall shareholders in the Supplementary Scheme Booklet. If the Scheme is approved at the Recall shareholders meeting and the other conditions to closing the Transaction have been satisfied or waived, a hearing, or the Court Hearing, before the Federal Court of Australia, Sydney Registry, or the Federal Court, is expected to be held at 9:15 AM (Sydney, Australia time) on April 21, 2016. If the Scheme is approved by Recall’s shareholders, but any conditions remain outstanding on the scheduled date for the Court Hearing (other than Federal Court approval of the Scheme), the Court Hearing will be held as soon as reasonably practicable after those conditions have been satisfied or waived. Assuming the Federal Court approves the Scheme, Iron Mountain expects to close the Transaction on May 2, 2016.
Iron Mountain is furnishing with this Current Report on Form 8-K, or the Current Report, an unaudited pro forma consolidated balance sheet as of December 31, 2015, an unaudited pro forma consolidated statement of operations for the year ended December 31, 2015 and an unaudited pro forma consolidated statement of cash flows for the year ended December 31, 2015, each of which was included in the Supplementary Scheme Booklet. The unaudited pro forma consolidated balance sheet combines the consolidated balance sheets of Iron Mountain and Recall as of December 31, 2015 and gives effect to the Transaction as if it had been completed on December 31, 2015. The unaudited pro forma consolidated statement of operations and unaudited pro forma statement of cash flows combine the historical results of Iron Mountain and Recall for the twelve months ended December 31, 2015 and gives effect to the Transaction as if it occurred on January 1, 2015. As discussed below, Iron Mountain has undertaken to make the Divestments (as defined below). The unaudited pro forma consolidated financial statements do not include any impact regarding the Divestments. See below for further information about the Divestments.
As previously disclosed, Iron Mountain, as part of the Transaction, sought regulatory approval of the Transaction from the Australian Competition and Consumer Commission, or the ACCC, the U.S. Department of Justice, or the DOJ, the Canada Competition Bureau, or the CCB, and the United Kingdom Competition and Markets Authority, or the CMA. As more fully described below, to address competition concerns raised by these regulators, Iron Mountain has agreed to divest portions of Recall’s business in the United States, portions of both its and Recall’s businesses in Canada and the majority of Iron Mountain’s records management business in Australia and to place Recall’s entire business in the United Kingdom, or the UK, in a hold separate arrangement from the closing until the conclusion of the CMA’s review, or the Divestments.
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Divestments
DOJ — United States
Divestment package
On March 31, 2016, the DOJ announced its approval of the implementation of the Scheme, on the basis that the following divestments will be made by the combined company following implementation of the Scheme:
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Recall’s records and information management facilities, including all associated tangible and intangible assets, in the following 13 U.S. cities: Buffalo, New York; Charlotte, North Carolina; Detroit, Michigan; Durham, North Carolina; Greenville/Spartanburg, South Carolina; Kansas City, Kansas/Missouri; Nashville, Tennessee; Pittsburgh, Pennsylvania; Raleigh, North Carolina; Richmond, Virginia; San Antonio, Texas; Tulsa, Oklahoma; and San Diego, California, or collectively, the Initial U.S. Divestments; and
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Recall’s records and information management facility in Seattle, Washington and certain of Recall’s records and information management services facilities in Atlanta, Georgia, including in each case associated tangible and intangible assets, or collectively, the Seattle/Atlanta Divestments.
The Initial U.S. Divestments and the Seattle/Atlanta Divestments, or collectively, the U.S. Divestments, will each be effected by way of a sale of the tangible and intangible assets associated with the relevant facilities, which include warehouse space as well as customer contracts. It is expected that Recall employees associated with the relevant facilities the subject of the U.S. Divestments will be offered continued employment on terms to be agreed with the relevant buyer.
Sale Process
DOJ’s approval of the implementation of the Scheme was granted on the basis that Iron Mountain agreed with the DOJ to (i) sell the assets subject of the Initial U.S. Divestments to a single buyer who has been approved by DOJ prior to the date of this Current Report, and (ii) to enter into a binding agreement and complete the Seattle/Atlanta Divestments following a set time from the receipt of DOJ’s approval of the implementation of the Scheme, unless extended by DOJ.
In this regard, on March 31, 2016, Iron Mountain and Access CIG, LLC, a privately held provider of information management services throughout the United States, or Access CIG, entered into an Asset Purchase Agreement, or the Initial U.S. Agreement, pursuant to which Access CIG has agreed to acquire the Initial U.S. Divestments for approximately $80 million, subject to adjustments, or the Initial U.S. Sale. The Initial U.S. Agreement provides that, on the terms and subject to the conditions set forth therein, Access CIG will purchase the Initial U.S. Divestments. The Initial U.S. Sale is subject to customary closing conditions, and is expected to be completed shortly after the closing of the Transaction; though Iron Mountain can provide no assurances that the closing conditions will be satisfied and that the Initial U.S. Sale will close. In addition, Iron Mountain is in discussions with potential buyers for the Seattle/Atlanta Divestments.
Management Pending Sale
Iron Mountain and Recall have agreed to place the assets and employees subject of the U.S. Divestments in a hold separate arrangement from the date of the implementation of the Scheme, or the Implementation Date, until the U.S. Divestments are completed.
Pursuant to DOJ’s approval, Iron Mountain and Recall are required to:
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Preserve, maintain, and continue to operate the assets subject of the U.S. Divestments as independent, ongoing, economically viable competitive businesses, with management, sales and operations of such
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assets held entirely separate, distinct and apart from those of Iron Mountain’s other operations, and not be influenced by Iron Mountain.
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Use all reasonable efforts to maintain and increase the sales and revenues of the products or services produced by, provided from, or sold under assets subject of the U.S. Divestments.
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Provide sufficient working capital and lines and sources of credit to continue to maintain the assets subject of the U.S. Divestments.
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Not transfer or reassign Recall’s employees with primary responsibility for the operation and management of the assets subject of the U.S. Divestments or the sale of records management services provided from the assets subject of the U.S. Divestments, except for transfer bids initiated by employees pursuant to Recall’s regular, established job posting policy.
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Appoint, subject to DOJ approval, a person or persons to oversee the assets subject of the U.S. Divestments, and who will be responsible for Iron Mountain and Recall’s compliance with this section. This person shall have complete managerial responsibility for the assets subject of the U.S. Divestments, subject to the provisions of DOJ’s approval.
CMA — United Kingdom
Status of CMA Review
On January 14, 2016, the CMA referred the Transaction for further investigation and report by a group of CMA panel members. The investigation and report would, among other things, determine whether the Transaction may be expected to result in a substantial lessening of competition within the relevant UK markets (which may include markets for records management services, off-site data protection services and ancillary services), or the CMA Review.
The statutory deadline for completion of the CMA Review is June 29, 2016, with the provisional findings due in late April 2016.
The CMA has not yet indicated whether, and if so what, remedies might be appropriate should the outcome of the CMA Review be a decision that the Transaction may be expected to result in a substantial lessening of competition within any of the relevant UK markets. Under the
Enterprise Act 2002
(UK), the CMA has the power to order divestments in the UK by the combined company as an appropriate remedy. Those divestments may include the sale by the combined company of single facilities, the shares of subsidiaries that operate relevant assets or business units, or entire business units, including all associated assets and employees. The scope of any remedies ordered will depend on the geographic scope of any overlaps between the parties’ operations where the CMA considers there will be insufficient competition from third parties.
As such, the final outcome of the CMA Review will not impact the ability of Iron Mountain and Recall to complete the implementation of the Scheme, but may impact the combined company’s ongoing operations in the UK following implementation of the Scheme.
As the CMA Review is ongoing, no definitive view can be given at this stage as to the outcome of the CMA Review and the scope and timing of any divestments that may be required by the CMA with respect to the combined company’s UK business. Iron Mountain believes that the maximum scope of any required divestments by the combined company in the UK is unlikely to exceed operations and assets which generated 1% of the combined company’s pro forma revenue for the year ended December 31, 2015. However, Iron Mountain remains confident that the CMA Review will result in divestments by the combined company in the UK significantly less than that estimated maximum.
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Consent to Hold Separate
On March 30, 2016, the CMA announced its conditional consent for the Scheme to be implemented prior to the CMA’s issuance of its final decision following the CMA Review, or the CMA Consent.
The completion of CMA’s regulatory review of a transaction is often completed after the parties have completed the relevant transaction and, where appropriate, placed the UK business to be acquired in a hold separate arrangement agreed to by the CMA.
Pursuant to the CMA Consent, Iron Mountain and Recall have agreed to place the entire Recall business located in the UK in a hold separate arrangement from or prior to the Implementation Date until the conclusion of the CMA Review (currently anticipated for June 29, 2016) and any subsequent period that might be required for the final implementation of any remedies that may be ordered by the CMA, or the Hold Separate Period.
Pursuant to the CMA Consent, during the Hold Separate Period, Iron Mountain and Recall have agreed to preserve Recall’s entire UK business as a separate and independent viable going concern, and to keep Recall’s entire UK business operationally and financially separate from Iron Mountain.
ACCC — Australia
Divestment Package
On March 31, 2016, the ACCC announced that it will not oppose the Scheme, after accepting an undertaking from Iron Mountain pursuant to section 87B of the
Australian Competition and Consumer Act 2010
(Cth), or the ACCC Undertaking.
Pursuant to the ACCC Undertaking, Iron Mountain will divest the majority of the operations of Iron Mountain Australia by way of a share sale, which effectively involves the sale of Iron Mountain’s
Australian business other than its data management business throughout Australia and its records and information management and data management businesses in the Northern Territory of Australia, except in relation to customers who have holdings in other Australian states or territories. In this Current Report, Iron Mountain’s Australian businesses that are being divested and retained are referred to as the IRM Australia Divestment Business and the IRM Australia Retained Business, respectively.
Pursuant to the ACCC Undertaking, Iron Mountain may only sell the IRM Australia Divestment Business to a person who is independent of the combined company and has been approved by the ACCC, or the Approved Purchaser. In addition, under the ACCC Undertaking, Iron Mountain must for a reasonable transitional period and at the option of the Approved Purchaser, ensure the continued supply by Iron Mountain to the Approved Purchaser of any services and technical assistance required by the Approved Purchaser in order for the Approved Purchaser to be established as a viable, effective, stand-alone, independent and long-term competitor in the markets for the supply of records and information management services in Australia or otherwise operate the IRM Australia Divestment Business. If the Approved Purchaser requires any such services or technical assistance, Iron Mountain will provide those services at cost under an agreement approved by the ACCC.
Sale Process
The ACCC Undertaking provides that Iron Mountain will sell the IRM Australia Divestment Business within a set period of time from the Implementation Date. If the sale of the IRM Australia Divestment Business is not completed within that period, Iron Mountain must appoint an independent sale agent approved by the ACCC to effect the sale of the IRM Australia Divestment Business. There is no minimum price at which the independent sale agent must sell the IRM Australia Divestment Business.
As of the date of this Current Report, Iron Mountain has not yet selected a preferred purchaser of the IRM Australia Divestment Business. Once a preferred purchaser of the IRM Australia Divestment Business is identified, that preferred purchaser will be presented to the ACCC for its approval.
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Management Pending Sale
From the Implementation Date, and until the IRM Australia Divestment Business is sold to the Approved Purchaser, Iron Mountain will be required to preserve the IRM Australia Divestment Business as a separate and independently viable going concern.
In addition, from the Implementation Date, and until the IRM Australia Divestment Business is sold to the Approved Purchaser, the IRM Australia Divestment Business will be managed by an independent manager selected by Iron Mountain and approved by the ACCC, or the Approved Independent Manager. During that period, the Approved Independent Manager will:
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have the sole authority to manage and operate the IRM Australia Divestment Business according to a separation and management plan approved by the ACCC; and
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be required to ensure that the IRM Australia Divestment Business is managed and operated in the ordinary course of business as a fully operational, competitive going concern and in such a way that preserves the economic viability, marketability, competitiveness and goodwill of the IRM Australia Divestment Business.
Under the separation and management plan, the Approved Independent Manager will be required to separate the IRM Australia Divestment Business from the IRM Australia Retained Business (to the extent that this has not already occurred prior to the Implementation Date) and manage and operate the IRM Australia Divestment Business independently of Iron Mountain and the IRM Australia Retained Business. Any material changes to the IRM Australia Divestment Business made by the Approved Independent Manager will require the ACCC’s prior approval.
The Approved Independent Manager will have broad powers in performing its role, including the power to renew or replace upon expiration material contracts of the IRM Australia Divestment Business and to engage, redeploy or make redundant personnel employed by the IRM Australia Divestment Business as the Approved Independent Manager determines necessary.
As of the date of this Current Report, Iron Mountain has not yet selected a preferred person to act as the independent manager of the IRM Australia Divestment Business. Iron Mountain intends to commence a process to select a preferred person to act as the independent manager of the IRM Australia Divestment Business prior to the implementation of the Scheme. Once that person is identified by Iron Mountain, they will be presented to the ACCC for its approval.
Similarly, as of the date of this Current Report, Iron Mountain has not finalized a separation and management plan, and intends to commence discussions on those terms prior to implementation of the Scheme.
Iron Mountain must also appoint an independent auditor to audit and report upon Iron Mountain’s compliance with the ACCC Undertaking. As of the date of this Current Report, Iron Mountain has not yet selected a preferred person to act as the independent auditor. Iron Mountain intends to commence a process to select a preferred person to act as the independent auditor prior to the implementation of the Scheme. Once that person is identified by Iron Mountain, they will be presented to the ACCC for its approval.
CCB — Canada
Divestment Package
On March 31, 2016, the CCB announced that it has approved the implementation of the Scheme on the basis of the registration of a Consent Agreement with Iron Mountain pursuant to sections 92 and 105 of the
Competition Act
(R.S.C., 1985, c. C-34), or the CCB Consent Agreement.
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The CCB Consent Agreement will require the combined company to divest the following assets following implementation of the Scheme:
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Recall’s document management services facilities, including associated tangible and intangible assets and employees, in Edmonton, Alberta and Montreal (Laval), Quebec and certain of Recall’s document management services facilities, including all associated tangible and intangible assets and employees, in Calgary, Alberta and Toronto, Ontario, or the Recall Canadian Divestments; and
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One of Iron Mountain’s document management services facilities in Vancouver (Burnaby), British Columbia and two of Iron Mountain’s document management services facilities in Ottawa, Ontario, including associated tangible and intangible assets and employees, or the Iron Mountain Canadian Divestments.
The Recall Canadian Divestments and the Iron Mountain Canadian Divestments, or collectively, the Canadian Divestments, will be effected by way of a sale of only the tangible and intangible assets associated with the relevant facilities, which include warehouse space as well as customer contracts. It is expected that Iron Mountain and Recall employees associated with the relevant facilities subject of the Canadian Divestments will be offered continued employment on terms to be agreed with the relevant buyer.
Sale Process
Under the CCB Consent Agreement, the assets subject of the Canadian Divestments will be acquired by a single buyer to be approved by the Commissioner of Competition, or the Commissioner.
As of the date of this Current Report, Iron Mountain has not yet selected a preferred purchaser for the assets subject of the Canadian Divestments. The purchaser for the Canadian Divestments is subject to approval by the Canadian Commissioner of Competition.
Management Pending Sale
Pursuant to the terms of the CCB Consent Agreement, in order to preserve the business of the Canadian Divestments pending completion of the Canadian Divestments, the combined company must maintain the economic viability and marketability of the business of the Canadian Divestments, and Iron Mountain shall be required to hold the Recall Canadian Divestments separate from those of the combined company’s other operations.
The business of the Recall Canadian Divestments will be managed by an independent manager, or the Canadian Independent Manager, selected by Iron Mountain and approved by the Commissioner. The Canadian Independent Manager will:
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have the sole authority to manage and operate the business of the Recall Canadian Divestments; and
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be required to ensure that the business of the Recall Canadian Divestments is preserved as a separate and independently viable going concern and is kept operationally and financially separate from the combined company.
As of the date of this Current Report, the Canadian Independent Manager has not been selected. Pending completion of the Canadian Divestments, the combined company must not, without the Commissioner’s prior written approval:
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create any new encumbrances on the Canadian Divestments, other than ordinary course obligations that are not due or delinquent;
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enter into, withdraw from, amend or otherwise take steps to alter any obligations in material contracts relating to the Canadian Divestments, except as necessary to comply with the CCB Consent Agreement; or
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make any material changes to the Canadian Divestments, except as required to comply with the CCB Consent Agreement.
Pursuant to the terms of the CCB Consent Agreement, a person will be appointed by the CCB to monitor the combined company’s compliance with the CCB Consent Agreement. As of the date of this Current Report, a monitor has not been appointed. The combined company is responsible for all reasonable fees and expenses properly charged or incurred by the monitor in the course of carrying out its duties under the CCB Consent Agreement.
Synergies and Accretion
In June 2015 when the Scheme was first announced, Iron Mountain provided an overview of the expected benefits of the Scheme in respect of the realization of material costs savings and earnings accretion. The overview was prepared before Iron Mountain and Recall had agreed to the Divestments and was based on certain underlying assumptions regarding divestitures which should be modified due to the Divestments.
Set forth below is an analysis of synergies and earnings accretion reflective of the anticipated impact of the Divestments.
Synergies
The Transaction is expected to create meaningful value for shareholders of both Recall and Iron Mountain through the realization of material cost savings. When the Transaction was originally announced in June 2015, Iron Mountain estimated annual net synergies of $155 million, which assumed divestitures of businesses with approximately $30 million of annual operating income before depreciation and amortization, or OIBDA, when synergies are fully realized. Based on analysis undertaken by it to the date of this Current Report, however, Iron Mountain now estimates annual net synergies as a result of the Transaction will be $105 million per annum when synergies are fully achieved. Iron Mountain’s updated estimated net synergies translate to approximately 4% of the combined company’s pro forma 2015 operating expenses.
Figure 1 – Movement between original and revised net synergies
The difference between these estimates is primarily due to an estimated reduction of $75 million OIBDA as a result of the anticipated Divestments, as further described below. In addition, the net synergies have been reduced by approximately $5 million due to the continued appreciation of the U.S. dollar against several foreign currencies in geographies where those synergies were expected to be realized.
The estimated net synergies reflect the impact of the targeted effects of cost savings from integrating the operations, overhead savings from the consolidation of corporate and support costs, real estate benefits from increased scale of the business and potential tax
favorability
due to the real estate investment trust, or REIT, structure on the combined company’s profitability; offset by expected impacts from pass through of benefits to customers, the impact of the Divestments, and potential customer attrition. Sensitivity analysis indicates a $10 million change in achieved synergies is expected to result in a change in Adjusted EPS (as defined below) accretion of 1.5%-2.0% in the same direction.
Iron Mountain estimates that approximately 90% of these expected synergies will be achieved in the first three years following implementation of the Scheme, with approximately $80 million realized in calendar year 2017 and $100 million realized in calendar year 2018. The estimated time to achieve these expected synergies reflects the complexity of integrating two global businesses.
Figure 2 — Total expected net synergies ($ millions)(1)
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2016
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2017
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2018
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Synergies Fully Achieved
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15
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80
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100
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105
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(1) Synergies and accretion exclude one-off costs to achieve synergies and integrate the businesses.
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Estimates of potential net synergies available as a result of the Transaction are preliminary and will become more certain following ongoing analysis and refinement. After the implementation of the Scheme, the combined company will commence implementing arrangements to seek to achieve these expected synergies.
Key areas of expected synergies
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Overhead
synergies
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Overhead synergies are expected to be achieved by implementing a number of measures, including:
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integrating board, management and executive teams;
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consolidating corporate costs and headquarters;
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integration of back office transactional support; and
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integration of reporting and IT systems.
The majority of these savings are expected to be generated from consolidation of corporate and support costs.
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Cost of sales
synergies
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Cost of sales synergies are expected to be achieved by implementing a number of measures, including:
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staff cost savings through the elimination of duplicative functions;
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procurement efficiencies through scale benefits of the combined company;
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cost optimization at an individual facility level; and
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routing and other logistics optimization.
Cost of sales synergies are expected to be partially offset by potential customer attrition and other potential losses.
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Real estate
synergies
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Real estate synergies are expected to be created through:
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consolidation of adjacent facilities;
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negotiation of improved terms at existing facilities; and
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ability to exit underperforming facilities and improve utilization across the facility network.
