Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

166K characters. Original on sec.gov · Markdown

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with "Item 6. Selected Financial Data" and the Consolidated Financial Statements and Notes thereto and the other financial and operating information included elsewhere in this Annual Report.

This discussion contains "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995 and in other securities laws. See "Cautionary Note Regarding Forward-Looking Statements" on page iii of this Annual Report and "Item 1A. Risk Factors" beginning on page 7 of this Annual Report.

Overview

Project Summit

In October 2019, we announced Project Summit. Project Summit focuses on simplifying our global structure by combining our core records and information management operations under one global leader and rebalancing our resources, streamlining managerial structures and leveraging our global and regional customer facing resources. We are also implementing systems and process changes designed to make our organization more agile and dynamic, streamline our organization and reallocate our resources to better align with our strategic goals as part of Project Summit. As a result of the program, we expect to reduce the number of positions at vice president and above by approximately 45%. The total program is expected to have reduced our total managerial and administrative workforce by approximately 700 positions by the end of 2021.

The activities associated with Project Summit began in the fourth quarter of 2019 and are expected to be substantially complete by the end of 2021. We expect the total program benefits associated with Project Summit to be fully realized by the end of 2022. We estimate that Project Summit will improve Adjusted EBITDA (as defined below) by approximately $200.0 million by the end of 2022. We expect Project Summit to improve Adjusted EBITDA by approximately $80.0 million in 2020, of which we expect to realize approximately $50.0 million of Adjusted EBITDA improvement as a result of the actions initiated during the fourth quarter of 2019. We will continue to evaluate our overall operating model, as well as various opportunities and initiatives, including those associated with real estate consolidation, system implementation and process changes, which could result in the identification and implementation of additional actions associated with Project Summit and incremental costs and benefits.

We estimate that the implementation of Project Summit will result in total costs (including operating expenditures ("Restructuring Charges") and capital expenditures) of approximately $240.0 million. During the fourth quarter of 2019, we incurred approximately $48.6 million of costs related to Project Summit, which were comprised entirely of Restructuring Charges primarily related to employee severance costs and professional fees.

During the fourth quarter of 2019, as a result of the realignment of our global managerial structure and changes to our internal financial reporting associated with Project Summit, we reassessed the composition of our reportable operating segments and reporting units. As a result of the managerial structure changes associated with Project Summit, we now have the following reportable operating segments: (i) Global RIM Business (which consists of the former North American Records and Information Management Business (excluding our technology escrow services business, which is now included as a component of our Corporate and Other Business segment), North American Data Management Business, Western European Business and Other International Business); (ii) Global Data Center Business; and (iii) Corporate and Other Business (which includes our Adjacent Businesses and our technology escrow services business). As a result of these changes, previously reported segment information has been restated to conform to the current presentation.

IODC Acquisition

On January 10, 2018, we completed the IODC Transaction and at the closing of the IODC Transaction, we paid approximately $1,347.0 million. In February 2019, we paid approximately $31.0 million in additional purchase price associated with the execution of customer contracts from the closing through the one-year anniversary of the IODC Transaction. See Note 6 to Notes to Consolidated Financial Statements included in this Annual Report for unaudited pro forma results of operations for us and IODC for the years ended December 31, 2018 and 2017, as if the IODC Transaction was completed on January 1, 2017.

Divestments

a. Consumer Storage Transaction

On March 19, 2019, we contributed our customer contracts and certain intellectual property and other assets used by us to operate our consumer storage business in the United States and Canada (the "IM Consumer Storage Assets") and approximately $20.0 million in cash (gross of certain transaction expenses) (the "Cash Contribution") to the MakeSpace JV (the "Consumer Storage Transaction"). Upon the closing of the Consumer Storage Transaction on March 19, 2019, the MakeSpace JV owned (i) the IM Consumer Storage Assets, (ii) the Cash Contribution and (iii) the customer contracts, intellectual property and certain other assets used by MakeSpace to operate its consumer storage business in the United States. As part of the Consumer Storage Transaction, we received an equity interest of approximately 34% in the MakeSpace JV (the "MakeSpace Investment").

As described in Note 13 to Notes to Consolidated Financial Statements included in this Annual Report, the divestment of the IM Consumer Storage Assets in the Consumer Storage Transaction does not meet the criteria to be reported as discontinued operations in our consolidated financial statements. In connection with the Consumer Storage Transaction and the MakeSpace Investment, we also entered into a storage and service agreement with the MakeSpace JV to provide certain storage and related services to the MakeSpace JV (the "MakeSpace Agreement"). Revenues and expenses associated with the MakeSpace Agreement are presented as a component of our Global RIM Business segment. We recognized approximately $22.5 million of revenue for the year ended December 31, 2019 associated with the MakeSpace Agreement.

As a result of the Consumer Storage Transaction, we recorded a gain on sale of approximately $4.2 million to Other expense (income), net, in the first quarter of 2019, representing the excess of the fair value of the consideration received over the sum of (i) carrying value of our consumer storage operations and (ii) the Cash Contribution.

b. IMFS Divestment

On September 28, 2018, Iron Mountain Fulfillment Services, Inc. ("IMFS"), a consolidated subsidiary of IMI that operated our fulfillment services business in the United States, sold substantially all of its assets for total consideration of approximately $3.0 million (the "IMFS Divestment"). We have concluded that the IMFS Divestment does not meet the criteria to be reported as discontinued operations in our consolidated financial statements, as our decision to divest this business does not represent a strategic shift that will have a major effect on our operations and financial results. Accordingly, the revenues and expenses associated with this business are presented as a component of Income (loss) from continuing operations in our Consolidated Statements of Operations for the years ended December 31, 2018 and 2017 and the cash flows associated with this business are presented as a component of cash flows from continuing operations in our Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017 through the sale date. The fair value of the consideration received as a result of the IMFS Divestment approximated the carrying value of IMFS and, therefore, during the third quarter of 2018, we recorded an insignificant loss in connection with the IMFS Divestment to Other (income) expense, net. Our IMFS business represented approximately $20.2 million and $22.3 million of total revenues for the years ended December 2018 and 2017, respectively. Our IMFS business represented approximately $1.6 million and $2.1 million of total Income (loss) from continuing operations for the years ended December 31, 2018 and 2017, respectively. Revenues for the year ended December 31, 2018 reflect the impact of the adoption of ASU 2014-09 whereas revenues for the year ended December 31, 2017 do not.

c. Russia and Ukraine Divestment

See Note 13 to Notes to Consolidated Financial Statements included in this Annual Report for details regarding the divestment of our records and information management operations in Russia and Ukraine to OSG Records Management (Europe) Limited (“OSG”).