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Tax synergies
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Iron Mountain’s REIT status provides beneficial U.S. tax status for storage profits generated in the United States. Companies brought into the REIT structure can also generally repatriate storage profits to the U.S. without additional taxation.
A small proportion of the total net synergies is therefore expected to be generated through tax efficiencies generated through the integration of the
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two companies.
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Other potential
synergies
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Following implementation of the Scheme, there may be the potential for synergies to be realized beyond those identified above. These may include, but are not limited to:
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potential revenue benefits from the enhanced product and services cross-selling to the combined company’s broadened customer base;
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additional reductions in real estate costs as leases for the combined company’s facilities are renewed and the potential for facility consolidation in some locations arises; and
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enhanced capabilities to accelerate development of new solutions and services for clients given enhanced scale of the combined company.
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Costs to achieve expected synergies
Iron Mountain anticipates a total of approximately $300 million in one-off costs to integrate the businesses and achieve the expected synergies. Approximately $220 million is expected to be treated as operating expenses and $80 million is expected to be treated as capital expenditures. The majority of these costs will be associated with the integration of the two businesses. These costs are also expected to include moving, racking and severance costs, costs related to the facilities upgrade program, REIT conversion and systems integration costs. Finally, included in these costs will also be costs to complete the Divestments on the terms agreed with the relevant regulatory authorities as well as to perform any transitional services that may be required to support the divested businesses during a reasonable transition period. Even though Iron Mountain’s current estimate of synergies is lower than its original estimate, Iron Mountain continues to estimate total costs to integrate the businesses and achieve the expected synergies of approximately $300 million due, in part, to uncertainty regarding the costs to complete the Divestments.
Figure 3 — Estimated one-off costs (including operating expenses and capital expenditures) ($ millions)
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2016(1)
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2017
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2018
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Synergies Fully Achieved
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125
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105
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30
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40
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(1) 2016 numbers include integration expenses incurred in 2015.
Divestments
As discussed above, the Divestments will need to be made to address competition concerns raised by the ACCC, DOJ and CCB in respect of the Scheme and that may be raised by the CMA in respect of the Scheme at the conclusion of the CMA Review. The expected annual net impact of the Divestments is estimated by Iron Mountain to be a $120 million reduction of the revenue and an associated $35 million reduction of OIBDA for the combined company (or approximately 3% of the combined company’s pro forma revenue and OIBDA for the year ended December 31, 2015 set forth in Exhibit 99.5 to this Current Report).
In addition to the direct loss of revenue and OIBDA discussed in the immediately preceding paragraph, the Divestments are expected to result in an additional $40 million annual reduction in OIBDA for the combined company, due to a loss in potential synergies resulting from the Transaction. The aggregate reduction of $75 million
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in annual OIBDA is reflected in the $105 million estimate of annual net synergies as a result of the Transaction described above. The proportionally higher amount of synergies expected to be lost are due to the Divestments being in markets and regions that generally have greater overlap of the Iron Mountain and Recall businesses and thus would provide more benefits from integration.
As of the date of this Current Report, the Divestments the combined company may need to undertake in the UK have not been determined. Accordingly, the estimate of annual net synergies of the Scheme, as well as earnings accretion described below, reflects Iron Mountain’s estimate, which incorporates information provided by Recall, with respect to the impact of the Divestments that may be required in the UK.
Iron Mountain’s estimate (which incorporates current market conditions) of the proceeds the combined company will receive in relation to the Divestments is approximately $220 million. However, there can be no assurance that the combined company will receive this amount of proceeds from the sales of the Divestments and the proceeds may be materially different from this amount. Iron Mountain estimates that for every $25 million change in proceeds, Adjusted EPS accretion will change approximately 0.3% in the same direction.
Upon the successful completion of the Divestments, Iron Mountain anticipates using the net proceeds to repay outstanding borrowings under its unsecured revolving credit facility and ultimately to reinvest those proceeds in the combined company’s business.
Earnings accretion
In June 2015 when the Scheme was first announced, earnings accretion was estimated to be approximately 25% by 2018. While the Scheme is still expected to generate meaningful earnings accretion, Iron Mountain estimates that the anticipated impact of the Divestments described above will be to reduce that estimate by approximately 570 basis points on a fully synergized basis.
In addition, exposure to changes in foreign currency exchange rates will result in a further 200 basis point reduction from the initial estimate as the strengthening of the U.S. dollar against most other currencies has also impacted Recall disproportionately when compared to Iron Mountain due to Recall’s higher exposure to foreign currencies.
Delays in realization of the synergies is due to a delay in the expected closing of the Transaction, movements in commodity prices, updated performance and expectations in connection with completed acquisitions have impacted both businesses and have led to a 240 basis point reduction in expected accretion, resulting in a revised expectation of approximately 15.0% Adjusted EPS accretion in 2018.
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Figure 4 — 2018 Adjusted EPS accretion bridge
Notes
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The 570 basis points impact of Divestments on Adjusted EPS accretion is comprised of a 300 basis points impact from incremental divested OIBDA and 270 basis points of incremental divested synergies potential including an estimated increase in proceeds from the Divestments.
2.
Underlying business changes relates primarily to acquisitions completed by Iron Mountain and Recall, Iron Mountain’s refinancing of indebtedness, and changes in commodity prices and the performance of the businesses.
3.
The 200 basis points impact of movements in foreign exchange rates is comprised of an 80 basis points impact on the combined stand-alone Iron Mountain and Recall business and a 120 basis points impact of expected synergies.
4.
The estimated impact of the Delay in Deal Timing is due to a delay in the expected closing of the Transaction; it does not imply any change in the fully synergized accretion numbers.
Excluding the impact of estimated non-cash purchase accounting adjustments (consisting of non-cash purchase accounting adjustments associated with (i) the accounting for Iron Mountain’s acquisition of Recall and (ii) the anticipated impact of the Divestments) and one-off costs to achieve the expected synergies, Iron Mountain estimates the Scheme to be 14.2% accretive to Adjusted EPS in 2017, 15.0% in 2018 and 15.6% when the $105 million per annum of expected net synergies are fully achieved.
If the Scheme is implemented, Iron Mountain expects to apply purchase price accounting adjustments which are expected to result in fair value adjustments associated with Recall’s tangible and intangible assets in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. These adjustments are expected to result in an increase in depreciation and amortization expenses of approximately $64 million per annum before considering the impact of any Divestments, which will impact the combined company’s reported earnings per share. These adjustments are non-cash in nature and do not impact the fair value assessment of the Transaction. See Exhibit 99.5 to this Current Report for further details on the purchase price accounting adjustments expected as a result of the Scheme.
12
Iron Mountain also expects the Scheme to be accretive to Normalized FFO and AFFO, which are key metrics for REIT investors. Iron Mountain’s expected level of Adjusted EPS, Normalized FFO and AFFO accretion is set out in the charts below:
Figure 5 — Iron Mountain Adjusted EPS accretion(1)
|
2016
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|
2017
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|
2018
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|
Synergies Fully Achieved
|
|
|
(0.2)%
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|
14.2%
|
|
15.0%
|
|
15.6%
|
|
Adjusted EPS accretion, including the expected purchase price accounting adjustments, is expected to be 1.8% in 2017, 3.7% in 2018 and 6.1% on a fully synergized basis.
Figure 6 — Iron Mountain Normalized FFO accretion(1)
|
2016
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2017
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2018
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|
Synergies Fully Achieved
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2.8%
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7.1%
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6.7%
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|
7.2%
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|
Normalized FFO accretion, including the expected purchase price accounting adjustments, is expected to be 2.2% in 2017, 2.2% in 2018 and 3.5% on a fully synergized basis.
Figure 7 — Iron Mountain AFFO accretion(1)
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2016
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2017
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2018
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Synergies Fully Achieved
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0.9%
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5.5%
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5.3%
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5.7%
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AFFO does not incorporate depreciation or amortization charges and therefore is not impacted by purchase price accounting adjustments (or the expected accounting impact of the Divestments) except as far as the incremental depreciation and amortization provides a benefit by reducing the effective taxable income.
(1) Accretion estimates assume weighted average Iron Mountain shares of common stock outstanding of 267 million at year end 2016, AUD/USD exchange rate of 0.74 and an effective tax rate of approximately 19%. Accretion estimates do not include operating expenses and capital expenditures related to integration, as these are one time in nature and will be excluded from Adjusted EPS, Normalized FFO and AFFO. These assumptions represent analysis as of the date of this Current Report and are subject to change.
On October 14, 2015, Iron Mountain communicated its intent to pursue additional value creating initiatives (cost optimization plan) beyond those considered for the Adjusted EPS calculations herein, including:
·
an updated transformation program;
·
expanded multi-year plans for developed markets, emerging markets, and adjacent businesses; and
·
real estate portfolio expansion.
Iron Mountain estimates that these initiatives will create approximately $65 million of additional earnings by 2018 and a proportional increase in Normalized FFO and AFFO (each, as defined below). These initiatives are expected to benefit Iron Mountain independent of the Transaction. Iron Mountain estimates that these initiatives will
13
increase the base earnings of Iron Mountain as well as the combined company. As a result, the estimated realized accretion of the Transaction, when Iron Mountain’s forecast is updated with this expanded set of initiatives (relative to the base earnings of Iron Mountain), will result in estimated accretion in 2018 in Adjusted EPS of 10%.
Non-U.S. GAAP measures
As part of regular reporting to their respective stockholders and shareholders, Iron Mountain and Recall disclose a number of financial measures that are not in compliance with either U.S. GAAP or the International Financial Reporting Standards, or IFRS, which they believe to be important to investors to consider when evaluating their respective financial performance and that of the combined company. These non-U.S. GAAP measures should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with U.S. GAAP or IFRS.
The non-U.S. GAAP information referred to in this Current Report is as follows:
·
Adjusted earnings per share, or Adjusted EPS, which is defined as reported earnings per share from continuing operations excluding: (1) (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net; (2) (gain) on sale of real estate, net of tax; (3) intangible impairments; (4) operating expenses and capital expenditures associated with Iron Mountain’s proposed acquisition of Recall, including costs to complete the Transaction, including advisory and professional fees, as well as costs incurred once Iron Mountain closes the Transaction to integrate Recall into its existing operations, including moving, severance, facility upgrade, REIT conversion and system upgrade costs, or collectively, Recall Costs; (5) costs associated with Iron Mountain’s conversion to a REIT, excluding REIT compliance costs beginning January 1, 2014 which Iron Mountain expects to recur in future periods, or REIT Costs; (6) other expense (income), net; and (7) the tax impact of reconciling items and discrete tax items;
·
normalized funds from operations, or Normalized FFO, which comprises net income excluding: (1) depreciation on real estate assets; (2) gain on sale of real estate, net of tax; (3) (gain) loss on disposal/write down of property, plant and equipment (excluding real estate), net; (4) intangible impairments; (5) Recall Costs; (6) REIT Costs; (7) other expense (income), net; (8) deferred income taxes and REIT tax adjustments; (9) income (loss) from discontinued operations, net of tax; and (10) gain (loss) on sale of discontinued operations, net of tax; and
·
adjusted funds from operations, or AFFO, which is Normalized FFO excluding non-cash rent expense or income, plus depreciation on non-real estate assets, amortization expense (including amortization of deferred financing costs) and non-cash equity compensation expense, less maintenance capital expenditures and non-real estate investments.
Key Risks
Risks associated with the Divestments
As described above, to address those concerns raised by regulators as part of the process to obtain the competition approvals, Iron Mountain is proposing to make the Divestments in the United States, Australia and Canada and may be required to make Divestments in the UK following conclusion of the CMA Review. The Divestments create certain risks for stockholders of the combined company following implementation of the Scheme, including the risks described below.
Impact of Divestments on the Combined Company
Iron Mountain has (incorporating information provided by Recall) made estimates of the expected impact of the Divestments on the combined company, including the costs to complete the Divestments, as well as the expected impact on (i) the synergies created by the Scheme, (ii) the combined company’s future expected revenue,
14
and (iii) the estimated earnings accretion generated by the Scheme. However, those expected impacts and costs are uncertain and the actual impacts and costs of the Divestments on the combined company may vary from the expectations of Iron Mountain as of the date of this Current Report. Should the impacts of the Divestments on the combined company be less
favorable
to the combined company than expected by Iron Mountain, or the costs to complete the Divestments be more than expected by Iron Mountain, this may have an adverse effect on the combined company’s performance and financial condition, particularly with respect to synergies and earnings accretion.
Proceeds of Divestments
Iron Mountain has (incorporating information provided by Recall) made estimates of the expected proceeds of the Divestments, which includes an estimate of the scope of the Divestments that may be required in the UK. However, sale agreements to effect the Divestments in each of Australia and Canada, and in respect of the Seattle/Atlanta Divestments in the United States, have not yet been agreed with a buyer. Similarly, as any Divestments that may be required in the UK have not yet been determined, no sale agreement has been agreed in respect of any such Divestments. Further, the costs incurred to complete the Divestments may be higher than expected by Iron Mountain as of the date of this Current Report. As such, the expected proceeds of the Divestments are uncertain and the actual net proceeds of the Divestments may differ from the net proceeds expected by Iron Mountain as of the date of this Current Report. Should the net proceeds of the Divestments be less than expected by Iron Mountain, this may have an adverse effect on the combined company’s performance and financial condition, particularly with respect to synergies and earnings accretion.
Terms of Australian, Canadian, Seattle/Atlanta and UK Divestments
Sale agreements to effect the Divestments in each of Australia and Canada, and in respect of the Seattle/Atlanta Divestments in the United States, have not yet been agreed with a buyer. Similarly, as any Divestments that may be required in the UK have not yet been determined, no sale agreement has been agreed in respect of any such Divestments. This creates a risk that the eventual terms of those sale agreements once entered into may be less
favorable
to the combined company than expected by Iron Mountain as of the date of this Current Report. Should the terms of the Divestments be less favorable to the combined company than expected by Iron Mountain, this may have an adverse effect on the combined company’s performance and financial condition.
Completion of Divestments
The completion of the Divestments in each of the United States, Australia and Canada will be subject to the conditions to completion, among other terms, set forth in the sale agreement relating to such Divestment, the satisfaction of some of which conditions will not be in the control of Iron Mountain or Recall. Similarly, once any Divestments required in the UK are determined, the sale agreement to effect those Divestments may contain conditions to completion. The satisfaction of some of those conditions to completion of the Divestments may be delayed as a result of events outside of the control of the combined company, which may have an adverse effect on the combined company’s performance and financial condition.
UK Divestments
The CMA Review remains ongoing and no definitive view can be given at this stage as to its outcome and the scope and timing of any Divestments required by the CMA with respect to the combined company’s UK business. However, the actual Divestments required by the CMA with respect to the combined company’s UK business may vary from the Divestments expected by Iron Mountain and Recall as of the date of this Current Report. Should the actual Divestments required by the CMA with respect to the combined company’s UK business be greater than the Divestments expected by Iron Mountain and Recall, this may have an adverse effect on the combined company’s performance and financial condition, particularly with respect to synergies and earnings accretion.
15
Hold separate arrangements
As described above, as part of the Divestments, Iron Mountain has agreed to, or expects to agree to, hold separate arrangements in the United States, the UK, Australia and Canada. Those hold separate arrangements limit the manner in which the combined company may operate the relevant assets and businesses the subject of the arrangements pending completion of the Divestments. Those limitations as well as costs incurred in implementing and monitoring the arrangements may have a detrimental impact on the operations of the combined company that are not subject of the Divestments. Further, a number of the hold separate arrangements involve third parties managing the relevant assets and businesses on behalf of the combined company. There is a risk that the management of those assets and businesses by such third parties may have a detrimental impact on the operations of Iron Mountain and Recall that are not the subject of the Divestments. These impacts may have an adverse effect on the combined company’s performance and financial condition, particularly with respect to synergies and earnings accretion.
Forward-looking Statements
Certain statements contained in this Current Report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws and be subject to the safe-harbor created by such Act. Forward-looking statements include, but are not limited to, the expected timing of the closing of the Transaction, the outcome of the regulatory review of the Transaction, the scope and timing of required divestitures, Iron Mountain’s financial performance outlook and shareholder returns, including after giving effect to Iron Mountain’s proposed acquisition of Recall, and statements regarding Iron Mountain’s goals, beliefs, plans and current expectations. These forward-looking statements are subject to various known and unknown risks, uncertainties and other factors. When Iron Mountain uses words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions, it is making forward-looking statements. You should not rely upon forward-looking statements except as statements of Iron Mountain’s present intentions and of Iron Mountain’s present expectations, which may or may not occur. Although Iron Mountain believes that its forward-looking statements are based on reasonable assumptions, Iron Mountain’s expected results may not be achieved, and actual results may differ materially from its expectations. Important factors that could cause actual results to differ from Iron Mountain’s expectations include, among others: (i) Iron Mountain’s ability to remain qualified for taxation as a real estate investment trust for U.S. Federal income tax purposes; (ii) the adoption of alternative technologies and shifts by Iron Mountain’s customers to storage of data through non-paper based technologies; (iii) changes in customer preferences and demand for Iron Mountain’s storage and information management services; (iv) the cost to comply with current and future laws, regulations and customer demands relating to privacy issues; (v) the impact of litigation or disputes that may arise in connection with incidents in which we fail to protect Iron Mountain’s customers’ information; (vi) changes in the price for Iron Mountain’s storage and information management services relative to the cost of providing such storage and information management services; (vii) changes in the political and economic environments in the countries in which Iron Mountain’s international subsidiaries operate; (viii) Iron Mountain’s ability or inability to complete acquisitions on satisfactory terms and to integrate acquired companies efficiently; (ix) changes in the amount of Iron Mountain’s capital expenditures; (x) changes in the cost of Iron Mountain’s debt; (xi) the impact of alternative, more attractive investments on dividends; (xii) the cost or potential liabilities associated with real estate necessary for Iron Mountain’s business; (xiii) the performance of business partners upon whom we depend for technical assistance or management expertise outside the United States; and (xiv) other trends in competitive or economic conditions affecting Iron Mountain’s financial condition or results of operations not presently contemplated. In addition, with respect to the Transaction, Iron Mountain’s ability to close the Transaction in accordance with its terms and within the anticipated time period, or at all, is dependent on Iron Mountain’s and Recall’s ability to satisfy the closing conditions for the transaction, including the receipt of Recall shareholder approval, and the benefits of the Transaction, including potential cost synergies, accretion and other synergies (including tax synergies), may not be fully realized or may take longer to realize than expected. Additional risks that may affect results are set forth in Iron Mountain’s filings with the Securities and Exchange Commission, including Iron Mountain’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and in Recall’s filings with the Australian Stock Exchange, including Recall’s Annual Report for the fiscal year ended June 30, 2015 and Recall’s interim financial statements for the six month period ended December 31, 2015. Any forward-looking statements contained herein are based on assumptions that Iron Mountain believes to be reasonable as of the date hereof and Iron Mountain undertakes no obligation, except as required by law, to update these statements as a result of new information or future events.
16
Item 9.01. Financial Statements and Exhibits.
(a) Unaudited Financial Statements of Businesses Acquired
The unaudited consolidated financial statements of Recall comprising the consolidated balance sheet as of December 31, 2015 and the consolidated income statement for the six months ended December 31, 2015 and the notes related thereto are furnished as Exhibit 99.4 hereto.
(b) Pro Forma Financial Information
The unaudited pro forma consolidated balance sheet, pro forma statement of operations and pro forma cash flow statement of the combined company as of and for the year ended December 31, 2015 and the notes related thereto are furnished as Exhibit 99.5 hereto.
(d) Exhibits
2.1
Amendment to Scheme Implementation Deed, dated as of March 31, 2016, by and between Iron Mountain Incorporated and Recall Holdings Limited. (
Filed herewith.
)
99.1
Press release dated March 30, 2016. (
Furnished herewith.
)
99.2
Press release dated March 31, 2016.
(Furnished herewith.)
99.3
Investor Presentation dated March 31, 2016. (
Furnished herewith.
)
99.4
Consolidated Balance Sheet (Unaudited) as of December 31, 2015 and Consolidated Income Statement (Unaudited) of Recall for the six months ended December 31, 2015, and notes thereto. (
Furnished herewith.
)
99.5
Pro Forma Balance Sheet (Unaudited), Pro Forma Statement of Operations (Unaudited) and Pro Forma Cash Flow Statement (Unaudited) of the combined company as of and for the year ended December 31, 2015, and notes thereto. (
Furnished herewith.
)
17
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 hereunto duly authorized.
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IRON MOUNTAIN INCORPORATED
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By:
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/s/ Ernest W. Cloutier
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Name:
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Ernest W. Cloutier
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Title:
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Executive Vice President and General Counsel
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Date:
March 31, 2016
18
Exhibit 2.1
Recall Holdings Limited
ACN 116 537 832
Level 2, 170-180 Bourke Road
Alexandria NSW 2015
www.recall.com
31 March 2016
The Directors
Iron Mountain Incorporated
1 Federation Street,
Boston, Massachusetts
United States 02110
Dear Directors
Amendments to Scheme Implementation Deed
We refer to the scheme implementation deed between Recall Holdings Limited (ABN 27 116 537 832) (
Recall
) and Iron Mountain Incorporated (
Iron Mountain
) dated 8 June 2015 (the
SID
) and the letter dated 13 October 2015 between Recall and Iron Mountain amending the SID. Terms defined in the SID have the same meaning when used in this document.
Amendments
The parties agree to further amend the SID in the manner shown in the mark-up which forms Attachment 1 to this letter.
Revenue
Recall is aware of the Divestiture Actions that have been agreed by Iron Mountain with the Department of Justice and the Canadian Competition Bureau (
Agreed Divestiture Actions
) and represents and warrants to Iron Mountain that the following statements are true and correct:
(a)
the assets of Recall and its subsidiaries in the United States that are the subject of the Agreed Divestiture Actions, in the aggregate, generated not more than US$48 million of revenue during the twelve month period ended 31 May 2015 (after giving pro forma effect to any acquisitions occurring during such twelve month period as if they had occurred as of the first day of such trailing twelve-month period); and
(b)
the assets of Recall and its subsidiaries in Canada that are subject of the Agreed Divestiture Actions, in the aggregate, generated not more than US$11 million of revenue during the twelve month period ended 31 May 2015 (after giving pro forma effect to any acquisitions occurring during such twelve month period as if they had occurred as of the first day of such trailing twelve-month period).
Iron Mountain represents and warrants to Recall that the assets of Iron Mountain and its subsidiaries in Canada that are subject of the Agreed Divestiture Actions, in the aggregate, generated not more than US$3 million of revenue during the twelve month period ended 31 May 2015 (after giving pro forma effect to any acquisitions occurring during such twelve month period as if they had occurred as of the first day of such trailing twelve-month period).
Document Management Solutions | Secure Destruction Services | Data Protection Services
Indemnification
For the avoidance of doubt, the parties hereby acknowledge and agree that the indemnification and deeds of indemnity in favour of the directors and officers of each Recall Group Member contemplated by clause 6.3 of the SID (and the related Iron Mountain undertaking provided for in clause 6.3(a) of the SID) shall apply to any and all damages, losses, claims, costs, liabilities or expenses suffered or incurred by any such director or officer in connection with, relating to or arising out of the amendments provided for in this letter (and Attachment 1 hereto).
General
This letter takes effect, and the parties agree to be bound by the SID as amended by this deed, from the date of this letter.
Except as specifically amended by this letter, all of the terms and conditions of the SID remain in full force and effect. With effect from the date of this letter, the SID as amended by this letter is to be read as a single integrated document incorporating the amendments effected by this letter.
This letter may be executed in any number of counterparts. All counterparts, taken together, constitute one instrument. A party may execute this letter by signing any counterpart.
Please sign a copy of this document where indicated below to confirm that the above terms are agreed.
Executed and delivered as a Deed.
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Executed
as a deed by
Iron Mountain Incorporated
:
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/s/ William L. Meaney
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/s/ Ernest W. Cloutier
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Director Signature
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Director/Secretary Signature
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William L. Meaney
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Ernest W. Cloutier
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Print Name
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Print Name
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Executed
as a deed in accordance with section 127 of the
Corporations Act 2001
by
Recall Holdings Limited
:
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/s/ Doug Pertz
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/s/ Barry Medintz
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Director Signature
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Director/Secretary Signature
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Doug Pertz
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Barry Medintz
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Print Name
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Print Name
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[Signature Page to Side Letter Agreement]
2
Attachment 1
1
Definitions
Clause 1.1 of the SID is amended by amending the definitions of “Implementation Date” and “Record Date” as follows:
Implementation Date
means the
fourth
fifth
calendar day after the Record Date, or such other day as the parties agree.
Record Date
means 5pm on the
fifth
third
Business Day after the Effective Date, or such later date as may be agreed to in writing by Iron Mountain and Recall.
2
Clause 5.4(f)
Clause 5.4(f) of the SID is amended and restated as follows:
(f)
Notwithstanding anything to the contrary in this Deed, Iron Mountain agrees to take (and to cause each Iron Mountain Group Member to take) as promptly as practicable any and all steps that are necessary or advisable to avoid or eliminate each and every impediment, or that may be required by any Competition Authority, and obtain all Competition Approvals under Antitrust Laws so as to enable the consummation of the Transaction as promptly as practicable (and in any event no later than the End Date), including, as promptly as practicable, proposing, negotiating, accepting, committing to and effecting, by consent decrees, hold separate orders, trusts, or otherwise (and the entry into agreements with, and submission to orders of, the relevant Competition Authority):
(i)
the sale, divestiture, license or disposition of such businesses, service lines and assets of Recall, Iron Mountain and their respective subsidiaries, and
(ii)
operational or other restrictions or limitations on Recall, Iron Mountain and their respective subsidiaries, including with respect to its or their ability to retain one or more of the businesses, service lines or assets of Recall, Iron Mountain or any of their respective subsidiaries,
(any such sale, divestiture, license or disposition or operational or other restriction or limitation set forth in clause 5.4(f)(i) or 5.4(f)(i)(ii) being hereinafter referred to as a
Divestiture Action
), in each case as may be required in order to avoid the commencement or entry of, or to effect the dissolution of or vacate or lift, any Order that would otherwise have the effect of preventing or unreasonably delaying (having regard to the End Date) the consummation of the transactions contemplated by this Deed, provided that nothing contained in this Deed shall require Iron Mountain to agree to or effect any Divestiture Action with respect to Recall or Iron Mountain, to the extent that:
(A)
such Divestiture Action is not conditioned upon the occurrence of the implementation of the Scheme or is effective prior to the implementation of the Scheme; or
(B)
such Divestiture Action, individually or in the aggregate, would require the sale, divestiture, holding separate or other disposition of any assets of the Records Management Business of Iron Mountain, Recall or any of their respective subsidiaries in the United States and Canada that, in the aggregate, generated more than US$
30
62
million of revenue during the twelve month period
prior to the date of this Deed
ended 31 May 2015
(after giving pro forma effect to any acquisitions occurring during
the
such
twelve
month period
prior to the date hereof
as if they had occurred as of the first day of such trailing twelve-month period)
3
Clause 5.5
Clause 5.5 of the SID is amended and restated as follows:
(a)
The parties acknowledge and agree that it is desirable for the Implementation Date to occur within the first
30
32
days of any given fiscal quarter of Iron Mountain, and that to achieve that timing the Second Court Date will need to be determined appropriately.
(b)
If, as at a particular date (the
Relevant Date
), all of the conditions precedent in clause 3.1 (other than clause 3.1(d)) have been satisfied or waived (or would be satisfied if the Relevant Date had been the Second Court Date), but the Relevant Date is not within the first
30
32
days of a fiscal quarter of Iron Mountain, then on and from the Relevant Date:
(i)
the parties will take all actions necessary to ensure that the Second Court Date is postponed so that the Implementation Date occurs in the first
30
32
days of the first fiscal quarter of Iron Mountain after the Relevant Date;
(ii)
each party will be taken to have waived, with effect, any conditions precedent in clause 3.1 (other than clause 3.1(d)) (subject only to a party’s rights under clause 3.6 in respect of breach or non-satisfaction of a condition precedent prior to the Relevant Date); and
(iii)
each party will be taken to have waived, with effect, any right such party may have to terminate this Deed for material breach by the other party (other than either party’s right to terminate pursuant to clause 14.1 for the other party’s failure to consummate the Scheme, and subject to a party’s right to terminate for a material breach by the other prior to the Relevant Date).
4
Annexure 1 — Indicative Timetable
The following “Target Dates” in Annexure 1 of the SID are amended and restated as follows:
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Event
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Target Date
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Scheme Meeting
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November 2015
April 2016
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Second Court Date
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December 2015
April 2016
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Implementation Date
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January 2016
May 2016
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5
Annexure 2 — Scheme of Arrangement
5.1
Clause 1.1
Clause 1.1 of Annexure 2 of the SID is amended and restated as follows:
Implementation Date
means the
fourth
fifth
calendar day after the Record Date, or such other day as the parties agree.
Record Date
means 5pm on the
fifth
third
Business Day after the Effective Date
, or such later date as may be agreed to in writing by Iron Mountain and Recall.
Exhibit 99.2
FOR IMMEDIATE RELEASE
Iron Mountain Announces Regulatory Outcomes in US and Canada; Updates Synergy and Accretion Estimates Related to Proposed Acquisition of Recall
— Updated Expectations Continue to Reflect Meaningful Synergies —
— On Track for Expected Closing on May 2, 2016 —
— Company Reiterates Expectations for Dividend Growth and Deleveraging —
— Company Will Host Conference Call on April 1 at 8:30 am EDT to Provide Additional Detail and Update 2016 Guidance for Partial Year Contribution from Recall —
BOSTON — March 31, 2016 —
Iron Mountain Incorporated
(NYSE: IRM), the storage and information management services company, today announced outcomes with competition and antitrust regulators in the United States and Canada related to its proposed acquisition of Recall Holdings Limited (ASX: REC) by way of a Scheme of Arrangement (the Scheme) and the associated changes to synergy and accretion assumptions.
As previously disclosed, the proposed acquisition was reviewed by the Australian Competition and Consumer Commission (ACCC), the United States Department of Justice (DOJ), the Canada Competition Bureau (CCB) and the United Kingdom (UK) Competition and Markets Authority (CMA). To address competition concerns raised by these regulators, Iron Mountain has agreed to divest portions of Recall’s business in the United States, portions of both its and Recall’s businesses in Canada and the majority of Iron Mountain’s records management business in Australia, and to place Recall’s entire business in the UK in a hold separate arrangement from the closing until the conclusion of the CMA’s review.
Upon closing of the proposed acquisition and after giving effect to required divestitures, Iron Mountain expects to continue to provide information management services, data management services and information destruction services to the respective customers of Iron Mountain and Recall in each market and country where they collectively provide service today.
United States Regulatory Approval
The DOJ’s approval of the proposed Recall acquisition is conditioned upon Iron Mountain’s agreement to divest, to a single buyer pre-approved by the DOJ, Recall’s records and information management facilities in the following 13 U.S. cities: Buffalo; Charlotte; Detroit; Durham; Greenville/Spartanburg; Kansas City; Nashville; Pittsburgh; Raleigh; Richmond; San Antonio; Tulsa; and San Diego. The DOJ’s approval is also conditioned on Iron Mountain’s agreement to divest, to a buyer or buyers subject to the DOJ’s approval, Recall’s records and information management facility in Seattle and certain of Recall’s records and information management facilities in Atlanta. Following implementation of the Scheme and these divestitures, Iron Mountain’s operations in the United States will include both Recall’s and Iron Mountain’s existing operations in all but these 15 U.S. locations.
Iron Mountain has reached an agreement to divest the assets in the 13 initial divestiture cities noted above to Access CIG, LLC, a privately held provider of information management services throughout the United States approved by the DOJ as a buyer for these divestitures, for total consideration of $80 million, subject to adjustments. The transaction is subject to customary closing conditions and is anticipated to close shortly after the closing of the proposed Recall acquisition. In addition, Iron Mountain is in discussions with potential buyers for the facilities and related assets in Seattle and Atlanta.
Canada Regulatory Approval
The CCB’s approval is based upon Iron Mountain’s agreement to divest Recall’s records and information management facilities in Edmonton and Montreal (Laval), and certain of Recall’s records and information management facilities in Calgary and Toronto. In addition, Iron Mountain has agreed to divest one of its records and information management facilities in Vancouver (Burnaby) and two of its records and information management facilities in Ottawa.
Following implementation of the Scheme and these divestitures, Iron Mountain’s operations in Canada will remain consistent with its footprint prior to implementation of the Scheme in Edmonton and Montreal, while in Calgary and Toronto, Iron Mountain’s operations will remain consistent with its footprint prior to implementation of the Scheme with the addition of one Recall facility and certain associated customers in Calgary and three of Recall’s facilities and certain associated customers in Toronto. In Vancouver and Ottawa, Iron Mountain’s operations will primarily constitute all of Recall’s and Iron Mountain’s operations as they stood prior to implementation of the Scheme with the exception of two Iron Mountain facilities in Ottawa and one Iron Mountain facility in Vancouver, along with certain associated customers.
The purchaser for the Canadian divestitures is subject to approval by the Canadian Commissioner of Competition for approval.
Australia Regulatory Approval
As disclosed on March 30, 2016, the ACCC’s decision not to oppose the Scheme is contingent on Iron Mountain’s undertaking to divest Iron Mountain’s Australian business other than its data management business throughout Australia and its records and information management and data management businesses in the Northern Territory of Australia, except in relation to customers who have holdings in other Australian states or territories (Retained IRM Australian Business). As a result, Iron Mountain’s operations in Australia following the implementation of the Scheme and the divestitures will primarily consist of Recall’s operations as they stood prior to implementation of the Scheme and the Retained IRM Australian Business.
Once Iron Mountain has selected a preferred purchaser for the Australian divestitures, it will be presented to the ACCC for approval. The proposed acquisition remains subject to approval by the Australian Foreign Investment Review Board, in respect of which a decision is expected on or before April 15, 2016.
United Kingdom Regulatory Approval
The statutory deadline for completion of CMA’s Phase 2 Review is June 29, 2016, with the provisional findings due in late April 2016, and no definitive view can be given at this stage as to its outcome or the scope and timing of any divestitures required. On March 30, 2016, the CMA granted its conditional consent for the Scheme to be implemented prior to the issuance of its final decision following its Phase 2 Review. After completion of the CMA’s review, the CMA may order divestitures of UK assets by the combined business as an appropriate remedy.
However, Iron Mountain believes that the maximum scope of any divestitures required in the UK is likely to be less than operations and assets that generated 1% of the combined companies’ pro forma revenue for the year ended December 31, 2015. Iron Mountain remains confident that the CMA Review will result in significantly less divestitures in the UK than the estimated maximum. As a result, Iron Mountain’s operations in the UK are expected to consist of Iron Mountain’s entire UK operations as they stood prior to implementation of the Scheme and the majority of Recall’s UK business.
Operation of the Businesses subject to Divestiture Pending Sales
Generally, in connection with the regulatory approvals, Iron Mountain has agreed to preserve the businesses pending completion of the divestitures and maintain the economic viability and marketability of the businesses as
2
independent, and to hold those businesses separate to its own business pending completion of the divestitures. In addition, from the implementation of the Scheme until the completion of the relevant divestiture, Iron Mountain has agreed that certain of the businesses subject to divestiture will be managed by an independent manager initially proposed by Iron Mountain and approved by the relevant regulatory authority, who in Australia and Canada (through a monitor appointed by the regulator) would report to the respective antitrust regulators.
Updated Synergy Assumptions Reflect Divestitures and Other Changes
Iron Mountain’s acquisition of Recall is expected to create meaningful value for shareholders of both Recall and Iron Mountain through the realization of material cost savings. Iron Mountain estimates annual net synergies as a result of the Recall acquisition will be $105 million per year when fully achieved. When the transaction was originally announced in June 2015, Iron Mountain estimated annual net synergies of $155 million, which assumed divestitures of businesses with approximately $30 million of annualized OIBDA.
|
($ in millions)
|
|
Stabilized
(06/08/15)
|
|
Stabilized
(Current)
|
|
|
Estimated Total Gross Synergies
|
|
$
|
185
|
|
$
|
185
|
|
|
Estimated OIBDA lost to Divested Revenue
|
|
(15
|
)
|
(35
|
)
|
|
Synergies lost due to Divestiture Location
|
|
(15
|
)
|
(40
|
)
|
|
Foreign Currency Impact
|
|
|
|
(5
|
)
|
|
Estimated Net Synergies
|
|
$
|
155
|
|
$
|
105
|
|
As noted in the table above, the difference between these estimates is primarily due to an estimated reduction in the total amount of annual OIBDA related to anticipated divestitures of $75 million. The $75 million consists of $35 million of divested OIBDA and $40 million reduction in annualized OIBDA due to a loss in potential synergies resulting from divestitures in geographies that generally have more overlap between Iron Mountain’s and Recall’s businesses and would therefore provide more integration benefits. An additional $5 million reduction in annual net synergies is related to the continued appreciation of the US dollar against foreign currencies in the markets where those synergies were expected to be realized. At the present time, divestitures in the UK are uncertain, so the amount of divested OIBDA and related synergies may change, although the impact is not expected to be significant.
Iron Mountain estimates that approximately 90% of these expected synergies will be achieved in the first three years following implementation of the Scheme, with approximately $80 million realized in calendar year 2017 and $100 million realized in calendar year 2018. Iron Mountain continues to estimate total costs of approximately $300 million in one-time costs to integrate the businesses, achieve the expected synergies and complete the required divestitures, with approximately $220 million expected to be treated as operating expenses and $80 million expected to be treated as capital expenditures.
Updated Accretion Assuming Iron Mountain’s Growth Plan and Transformation Benefits
Iron Mountain has previously communicated its intent to pursue additional value creating initiatives such as its transformation plan and expanded multi-year plans for developed markets, emerging markets, and adjacent businesses and real estate portfolio expansion. Iron Mountain estimates these initiatives will create approximately $60 million of additional earnings by 2018 with a proportional increase in Normalized FFO and AFFO. Therefore,
3
when Iron Mountain’s forecast is updated with these initiatives, the estimated realized accretion from the proposed Recall acquisition will, on a percentage basis, be lower than accretion estimates that do not include these initiatives in the base assumptions. As a result, Iron Mountain expects Adjusted EPS accretion in 2018 when giving effect to these initiatives to be 10%, as compared with 15% accretion on the same basis as the original transaction announcement in June 2015.
Additional information related to accretion on the original basis can be found in Iron Mountain’s Current Report on Form 8-K which will be filed with the Securities and Exchange Commission tomorrow morning, and details related to accretion, including Iron Mountain’s expanded growth plan, as well as updates to Iron Mountain’s 2016 guidance can be found in the investor presentation available HERE.
Expected Divestiture Proceeds
Iron Mountain estimates it will receive approximately $220 million in proceeds from the divestitures resulting from the Scheme. However, there can be no assurance that this amount of proceeds will be received, and the proceeds may be materially different from this amount. Iron Mountain anticipates that for every $25 million change in proceeds, Adjusted EPS accretion will shift approximately 0.3% in the same direction. Upon successful completion of these divestitures, Iron Mountain anticipates using the net proceeds to repay its long term debt obligations and/or outstanding borrowings under its Revolving Credit Facility and ultimately reinvest those proceeds in the business.
Regular Quarterly Dividends for Second Quarter to Include New Recall Shares
Consistent with past practice and subject to approval by its Board of Directors, Iron Mountain intends to declare and pay its regular second quarterly dividend in the latter portion of the second quarter, including on shares of common stock issued to Recall shareholders in the Recall transaction, assuming the Recall transaction closes on or prior to the record date for such dividend.
In addition, the company is reiterating its expectations for dividend growth and deleveraging consistent with the 2020 targets originally presented during the company’s October 14, 2016 Investor Day, available HERE.
Webcast and Conference Call Details
Iron Mountain will host a conference call and webcast to provide additional details and discuss the transaction on:
Date:
Friday April 1, 2016 at 8:30 am EDT
U.S. Dial in:
1-877-730-0431 or 973-453-3063
AUS Dial in:
+61 2 8223 9773 or 1-800-005-989
Participant Code:
80085295
About Iron Mountain
Iron Mountain Incorporated (NYSE: IRM) is a leading provider of storage and information management services. The company’s real estate network of more than 69 million square feet across more than 1,100 facilities in 37 countries allows it to serve customers around the world. And its solutions for records management, data management, document management, and secure shredding help organizations to lower storage costs, comply with regulations, recover from disaster, and better use their information. Founded in 1951, Iron Mountain stores and protects billions of information assets, including business documents, backup tapes, electronic files and medical data. Visit www.ironmountain.com for more information.