In connection with the divestment, we became a holder of 25% of the equity interest in OSG. On January 9, 2020, we acquired the remaining 75% equity interest in OSG. See Note 15 to Notes to Consolidated Financial Statements included in this Annual Report for additional information on the acquisition of OSG.

Significant Acquisition Costs

Our significant acquisition costs represent operating expenditures associated with (1) our acquisition of Recall that we completed on May 2, 2016 (the "Recall Transaction"), including: (i) advisory and professional fees to complete the Recall Transaction; (ii) costs associated with the Divestments (as defined in Note 13 to Notes to Consolidated Financial Statements included in this Annual Report) required in connection with receipt of regulatory approvals (including transitional services); and (iii) costs to integrate Recall with our existing operations, including moving, severance, facility upgrade, REIT integration and system upgrade costs, as well as certain costs associated with our shared service center initiative for our finance, human resources and information technology functions; and (2) the advisory and professional fees to complete the IODC Transaction (collectively, "Significant Acquisition Costs").

Total acquisition and integration expenditures associated with the Recall Transaction and the IODC Transaction were approximately $403.8 million, the substantial majority of which was incurred prior to the end of 2018. From January 1, 2015 through December 31, 2019, we incurred cumulative operating and capital expenditures associated with the Recall Transaction and the IODC Transaction of $327.8 million of Significant Acquisition Costs and $76.0 million of capital expenditures.

Immaterial Restatement

In June 2019, we received a notification of assessment from tax and customs authorities in the Netherlands related to a VAT liability of approximately 16.8 million Euros primarily related to the years ending December 31, 2018 and 2017. We have established a reserve for this matter based upon our estimate of the amount of loss that is both probable and estimable, including interest and penalties, and have reflected this reserve through an immaterial restatement of our consolidated financial statements. As a result, certain line items in our Consolidated Statements of Operations for the years ended December 31, 2018 and 2017 have been restated to reflect the immaterial restatement. See Note 2.y. to Notes to Consolidated Financial Statements included in this Annual Report for additional information regarding the effect of the immaterial restatement on certain line items in our Consolidated Statements of Operations for the years ended December 31, 2018 and 2017.

Adoption of ASU 2014-09, Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09. We adopted ASU 2014-09 as of January 1, 2018 using the modified retrospective method for all of our customer contracts, whereby the cumulative effect of applying ASU 2014-09 is recognized at the date of initial application. See Note 2.l. to Notes to Consolidated Financial Statements included in this Annual Report for information on the impact to opening balance of (Distributions in excess of earnings) Earnings in excess of distributions on our Consolidated Balance Sheets.

As a result of the adoption of ASU 2014-09, Adjusted EBITDA for the year ended December 31, 2018 increased by approximately $25.3 million, compared to the prior year period. The adoption of ASU 2014-09 did not have a material impact on Adjusted EPS, FFO (Nareit) or FFO (Normalized) for the year ended December 31, 2018 compared to the prior year period. The revenues for the year ended December 31, 2018 reflect a net $14.2 million, reclassification of certain components of storage rental revenues to service revenues associated with the adoption of ASU 2014-09.

Changes Impacting Comparability with Prior Year

In 2019, we made the following changes which impacted the results of fiscal years 2018 and 2017 and the accompanying management discussion and analysis that was presented in previous filings: (i) as a result of the changes associated with Project Summit, in the fourth quarter of 2019, we created a newly formed Global RIM Business reportable operating segment, which is comprised of the majority of our former North American Records and Information Management Business, North American Data Management Business, Western European Business and Other International Business reportable operating segments; (ii) in the first quarter of 2019, we began to present gains on sale of real estate as a component of operating income in the line item (Gain) loss on disposal/write-down of property, plant and equipment, gross of tax (with any tax impact presented within Provision (benefit) for income taxes); and (iii) in the fourth quarter of 2019, we began to present Significant Acquisition Costs as its own line item within Operating Expenses in our Consolidated Statements of Operations, rather than as components of Selling, general and administrative expenses and Cost of sales. As a result of these changes, we have included management discussion and analysis of 2018 compared to 2017 for these three items under the "Segment Analysis", "Gain on Disposal/Write-Down of Property, Plant and Equipment, Net" and "Significant Acquisition Costs" sections in this Item 7. All other management discussion and analysis related to 2018 and 2017 has been excluded, as there have been no material changes to what was included in previous filings. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2018 for a comparison of 2018 to 2017.

General

Our revenues consist of storage rental revenues as well as service revenues and are reflected net of sales and value-added taxes. Storage rental revenues, which are considered a key driver of financial performance for the storage and information management services industry, consist primarily of recurring periodic rental charges related to the storage of materials or data (generally on a per unit basis) that are typically retained by customers for many years, technology escrow services that protect and manage source code and revenues associated with our data center operations. Service revenues include charges for related service activities, the most significant of which include: (1) the handling of records, including the addition of new records, temporary removal of records from storage, refiling of removed records and courier operations, consisting primarily of the pickup and delivery of records upon customer request; (2) destruction services, consisting primarily of secure shredding of sensitive documents and the subsequent sale of shredded paper for recycling, the price of which can fluctuate from period to period, and customer termination and permanent removal fees; (3) other services, including the scanning, imaging and document conversion services of active and inactive records and project revenues; and (4) consulting services. Our service revenue growth has been negatively impacted by declining activity rates as stored records are becoming less active. While customers continue to store their records and tapes with us, they are less likely than they have been in the past to retrieve records for research and other purposes, thereby reducing service activity levels.