Forward Looking Statements
Certain statements contained in this communication may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws and be subject to the safe-harbor created by such Act. Forward-looking statements include, but are not limited to, the expected timing of
4
the closing of Iron Mountain’s proposed acquisition of Recall, the outcome of the regulatory review of the transaction, the scope and timing of required divestitures, Iron Mountain’s financial performance outlook and shareholder returns, including after giving effect to Iron Mountain’s proposed acquisition of Recall, and statements regarding Iron Mountain’s goals, beliefs, plans and current expectations. These forward-looking statements are subject to various known and unknown risks, uncertainties and other factors. When Iron Mountain uses words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions, it is making forward-looking statements. You should not rely upon forward-looking statements except as statements of Iron Mountain’s present intentions and of Iron Mountain’s present expectations, which may or may not occur. Although Iron Mountain believes that its forward-looking statements are based on reasonable assumptions, Iron Mountain’s expected results may not be achieved, and actual results may differ materially from its expectations. Important factors that could cause actual results to differ from Iron Mountain’s expectations include, among others: (i) Iron Mountain’s ability to remain qualified for taxation as a real estate investment trust for U.S. Federal income tax purposes; (ii) the adoption of alternative technologies and shifts by Iron Mountain’s customers to storage of data through non-paper based technologies; (iii) changes in customer preferences and demand for Iron Mountain’s storage and information management services; (iv) the cost to comply with current and future laws, regulations and customer demands relating to privacy issues; (v) the impact of litigation or disputes that may arise in connection with incidents in which we fail to protect Iron Mountain’s customers’ information; (vi) changes in the price for Iron Mountain’s storage and information management services relative to the cost of providing such storage and information management services; (vii) changes in the political and economic environments in the countries in which Iron Mountain’s international subsidiaries operate; (viii) Iron Mountain’s ability or inability to complete acquisitions on satisfactory terms and to integrate acquired companies efficiently; (ix) changes in the amount of Iron Mountain’s capital expenditures; (x) changes in the cost of Iron Mountain’s debt; (xi) the impact of alternative, more attractive investments on dividends; (xii) the cost or potential liabilities associated with real estate necessary for Iron Mountain’s business; (xiii) the performance of business partners upon whom we depend for technical assistance or management expertise outside the United States; and (xiv) other trends in competitive or economic conditions affecting Iron Mountain’s financial condition or results of operations not presently contemplated. In addition, with respect to the potential Recall transaction, Iron Mountain’s ability to close the proposed transaction in accordance with its terms and within the anticipated time period, or at all, is dependent on Iron Mountain’s and Recall’s ability to satisfy the closing conditions for the transaction, including the receipt of Recall shareholder approval, and the benefits of the potential Recall transaction, including potential cost synergies, accretion and other synergies (including tax synergies), may not be fully realized or may take longer to realize than expected. Further, with respect to the sale of the assets in the 13 initial U.S. divestiture cities noted above, Iron Mountain’s ability to close the proposed transaction in accordance with its terms and within the anticipated time period is dependent on the ability to satisfy the closing conditions for the transaction. Additional risks that may affect results are set forth in Iron Mountain’s filings with the Securities and Exchange Commission, including Iron Mountain’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and in Recall’s filings with the Australian Stock Exchange, including Recall’s Annual Report for the fiscal year ended June 30, 2015 and Recall’s interim financial statements for the 6-month period ended December 31, 2015. Any forward-looking statements contained herein are based on assumptions that Iron Mountain believes to be reasonable as of the date hereof and Iron Mountain undertakes no obligation, except as required by law, to update these statements as a result of new information or future events.
Iron Mountain Contacts:
|
US Media:
|
Australian Media:
|
|
Abernathy MacGregor Group
|
Cato Counsel
|
|
Chuck Burgess / Ian Campbell
|
Sue Cato
|
|
212.371.5999 / 213.630.6550
|
+61(0) 419282319
|
|
clb@abmac.com / idc@abmac.com
|
cato@catocounsel.com.au
|
|
|
|
|
IRM Investors:
|
IRM Media:
|
|
Melissa Marsden
|
Christian T. Potts
|
|
SVP, Investor Relations
|
Senior Manager, Corporate Communications
|
|
617.535.8595
|
617.535.8721
|
|
melissa.marsden@ironmountain.com
|
christian.potts@ironmountain.com
|
5
Exhibit 99.4
RECALL HOLDINGS LIMITED
CONSOLIDATED FINANCIAL REPORT
for the half-year ended 31 December 2015 (Unaudited)
|
INDEX
|
|
PAGE
|
|
Consolidated financial statements
|
|
|
|
Consolidated income statement
|
|
2
|
|
Consolidated statement of comprehensive income
|
|
3
|
|
Consolidated balance sheet
|
|
4
|
|
Consolidated cash flow statement
|
|
5
|
|
Consolidated statement of changes in equity
|
|
6
|
|
Notes to the consolidated financial statements
|
|
|
|
1.
|
Basis of preparation
|
|
7
|
|
2.
|
Other information
|
|
7
|
|
3.
|
Business combinations
|
|
8
|
|
4.
|
Segment information
|
|
9
|
|
5.
|
Profit from ordinary activities
|
|
11
|
|
6.
|
Significant items
|
|
12
|
|
7.
|
Earnings per share
|
|
13
|
|
8.
|
Dividends
|
|
14
|
|
9.
|
Issued and quoted securities
|
|
15
|
|
10.
|
Reserves and retained earnings
|
|
16
|
|
11.
|
Net assets per share
|
|
18
|
|
12.
|
Contingent liabilities
|
|
19
|
|
13.
|
Borrowings Classification
|
|
19
|
|
14.
|
Fair values
|
|
19
|
|
15.
|
Events after balance sheet date
|
|
19
|
CONSOLIDATED INCOME STATEMENT
for the half-year ended 31 December 2015 (Unaudited)
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
FIRST HALF
|
|
FIRST HALF
|
|
|
|
|
NOTE
|
|
2016
|
|
2015
|
|
|
|
|
|
|
US$M
|
|
US$M
|
|
|
|
|
|
|
|
|
|
|
|
Sales revenue
|
|
5A
|
|
397.6
|
|
427.0
|
|
|
Gain on sale of business
|
|
5A
|
|
—
|
|
2.6
|
|
|
Operating expenses
|
|
5B
|
|
(362.2
|
)
|
(370.2
|
)
|
|
Share of results of joint venture
|
|
|
|
—
|
|
0.1
|
|
|
Operating profit
|
|
|
|
35.4
|
|
59.5
|
|
|
Finance revenue
|
|
|
|
1.2
|
|
3.0
|
|
|
Finance costs
|
|
|
|
(14.5
|
)
|
(11.1
|
)
|
|
Net finance costs
|
|
|
|
(13.3
|
)
|
(8.1
|
)
|
|
Profit before tax
|
|
|
|
22.1
|
|
51.4
|
|
|
Tax expense
|
|
|
|
(5.4
|
)
|
(18.9
|
)
|
|
Profit for the period attributable to members of the parent entity
|
|
|
|
16.7
|
|
32.5
|
|
|
Earnings per share (cents)
|
|
7
|
|
|
|
|
|
|
- basic
|
|
|
|
5.3
|
|
10.4
|
|
|
- diluted
|
|
|
|
5.3
|
|
10.3
|
|
The consolidated income statement should be read in conjunction with the accompanying notes.
2
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half-year ended 31 December 2015 (Unaudited)
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
FIRST HALF
|
|
FIRST HALF
|
|
|
|
|
NOTE
|
|
2016
|
|
2015
|
|
|
|
|
|
|
US$M
|
|
US$M
|
|
|
Profit for the period
|
|
|
|
16.7
|
|
32.5
|
|
|
Other comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
Items that may be reclassified to profit or loss:
|
|
|
|
|
|
|
|
|
Foreign exchange differences on translation of financial statements
|
|
10
|
|
(34.1
|
)
|
(52.5
|
)
|
|
Cash flow hedges
|
|
10
|
|
0.6
|
|
(2.0
|
)
|
|
Income tax on items that may be reclassified to profit or loss
|
|
|
|
(0.1
|
)
|
0.4
|
|
|
Other comprehensive loss for the period
|
|
|
|
(33.6
|
)
|
(54.1
|
)
|
|
Total comprehensive (loss)/income for the period attributable to members of the parent entity
|
|
|
|
(16.9
|
)
|
(21.6
|
)
|
The consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
3
CONSOLIDATED BALANCE SHEET
as at 31 December 2015 (Unaudited)
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
DECEMBER
|
|
JUNE
|
|
|
|
|
|
|
2015
|
|
2015
|
|
|
|
|
NOTE
|
|
US$M
|
|
US$M
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
159.4
|
|
88.5
|
|
|
Trade and other receivables
|
|
|
|
181.9
|
|
183.2
|
|
|
Inventories
|
|
|
|
2.2
|
|
2.1
|
|
|
Other assets
|
|
|
|
18.9
|
|
16.5
|
|
|
Total current assets
|
|
|
|
362.4
|
|
290.3
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
|
6.0
|
|
6.7
|
|
|
Property, plant and equipment
|
|
|
|
376.8
|
|
389.8
|
|
|
Goodwill
|
|
|
|
665.8
|
|
677.2
|
|
|
Intangible assets
|
|
|
|
141.0
|
|
134.8
|
|
|
Deferred tax assets
|
|
|
|
4.7
|
|
4.8
|
|
|
Derivative financial instruments
|
|
|
|
0.2
|
|
0.1
|
|
|
Other assets
|
|
|
|
0.3
|
|
0.3
|
|
|
Total non-current assets
|
|
|
|
1,194.8
|
|
1,213.7
|
|
|
Total assets
|
|
|
|
1,557.2
|
|
1,504.0
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
|
137.3
|
|
165.7
|
|
|
Tax payable
|
|
|
|
11.9
|
|
7.5
|
|
|
Provisions
|
|
|
|
24.5
|
|
32.2
|
|
|
Borrowings
|
|
|
|
70.5
|
|
21.8
|
|
|
Total current liabilities
|
|
|
|
244.2
|
|
227.2
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
Borrowings
|
|
13
|
|
706.8
|
|
626.7
|
|
|
Derivative financial instruments
|
|
|
|
0.1
|
|
0.8
|
|
|
Provisions
|
|
|
|
10.3
|
|
12.0
|
|
|
Deferred tax liabilities
|
|
|
|
62.5
|
|
68.7
|
|
|
Other liabilities
|
|
|
|
17.8
|
|
19.4
|
|
|
Total non-current liabilities
|
|
|
|
797.5
|
|
727.6
|
|
|
Total liabilities
|
|
|
|
1,041.7
|
|
954.8
|
|
|
Net assets
|
|
|
|
515.5
|
|
549.2
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
Contributed equity
|
|
9
|
|
552.2
|
|
548.7
|
|
|
Reserves
|
|
10
|
|
(277.2
|
)
|
(245.6
|
)
|
|
Retained earnings
|
|
|
|
240.5
|
|
246.1
|
|
|
Total equity
|
|
|
|
515.5
|
|
549.2
|
|
The consolidated balance sheet should be read in conjunction with the accompanying notes.
4
CONSOLIDATED CASH FLOW STATEMENT
for the half-year ended 31 December 2015 (Unaudited)
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
FIRST HALF
|
|
FIRST HALF
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
NOTE
|
|
US$M
|
|
US$M
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Receipts from customers
|
|
|
|
423.0
|
|
447.7
|
|
|
Payments to suppliers and employees
|
|
|
|
(376.2
|
)
|
(386.9
|
)
|
|
Cash generated from operations
|
|
|
|
46.8
|
|
60.8
|
|
|
Interest and other finance costs paid
|
|
|
|
(10.2
|
)
|
(11.3
|
)
|
|
Interest received
|
|
|
|
1.2
|
|
0.3
|
|
|
Taxes paid, net of refunds
|
|
|
|
(6.9
|
)
|
(17.1
|
)
|
|
Net cash inflow from operating activities
|
|
|
|
30.9
|
|
32.7
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Payments for property, plant and equipment
|
|
|
|
(26.4
|
)
|
(15.3
|
)
|
|
Proceeds from sale of business
|
|
|
|
—
|
|
20.4
|
|
|
Payments for intangible assets
|
|
|
|
(7.4
|
)
|
(12.2
|
)
|
|
Acquisition of businesses, net of cash acquired
|
|
3
|
|
(31.2
|
)
|
(105.7
|
)
|
|
Net cash outflow from investing activities
|
|
|
|
(65.0
|
)
|
(112.8
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
|
|
85.8
|
|
239.5
|
|
|
Repayments of borrowings
|
|
|
|
(2.4
|
)
|
(135.4
|
)
|
|
Dividends paid
|
|
8A
|
|
(22.3
|
)
|
(22.0
|
)
|
|
Net cash inflow from financing activities
|
|
|
|
61.1
|
|
82.1
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
|
27.0
|
|
2.0
|
|
|
Cash and deposits, net of overdrafts, at beginning of the period
|
|
|
|
72.6
|
|
72.1
|
|
|
Effect of exchange rate changes
|
|
|
|
(4.5
|
)
|
(6.3
|
)
|
|
Cash and deposits, net of overdrafts, at end of the period
|
|
|
|
95.1
|
|
67.8
|
|
The consolidated cash flow statement should be read in conjunction with the accompanying notes.
5
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half-year ended 31 December 2015 (Unaudited)
|
|
|
|
|
CONTRIBUTED
|
|
|
|
RETAINED
|
|
|
|
|
|
|
|
|
EQUITY
|
|
RESERVES(1)
|
|
EARNINGS
|
|
TOTAL
|
|
|
|
|
NOTE
|
|
US$M
|
|
US$M
|
|
US$M
|
|
US$M
|
|
|
Half-year ended 31 December 2014 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
|
545.7
|
|
(171.2
|
)
|
224.9
|
|
599.4
|
|
|
Profit for the period
|
|
|
|
—
|
|
—
|
|
32.5
|
|
32.5
|
|
|
Other comprehensive loss
|
|
|
|
—
|
|
(54.1
|
)
|
—
|
|
(54.1
|
)
|
|
Total comprehensive (loss)/income
|
|
|
|
—
|
|
(54.1
|
)
|
32.5
|
|
(21.6
|
)
|
|
Share-based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
- expense recognised
|
|
|
|
—
|
|
4.5
|
|
—
|
|
4.5
|
|
|
- reversed on exercise of shares
|
|
|
|
—
|
|
(3.0
|
)
|
—
|
|
(3.0
|
)
|
|
- equity component of related tax
|
|
|
|
—
|
|
0.6
|
|
—
|
|
0.6
|
|
|
Transactions with owners in their capacity as owners:
|
|
|
|
|
|
|
|
|
|
|
|
|
- dividends paid
|
|
8A
|
|
—
|
|
—
|
|
(22.0
|
)
|
(22.0
|
)
|
|
- issues of ordinary shares, net of transaction costs
|
|
9
|
|
3.0
|
|
—
|
|
—
|
|
3.0
|
|
|
Closing balance
|
|
|
|
548.7
|
|
(223.2
|
)
|
235.4
|
|
560.9
|
|
|
Half-year ended 31 December 2015 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
|
548.7
|
|
(245.7
|
)
|
246.1
|
|
549.1
|
|
|
Profit for the period
|
|
|
|
—
|
|
—
|
|
16.7
|
|
16.7
|
|
|
Other comprehensive loss
|
|
|
|
—
|
|
(33.6
|
)
|
—
|
|
(33.6
|
)
|
|
Total comprehensive (loss)/income
|
|
|
|
—
|
|
(33.6
|
)
|
16.7
|
|
(16.9
|
)
|
|
Share-based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
-
expense recognised
|
|
|
|
—
|
|
5.7
|
|
—
|
|
5.7
|
|
|
- reversed on exercise of shares
|
|
|
|
—
|
|
(3.5
|
)
|
—
|
|
(3.5
|
)
|
|
- equity component of related tax
|
|
|
|
—
|
|
(0.1
|
)
|
—
|
|
(0.1
|
)
|
|
Transactions with owners in their capacity as owners:
|
|
|
|
|
|
|
|
|
|
|
|
|
- dividends paid
|
|
8A
|
|
—
|
|
—
|
|
(22.3
|
)
|
(22.3
|
)
|
|
- issues of ordinary shares, net of transaction costs
|
|
9
|
|
3.5
|
|
—
|
|
—
|
|
3.5
|
|
|
Closing balance
|
|
|
|
552.2
|
|
(277.2
|
)
|
240.5
|
|
515.5
|
|
(1)
Refer to Note 10 for further information on reserves.
The consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
6
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the half-year ended 31 December 2015 (Unaudited)
NOTE 1. BASIS OF PREPARATION
These financial statements present the consolidated results of Recall Holdings Limited (the Company) and its subsidiaries (Recall or the Group) for the half-year ended 31 December 2015.
These consolidated financial statements are a condensed general purpose financial report and have been prepared in accordance with the requirements of AASB 134: Interim Financial Reporting which ensures compliance with International Financial Reporting Standard IAS 34: Interim Financial Reporting. Recall is a for-profit entity for the purpose of preparing these consolidated financial statements.
These interim consolidated financial statements do not include all of the notes that would normally be included in an annual financial report. The interim consolidated financial statements should be read in conjunction with Recall’s 2015 Annual Report and public announcements made by Recall during the interim reporting period.
References to 2016 and 2015 are to the financial years ending on 30 June 2016 and 30 June 2015 respectively.
The interim consolidated financial statements and all comparatives have been prepared using consistent accounting policies, as set out in Recall’s 2015 Annual Report.
NOTE 2. OTHER INFORMATION
A) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET ADOPTED
At 31 December 2015, certain new accounting standards and interpretations have been issued that will become mandatory for future reporting periods. Recall has not early-adopted these new or amended accounting standards and interpretations in 2015.
AASB 9: AASB 9, Financial Instruments, is a new Principal standard applicable to annual reporting periods beginning on or after 1 January 2018, with early adoption permitted, subject to certain considerations. AASB 9 addresses the classification, measurement and derecognition of financial assets and liabilities and may affect Recall’s accounting for financial assets and liabilities. Recall does not expect that this standard will have a significant impact on its financial statements.
AASB 2014-4: This guidance amends AASB 116, Property, Plant and Equipment, and AASB 138, Intangible Assets, to establish the principle for the basis of depreciation and amortisation as being the expected pattern of consumption of the future economic benefits of an asset. The amendment also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. The standard is applicable to reporting periods beginning on or after 1 January 2016, with early adoption being permitted. Recall does not expect that this standard will have a significant impact on its financial statements.
AASB 15: AASB 15, Revenue from Contracts with Customers, is applicable to annual reporting periods beginning on or after 1 January 2018, with early adoption being permitted. This standard provides a single, comprehensive revenue recognition model for all contracts with customers. Recall is in the process of assessing the new standard’s impact and does not anticipate a significant impact on the Groups’ financial statements.
AASB 2015-1: Amendments to Australian Accounting Standards - Annual Improvements to 2012- 2014 Cycle sets out amendments to certain AAS, including AASB 7, Financial Instruments. Recall does not expect that this standard will have a significant impact on its financial statements.
B) ROUNDING OF AMOUNTS
As Recall Holdings Limited is a company of a kind referred to in ASIC Class Order 98/100, relevant amounts in the financial statements and the Directors’ report have been rounded to the nearest hundred thousand US dollars.
7
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
- CONTINUED
for the half-year ended 31 December 2015 (Unaudited)
NOTE 3. BUSINESS COMBINATIONS
During the half-year ended 31 December 2015, Recall completed 5 acquisitions which are all 100% owned.
Each acquisition is not considered material for additional disclosure of individual assets and liabilities purchased.
The purchase consideration paid for the non-material business combinations in the half-year ended 31 December 2015 was US$31.2 million (unaudited).
Purchase consideration paid for business combinations in the prior year ended 30 June 2015 amounts to US$144.3 million. Details of these acquisitions were disclosed in note 4B of the Group’s annual financial statements for the year ended 30 June 2015.