Cost of sales (excluding depreciation and amortization) consists primarily of wages and benefits for field personnel, facility occupancy costs (including rent and utilities), transportation expenses (including vehicle leases and fuel), other product cost of sales and other equipment costs and supplies. Of these, wages and benefits and facility occupancy costs are the most significant. Selling, general and administrative expenses consist primarily of wages and benefits for management, administrative, IT, sales, account management and marketing personnel, as well as expenses related to communications and data processing, travel, professional fees, bad debts, training, office equipment and supplies.

Trends in facility occupancy costs are impacted by the total number of facilities we occupy, the mix of properties we own versus properties we occupy under leases, fluctuations in per square foot occupancy costs, and the levels of utilization of these properties. Trends in total wages and benefits in dollars and as a percentage of total consolidated revenue are influenced by changes in headcount and compensation levels, achievement of incentive compensation targets, workforce productivity and variability in costs associated with medical insurance and workers' compensation.

The expansion of our international businesses has impacted the major cost of sales components and selling, general and administrative expenses. Our international operations are more labor intensive relative to revenue than our operations in North America and, therefore, labor costs are a higher percentage of international operational revenue. In addition, the overhead structure of our expanding international operations has generally not achieved the same level of overhead leverage as our North American operations, which may result in an increase in selling, general and administrative expenses as a percentage of consolidated revenue as our international operations become a larger percentage of our consolidated results.

Our depreciation and amortization charges result primarily from depreciation related to storage systems, which include racking structures, buildings, building and leasehold improvements and computer systems hardware and software. Amortization relates primarily to customer relationship intangible assets, contract fulfillment costs and data center lease-based intangible assets. Both depreciation and amortization are impacted by the timing of acquisitions.

Our consolidated revenues and expenses are subject to the net effect of foreign currency translation related to our operations outside the United States. It is difficult to predict the future fluctuations of foreign currency exchange rates and how those fluctuations will impact our Consolidated Statements of Operations. As a result of the relative size of our international operations, these fluctuations may be material on individual balances. Our revenues and expenses from our international operations are generally denominated in the local currency of the country in which they are derived or incurred. Therefore, the impact of currency fluctuations on our operating income and operating margin is partially mitigated. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we compare the percentage change in the results from one period to another period in this report using constant currency presentation. The constant currency growth rates are calculated by translating the 2018 results at the 2019 average exchange rates and the 2017 results at the 2018 average exchange rates. Constant currency growth rates are a non-GAAP measure.

The following table is a comparison of underlying average exchange rates of the foreign currencies that had the most significant impact on our United States dollar-reported revenues and expenses:

Percentage of United States Dollar-Reported Revenue for the Year Ended December 31,Average Exchange Rates for the Year Ended December 31,
Percentage Strengthening / (Weakening) of Foreign Currency
2019201820192018
Australian dollar3.4%3.7%$0.695$0.748(7.1)%
Brazilian real2.6%2.9%$0.254$0.276(8.0)%
British pound sterling6.4%6.6%$1.277$1.335(4.3)%
Canadian dollar5.7%5.9%$0.754$0.772(2.3)%
Euro7.4%7.3%$1.120$1.181(5.2)%
Percentage of United States Dollar-Reported Revenue for the Year Ended December 31,Average Exchange Rates for the Year Ended December 31,
Percentage Strengthening / (Weakening) of Foreign Currency
2018201720182017
Australian dollar3.7%4.1%$0.748$0.767(2.5)%
Brazilian real2.9%3.6%$0.276$0.313(11.8)%
British pound sterling6.6%6.4%$1.335$1.2883.6%
Canadian dollar5.9%6.3%$0.772$0.7710.1%
Euro7.3%6.7%$1.181$1.1304.5%

The percentage of United States dollar-reported revenues for all other foreign currencies was 12.7%, 12.6% and 12.8% for the years ended December 31, 2019, 2018 and 2017, respectively.

Non-GAAP Measures

Adjusted EBITDA

Adjusted EBITDA is defined as income (loss) from continuing operations before interest expense, net, provision (benefit) for income taxes, depreciation and amortization, and also excludes certain items that we believe are not indicative of our core operating results, specifically: (1) (gain) loss on disposal/write-down of property, plant and equipment, net (including real estate); (2) intangible impairments; (3) other expense (income), net (which includes foreign currency transaction (gains) losses, net); (4) Significant Acquisition Costs; and (5) Restructuring Charges. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by total revenues. We use multiples of current or projected Adjusted EBITDA in conjunction with our discounted cash flow models to determine our estimated overall enterprise valuation and to evaluate acquisition targets. We believe Adjusted EBITDA and Adjusted EBITDA Margin provide our current and potential investors with relevant and useful information regarding our ability to generate cash flows to support business investment. These measures are an integral part of the internal reporting system we use to assess and evaluate the operating performance of our business.

Adjusted EBITDA excludes both interest expense, net and the provision (benefit) for income taxes. These expenses are associated with our capitalization and tax structures, which we do not consider when evaluating the operating profitability of our core operations. Finally, Adjusted EBITDA does not include depreciation and amortization expenses, in order to eliminate the impact of capital investments, which we evaluate by comparing capital expenditures to incremental revenue generated and as a percentage of total revenues. Adjusted EBITDA and Adjusted EBITDA Margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with accounting principles generally accepted in the United States of America ("GAAP"), such as operating income, income (loss) from continuing operations, net income (loss) or cash flows from operating activities from continuing operations (as determined in accordance with GAAP).