There were no material changes in the fair values of assets and liabilities assumed in relation to the acquisitions completed in 2015.
8
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
- CONTINUED
for the half-year ended 31 December 2015 (Unaudited)
NOTE 4. SEGMENT INFORMATION
Recall’s segment information is provided on the same basis as internal management reporting to the CEO (chief operating decision maker) and reflects how Recall is organised and managed.
Recall has four reportable segments being Americas, Europe, Australia and New Zealand (ANZ) and Asia. Recall HQ (corporate centre) is presented separately in the segment disclosures below.
Segment performance is measured on sales revenue and Underlying Profit. Underlying Profit is the main measure of segment profit. A reconciliation between Underlying Profit and operating profit is set out below.
Segment sales revenue is measured on the same basis as in the income statement. Segment sales revenue is allocated to segments based on product categories and physical location of the business unit that invoices the customer. Intersegment revenue during the period was immaterial. There is no single external customer who contributed more than 10% of Group sales revenue.
Assets and liabilities are measured consistently in segment reporting and in the balance sheet. Assets and liabilities are allocated to segments based on segment use and physical location. Cash, borrowings, equity accounted investments and tax balances are managed centrally and are not allocated to segments.
|
|
|
SALES REVENUE
|
|
|
|
|
FIRST HALF
|
|
FIRST HALF
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
US$M
|
|
US$M
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
By operating segment
|
|
|
|
|
|
|
Americas
|
|
198.2
|
|
195.2
|
|
|
Europe
|
|
84.5
|
|
99.2
|
|
|
ANZ
|
|
79.2
|
|
94.5
|
|
|
Asia
|
|
35.7
|
|
38.1
|
|
|
Recall operations
|
|
397.6
|
|
427.0
|
|
|
Recall HQ
|
|
—
|
|
—
|
|
|
Total
|
|
397.6
|
|
427.0
|
|
|
By geographic origin
|
|
|
|
|
|
|
Americas
|
|
198.2
|
|
195.2
|
|
|
Europe
|
|
84.5
|
|
99.2
|
|
|
Australia
|
|
70.9
|
|
84.3
|
|
|
Other
|
|
44.0
|
|
48.3
|
|
|
Total
|
|
397.6
|
|
427.0
|
|
|
|
|
|
|
|
|
|
By service line
|
|
|
|
|
|
|
Document Management Services (DMS)
|
|
307.8
|
|
330.4
|
|
|
Secure Destruction Services (SDS)
|
|
47.4
|
|
53.3
|
|
|
Data Protection Services (DPS)
|
|
42.4
|
|
43.3
|
|
|
Total
|
|
397.6
|
|
427.0
|
|
|
|
|
OPERATING
|
|
SIGNIFICANT ITEMS
|
|
UNDERLYING
|
|
|
|
|
PROFIT(1)
|
|
BEFORE TAX(2)
|
|
PROFIT(2)
|
|
|
|
|
FIRST HALF
|
|
FIRST HALF
|
|
FIRST HALF
|
|
FIRST HALF
|
|
FIRST HALF
|
|
FIRST HALF
|
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
US$M
|
|
US$M
|
|
US$M
|
|
US$M
|
|
US$M
|
|
US$M
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
By operating segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
33.4
|
|
33.1
|
|
(0.5
|
)
|
(1.2
|
)
|
33.9
|
|
34.3
|
|
|
Europe
|
|
8.7
|
|
10.7
|
|
(0.4
|
)
|
(0.8
|
)
|
9.1
|
|
11.5
|
|
|
ANZ
|
|
15.1
|
|
20.0
|
|
(0.5
|
)
|
(1.5
|
)
|
15.6
|
|
21.5
|
|
|
Asia
|
|
8.0
|
|
9.0
|
|
(0.1
|
)
|
—
|
|
8.1
|
|
9.0
|
|
|
Recall operations
|
|
65.2
|
|
72.8
|
|
(1.5
|
)
|
(3.5
|
)
|
66.7
|
|
76.3
|
|
|
Recall HQ(3)
|
|
(29.8
|
)
|
(13.3
|
)
|
(18.9
|
)
|
(2.4
|
)
|
(10.9
|
)
|
(10.9
|
)
|
|
Total
|
|
35.4
|
|
59.5
|
|
(20.4
|
)
|
(5.9
|
)
|
55.8
|
|
65.4
|
|
9
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
- CONTINUED
for the half-year ended 31 December 2015 (Unaudited)
NOTE 4. SEGMENT INFORMATION - CONTINUED
|
|
|
CAPITAL EXPENDITURE(3)
|
|
DEPRECIATION AND
AMORTISATION
|
|
|
|
|
FIRST HALF
|
|
FIRST HALF
|
|
FIRST HALF
|
|
FIRST HALF
|
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
US$M
|
|
US$M
|
|
US$M
|
|
US$M
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
By operating segment
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
16.8
|
|
14.5
|
|
17.0
|
|
15.0
|
|
|
Europe
|
|
6.5
|
|
2.6
|
|
6.2
|
|
6.9
|
|
|
ANZ
|
|
3.3
|
|
2.1
|
|
5.3
|
|
5.9
|
|
|
Asia
|
|
1.6
|
|
2.3
|
|
2.9
|
|
3.3
|
|
|
Recall operations
|
|
28.2
|
|
21.5
|
|
31.4
|
|
31.1
|
|
|
Recall HQ
|
|
5.6
|
|
6.0
|
|
4.2
|
|
5.0
|
|
|
Total
|
|
33.8
|
|
27.5
|
|
35.6
|
|
36.1
|
|
|
|
|
SEGMENT ASSETS
|
|
SEGMENT LIABILITIES
|
|
|
|
|
FIRST HALF
|
|
30 JUNE
|
|
FIRST HALF
|
|
30 JUNE
|
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
US$M
|
|
US$M
|
|
US$M
|
|
US$M
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
By operating segment
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
698.3
|
|
688.9
|
|
56.9
|
|
72.4
|
|
|
Europe
|
|
256.6
|
|
262.5
|
|
60.2
|
|
77.5
|
|
|
ANZ
|
|
225.4
|
|
239.3
|
|
37.7
|
|
42.9
|
|
|
Asia
|
|
172.5
|
|
183.5
|
|
12.7
|
|
14.7
|
|
|
Recall operations
|
|
1,352.8
|
|
1,374.2
|
|
167.5
|
|
207.5
|
|
|
Recall HQ
|
|
40.3
|
|
36.8
|
|
22.4
|
|
22.6
|
|
|
Cash and borrowings
|
|
159.4
|
|
88.2
|
|
777.4
|
|
648.5
|
|
|
Current tax balances
|
|
—
|
|
—
|
|
11.9
|
|
7.5
|
|
|
Deferred tax balances
|
|
4.7
|
|
4.8
|
|
62.5
|
|
68.7
|
|
|
Total segment assets and liabilities
|
|
1,557.2
|
|
1,504.0
|
|
1,041.7
|
|
954.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets by geographic origin(4)
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
609.2
|
|
606.2
|
|
|
|
|
|
|
Europe
|
|
204.5
|
|
201.6
|
|
|
|
|
|
|
Australia
|
|
189.2
|
|
203.8
|
|
|
|
|
|
|
Other
|
|
187.0
|
|
197.2
|
|
|
|
|
|
|
Total
|
|
1,189.9
|
|
1,208.8
|
|
|
|
|
|
(1)
Operating profit is segment revenue less segment expense and excludes net finance costs.
(2)
Underlying Profit is a non-statutory profit measure and represents profit before finance costs, tax and Significant Items (refer to Note 6). It is presented to assist users of the financial statements to better understand Recall’s business results.
(3)
Capital expenditure is presented on an accruals basis and includes expenditure on property, plant & equipment and intangibles.
(4)
Non-current assets exclude financial instruments and deferred tax assets.
10
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
- CONTINUED
for the half-year ended 31 December 2015 (Unaudited)
NOTE 5. PROFIT FROM ORDINARY ACTIVITIES
A) REVENUE AND OTHER INCOME
|
|
|
FIRST HALF
|
|
FIRST HALF
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
US$M
|
|
US$M
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
Sales revenue
|
|
397.6
|
|
427.0
|
|
|
Gain on sale of business
|
|
—
|
|
2.6
|
|
|
Total income
|
|
397.6
|
|
429.6
|
|
B) OPERATING EXPENSES
|
Employment costs
|
|
146.4
|
|
148.0
|
|
|
Service suppliers:
|
|
|
|
|
|
|
- travel and transport
|
|
21.0
|
|
26.8
|
|
|
- repairs and maintenance
|
|
6.4
|
|
6.8
|
|
|
- subcontractors and other service suppliers
|
|
52.7
|
|
46.3
|
|
|
Raw materials and consumables
|
|
7.3
|
|
9.8
|
|
|
Occupancy
|
|
70.7
|
|
74.7
|
|
|
Insurance
|
|
6.7
|
|
6.9
|
|
|
Depreciation of property, plant and equipment
|
|
22.3
|
|
24.0
|
|
|
Amortisation of intangible assets and deferred expenditure
|
|
13.3
|
|
12.1
|
|
|
Other
|
|
15.4
|
|
14.8
|
|
|
Total operating expenses
|
|
362.2
|
|
370.2
|
|
11
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
- CONTINUED
for the half-year ended 31 December 2015 (Unaudited)
NOTE 6. SIGNIFICANT ITEMS
Significant Items are items of income or expense which are, either individually or in aggregate, material to Recall or to the relevant business segment and:
·
outside the ordinary course of business (e.g. demerger related costs and the costs of significant reorganisation or restructuring); or
·
part of the ordinary activities of the business but unusual due to their size and nature.
Significant Items are disclosed to assist users of the financial statements to better understand Recall’s business results.
|
|
|
FIRST HALF 2016
|
|
|
|
|
US$M (Unaudited)
|
|
|
|
|
BEFORE
|
|
|
|
AFTER
|
|
|
|
|
TAX
|
|
TAX
|
|
TAX
|
|
|
Items outside the ordinary course of business:
|
|
|
|
|
|
|
|
|
- demerger related expenses(1)
|
|
1.3
|
|
(0.5
|
)
|
0.8
|
|
|
- acquisitions related expenses(2)
|
|
2.9
|
|
(0.9
|
)
|
2.0
|
|
|
- Iron Mountain transaction costs(3)
|
|
16.2
|
|
(5.7
|
)
|
10.5
|
|
|
Significant Items
|
|
20.4
|
|
(7.1
|
)
|
13.3
|
|
|
|
|
FIRST HALF 2015
|
|
|
|
|
US$M (Unaudited)
|
|
|
|
|
BEFORE
|
|
|
|
AFTER
|
|
|
|
|
TAX
|
|
TAX
|
|
TAX
|
|
|
Items outside the ordinary course of business:
|
|
|
|
|
|
|
|
|
- demerger related expenses(1)
|
|
2.4
|
|
(0.8
|
)
|
1.6
|
|
|
- acquisitions related expenses(2)
|
|
2.7
|
|
(0.9
|
)
|
1.8
|
|
|
- corporate restructuring related expenses(4)
|
|
0.8
|
|
(0.3
|
)
|
0.5
|
|
|
Significant Items
|
|
5.9
|
|
(2.0
|
)
|
3.9
|
|
(1)
Share based payments expense relates to one-off grants of rights to the CEO and other Recall executives upon demerger.
(2)
Costs incurred in relation to acquisitions completed or being pursued by Recall.
(3)
These expenses mainly comprise legal and professional fees incurred in relation to the Iron Mountain’s unsolicited bid to acquire Recall.
(4)
These expenses were incurred in relation to a potential corporate restructure and mainly comprise legal and professional fees.
12
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
- CONTINUED
for the half-year ended 31 December 2015 (Unaudited)
NOTE 7. EARNINGS PER SHARE
|
|
|
FIRST HALF
|
|
FIRST HALF
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
US CENTS
|
|
US CENTS
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
Earnings per share:
|
|
|
|
|
|
|
- basic
|
|
5.3
|
|
10.4
|
|
|
- diluted
|
|
5.3
|
|
10.3
|
|
|
- basic, on Underlying Profit after finance costs and tax
|
|
9.6
|
|
11.6
|
|
Performance share rights granted under the Recall Performance Share Plan are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive.
A) WEIGHTED AVERAGE NUMBER OF SHARES DURING THE PERIOD
|
|
|
FIRST HALF
|
|
FIRST HALF
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
MILLION
|
|
MILLION
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
Used in the calculation of basic earnings per share
|
|
314.0
|
|
313.1
|
|
|
Adjustment for share rights
|
|
2.8
|
|
1.7
|
|
|
Used in the calculation of diluted earnings per share
|
|
316.8
|
|
314.8
|
|
B) RECONCILIATION OF PROFIT USED IN EPS CALCULATION
|
|
|
FIRST HALF
|
|
FIRST HALF
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
US$M
|
|
US$M
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
Statutory profit
|
|
|
|
|
|
|
Profit for the period
|
|
16.7
|
|
32.5
|
|
|
Profit used for calculation of basic and diluted EPS
|
|
16.7
|
|
32.5
|
|
|
Underlying Profit after finance costs and tax
|
|
|
|
|
|
|
Underlying Profit (Note 4)
|
|
55.8
|
|
65.4
|
|
|
Net finance costs
|
|
(13.3
|
)
|
(8.1
|
)
|
|
Underlying Profit before tax
|
|
42.5
|
|
57.3
|
|
|
Tax expense on Underlying Profit
|
|
(12.5
|
)
|
(20.9
|
)
|
|
Underlying Profit after finance costs and tax
|
|
30.0
|
|
36.4
|
|
|
which reconciles to statutory profit:
|
|
|
|
|
|
|
Underlying Profit after finance costs and tax
|
|
30.0
|
|
36.4
|
|
|
Significant Items after tax (Note 6)
|
|
(13.3
|
)
|
(3.9
|
)
|
|
Profit for the period
|
|
16.7
|
|
32.5
|
|
13
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
- CONTINUED
for the half-year ended 31 December 2015 (Unaudited)
NOTE 8. DIVIDENDS
A) DIVIDENDS PAID DURING THE PERIOD
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
FINAL DIVIDEND
|
|
FINAL DIVIDEND
|
|
|
|
|
FY2015
|
|
FY2014
|
|
|
Dividend per share (in Australian cents)
|
|
10.0
|
|
8.0
|
|
|
Total dividend (in US$ million)
|
|
22.3
|
|
22.0
|
|
|
Franked amount at 30% tax (in Australian cents)
|
|
4.0
|
|
—
|
|
|
Payment date
|
|
28 October 2015
|
|
23 October 2014
|
|
B) DIVIDEND DETERMINED AFTER REPORTING DATE
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
INTERIM DIVIDEND
|
|
INTERIM DIVIDEND
|
|
|
|
|
FY2016
|
|
FY2015
|
|
|
Dividend per share (in Australian cents)
|
|
9.5
|
|
9.0
|
|
|
Franked amount at 30% tax (in Australian cents)
|
|
2.9
|
|
2.7
|
|
|
Payment date
|
|
20 April 2016
|
|
24 April 2015
|
|
|
Dividend record date
|
|
1 April 2016
|
|
7 April 2015
|
|
As this dividend had not been declared at the reporting date, it is not reflected in these consolidated financial statements.
C) FRANKING CREDITS
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
FIRST HALF
|
|
FIRST HALF
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
US$M
|
|
US$M
|
|
|
|
|
|
|
|
|
|
Franking credits available for subsequent financial years based on a tax rate of 30%
|
|
3.4
|
|
6.7
|
|
The amounts above represent the balance of the franking account as at the end of the period, adjusted for:
·
franking credits that will arise from the payment of the current tax liability;
·
franking debits that will arise from the payment of dividends recognised as a liability at the reporting date;
·
franking credits that will arise from dividends recognised as receivables at the reporting date; and
·
franking credits that may be prevented from being distributed in subsequent financial years.
14
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
- CONTINUED
for the half-year ended 31 December 2015 (Unaudited)
NOTE 9. ISSUED AND QUOTED SECURITIES
|
|
|
OPTIONS
|
|
ORDINARY SECURITIES
|
|
|
|
|
NUMBER
|
|
NUMBER
|
|
US$M
|
|
|
Total ordinary shares, of no par value, issued and fully paid:
|
|
|
|
|
|
|
|
|
At 1 July 2014
|
|
4,984,501
|
|
312,836,448
|
|
545.7
|
|
|
Issued during the period
|
|
2,963,120
|
|
838,263
|
|
3.0
|
|
|
Exercised during the period
|
|
(838,263
|
)
|
—
|
|
—
|
|
|
Forfeited/lapsed during the period
|
|
(55,416
|
)
|
—
|
|
—
|
|
|
At 31 December 2014 (Unaudited)
|
|
7,053,942
|
|
313,674,711
|
|
548.7
|
|
|
|
|
|
|
|
|
|
|
|
At 1 July 2015
|
|
7,071,410
|
|
313,674,711
|
|
548.7
|
|
|
Issued during the period
|
|
2,597,258
|
|
944,126
|
|
3.5
|
|
|
Exercised during the period
|
|
(982,483
|
)
|
—
|
|
—
|
|
|
Forfeited/lapsed during the period
|
|
(34,297
|
)
|
—
|
|
—
|
|
|
At 31 December 2015 (Unaudited)
|
|
8,651,888
|
|
314,618,837
|
|
552.2
|
|
Ordinary shares of Recall Holdings Limited entitle the holder to participate in dividends and the proceeds on any winding up of the Company in proportion to the number of shares held.
15
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
- CONTINUED
for the half-year ended 31 December 2015 (Unaudited)
NOTE 10. RESERVES AND RETAINED EARNINGS
A) MOVEMENTS IN RESERVES AND RETAINED EARNINGS
|
|
|
RESERVES
|
|
|
|
|
|
|
SHARE-
|
|
FOREIGN
|
|
|
|
|
|
|
|
|
|
|
|
|
BASED
|
|
CURRENCY
|
|
COMMON
|
|
|
|
RETAINED
|
|
|
|
|
HEDGING
|
|
PAYMENTS
|
|
TRANSLATION
|
|
CONTROL
|
|
TOTAL
|
|
EARNINGS
|
|
|
|
|
US$M
|
|
US$M
|
|
US$M
|
|
US$M
|
|
US$M
|
|
US$M
|
|
|
Half-year ended 31 December 2014 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
(0.5
|
)
|
3.5
|
|
5.3
|
|
(179.5
|
)
|
(171.2
|
)
|
224.9
|
|
|
Foreign exchange differences
|
|
—
|
|
—
|
|
(52.5
|
)
|
—
|
|
(52.5
|
)
|
—
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- fair value losses
|
|
(2.0
|
)
|
—
|
|
—
|
|
—
|
|
(2.0
|
)
|
—
|
|
|
- tax on fair value losses
|
|
0.4
|
|
—
|
|
—
|
|
—
|
|
0.4
|
|
—
|
|
|
Share-based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- expense recognised during the period
|
|
—
|
|
4.5
|
|
—
|
|
—
|
|
4.5
|
|
—
|
|
|
- shares issued
|
|
—
|
|
(3.0
|
)
|
—
|
|
—
|
|
(3.0
|
)
|
—
|
|
|
- equity component of related tax
|
|
—
|
|
0.6
|
|
—
|
|
—
|
|
0.6
|
|
—
|
|
|
Dividends paid (Note 8A)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(22.0
|
)
|
|
Net profit for the period
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
32.5
|
|
|
Closing balance
|
|
(2.1
|
)
|
5.6
|
|
(47.2
|
)
|
(179.5
|
)
|
(223.2
|
)
|
235.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Half-year ended 31 December 2015 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
(0.4
|
)
|
11.3
|
|
(77.1
|
)
|
(179.5
|
)
|
(245.7
|
)
|
246.1
|
|
|
Recognised in relation to sale of business
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Foreign exchange differences
|
|
—
|
|
—
|
|
(34.1
|
)
|
—
|
|
(34.1
|
)
|
—
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- fair value gain (losses)
|
|
0.6
|
|
—
|
|
—
|
|
—
|
|
0.6
|
|
—
|
|
|
- tax on fair value gain (losses)
|
|
(0.1
|
)
|
—
|
|
—
|
|
—
|
|
(0.1
|
)
|
—
|
|
|
Share-based payments:
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
- expense recognised during the period
|
|
—
|
|
5.7
|
|
—
|
|
—
|
|
5.7
|
|
—
|
|
|
- shares issued
|
|
—
|
|
(3.5
|
)
|
—
|
|
—
|
|
(3.5
|
)
|
—
|
|
|
- equity component of related tax
|
|
—
|
|
(0.1
|
)
|
—
|
|
—
|
|
(0.1
|
)
|
—
|
|
|
Dividends paid (Note 8A)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(22.3
|
)
|
|
Net profit for the period
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
16.7
|
|
|
Closing balance
|
|
0.1
|
|
13.4
|
|
(111.2
|
)
|
(179.5
|
)
|
(277.2
|
)
|
240.5
|
|
16
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
- CONTINUED
for the half-year ended 31 December 2015 (Unaudited)
NOTE 10. RESERVES AND RETAINED EARNINGS - CONTINUED
B) NATURE AND PURPOSE OF RESERVES
Hedging reserve
This comprises the cumulative portion of the gain or loss of cash flow hedges that are determined to be effective hedges. Amounts are recognised in the income statement when the associated hedged transaction is recognised or the hedge or a portion thereof becomes ineffective.