Reconciliation of Income (Loss) from Continuing Operations to Adjusted EBITDA (in thousands):

Year Ended December 31,
20192018201720162015
Income (Loss) from Continuing Operations$268,211$367,558$178,015$103,880$125,203
Add/(Deduct):
Provision (Benefit) for Income Taxes59,93142,75322,96245,07437,922
Other Expense (Income), Net33,898(11,692)79,42944,30098,590
Interest Expense, Net419,298409,648353,645310,662263,871
(Gain) Loss on disposal/write-down of property, plant and equipment, net(63,824)(73,622)(766)(898)1,941
Depreciation and amortization658,201639,514522,376452,326345,464
Significant Acquisition Costs13,29350,66584,901131,94447,014
Restructuring Charges48,597————
Intangible impairments——3,011——
Adjusted EBITDA$1,437,605$1,424,824$1,243,573$1,087,288$920,005

Adjusted EPS

Adjusted EPS is defined as reported earnings per share fully diluted from continuing operations excluding: (1) (gain) loss on disposal/write-down of property, plant and equipment, net (including real estate); (2) intangible impairments; (3) other expense (income), net (which includes foreign currency transaction (gains) losses, net); (4) Significant Acquisition Costs; (5) Restructuring Charges; and (6) the tax impact of reconciling items and discrete tax items. Adjusted EPS includes income (loss) attributable to noncontrolling interests. We do not believe these excluded items to be indicative of our ongoing operating results, and they are not considered when we are forecasting our future results. We believe Adjusted EPS is of value to our current and potential investors when comparing our results from past, present and future periods.

Reconciliation of Reported EPS—Fully Diluted from Continuing Operations to Adjusted EPS—Fully Diluted from Continuing Operations:

Year Ended December 31,
20192018201720162015
Reported EPS—Fully Diluted from Continuing Operations$0.93$1.28$0.66$0.41$0.59
Add/(Deduct):
Income (Loss) Attributable to Noncontrolling Interests——0.010.01—
Other Expense (Income), Net0.12(0.04)0.300.180.46
(Gain) Loss on disposal/write-down of property, plant and equipment, net(0.22)(0.25)(0.01)—0.01
Significant Acquisition Costs0.050.180.320.530.22
Restructuring Charges0.17————
Intangible impairments——0.01——
Tax Impact of Reconciling Items and Discrete Tax Items(1)(0.02)(0.09)(0.19)(0.06)(0.07)
Adjusted EPS—Fully Diluted from Continuing Operations(2)$1.02$1.07$1.10$1.07$1.21
(1)The difference between our effective tax rate and our structural tax rate (or adjusted effective tax rate) for the years ended December 31, 2019, 2018, 2017, 2016 and 2015 is primarily due to (i) the reconciling items above, which impact our reported income (loss) from continuing operations before provision (benefit) for income taxes but have an insignificant impact on our reported provision (benefit) for income taxes and (ii) other discrete tax items. Our structural tax rate for purposes of the calculation of Adjusted EPS for the years ended December 31, 2019, 2018, 2017, 2016 and 2015 was 18.2%, 18.2%, 19.7%, 18.5% and 16.8%, respectively.
(2)Columns may not foot due to rounding.

FFO (Nareit) and FFO (Normalized)

Funds from operations (“FFO”) is defined by the National Association of Real Estate Investment Trusts ("Nareit") and us as net income (loss) excluding depreciation on real estate assets, gains on sale of real estate, net of tax and amortization of data center leased-based intangibles ("FFO (Nareit)"). FFO (Nareit) does not give effect to real estate depreciation because these amounts are computed, under GAAP, to allocate the cost of a property over its useful life. Because values for well-maintained real estate assets have historically increased or decreased based upon prevailing market conditions, we believe that FFO (Nareit) provides investors with a clearer view of our operating performance. Our most directly comparable GAAP measure to FFO (Nareit) is net income (loss). Although Nareit has published a definition of FFO, modifications to FFO (Nareit) are common among REITs as companies seek to provide financial measures that most meaningfully reflect their particular business. Our definition of FFO (Normalized) excludes certain items included in FFO (Nareit) that we believe are not indicative of our core operating results, specifically: (1) (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net; (2) intangible impairments; (3) other expense (income), net (which includes foreign currency transaction (gains) losses, net); (4) real estate financing lease depreciation; (5) Significant Acquisition Costs; (6) Restructuring Charges; (7) the tax impact of reconciling items and discrete tax items; (8) (income) loss from discontinued operations, net of tax; and (9) loss (gain) on sale of discontinued operations, net of tax.

Reconciliation of Net Income (Loss) to FFO (Nareit) and FFO (Normalized) (in thousands):

Year Ended December 31,
20192018201720162015
Net Income (Loss)$268,315$355,131$171,724$107,233$125,203
Add/(Deduct):
Real Estate Depreciation(1)303,415284,804247,792218,644171,640
Gain on Sale of Real Estate, Net of Tax(2)(99,194)(55,328)(1,565)(2,180)(850)
Data Center Lease-Based Intangible Assets Amortization(3)46,69643,061643——
FFO (Nareit)519,232627,668418,594323,697295,993
Add/(Deduct):
Loss (Gain) on disposal/write-down of property, plant and equipment (excluding real estate), net40,763(9,818)7991,4123,000
Other Expense (Income), Net(4)33,898(11,692)79,42944,30098,590
Real Estate Financing Lease Depreciation13,36413,65011,4957,6147,160
Significant Acquisition Costs13,29350,66584,901131,94447,014
Restructuring Charges48,597————
Intangible impairments——3,011——
Tax Impact of Reconciling Items and Discrete Tax Items(5)(10,208)(34,131)(49,865)(15,019)(14,480)
(Income) Loss from Discontinued Operations, Net of Tax(6)(104)12,4276,291(3,353)—
FFO (Normalized)$658,835$648,769$554,655$490,595$437,277
(1)Includes depreciation expense related to owned real estate assets (land improvements, buildings, building improvements, leasehold improvements and racking), excluding depreciation related to real estate financing leases.
(2)Tax expense associated with the gain on sale of real estate for the years ended December 31, 2019, 2018, 2017, 2016 and 2015 was $5.4 million, $8.5 million, $0.0 million, $0.1 million and $0.2 million, respectively.
(3)Includes amortization expense for Data Center In-Place Lease Intangible Assets and Data Center Tenant Relationship Intangible Assets as defined in Note 2.i. to Notes to Consolidated Financial Statements included in this Annual Report.
(4)Includes foreign currency transaction losses (gains), net of $24.9 million, $(15.6) million, $43.2 million, $20.4 million, and $70.9 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively. See Note 2.u. to Notes to Consolidated Financial Statements included in this Annual Report for additional information regarding the components of Other expense (income), net.
(5)Represents the tax impact of (i) the reconciling items above, which impacts our reported income (loss) from continuing operations before provision (benefit) for income taxes but has an insignificant impact on our reported provision (benefit) for income taxes and (ii) other discrete tax items. Discrete tax items resulted in a (benefit) provision for income taxes of $(1.6) million, $(27.8) million, $(38.3) million, $(2.4) million, and $(14.6) million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively.
(6)Net of tax provision (benefit) of $0.0 million, $(0.1) million, $(1.8) million, $0.8 million, and $0.0 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended. On an ongoing basis, we evaluate the estimates used. We base our estimates on historical experience, actuarial estimates, current conditions and various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities and are not readily apparent from other sources. Actual results may differ from these estimates. Our critical accounting policies include the following, which are listed in no particular order:

Revenue Recognition

Storage rental and service revenues are recognized in the month the respective storage rental or service is provided, and customers are generally billed on a monthly basis on contractually agreed-upon terms. Amounts related to future storage rental or prepaid service contracts for customers where storage rental fees or services are billed in advance are accounted for as deferred revenue and recognized ratably over the period the applicable storage rental or service is provided or performed. Revenues from the sales of products, which are included as a component of service revenues, are recognized when products are shipped and title has passed to the customer. Revenues from the sales of products, which represented less than 2% of consolidated revenues for the year ended December 31, 2019, have historically not been significant. The performance obligation is a series of distinct services (as determined for purposes of ASU 2014-09, a “series”) that have the same pattern of transfer to the customer that is satisfied over time. For those contracts that qualify as a series, we have a right to consideration from the customer in an amount that corresponds directly with the value of the underlying performance obligation transferred to the customer to date. This concept is known as "right to invoice" and we are applying the "right to invoice" practical expedient to all revenues, with the exception of storage revenues in our Global Data Center Business.

For all of our businesses, with the exception of the storage component of our Global Data Center Business, each purchasing decision is fully in the control of the customer and, therefore, consideration beyond the current reporting period is variable and allocated to the specific period, which is consistent with the practical expedient described above. Our Global Data Center Business features storage rental provided to the customer at contractually specified rates over a fixed contractual period. The storage rental revenue related to the storage component of our Global Data Center Business is recognized on a straight-line basis over the contract term. The revenue related to the service component of our Global Data Center Business is recognized in the period the data center access or related services are provided.

The costs associated with the initial movement of customer records into physical storage and certain commissions are considered costs to obtain or fulfill customer contracts (“Contract Fulfillment Costs”). See Note 2.l. to Notes to Consolidated Financial Statements included in this Annual Report for information on each of the Contract Fulfillment Costs recognized under ASU 2014-09.

Accounting for Acquisitions

Part of our growth strategy has been to acquire businesses. The purchase price of each acquisition has been determined after due diligence of the target business, market research, strategic planning and the forecasting of expected future results and synergies. Estimated future results and expected synergies are subject to revisions as we integrate each acquisition and attempt to leverage resources.

During the third quarter of 2017, we adopted ASU No. 2017-01*, Business Combinations (Topic 805): Clarifying the Definition of a Business* ("ASU 2017-01"). ASU 2017-01 provides guidance for evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The guidance provides a screen to determine when an integrated set of assets and activities does not qualify to be a business. The screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in an identifiable asset or a group of similar identifiable assets, the acquisition should not be accounted for as the acquisition of a business, but rather the acquisition of an asset. If an acquisition is determined to be a business, goodwill is recognized as part of purchase accounting, whereas with the acquisition of an asset there is no goodwill recognized.

Each acquisition has been accounted for using the acquisition method of accounting as defined under the applicable accounting standards at the date of each acquisition. Accounting for acquisitions of a business has resulted in the capitalization of the cost in excess of the estimated fair value of the net assets acquired in each of these acquisitions as goodwill. We estimate the fair values of the assets acquired in each acquisition as of the date of acquisition and these estimates are subject to adjustment based on the final assessments of the fair value of intangible assets (primarily customer relationship and data center lease-based intangible assets), property, plant and equipment (primarily building, building improvements, leasehold improvements, data center infrastructure and racking structures), operating leases, contingencies and income taxes (primarily deferred income taxes). We complete these assessments within one year of the date of acquisition, as we acquire additional information impacting our estimates as of the acquisition date. See Note 6 to Notes to Consolidated Financial Statements included in this Annual Report for a description of recent acquisitions.

Determining the fair values of the net assets acquired requires management's judgment and often involves the use of assumptions with respect to future cash inflows and outflows, discount rates and market data, among other items. As it relates to our data center acquisitions, the fair values of the net assets acquired requires management's judgment and often involves the use of assumptions with respect to (i) certain economic costs (as described more fully in Note 2.i. to Notes to Consolidated Financial Statements included in this Annual Report) avoided by acquiring a data center operation with active tenants that would have otherwise been incurred if the data center operation was purchased vacant, (ii) market rental rates and (iii) expectations of lease renewals and extensions. Due to the inherent uncertainty of future events, actual values of net assets acquired could be different from our estimated fair values and could have a material impact on our financial statements.