Share-based payments reserve
This comprises the cumulative share-based payments expense recognised in the income statement in relation to equity-settled options and share rights issued but not yet exercised.
Foreign currency translation reserve
This comprises cumulative exchange differences arising from the translation of the financial statements of the Company and its subsidiaries (net of qualifying net investment hedge) from their functional currency to the presentation currency i.e. US dollars. When a subsidiary or an operation is disposed, the accumulated balance in the reserve relating to the subsidiary or the operation is recognised in the income statement.
Common control reserve
Business combinations involving entities or businesses under common control are outside the scope of AASB 3: Business Combinations. A number of common control transactions took place in 2012 or as part of the demerger in 2014 and have been accounted for using predecessor accounting, without recognition of additional goodwill. The common control reserve represents the excess of the consideration paid in those common control transactions over the carrying value of the net assets acquired.
17
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
- CONTINUED
for the half-year ended 31 December 2015 (Unaudited)
NOTE 11. NET ASSETS PER SHARE
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
FIRST HALF
|
|
FIRST HALF
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Based on number of shares as at 31 December
|
|
million
|
|
314.62
|
|
313.70
|
|
|
- Net tangible assets per share
|
|
US dollars
|
|
(0.93
|
)
|
(0.76
|
)
|
|
- Net assets per share
|
|
US dollars
|
|
1.64
|
|
1.79
|
|
Net tangible assets per share is calculated by dividing total equity attributable to the members of the parent entity, less goodwill and intangible assets, by the number of shares on issue at the period-end.
Net assets per share is calculated by dividing total equity attributable to the members of the parent entity by the number of shares on issue at the period-end.
18
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
- CONTINUED
for the half-year ended 31 December 2015 (Unaudited)
NOTE 12. CONTINGENT LIABILITIES
There have been no material changes in contingent liabilities as set out in Recall’s 2015 Annual Report.
NOTE 13. BORROWINGS CLASSIFICATION
As at 31 December 2015 and as at the date of these financial statements, in accordance with the Syndicated Facility Agreement (SFA), Recall has an unconditional right to defer settlement of $702 million of unsecured bank loans for at least 12 months after the balance sheet date and as a result have classified these as non-current borrowings. If all the necessary regulatory and shareholder approvals are obtained and Recall is subsequently acquired by Iron Mountain, the banks would have the option to cancel the SFA and require outstanding balances to be repaid no later than 90 days subsequent to the finalisation of the takeover. If this occurs, the bank loans currently classified as non-current would be re-classified to current borrowings.
NOTE 14. FAIR VALUES
Fair value measurements are disclosed by the following levels of the fair value measurement hierarchy:
(a) Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
(b) Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and
(c) Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Derivative financial instruments (interest rate swap and cross currency swap) are measuered at level 2 in both periods.
Fair value of the financial instruments is the same as their carrying amount in the balance sheet.
NOTE 15. EVENTS AFTER BALANCE SHEET DATE
On 12 January 2016, Recall acquired Secur’ Archiv, a document storage and management company in Switzerland for US$21.1 million.
There have been no other events that have occurred subsequent to 31 December 2015 and up to the date of these consolidated financial statements that have had a material impact on Recall’s financial performance or position.
19
Exhibit 99.5
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements are derived from and should be read in conjunction with the historical consolidated financial statements and related notes of Iron Mountain Incorporated, or Iron Mountain, which are incorporated by reference from Iron Mountain’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 26, 2016, or the Annual Report, and Recall Holdings Limited, or Recall, which are furnished with the Current Report on Form 8-K, or the Current Report, to which these pro forma financial statements are furnished as an exhibit or were filed as Annex B to Iron Mountain’s definitive proxy statement filed with the SEC on October 14, 2015.
The unaudited pro forma consolidated balance sheet as of December 31, 2015, and the unaudited pro forma consolidated statement of operations and cash flows for the twelve months ended December 31, 2015, are presented herein. The unaudited pro forma consolidated balance sheet combines the consolidated balance sheets of Iron Mountain and Recall as of December 31, 2015 and gives effect to Iron Mountain’s proposed acquisition, or the Transaction, of Recall by way of implementation of a Scheme of Arrangement, or the Scheme, as if it had been completed on December 31, 2015. The unaudited pro forma consolidated statement of operations and cash flows combine the historical results of Iron Mountain and Recall for the twelve months ended December 31, 2015 and gives effect to the Transaction as if it occurred on January 1, 2015.
The unaudited pro forma consolidated financial statements presented are based on the assumptions and adjustments described in the accompanying notes. The unaudited pro forma consolidated financial statements are presented for illustrative purposes and do not purport to represent what the financial position or results of operations would actually have been if the Transaction occurred as of the dates indicated or what financial position or results of operations would be for any future periods. The unaudited pro forma consolidated financial statements are based upon the respective historical consolidated financial statements of Iron Mountain and Recall, and should be read in conjunction with (1) the accompanying notes to the unaudited pro forma consolidated financial information, (2) the audited consolidated financial statements for the twelve months ended December 31, 2015 and notes thereto of Iron Mountain included in the Annual Report, (3) the consolidated financial statements and notes thereto for the half year ended December 31, 2015 (unaudited) of Recall, which is furnished as Exhibit 99.3 to the Current Report and (4) the consolidated financial statements and notes thereto for the fiscal year ended June 30, 2015 (audited) of Recall, which were filed as Annex B to Iron Mountain’s definitive proxy statement filed with the SEC on October 14, 2015.
The unaudited pro forma consolidated statement of operations also includes certain purchase accounting adjustments, including items expected to have a continuing impact on the combined results, such as increased amortization expense on acquired intangible assets. The unaudited pro forma consolidated statement of operations and unaudited pro forma consolidated statement of cash flows do not include the impact of any revenue, cost or other operating synergies that may result from the acquisition or any related restructuring costs. The unaudited pro forma consolidated financial statements also do not include any impact regarding the divestments Iron Mountain and Recall are or may be required to make in order to receive regulatory approval for the Transaction, as discussed in the Current Report.
1
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2015
(In thousands, except share and per share data)
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recall
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(IFRS)
|
|
U.S. GAAP
|
|
|
|
Recall
|
|
Purchase Accounting
|
|
|
|
Financing
|
|
|
|
|
|
|
|
|
Iron Mountain
|
|
(see Note 3)
|
|
Adjustments
|
|
(Note)
|
|
(U.S. GAAP)
|
|
Adjustments
|
|
(Note)
|
|
Adjustments
|
|
(Note)
|
|
Pro Forma
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
128,381
|
|
159,400
|
|
—
|
|
|
|
159,400
|
|
(326,418
|
)
|
7
|
(a)
|
289,673
|
|
7
|
(k)
|
251,036
|
|
|
Restricted cash
|
|
—
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Accounts receivable, net
|
|
564,401
|
|
181,900
|
|
—
|
|
|
|
181,900
|
|
—
|
|
|
|
—
|
|
|
|
746,301
|
|
|
Deferred income taxes
|
|
22,179
|
|
—
|
|
8,655
|
|
5
|
(a)(b)
|
8,655
|
|
(516
|
)
|
7
|
(h)
|
—
|
|
|
|
30,318
|
|
|
Prepaid expenses and other
|
|
142,951
|
|
21,100
|
|
—
|
|
|
|
21,100
|
|
—
|
|
|
|
—
|
|
|
|
164,051
|
|
|
Total Current Assets
|
|
857,912
|
|
362,400
|
|
8,655
|
|
|
|
371,055
|
|
(326,934
|
)
|
|
|
289,673
|
|
|
|
1,191,706
|
|
|
Property, Plant and Equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
4,744,236
|
|
824,907
|
|
19,288
|
|
5
|
(c)
|
844,195
|
|
(132,953
|
)
|
7
|
(b)
|
—
|
|
|
|
5,455,478
|
|
|
Less Accumulated depreciation
|
|
(2,247,078
|
)
|
(425,007
|
)
|
(3,825
|
)
|
5
|
(c)
|
(428,832
|
)
|
428,832
|
|
7
|
(b)
|
—
|
|
|
|
(2,247,078
|
)
|
|
Property, Plant and Equipment, net
|
|
2,497,158
|
|
399,900
|
|
15,463
|
|
|
|
415,363
|
|
295,879
|
|
7
|
(b)
|
—
|
|
|
|
3,208,400
|
|
|
Other Assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
2,360,978
|
|
665,800
|
|
—
|
|
|
|
665,800
|
|
530,290
|
|
7
|
(c)
|
—
|
|
|
|
3,557,068
|
|
|
Customer relationships and customer inducements
|
|
603,314
|
|
117,368
|
|
—
|
|
|
|
117,368
|
|
831,122
|
|
7
|
(d)
|
—
|
|
|
|
1,551,804
|
|
|
Other
|
|
31,225
|
|
11,732
|
|
(4,510
|
)
|
5
|
(a)(b)(c)
|
7,222
|
|
52,375
|
|
7
|
(d)(h)
|
—
|
|
|
|
90,822
|
|
|
Total Other Assets, net
|
|
2,995,517
|
|
794,900
|
|
(4,510
|
)
|
|
|
790,390
|
|
1,413,787
|
|
|
|
—
|
|
|
|
5,199,694
|
|
|
Total Assets
|
|
6,350,587
|
|
1,557,200
|
|
19,608
|
|
|
|
1,576,808
|
|
1,382,732
|
|
|
|
289,673
|
|
|
|
9,599,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
88,068
|
|
70,500
|
|
—
|
|
|
|
70,500
|
|
—
|
|
|
|
991,975
|
|
7
|
(k)
|
1,150,543
|
|
|
Accounts payable
|
|
219,590
|
|
118,317
|
|
—
|
|
|
|
118,317
|
|
(1,700
|
)
|
7
|
(f)
|
—
|
|
|
|
336,207
|
|
|
Accrued expenses
|
|
351,061
|
|
36,400
|
|
(13,477
|
)
|
5
|
(b)
|
22,923
|
|
1
|
|
7
|
(h)
|
—
|
|
|
|
373,985
|
|
|
Deferred revenue
|
|
183,112
|
|
18,983
|
|
—
|
|
|
|
18,983
|
|
—
|
|
|
|
—
|
|
|
|
202,095
|
|
|
Total Current Liabilities
|
|
841,831
|
|
244,200
|
|
(13,477
|
)
|
|
|
230,723
|
|
(1,699
|
)
|
|
|
991,975
|
|
|
|
2,062,830
|
|
|
Long-term Debt, net of current portion
|
|
4,757,610
|
|
706,800
|
|
19,554
|
|
5
|
(c)
|
726,354
|
|
13,359
|
|
7
|
(e)(j)
|
(702,302
|
)
|
7
|
(k)
|
4,795,021
|
|
|
Other Long-Term Liabilities
|
|
71,844
|
|
17,500
|
|
5,274
|
|
5
|
(a)
|
22,774
|
|
23,725
|
|
7
|
(g)
|
—
|
|
|
|
118,343
|
|
|
Deferred Rent
|
|
95,693
|
|
10,700
|
|
(3,178
|
)
|
5
|
(c)
|
7,522
|
|
(7,522
|
)
|
7
|
(f)
|
—
|
|
|
|
95,693
|
|
|
Deferred Income Taxes
|
|
55,002
|
|
62,500
|
|
2,979
|
|
5
|
(a)(b)(c)
|
65,479
|
|
357,857
|
|
7
|
(h)
|
—
|
|
|
|
478,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iron Mountain Incorporated Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
2,113
|
|
—
|
|
—
|
|
|
|
—
|
|
507
|
|
7
|
(i)
|
—
|
|
|
|
2,620
|
|
|
Additional paid-in capital
|
|
1,623,863
|
|
386,170
|
|
—
|
|
|
|
386,170
|
|
1,134,291
|
|
7
|
(i)
|
—
|
|
|
|
3,144,324
|
|
|
(Distributions in excess of earnings) Earnings in excess of distributions
|
|
(942,218
|
)
|
240,500
|
|
8,456
|
|
5
|
(b)(c)
|
248,956
|
|
(248,956
|
)
|
7
|
(i)
|
—
|
|
|
|
(942,218
|
)
|
|
Accumulated other comprehensive items, net
|
|
(174,917
|
)
|
(111,170
|
)
|
—
|
|
|
|
(111,170
|
)
|
111,170
|
|
7
|
(i)
|
—
|
|
|
|
(174,917
|
)
|
|
Total Iron Mountain Incorporated Stockholders’ Equity
|
|
508,841
|
|
515,500
|
|
8,456
|
|
|
|
523,956
|
|
997,012
|
|
|
|
—
|
|
|
|
2,029,809
|
|
|
Noncontrolling Interests
|
|
19,766
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
19,766
|
|
|
Total Equity
|
|
528,607
|
|
515,500
|
|
8,456
|
|
|
|
523,956
|
|
997,012
|
|
|
|
—
|
|
|
|
2,049,575
|
|
|
Total Liabilities and Equity
|
|
6,350,587
|
|
1,557,200
|
|
19,608
|
|
|
|
1,576,808
|
|
1,382,732
|
|
|
|
289,673
|
|
|
|
9,599,800
|
|
See accompanying notes to unaudited pro forma consolidated financial information.
2
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2015
(In thousands, except per share data)
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recall
|
|
|
|
|
|
|
|
Purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(IFRS)
|
|
|
|
|
|
Recall
|
|
Accounting
|
|
|
|
Financing
|
|
|
|
|
|
|
|
|
Iron Mountain
|
|
(see Note 3)
|
|
U.S. GAAP Adjustments
|
|
(Note)
|
|
(U.S. GAAP)
|
|
Adjustments
|
|
(Note)
|
|
Adjustments
|
|
(Note)
|
|
Pro Forma
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Storage rental
|
|
1,837,897
|
|
436,900
|
|
—
|
|
|
|
436,900
|
|
—
|
|
|
|
—
|
|
|
|
2,274,797
|
|
|
Service
|
|
1,170,079
|
|
361,500
|
|
—
|
|
|
|
361,500
|
|
—
|
|
|
|
—
|
|
|
|
1,531,579
|
|
|
Total Revenues
|
|
3,007,976
|
|
798,400
|
|
—
|
|
|
|
798,400
|
|
—
|
|
|
|
—
|
|
|
|
3,806,376
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization)
|
|
1,290,025
|
|
408,100
|
|
(6,809
|
)
|
5
|
(b)(c)
|
401,291
|
|
1,485
|
|
8
|
(a)
|
—
|
|
|
|
1,692,801
|
|
|
Selling, general and administrative
|
|
844,960
|
|
239,700
|
|
—
|
|
|
|
239,700
|
|
(77,189
|
)
|
8
|
(b)
|
—
|
|
|
|
1,007,471
|
|
|
Depreciation and amortization
|
|
345,464
|
|
69,300
|
|
386
|
|
5
|
(c)
|
69,686
|
|
64,251
|
|
8
|
(c)(d)
|
—
|
|
|
|
479,401
|
|
|
Loss (gain) on disposal/write-down of property, plant and equipment (excluding real estate), net
|
|
3,000
|
|
(1,500
|
)
|
—
|
|
|
|
(1,500
|
)
|
—
|
|
|
|
—
|
|
|
|
1,500
|
|
|
Total Operating Expenses
|
|
2,483,449
|
|
715,600
|
|
(6,423
|
)
|
|
|
709,177
|
|
(11,453
|
)
|
|
|
—
|
|
|
|
3,181,173
|
|
|
Operating Income (Loss)
|
|
524,527
|
|
82,800
|
|
6,423
|
|
|
|
89,223
|
|
11,453
|
|
|
|
—
|
|
|
|
625,203
|
|
|
Interest Expense, Net
|
|
263,871
|
|
22,700
|
|
2,063
|
|
5
|
(c)
|
24,763
|
|
(396
|
)
|
8
|
(f)
|
44,641
|
|
8
|
(g)
|
332,879
|
|
|
Other Expense (Income), Net
|
|
98,590
|
|
4,100
|
|
—
|
|
|
|
4,100
|
|
—
|
|
|
|
—
|
|
|
|
102,690
|
|
|
Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes and (Gain) Loss on Sale of Real Estate
|
|
162,066
|
|
56,000
|
|
4,360
|
|
|
|
60,360
|
|
11,849
|
|
|
|
(44,641
|
)
|
|
|
189,634
|
|
|
(Benefit) Provision for Income Taxes
|
|
37,713
|
|
6,600
|
|
1,155
|
|
5
|
(b)(c)
|
7,755
|
|
3,140
|
|
8
|
(e)
|
5,783
|
|
8
|
(g)
|
54,391
|
|
|
(Gain) Loss on Sale of Real Estate, Net of Tax
|
|
(850
|
)
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
(850
|
)
|
|
Income (Loss) from Continuing Operations
|
|
125,203
|
|
49,400
|
|
3,205
|
|
|
|
52,605
|
|
8,709
|
|
|
|
(50,424
|
)
|
|
|
136,093
|
|
|
(Loss) Income from Discontinued Operations, Net of Tax
|
|
—
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Net Income (Loss)
|
|
125,203
|
|
49,400
|
|
3,205
|
|
|
|
52,605
|
|
8,709
|
|
|
|
(50,424
|
)
|
|
|
136,093
|
|
|
Less: Net Income (Loss) Attributable to Noncontrolling Interests
|
|
1,962
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
1,962
|
|
|
Net Income (Loss) Attributable to Iron Mountain Incorporated
|
|
123,241
|
|
49,400
|
|
3,205
|
|
|
|
52,605
|
|
8,709
|
|
|
|
(50,424
|
)
|
|
|
134,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Share - Basic
|
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.51
|
|
|
Earnings per Share - Diluted
|
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding - Basic
|
|
210,616
|
|
|
|
|
|
|
|
|
|
50,716
|
|
8
|
(h)
|
|
|
|
|
261,332
|
|
|
Weighted Average Common Shares Outstanding - Diluted
|
|
212,081
|
|
|
|
|
|
|
|
|
|
50,716
|
|
8
|
(h)
|
|
|
|
|
262,797
|
|
See accompanying notes to unaudited pro forma consolidated financial information.
3
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2015
(In thousands)
|
|
|
Historical
|
|
Purchase
|
|
|
|
|
|
|
|
|
|
|
Recall
|
|
|
|
|
|
Recall
|
|
Accounting
|
|
|
|
|
|
|
|
|
Iron Mountain
|
|
(IFRS)
|
|
U.S. GAAP Adjustments
|
|
(Note)
|
|
(US GAAP)
|
|
Adjustments
|
|
(Note)
|
|
Pro Forma
|
|
|
Pro Forma OIBDA (operating income before depreciation and amortization)
|
|
$
|
869,991
|
|
$
|
152,100
|
|
$
|
6,809
|
|
9(a)
|
|
$
|
158,909
|
|
$
|
75,704
|
|
9(b)
|
|
$
|
1,104,604
|
|
|
Pro Forma change in working capital
|
|
(14,496
|
)
|
(18,000
|
)
|
—
|
|
|
|
(18,000
|
)
|
—
|
|
|
|
(32,496
|
)
|
|
Net operating cash flows, before capital expenditure, financing costs and tax
|
|
855,495
|
|
134,100
|
|
6,809
|
|
|
|
140,909
|
|
75,704
|
|
|
|
1,072,108
|
|
|
Pro Forma capital expenditure
|
|
(290,249
|
)
|
(68,000
|
)
|
—
|
|
|
|
(68,000
|
)
|
—
|
|
|
|
(358,249
|
)
|
|
Net operating cash flows, financing costs and tax
|
|
$
|
565,246
|
|
$
|
66,100
|
|
$
|
6,809
|
|
|
|
$
|
72,909
|
|
$
|
75,704
|
|
|
|
$
|
713,859
|
|
See accompanying notes to unaudited pro forma consolidated financial information.