Of the net assets acquired in our acquisitions, the fair value of owned buildings, including building improvements, customer relationship and data center lease-based intangible assets, racking structures and operating leases are generally the most common and most significant. For significant acquisitions or acquisitions involving new markets or new products, we generally use third parties to assist us in estimating the fair value of owned buildings, including building improvements, customer relationship and lease-based intangible assets and market rental rates for acquired operating leases. For acquisitions that are not significant or do not involve new markets or new products, we generally use third parties to assist us in estimating the fair value of acquired owned buildings, including building improvements, and market rental rates for acquired operating leases. When not using third party appraisals of the fair value of acquired net assets, the fair value of acquired customer relationship intangible assets, above and below market in-place operating leases, and racking structures is determined internally. The fair value of acquired racking structures is determined internally by taking current estimated replacement cost at the date of acquisition for the quantity of racking structures acquired, discounted to take into account the quality (e.g. age, material and type) of the racking structures. We use discounted cash flow models to determine the fair value of customer relationship assets, which requires a significant amount of judgment by management, including estimating expected lives of the relationships, expected future cash flows and discount rates. We determine the fair value of tangible data center assets using an estimated replacement cost at the date of acquisition, then discounting for age, economic and functional obsolescence.

Our estimates of fair value are based upon assumptions believed to be reasonable at that time but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur, which may affect the accuracy of such assumptions. Total property, plant and equipment acquired in our 2019 acquisitions was approximately $5.4 million.

Impairment of Tangible and Intangible Assets

Assets subject to depreciation or amortization: We review long-lived assets and all finite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Examples of events or circumstances that may be indicative of impairment include, but are not limited to:

•A significant decrease in the market price of an asset;
•A significant change in the extent or manner in which a long-lived asset is being used or in its physical condition;
•A significant adverse change in legal factors or in the business climate that could affect the value of the asset;
•An accumulation of costs significantly greater than the amount originally expected for the acquisition or construction of an asset;
•A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset; and
•A current expectation that, more likely than not, an asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

If events indicate the carrying value of such assets may not be recoverable, recoverability of these assets is determined by comparing the sum of the forecasted undiscounted net cash flows of the operation to which the assets relate to their carrying amount. The operations are generally distinguished by the business segment and geographic region in which they operate. If it is determined that we are unable to recover the carrying amount of the assets, the long-lived assets are written down, on a pro rata basis, to fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets.

Goodwill and other indefinite-lived intangible assets not subject to amortization: Goodwill and intangible assets with indefinite lives are not amortized but are reviewed annually for impairment, or more frequently if impairment indicators arise. Other than goodwill, we currently have no intangible assets that have indefinite lives and which are not amortized.

We have selected October 1 as our annual goodwill impairment review date. We have performed our annual goodwill impairment review as of October 1, 2019, 2018 and 2017. We concluded that as of October 1, 2019 and October 1, 2018, goodwill was not impaired. As of October 1, 2017, we determined that the fair value of the Consumer Storage reporting unit was less than its carrying value and, therefore, we recorded a $3.0 million impairment charge, which represented a full write-off of all goodwill associated with this reporting unit. We concluded that the goodwill associated with each of our other reporting units was not impaired as of October 1, 2017.

Our reporting units at which level we performed our goodwill impairment analysis as of October 1, 2019 were as follows: (1) North American Records and Information Management; (2) North American Data Management; (3) Fine Arts; (4) Entertainment Services; (5) Western Europe; (6) Northern/Eastern Europe and Middle East and India ("NEE and MEI"); (7) Latin America; (8) Australia, New Zealand and South Africa ("ANZ SA"); (9) Asia; and (10) Global Data Center. See Note 2.h. to Notes to Consolidated Financial Statements included in this Annual Report for a description of our reporting units.

Based on our goodwill impairment analysis as of October 1, 2019, our reporting units that had estimated fair values that exceeded their carrying values by greater than 20% represent approximately $4,023.1 million, or 89.7%, of our consolidated goodwill balance at December 31, 2019. Our Global Data Center and Fine Arts reporting units had estimated fair values that exceeded their carrying values by less than 20%. These reporting units represent approximately $462.1 million, or 10.3%, of our consolidated goodwill balance at December 31, 2019. The following is a summary of the Global Data Center and Fine Arts reporting units, including goodwill balances (in thousands), percentage by which the fair value of these reporting units exceeded its carrying value, and certain key assumptions used by us in determining the fair value of the reporting unit as of October 1, 2019:

Reporting UnitGoodwill balance at October 1, 2019Percentage by which the fair value of the reporting unit exceeded the reporting unit carrying value as of October 1, 2019Key assumptions in the fair value of reporting unit measurement as of October 1, 2019
Discount rateAverage annual contribution margin used in discounted cash flowAverage annual capital expenditures as percentage of revenue(1)Terminal growth rate(2)
Global Data Center$421,0325.0%8.0%45.5%25.4%3.0%
Fine Arts37,4799.5%12.0%15.3%6.2%2.0%
(1)For purposes of our goodwill impairment analysis, the term "capital expenditures" includes both growth investment and recurring capital expenditures.
(2)Terminal growth rates are applied in year 10 of our discounted cash flow analysis.

Reporting unit valuations have generally been determined using a combined approach based on the present value of future cash flows (the "Discounted Cash Flow Model") and market multiples (the "Market Approach"). There are inherent uncertainties and judgments involved when determining the fair value of the reporting units for purposes of our annual goodwill impairment testing. The following includes supplemental information to the table above for those reporting units where the estimated fair values exceeded their carrying values by less than 20% as of October 1, 2019. The success of each of these businesses and the achievement of certain key assumptions developed by management and used in the Discounted Cash Flow Model are contingent upon various factors including, but not limited to, (i) achieving growth from existing customers, (ii) sales to new customers, (iii) increased market penetration and (iv) accurately timing the capital investments related to expansions.

Our Global Data Center Business footprint spanned nine markets in the United States: Denver, Colorado; Kansas City, Missouri; Boston, Massachusetts; Boyers, Pennsylvania; Manassas, Virginia; Edison, New Jersey; Columbus, Ohio; and Phoenix and Scottsdale, Arizona and four international markets: Amsterdam, London, and Singapore, with land held for development in Frankfurt. We provide mission-critical data centers that are designed and operated to protect and ensure the continued operation of IT infrastructure for our customers. Data centers are highly specialized and secure assets that serve as centralized repositories of server, storage and network equipment. They are capital intensive and designed to provide the space, power, cooling and network connectivity necessary to efficiently operate mission-critical IT equipment. The demand for data center infrastructure is being driven by many factors, but most importantly by significant growth in data as well as an increased demand for outsourcing. In order to attract and retain customers, as well as sustain growth in our existing and new markets, we must have the capability to tailor our facilities and invest capital to meet the customers’ needs. Our estimate of fair value reflects the expected growth in each of our data center markets along with the corresponding capital investments required to meet demand. The business is primarily comprised of acquisitions completed in 2018 and late 2017; therefore, we would expect that the fair value of this reporting unit will closely approximate its carrying value.

Our Fine Arts business operates in a growing, but fragmented, industry marked by increasing international interest and changes in purchasing habits by collectors and museums. We believe the increase in contemporary art as a focus for collectors will result in increasing storage needs, while the increase in auction "turnover" (the rate at which catalogs, collections and individual pieces are made available for auction) has heightened the need for transportation, shipping, and related services. Taken together, we believe these factors will result in continued growth of the fine art storage industry. The fine arts storage market continues to change and expand, and the assumptions used when determining the fair value of the Fine Arts reporting unit reflect this growth potential and the capital needs required to respond to the expansion opportunities. The Fine Arts reporting unit is primarily composed of businesses we acquired in 2018 and 2015; therefore, we would expect the fair value of this reporting unit to closely approximate its carrying value.

Key factors that could reasonably be expected to have a negative impact on the estimated fair value of these reporting units and potentially result in impairment charges include, but are not limited to: (i) a deterioration in general economic conditions, (ii) significant adverse changes in regulatory factors or in the business climate, and (iii) adverse actions or assessment by regulators, all of which could result in adverse changes to the key assumptions used in valuing the reporting units. The inability to meet the assumptions used in the Discounted Cash Flow Model and Market Approach for each of the reporting units, or future adverse market conditions not currently known, could lead to a fair value that is less than the carrying value in any one of our reporting units.

As described more above, during the fourth quarter of 2019, as a result of the realignment of our global managerial structure and changes to our internal financial reporting associated with Project Summit, we reassessed the composition of our reportable operating segments (see Note 9 to Notes to Consolidated Financial Statements included in this Annual Report for a description of our reportable operating segments) and reporting units. Subsequent to the implementation of the managerial structure changes and changes to our internal financial reporting associated with Project Summit, we now have the following reportable operating segments: (i) Global RIM Business (which consists of the former North American Records and Information Management Business (excluding our technology escrow services business, which is now included as a component of our Corporate and Other Business segment), North American Data Management Business, Western European Business and Other International Business); (ii) Global Data Center Business; and (iii) Corporate and Other Business (which includes our Adjacent Businesses and our technology escrow services business). See Note 9 for disclosure of our reportable operating segments.

As a result of the realignment of our global managerial structure and changes to our internal financial reporting associated with Project Summit, we note the following changes to our reporting units: (1) our former North American Records and Information Management (excluding our technology escrow services business) and North American Data Management reporting units are now being managed as our “North America RIM” reporting unit; (2) our former Western Europe and NEE and MEI reporting units (excluding India) and our business in Africa (which was which was previously managed as a component of our former ANZ SA reporting unit) is now being managed together as our “Europe RIM” reporting unit; (3) our business in India (which was previously managed as a component of our former NEE and MEI reporting unit) is now being managed in conjunction with our businesses in Asia as our “Asia RIM” reporting unit; (4) our former ANZ SA reporting unit will no longer include South Africa and will be referred to as our “Australia and New Zealand RIM” (or “ANZ RIM”) reporting unit; and (5) our technology escrow services business is now being managed separately as our “Technology Escrow Services” reporting unit. There were no changes to our Global Data Center, Fine Arts, Entertainment Services and Latin America RIM reporting units as a result of the realignment of our global managerial structure and changes to our internal financial reporting associated with Project Summit.

We concluded that the goodwill associated with our newly formed (1) North America RIM, (2) Europe RIM, (3) ANZ RIM, (4) Asia RIM and (5) Technology Escrow Services reporting units were not impaired following the changes in reporting units described above.

At December 31, 2019, no factors were identified that would alter the conclusions of our October 1, 2019 goodwill impairment analysis. In making this assessment, we considered a number of factors including operating results, business plans, anticipated future cash flows, transactions and marketplace data. There are inherent uncertainties related to these factors and our judgment in applying them to the analysis of goodwill impairment.

Reporting unit valuations have generally been determined using a combined approach based on the Discounted Cash Flow Model and Market Approach. The Discounted Cash Flow Model incorporates significant assumptions including future revenue growth rates, operating margins, discount rates and capital expenditures. The Market Approach requires us to make assumptions related to Adjusted EBITDA multiples. Changes in economic and operating conditions impacting these assumptions or changes in multiples could result in goodwill impairments in future periods. In conjunction with our annual goodwill impairment reviews, we reconcile the sum of the valuations of all of our reporting units to our market capitalization as of such dates.