4
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except share and per share amounts)
NOTE 1—DESCRIPTION OF THE TRANSACTION
On June 8, 2015, Iron Mountain and Recall entered into a Scheme Implementation Deed, as amended, or the Transaction Agreement, pursuant to which Recall will propose a Scheme under Australian corporate law between it and its shareholders that, if approved by Recall shareholders and the Sydney Federal Court (or such other competent court agreed by Iron Mountain and Recall) and implemented, will have the effect that an Australian wholly-owned subsidiary of Iron Mountain will acquire all of the outstanding shares of Recall. As a result of the Transaction, Recall will become a wholly-owned subsidiary of Iron Mountain.
Subject to the terms and conditions of the Transaction Agreement, upon the completion of the Transaction, Recall shareholders shall be entitled to receive for each outstanding share of Recall common stock the Australian dollar equivalent of US$0.50 in cash, or the Cash Supplement, as well as either (1) 0.1722 of a newly issued share of Iron Mountain common stock, or the Equity Election, or (2) A$8.50 less the Australian dollar equivalent of US$0.50 in cash, or the Cash Election. The Cash Election is subject to a proration mechanism that will cap the total amount of cash paid to Recall shareholders opting for the Cash Election at A$225,000, or the Cash Election Cap, with the remainder to be received as newly issued Iron Mountain common stock. Amounts paid to Recall shareholders that represent the Cash Supplement are excluded from the calculation of the Cash Election Cap.
NOTE 2—BASIS OF PRESENTATION
The unaudited pro forma consolidated balance sheet was prepared using the historical balance sheets of Iron Mountain and Recall as of December 31, 2015. Recall’s fiscal year ends on June 30 and Iron Mountain’s fiscal year ends on December 31. As the fiscal years differ by more than 93 days, financial information for Recall for the year ended December 31, 2015 has been derived for purposes of the preparation of the unaudited pro forma consolidated financial statements. The unaudited pro forma consolidated statement of operations and cash flows was prepared using:
·
the historical audited statement of operations and cash flows of Iron Mountain for the twelve months ended December 31, 2015; and
·
the historical unaudited consolidated income statement and cash flows of Recall for the twelve months ended December 31, 2015, which has been derived by adding the financial data from the historical unaudited consolidated income statement and cash flows for the six months ended December 31, 2015, to the financial data from the historical audited consolidated income statement and cash flows for the fiscal year ended June 30, 2015, and subtracting the financial data from the historical unaudited consolidated income statement and cash flows for the six months ended December 31, 2014.
The unaudited pro forma consolidated financial information was prepared using the acquisition method of accounting with Iron Mountain treated as the acquiring entity. Accordingly, the historical consolidated financial information has been adjusted to give effect to the impact of the consideration issued in connection with the
5
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (Continued)
(In thousands, except share and per share amounts)
NOTE 2—BASIS OF PRESENTATION (Continued)
Transaction. In the unaudited pro forma consolidated balance sheet, Iron Mountain’s purchase price has been allocated to the assets acquired and liabilities assumed based upon management’s preliminary estimate of their respective fair values as of the date of the Transaction. Any differences between the fair value of the consideration issued and the fair value of the assets acquired and liabilities assumed will be recorded as goodwill. The amounts allocated to the assets acquired and liabilities assumed in the unaudited pro forma consolidated financial statements are based on management’s preliminary valuation estimates. Definitive allocations will be performed and finalized based on certain valuations and other studies that will be performed by Iron Mountain with the services of outside valuation specialists after the closing of the Transaction. Accordingly, the purchase price allocation adjustments and related depreciation and amortization reflected in the unaudited pro forma consolidated financial statements are preliminary, have been made solely for the purpose of preparing these statements and are subject to revision based on a final determination of fair value upon the closing of the Transaction.
The unaudited pro forma consolidated statement of operations also includes certain purchase accounting adjustments, including items expected to have a continuing impact on the combined results, such as increased amortization expense on acquired intangible assets. The unaudited pro forma consolidated statement of operations and unaudited pro forma consolidated statement of cash flows do not include the impacts of any revenue, cost or other operating synergies that may result from the Transaction or any related restructuring costs. Iron Mountain and Recall have begun collecting information in order to formulate detailed integration plans to deliver planned synergies. However, at this time, the integration plans are in their preliminary stages and the related acquisition related costs are not yet estimable and, therefore, are not factually supportable for purposes of inclusion in the unaudited pro forma consolidated financial information. The unaudited pro forma consolidated financial statements also do not include any impact regarding the divestments Iron Mountain and Recall are or may be required to make in order to receive regulatory approval for the Transaction, as discussed in the Current Report.
Financing Arrangement
Prior to, and conditioned upon the closing of the Transaction, Iron Mountain intends to enter into a financing arrangement, or the Recall Financing, the proceeds of which will be used to finance a portion of the cash consideration of the purchase price to be paid in exchange for Recall common stock pursuant to the Transaction Agreement, and to repay Recall’s outstanding indebtedness at the time of closing. Upon consummation of the Transaction, Iron Mountain expects outstanding borrowings under the Recall Financing to be approximately $1,065,000 consisting of $215,000 drawn under its existing revolving credit facility, or the Revolving Credit Facility, and $850,000 in new public or private debt financing (sources of which are to be determined by Iron Mountain), and that the cash proceeds to Iron Mountain will be approximately $1,057,775 (net of approximately $7,200 of financing costs that are expected to be deferred and amortized over the term of the Recall Financing to interest expense). Iron Mountain expects that the public or private debt financing under the Recall Financing will bear interest at LIBOR plus a margin of 325 basis points which increases by 50 basis points quarterly, and the Revolving Credit Facility bears interest at LIBOR plus a margin of 225 basis points, resulting in a weighted average interest rate of 3.85% per annum. In addition, the borrowings will be subject to fees including a structuring fee of $900, a commitment fee of 50 basis points and a funding fee of 25 basis points. The Recall Financing may not be available on favorable terms, if at all. If Iron Mountain is unable to obtain sufficient financing and consummate the Transaction, Iron Mountain may be subject to significant monetary or other damages under the Transaction Agreement.
6
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (Continued)
(In thousands, except share and per share amounts)
NOTE 3—RECLASSIFICATIONS
Certain balances presented in the historical Recall financial statements included within these unaudited pro forma consolidated financial statements were reclassified to conform their presentation to that of Iron Mountain as indicated in the tables below:
Balance Sheet as of December 31, 2015
|
Item
|
|
Amount
|
|
Presentation in Recall’s IFRS
Statutory Financial Statements
|
|
Presentation in Unaudited
Pro Forma Consolidated
Financial Information
|
|
|
Inventories
|
|
$
|
2,200
|
|
Inventories
|
|
Prepaid expenses and other
|
|
|
Other assets
|
|
18,900
|
|
Other assets
|
|
Prepaid expenses and other
|
|
|
Customer relationships
|
|
89,368
|
|
Intangible assets
|
|
Customer relationships and customer inducements
|
|
|
Customer acquisition costs
|
|
28,000
|
|
Intangible assets
|
|
Customer relationships and customer inducements
|
|
|
Computer software
|
|
23,100
|
|
Intangible assets
|
|
Property, plant and equipment, net
|
|
|
Deferred revenue
|
|
18,983
|
|
Trade and other payables
|
|
Deferred revenue
|
|
|
Deferred rent
|
|
10,700
|
|
Other liabilities
|
|
Deferred rent
|
|
|
|
|
|
|
|
|
|
|
|
The following balances have been included in other assets, accrued expenses and other long-term liabilities as follows:
|
Item
|
|
Amount
|
|
Presentation in Unaudited
Pro Forma Consolidated
Financial Information
|
|
|
Other intangibles
|
|
$
|
532
|
|
Other
|
|
|
Other receivables
|
|
|
6,000
|
|
Other
|
|
|
Deferred tax assets
|
|
4,700
|
|
Other
|
|
|
Derivative financial instruments
|
|
200
|
|
Other
|
|
|
Other assets
|
|
300
|
|
Other
|
|
|
Taxes payable
|
|
11,900
|
|
Accrued expenses
|
|
|
Provisions
|
|
24,500
|
|
Accrued expenses
|
|
|
Derivative financial instruments
|
|
100
|
|
Other long-term liabilities
|
|
|
Provisions
|
|
10,300
|
|
Other long-term liabilities
|
|
|
Other liabilities
|
|
7,100
|
|
Other long-term liabilities
|
|
Unaudited Pro Forma Consolidated Statement of Operations Adjustments:
Certain line items in Recall’s consolidated income statements have been reclassified to conform to Iron Mountain’s presentation in the unaudited pro forma consolidated statement of operations as follows:
·
Operating expenses have been reclassified to selling, general and administrative, cost of sales and depreciation and amortization;
·
Gain on sale of business has been reclassified to (loss) gain on disposal/write-down of property, plant and equipment (excluding real estate), net;
·
Share of results of joint venture have been reclassified to selling, general and administrative;
·
Finance revenue has been reclassified to interest expense, net; and
·
Finance costs have been reclassified to interest expense, net and other expense (income), net.
7
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (Continued)
(In thousands, except share and per share amounts)
NOTE 4—PURCHASE PRICE
For the purpose of preparing the accompanying unaudited pro forma consolidated balance sheet as of December 31, 2015, the preliminary estimate of the purchase price was calculated as follows:
|
Recall shares issued and outstanding prior to closing of the Transaction(1)
|
|
323,300,000
|
|
|
Closing price per share of Iron Mountain common stock on March 4, 2016
|
|
$
|
29.99
|
|
|
Exchange ratio
|
|
0.1722
|
|
|
Consideration per share for Equity Election (rounded)
|
|
$
|
5.16428
|
|
|
Cash price per share in Australian dollars
|
|
A$
|
8.50
|
|
|
Australian to U.S. dollar exchange rate as of March 4, 2016
|
|
0.7323
|
|
|
Cash price per share in U.S. dollars
|
|
$
|
6.22455
|
|
|
Less: Cash Supplement per share
|
|
(0.50
|
)
|
|
Consideration per share for Cash Election (rounded)
|
|
$
|
5.72455
|
|
|
|
|
|
|
|
Fair value of Cash Supplement in U.S. dollars(2)
|
|
$
|
161,650
|
|
|
Fair value of consideration for Cash Election in U.S. dollars(3)
|
|
164,768
|
|
|
Fair value of consideration for Equity Election in U.S. dollars(4)
|
|
1,520,969
|
|
|
Total estimated purchase price in U.S. dollars
|
|
$
|
1,847,387
|
|
|
|
|
|
|
|
|
The estimated purchase price reflected in these unaudited pro forma consolidated financial statements does not purport to represent what the actual purchase price will be when the Transaction is consummated. In accordance with ASC 805, the fair value of equity securities issued as part of the consideration transferred will be measured on the closing date of the Transaction at the then-current market price. This requirement will likely result in a per-share equity component different from the $29.99 assumed in these unaudited pro forma consolidated financial statements and that difference may be material. Iron Mountain believes that an increase or decrease of 24% in the market price of Iron Mountain’s common stock on the closing date of the Transaction as compared to the market price of Iron Mountain’s common stock assumed for purposes of these unaudited pro forma consolidated financial statements is possible based upon the recent history of the market price of Iron Mountain’s common stock. This amount was derived based on historical volatility of Iron Mountain’s common stock and is not indicative of Iron Mountain’s future stock performance. Assuming that Recall shareholders elect the Cash Election up to the Cash Election Cap, a change of this magnitude would increase or decrease the purchase price by approximately $365,029 which would result in a corresponding increase or decrease to goodwill in these unaudited pro forma consolidated financial statements.
(1)In accordance with the Transaction Agreement, prior to the completion of the Transaction, all outstanding rights to acquire any ordinary shares of Recall under Recall’s equity incentive arrangements, including all unvested performance rights and retention rights, or the Recall Equity Awards, will vest and Recall will issue the number of Recall shares required by the Recall Equity Awards so that the relevant former holders of the Recall Equity Awards
8
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (Continued)
(In thousands, except share and per share amounts)
NOTE 4—PURCHASE PRICE (Continued)
can participate in the Transaction. The number of Recall shares included in the table above represents the number of Recall shares outstanding as if the Transaction was completed as of December 31, 2015, including approximately 314,618,837 Recall shares outstanding as of December 31, 2015, as well as 8,651,888 Recall shares to be issued in connection with the Recall Equity Awards.
(2)The aggregate amount of the Cash Supplement upon the closing of the Transaction has been calculated as follows:
|
Cash Supplement per share of Recall common stock
|
|
$
|
0.50
|
|
|
Recall shares issued and outstanding prior to closing of the Transaction
|
|
323,300,000
|
|
|
Total Cash Supplement
|
|
$
|
161,650
|
|
(3)As noted in the table above, the estimated per-share consideration for the Equity Election based on the closing market price of Iron Mountain common stock as of March 4, 2016 is less than the estimated Cash Election per share based on the closing market price of Iron Mountain’s common stock and the Australian to U.S. dollar exchange rate of $0.7323 to A$1.00 in effect as of March 4, 2016. As a result, for the purpose of preparing these unaudited pro forma consolidated financial statements, Iron Mountain has assumed that Recall shareholders would elect the Cash Election up to the Cash Election Cap of $161,650 (A$225,000 translated at the exchange rate of $0.7323 to A$1.00 as of March 4, 2016).
|
Aggregate Cash Election amount
|
|
$
|
164,768
|
|
|
Cash Election consideration per share of Recall common stock (rounded)
|
|
5.72455
|
|
|
Shares of Recall common stock allocated to Cash Election
|
|
28,782,699
|
|
(4)Represents the portion of consideration to be paid assuming a closing price of Iron Mountain common stock on March 4, 2016 of $29.99 per share as follows:
|
Recall shares issued and outstanding prior to closing of the Transaction
|
|
323,300,000
|
|
|
Shares of Recall common stock allocated to the Cash Election
|
|
(28,782,699
|
)
|
|
Remaining Recall shares allocated to the Equity Election
|
|
294,517,301
|
|
|
Fair value of total consideration per Recall share for Equity Election (rounded)
|
|
5.16428
|
|
|
Fair value of consideration for Equity Election
|
|
$
|
1,520,969
|
|
|
|
|
|
|
|
|
Fair value of consideration for Equity Election
|
|
$
|
1,520,969
|
|
|
Divided by—Closing price per share of Iron Mountain common stock on March 4, 2016
|
|
29.99
|
|
|
Total Iron Mountain shares issued to satisfy Equity Election
|
|
50,715,872
|
|
9
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (Continued)
(In thousands, except share and per share amounts)
NOTE 4—PURCHASE PRICE (Continued)
The following is a summary of the preliminary allocation of the above purchase price as reflected in the unaudited pro forma consolidated balance sheet as of December 31, 2015:
|
Cash and cash equivalents
|
|
$
|
159,400
|
|
|
Accounts receivable, net
|
|
181,900
|
|
|
Prepaid expenses and other
|
|
21,100
|
|
|
Property, plant and equipment
|
|
711,242
|
|
|
Customer relationship intangible asset
|
|
948,490
|
|
|
Other intangible assets
|
|
52,838
|
|
|
Deferred income tax assets, including current portion
|
|
8,399
|
|
|
Other assets—long term
|
|
6,500
|
|
|
Accounts payable
|
|
(116,617
|
)
|
|
Accrued expenses
|
|
(22,924
|
)
|
|
Deferred revenue
|
|
(18,983
|
)
|
|
Long-term debt, including current portion
|
|
(776,159
|
)
|
|
Unfavorable lease liabilities
|
|
(23,725
|
)
|
|
Other long-term liabilities
|
|
(56,827
|
)
|
|
Deferred income tax liabilities, including current portion
|
|
(423,336
|
)
|
|
Estimated fair value of net assets acquired
|
|
651,298
|
|
|
Preliminary allocation to goodwill
|
|
1,196,090
|
|
|
Estimated purchase price
|
|
$
|
1,847,388
|
|
The goodwill balance is primarily attributed to the assembled workforce, expanded market opportunities and cost and other operating synergies anticipated upon the integration of the operations of Iron Mountain and Recall. See Note 7 for a discussion of the methods used to determine the fair value of Recall’s identifiable assets.
NOTE 5—IFRS TO U.S. GAAP ADJUSTMENTS
(a)Reflects adjustments to the presentation of deferred income taxes as a result of the application of U.S. generally accepted accounting principles, or U.S. GAAP. In accordance with IFRS, on a jurisdictional basis all deferred tax assets, or DTAs, and deferred tax liabilities, or DTLs, are netted together, and the net DTA or DTL is recorded on the balance sheet as a noncurrent DTA or DTL, respectively. Under U.S. GAAP, jurisdictional netting of DTAs and DTLs are performed on a current versus noncurrent basis. The following table reflects the adjustments to current and noncurrent DTAs and DTLs as a result of the application of U.S. GAAP.
|
|
|
Amount
|
|
Balance Sheet Classification
|
|
|
Current deferred tax assets
|
|
$
|
10,517
|
|
Deferred income taxes
|
|
|
Long-term deferred tax assets
|
|
(7,031
|
)
|
Other
|
|
|
Uncertain tax position liability
|
|
5,274
|
|
Other long-term liabilities
|
|
|
Long-term deferred tax liabilities
|
|
(1,787
|
)
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
(b)Reflects adjustments to reverse accrued expenses and related tax effects for restructuring actions taken by Recall during the year ended December 31, 2015 due to differences in the timing of recognition of such liabilities permitted under IFRS and U.S. GAAP. Under IFRS, liabilities for plant closures, lease terminations and other exit costs may generally be recognized when an entity has formally committed to a plan. U.S. GAAP prohibits the
10
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (Continued)
(In thousands, except share and per share amounts)
NOTE 5—IFRS TO U.S. GAAP ADJUSTMENTS (Continued)
recognition of a liability based solely on an entity’s commitment to a plan, and recognition of a provision for lease termination usually is upon the date the property is no longer used and most categories of exit costs are recognized as incurred.
Unaudited Pro Forma Balance Sheet Adjustments
|
|
|
Adjustment
|
|
Balance Sheet Classification
|
|
|
Current deferred tax assets
|
|
$
|
(1,863
|
)
|
Deferred income taxes
|
|
|
Long-term deferred tax assets
|
|
(2,391
|
)
|
Other
|
|
|
Accrued expenses
|
|
(13,477
|
)
|
Accrued expenses
|
|
|
Long-term deferred tax liabilities
|
|
128
|
|
Deferred income taxes
|
|
|
Earnings in excess of distributions
|
|
9,095
|
|
Earnings in excess of distributions
|
|
|
|
|
|
|
|
|
|
Unaudited Pro Forma Statement of Operations Adjustments—Year Ended December 31, 2015
|
|
|
Adjustment
|
|
|
|
|
Cost of sales
|
|
$
|
(4,977
|
)
|
|
|
|
Provision for income taxes
|
|
1,319
|
|
|
|
|
|
|
|
|
|
|
|
(c) Reflects adjustments related to an existing Recall operating lease that is considered a financing obligation under U.S. GAAP. Under U.S. GAAP, Recall was deemed to be the accounting owner during the construction period. Upon completion Recall determined that the lease did not meet the criteria for “sale-leaseback” treatment. Under U.S. GAAP, Recall must continue to record an asset and corresponding financing obligation. As a result, contractual payments related to the leased property are reversed from rent expense and recorded as depreciation expense, ground rent expense and interest expense.
Unaudited Pro Forma Balance Sheet Adjustments
|
|
|
Adjustment
|
|
|
|
|
Property, plant and equipment
|
|
$
|
19,288
|
|
|
|
|
Accumulated depreciation
|
|
(3,825
|
)
|
|
|
|
Other
|
|
4,913
|
|
|
|
|
Long-term debt, net of current portion
|
|
19,554
|
|
|
|
|
Deferred rent
|
|
(3,178
|
)
|
|
|
|
Deferred income taxes
|
|
4,639
|
|
|
|
|
Earnings in excess of distributions (Distributions in excess)
|
|
(640
|
)
|
|
|
|
|
|
|
|
|
|
|
Unaudited Pro Forma Statement of Operations Adjustments—Year Ended December 31, 2015
|
|
|
Adjustment
|
|
|
|
|
Cost of sales
|
|
$
|
(1,832
|
)
|
|
|
|
Depreciation and amortization
|
|
386
|
|
|
|
|
Interest expense, net
|
|
2,063
|
|
|
|
|
Provision for income taxes
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
11
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (Continued)
(In thousands, except share and per share amounts)
NOTE 6—CONFORMING ACCOUNTING POLICIES
At this time, except for the adjustments noted in (i) Note 5 to restate the consolidated financial statements of Recall previously issued under IFRS to be consistent with U.S. GAAP and (ii) Note 3 to reclassify certain balances presented in the historical financial statements of Recall to conform their presentation to that of Iron Mountain, Iron Mountain is not aware of any material differences between the accounting policies of the two companies that would continue to exist subsequent to the application of purchase accounting. Following the Transaction, Iron Mountain will conduct a more detailed review of Recall’s accounting policies in an effort to determine if differences in accounting policies require further reclassification of Recall’s results of operations or reclassification of assets or liabilities to conform to Iron Mountain’s accounting policies and classifications. As a result, Iron Mountain may identify additional differences between the accounting policies of the two companies that, when conformed, could have a material impact on these unaudited pro forma consolidated financial statements.
NOTE 7—UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS
Purchase Accounting Adjustments:
(a)Reflects the cash portion of the purchase price paid to Recall common shareholders, calculated as follows:
|
Cash paid to Recall common shareholders pursuant to Cash Supplement
|
|
$
|
161,650
|
|
|
Cash paid to Recall common shareholders pursuant to Cash Election
|
|
164,768
|
|
|
Total cash consideration
|
|
$
|
326,418
|
|
(b)Reflects an increase in book value for Recall’s property, plant and equipment balance to reflect their acquisition-date fair values of $295,879 (consisting primarily of an increase in the value of racking structures of $197,948), resulting in a total fair value of acquired property, plant and equipment of $711,242, including the fair value of the property which did not meet the criteria for “sale-leaseback” treatment for which Recall must continue to record as an asset. The fair value estimate for property, plant and equipment is preliminary and has been determined based on the assumptions that management believes market participants would use in pricing an asset, based on the most advantageous market for the asset (i.e., its highest and best use). This preliminary fair value estimate could include assets that are not intended to be used, may be sold or are intended to be used in a manner other than their highest and best use. For purposes of the accompanying unaudited pro forma consolidated financial statements, it is assumed that all assets will be used in a manner that represents their highest and best use. The final fair value determination for property, plant and equipment may differ materially from this preliminary determination.
(c)Goodwill is calculated as the difference between the fair value of the purchase price and the values assigned to the identifiable tangible and intangible assets acquired and liabilities assumed. See Note 4 for the calculation of the amount of goodwill recognized in connection with the Transaction.
(d)Reflects identifiable intangible assets expected to be recognized in connection with the Transaction, consisting of the following:
|
Description
|
|
Estimated Fair
Value
|
|
Balance Sheet Classification
|
|
|
Customer relationships
|
|
$
|
948,490
|
|
Customer relationships and customer inducements
|
|
|
Recall trade name
|
|
17,280
|
|
Other
|
|
|
Favorable leases
|
|
35,558
|
|
Other
|
|
|
Total identifiable intangible assets
|
|
$
|
1,001,328
|
|
|
|
12
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (Continued)
(In thousands, except share and per share amounts)
NOTE 7—UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS (Continued)
The fair value of the customer relationships intangible asset was valued using a multi-period excess earnings method, a form of the income approach, which incorporates the estimated future cash flows to be generated from Recall’s existing customer base. Excess earnings are the earnings remaining after deducting the market rates of return on the estimated values of contributory assets, including debt-free net working capital, tangible assets, and other identifiable intangible assets. The excess earnings are thereby calculated for each year of a multi-year projection period and discounted to present value. Accordingly, the primary components of this method consist of the determination of excess earnings and an appropriate rate of return.
The Recall trade name was valued using the relief from royalty method under the income approach, which estimates the cost savings generated by a company related to the ownership of an asset for which it would otherwise have had to pay royalties or license fees on revenues earned through the use of the asset. The discount rate used is determined at the time of measurement based on an analysis of the implied internal rate of return of the transaction, weighted average cost of capital and weighted average return on assets.
The estimated value of favorable lease assets is $35,558 and reflects leases with contractual rents that are less than current market rents.
The fair value estimate for all identifiable intangible assets is preliminary and is based on assumptions that management believes market participants would use in pricing an asset, based on the most advantageous market for the asset (i.e., its highest and best use). This preliminary fair value estimate could include assets that are not intended to be used, may be sold or are intended to be used in a manner other than their highest and best use. For purposes of the accompanying unaudited pro forma consolidated financial statements, it is assumed that all assets will be used in a manner that represents their highest and best use. The final fair value determinations for identifiable intangible assets may differ from this preliminary determination and those differences may be material.
(e)Reflects the removal of capitalized borrowing costs of $5,302 associated with Recall’s outstanding indebtedness as a result of the application of purchase accounting.
(f)Reflects an adjustment to eliminate the previously existing current and long-term deferred rent liabilities of Recall of $1,700 and $7,522 as a result of the application of purchase accounting.
(g)Reflects an adjustment to record the fair value of unfavorable lease obligations of $23,725 for leases with contractual rents that are greater than current market rents. The final fair value determination for unfavorable lease obligations may differ from this preliminary determination and those differences may be material.
(h)Reflects the adjustments to record the step up of deferred income tax assets and liabilities resulting from pro forma fair value adjustments for the assets acquired and liabilities assumed as follows:
|
|
|
Amount
|
|
Balance Sheet Classification
|
|
|
Current deferred tax assets
|
|
$
|
(516
|
)
|
Deferred income taxes
|
|
|
Long-term deferred tax assets
|
|
69
|
|
Other
|
|
|
Current deferred tax liabilities
|
|
1
|
|
Accrued expenses
|
|
|
Long-term deferred tax liabilities
|
|
357,857
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
This estimate of deferred taxes was determined based on the changes in the book basis of the net assets to be acquired compared to the historical basis reflected in Recall’s financial statements using a blended statutory tax rate
13
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (Continued)
(In thousands, except share and per share amounts)
NOTE 7—UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS (Continued)
of 26.5%. This statutory tax rate does not assume that the U.S. subsidiary of Recall will qualify as a real estate investment trust for U.S. income tax reporting purposes, or a REIT, as it is not factually supportable at this time. If the U.S. subsidiary of Recall were to qualify as a REIT, the estimated net deferred tax liability recorded at acquisition would be reduced by approximately $212,000. Adjustments to established deferred tax assets and liabilities due to refined determination of statutory rates as well as the recognition of additional deferred tax assets and liabilities upon detailed analysis of the acquired assets and assumed liabilities may occur in conjunction with the finalization of the purchase accounting and these items could be material.
(i)Reflects an adjustment of $523,956 to eliminate Recall’s historical stockholders’ equity, which represents the historical book value of Recall’s net assets, as a result of the application of purchase accounting. Reflects adjustments of $507 and $1,520,461 to common stock and additional paid-in capital, respectively, to reflect the issuance of 50,715,827 shares of Iron Mountain common stock with a par value of $0.01 per share to satisfy the Equity Election pursuant to the Transaction Agreement, assuming a closing price of Iron Mountain common stock on March 4, 2016 of $29.99 per share (see Note 4).
(j)Reflects an adjustment of $8,057 to increase long-term debt, net of current portion for the step-up in fair value to the financing obligation related to Recall’s lease which did not meet the criteria for “sale-leaseback” for which Recall must continue to record the financing obligation related to the asset.
Financing Adjustments
(k)Prior to, and conditioned upon, the closing of the Transaction, Iron Mountain intends to enter into the Recall Financing, the proceeds of which will be used to finance a portion of the cash consideration of the purchase price to be paid in exchange for Recall common stock pursuant to the Transaction Agreement, and to repay Recall’s outstanding indebtedness at the time of closing. Upon consummation of the Transaction, Iron Mountain expects outstanding borrowings under the Recall Financing to be approximately $1,065,000 consisting of $215,000 drawn under the Revolving Credit Facility and $850,000 in new public or private debt financing (sources of which are to be determined by Iron Mountain), and that the cash proceeds to Iron Mountain will be approximately $1,057,775 (net of approximately $7,200 of financing costs that are expected to be deferred and amortized over the term of the Recall Financing to interest expense). Iron Mountain expects that the public or private debt financing under the Recall Financing will bear interest at LIBOR plus a margin of 325 basis points which increases by 50 basis points quarterly, and the Revolving Credit Facility bears interest at LIBOR plus a margin of 225 basis points, resulting in a weighted average interest rate of 3.85% per annum. In addition, the borrowings will be subject to fees including a structuring fee of $900, a commitment fee of 50 basis points and a funding fee of 25 basis points. The pro forma adjustment reflects the entry into the Recall Financing as well as the repayment of $768,102 of Recall’s outstanding indebtedness as of December 31, 2015.
NOTE 8—UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS
(a)Reflects an adjustment to cost of sales of $1,485 for the year ended December 31, 2015 representing a net increase in rent expense related to the amortization of favorable and unfavorable lease assets and liabilities recognized as part of purchase accounting related to above- or below-market leases.
(b)Reflects an adjustment to selling, general and administrative expense of $66,899 for the twelve months ended December 31, 2015 representing the elimination of the advisory, legal and accounting expenses incurred by
14
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (Continued)
(In thousands, except share and per share amounts)
NOTE 8—UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS (Continued)
both Iron Mountain and Recall in connection with the Transaction, which are not expected to have a continuing impact on results of operations.
In addition, reflects adjustments to selling, general and administrative expense of $10,290 related to 8,651,888 performance and retention rights outstanding during the year ended December 31, 2015 representing the elimination of the Recall share-based compensation expense as, in accordance with the Transaction Agreement, prior to the completion of the Transaction, all Recall Equity Awards will vest and Recall will issue the number of Recall shares required by the Recall Equity Awards so that the relevant former holders of the Recall Equity Awards can participate in the Transaction. The unaudited pro forma consolidated statement of operations assume that the vesting and settlement of these awards occurred prior to January 1, 2015.
(c)Reflects adjustments to depreciation and amortization expense of $47,856 for the year ended December 31, 2015 representing an increase in amortization expense related to the fair value of identified intangible assets with definite lives. The following table shows the pre-tax impact on amortization expense:
|
|
|
|
|
|
|
Amortization
Expense
|
|
|
Description
|
|
Estimated
Useful
Life
|
|
Estimated
Fair Value
|
|
Year Ended
December 31,
2015
|
|
|
Customer relationships
|
|
15
|
|
$
|
948,490
|
|
$
|
63,233
|
|
|
Recall trade name
|
|
8
|
|
17,280
|
|
2,160
|
|
|
Amortization expense
|
|
|
|
|
|
65,393
|
|
|
Less: Recall historical amortization
|
|
|
|
|
|
(17,537
|
)
|
|
Additional amortization expense
|
|
|
|
|
|
$
|
47,856
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary estimated future amortization expense, based upon Iron Mountain’s newly acquired intangible assets at December 31, 2015, is as follows:
|
Year ending December 31,
|
|
Amount
|
|
|
2016
|
|
$
|
65,393
|
|
|
2017
|
|
65,393
|
|
|
2018
|
|
65,393
|
|
|
2019
|
|
65,393
|
|
|
2020
|
|
65,393
|
|
|
Thereafter
|
|
638,807
|
|
|
Total
|
|
$
|
965,772
|
|
(d)Reflects adjustments to depreciation and amortization of $16,395 for the year ended December 31, 2015 representing increased depreciation expense related to the fair value step-up of property, plant and equipment,
15
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (Continued)
(In thousands, except share and per share amounts)
NOTE 8—UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS (Continued)
with estimated lives ranging from 3 to 35 years, as follows:
|
|
|
|
|
|
|
Depreciation
Expense
|
|
|
Description
|
|
Estimated
Useful
Life
|
|
Estimated
Fair Value
|
|
Year Ended
December 31,
2015
|
|
|
Racking
|
|
12
|
|
$
|
394,148
|
|
$
|
32,846
|
|
|
Land
|
|
N/A
|
|
20,394
|
|
N/A
|
|
|
Warehouse equipment and vehicles
|
|
4
|
|
41,566
|
|
10,392
|
|
|
Computer hardware and software
|
|
3
|
|
37,026
|
|
12,342
|
|
|
Buildings
|
|
35
|
|
89,754
|
|
2,564
|
|
|
Other property, plant and equipment
|
|
11
|
|
104,567
|
|
9,506
|
|
|
Depreciation expense
|
|
|
|
|
|
67,650
|
|
|
Less: Recall historical depreciation
|
|
|
|
|
|
(51,709
|
)
|
|
Additional depreciation expense
|
|
|
|
|
|
$
|
15,941
|
|
|
|
|
|
|
|
|
|
|
|
|
The adjustment to depreciation and amortization reflects an additional increase of $454 related to the fair value step-up of Recall’s property which did not meet criteria for “sale-leaseback” treatment, for which Recall must continue to record the asset.
(e)Reflects adjustments to provision for income taxes of $3,140 for the year ended December 31, 2015 to reflect the tax effect of the pro forma adjustments based on an estimated blended statutory tax rate of 26.5%. This statutory tax rate does not assume that the U.S. subsidiary of Recall will qualify as a REIT for U.S. income tax reporting purposes, as it is not factually supportable at this time. Because the tax rate used for these unaudited pro forma consolidated financial statements is an estimate, it will likely vary from the effective rate in periods subsequent to the completion of the Transaction and those differences may be material.
(f)Reflects an adjustment to interest expense of $396 for the year ended December 31, 2015 related to an existing Recall operating lease that is considered a financing obligation under U.S. GAAP. Under U.S. GAAP, Recall was deemed to be the accounting owner during the construction period. Upon completion Recall determined that the lease did not meet the criteria for “sale-leaseback” treatment. Under U.S. GAAP, Recall must continue to record an asset and corresponding financing obligation. As a result, contractual payments related to the leased property are reversed from rent expense and recorded through the income statement as depreciation expense, ground rent expense and interest expense.
Financing Adjustments
(g)Reflects the following adjustments to interest expense resulting from the anticipated Recall Financing entered into by Iron Mountain upon the closing of the Transaction as well as the repayment in full of Recall’s outstanding indebtedness:
(i)Increase to interest expense of $40,115 for the year ended December 31, 2015 reflecting estimated interest expense associated with the Recall Financing using a weighted average interest rate of 3.85% per year;
(ii)Increase to interest expense reflecting amortization of estimated deferred financing costs of $26,350 for the year ended December 31, 2015 associated with the establishment of the Recall Financing; and
16
UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (Continued)
(In thousands, except share and per share amounts)
NOTE 8—UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS (Continued)
(iii)The elimination of interest expense of $21,824 and a corresponding tax expense of $5,783 for the year ended December 31, 2015 related to Recall’s outstanding indebtedness that will be repaid in full upon the closing of the Transaction, which is assumed, for the purposes of the unaudited pro forma consolidated statement of operations, to have occurred on January 1, 2015.
The Recall Financing is expected to be denominated in U.S. dollars and is expected to be borrowed by Iron Mountain Incorporated, or IMI, Iron Mountain’s U.S. parent. As IMI qualifies as a REIT, the unaudited pro forma consolidated statement of operations for the year ended December 31, 2015 do not reflect a tax benefit related to the pro forma interest expense and amortization of deferred financing costs associated with the Recall Financing.
A 1/8th percent increase in the assumed rates would result in an aggregate increase to the above noted interest expense of $5,325 for the year ended December 31, 2015.
(h)The weighted average shares outstanding used to compute basic and diluted net loss per share for the year ended December 31, 2015 have been adjusted to give effect to the issuance of 50,715,872 shares of Iron Mountain common stock to satisfy the Equity Election (assuming a closing price of Iron Mountain common stock on March 4, 2016 of $29.99 per share) as if such issuances had occurred on January 1, 2015.
NOTE 9—UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW ADJUSTMENTS
(a)As mentioned in Note 5(a and b), under U.S. GAAP (i) the timing of recognition of certain exit related activities is different from when these activities would be recognized under Australian Accounting Standards; and (ii) Recall was deemed to be the accounting owner during the construction period. Upon completion Recall determined that the lease did not meet the criteria for “sale-leaseback” treatment. Under U.S. GAAP, Recall must continue to record an asset and corresponding financing obligation. This adjustment reflects the elimination of exit activity costs and rent expense for the year ended December 31, 2015.
(b)As mentioned in Note 8(a, b and c), the adjustment of $75,704 for the year ended December 31, 2015 primarily relates to a decrease of $66,899 in transaction costs related to the combination, a net increase of $1,485 in rent expense related to the amortization of favorable and unfavorable lease assets and a decrease of $10,290 representing the elimination of the Recall share-based compensation expense.
NOTE 10—SUPPLEMENTARY UNAUDITED PRO FORMA CONSOLIDATED REVENUE INFORMATION
The following tables provide certain unaudited supplementary data for Iron Mountain, Recall and the combined company on a pro forma basis. See Note 2 within the notes to the unaudited pro forma consolidated financial information for information concerning how the historical consolidated statement of operations information of Iron Mountain and Recall for the twelve months ended December 31, 2015 were derived.
Revenues by Geography
|
|
|
Iron Mountain
(as reported for
the year ended
December 31,
2015)
|
|
Recall
(for the
twelve months ended
December 31, 2015)
|
|
Pro Forma (for
the year ended
December 31,
2015)
|
|
|
North America(1)
|
|
$
|
2,189,104
|
|
$
|
330,600
|
|
$
|
2,519,704
|
|
|
Latin America(2)
|
|
225,812
|
|
59,800
|
|
285,612
|
|
|
Europe(3)
|
|
502,880
|
|
173,300
|
|
676,180
|
|
|
Asia Pacific(4)
|
|
90,180
|
|
234,700
|
|
324,880
|
|
|
|
|
$
|
3,007,976
|
|
$
|
798,400
|
|
$
|
3,806,376
|
|
17
UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (Continued)
(In thousands, except share and per share amounts)
NOTE 10—SUPPLEMENTARY UNAUDITED PRO FORMA CONSOLIDATED REVENUE INFORMATION (Continued)
(1)Includes the United States and Canada.
(2)Includes Argentina, Brazil, Chile, Colombia, Mexico and Peru.
(3)Includes Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Netherlands, Norway, Poland, Romania, Russia, Serbia, Slovakia, Spain, Sweden, Switzerland, Turkey, Ukraine and the United Kingdom.
(4)Includes Australia, India, China, Hong Kong-SAR, Malaysia, New Zealand, Singapore, Taiwan and Thailand.
Revenues by Product and Service Line
|
|
|
Iron Mountain
(as reported for
the year ended
December 31,
2015)
|
|
Recall
(for the
twelve months ended
December 31, 2015)
|
|
Pro Forma (for
the year ended
December 31,
2015)
|
|
|
Records Management(1)(2)
|
|
$
|
2,255,206
|
|
$
|
618,900
|
|
$
|
2,874,106
|
|
|
Data Management(1)(3)
|
|
509,261
|
|
84,200
|
|
593,461
|
|
|
Destruction(1)(4)
|
|
243,509
|
|
95,300
|
|
338,809
|
|
|
|
|
$
|
3,007,976
|
|
$
|
798,400
|
|
$
|
3,806,376
|
|
(1)Each of the offerings within the product and service lines has a component of revenue that is storage rental related and a component that is service revenues, except the Destruction service offering, which does not have a storage component.
(2)Includes business records management, compliant records management and consulting services, document management solutions, fulfillment services, health information management solutions, energy data services, dedicated facilities management and technology escrow services.
(3)Includes data protection and recovery services and entertainment services.
(4)Includes secure shredding and compliant information destruction.
18