Although we believe we have sufficient historical and projected information available to us to test for goodwill impairment, it is possible that actual results could differ from the estimates used in our impairment tests. Of the key assumptions that impact the goodwill impairment test, the expected future cash flows and discount rate are among the most sensitive and are considered to be critical assumptions, as changes to these estimates could have an effect on the estimated fair value of each of our reporting units. We have assessed the sensitivity of these assumptions on each of our reporting units as of October 1, 2019. With respect to the North American Records and Information Management, North American Data Management, Entertainment Services, Western Europe, NEE and MEI, Latin America, ANZ SA and Asia reporting units as of October 1, 2019, we noted that, based on the estimated fair value of these reporting units determined as of October 1, 2019, (i) a hypothetical decrease of 10% in the expected annual future cash flows of these reporting units, with all other assumptions unchanged, would have decreased the estimated fair value of these reporting units as of October 1, 2019 by approximately 9.7% to 10.5% but would not, however, have resulted in the carrying value of any of these reporting units with goodwill exceeding their estimated fair value; and (ii) a hypothetical increase of 100 basis points in the discount rate, with all other assumptions unchanged, would have decreased the estimated fair value of these reporting units as of October 1, 2019 by a range of approximately 4.4% to 8.7% but would not, however, have resulted in the carrying value of any of these reporting units with goodwill exceeding their estimated fair value. With respect to the Global Data Center and Fine Arts reporting units, we noted that, as of October 1, 2019, the estimated fair value of these reporting units exceeds their carrying value by less than 20%. Accordingly, any significant negative change in either the expected annual future cash flows of these reporting units or the discount rate may result in the carrying value of these reporting units exceeding their estimated fair value.

Income Taxes

As a REIT, we are generally permitted to deduct from our federal taxable income the dividends we pay to our stockholders. The income represented by such dividends is not subject to federal taxation at the entity level but is taxed, if at all, at the stockholder level. The income of our domestic TRSs, which hold our domestic operations that may not be REIT-compliant as currently operated and structured, is subject, as applicable, to federal and state corporate income tax. In addition, we and our subsidiaries continue to be subject to foreign income taxes in other jurisdictions in which we have business operations or a taxable presence, regardless of whether assets are held or operations are conducted through subsidiaries disregarded for federal income tax purposes or TRSs. We will also be subject to a separate corporate income tax on any gains recognized on the sale or disposition of any asset previously owned by a C corporation during a five-year period after the date we first owned the asset as a REIT asset that are attributable to "built-in gains" with respect to that asset on that date. We will also be subject to a built-in gains tax on our depreciation recapture recognized into income as a result of accounting method changes in connection with our acquisition activities. If we fail to remain qualified for taxation as a REIT, we will be subject to federal income tax at regular corporate income tax rates. Even if we remain qualified for taxation as a REIT, we may be subject to some federal, state, local and foreign taxes on our income and property in addition to taxes owed with respect to our TRS operations. In particular, while state income tax regimes often parallel the federal income tax regime for REITs, many states do not completely follow federal rules and some do not follow them at all.

Accounting for income taxes requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax and financial reporting bases of assets and liabilities and for loss and credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities as a result of a change in tax rates is recognized in income in the period that the change is enacted. Valuation allowances are provided when recovery of deferred tax assets does not meet the more likely than not standard as defined in GAAP. Valuation allowances would be reversed as a reduction to the provision for income taxes if related deferred tax assets are deemed realizable based on changes in facts and circumstances relevant to the recoverability of the asset.

At December 31, 2019, we have federal net operating loss carryforwards of $152.7 million available to reduce future federal taxable income, the majority of which expire from 2024 through 2037. Of the $152.7 million, we expect to utilize $39.2 million and realize a federal tax benefit of $8.2 million. We can carry forward these net operating losses to the extent we do not utilize them in any given available year. We have state net operating loss carryforwards, which expire from 2020 through 2039, of which an insignificant state tax benefit is expected to be realized. We have assets for foreign net operating losses of $90.8 million, with various expiration dates (and in some cases no expiration date), subject to a valuation allowance of approximately 64%. If actual results differ unfavorably from certain of our estimates used, we may not be able to realize all or part of our net deferred income tax assets and additional valuation allowances may be required. Although we believe our estimates are reasonable, no assurance can be given that our estimates reflected in the tax provisions and accruals will equal our actual results. These differences could have a material impact on our income tax provision and operating results in the period in which such determination is made.

The evaluation of an uncertain tax position is a two-step process. The first step is a recognition process whereby we determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step is a measurement process whereby a tax position that meets the more likely than not recognition threshold is calculated to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

We are subject to income taxes in the United States and numerous foreign jurisdictions. We are subject to examination by various tax authorities in jurisdictions in which we have business operations or a taxable presence. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. As of December 31, 2019 and 2018, we had approximately $35.1 million and $35.3 million, respectively, of reserves related to uncertain tax positions. The reversal of these reserves will be recorded as a reduction of our income tax provision if sustained. Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in changes in our estimates.

Following our conversion to a REIT in 2014, we concluded that it was not our intent to reinvest our current and future undistributed earnings of our foreign subsidiaries indefinitely outside the United States. As of December 31, 2016, we concluded that it is our intent to indefinitely reinvest our current and future undistributed earnings of certain of our unconverted foreign TRSs outside the United States. We no longer provide incremental foreign withholding taxes on the retained book earnings of these unconverted foreign TRSs, which was approximately $279.7 million as of December 31, 2019. As a REIT, future repatriation of incremental undistributed earnings of our foreign subsidiaries will not be subject to federal or state income tax, with the exception of foreign withholding taxes in limited instances; however, such future repatriations will require distribution in accordance with REIT distribution rules, and any such distribution may then be taxable, as appropriate, at the stockholder level. We continue, however, to provide for incremental foreign withholding taxes on net book over outside basis differences related to the earnings of our foreign QRSs and certain other foreign TRSs (excluding unconverted foreign TRSs).

Tax Reform

On December 22, 2017, legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Legislation”) was enacted into law in the United States. The Tax Reform Legislation amended the Code to reduce tax rates and modify policies, credits and deductions for businesses and individuals. The following summarizes certain components of the Tax Reform Legislation and the impact such components of the Tax Reform Legislation. One of the primary components of the Tax Reform Legislation was a reduction in the United States corporate federal income tax rate from 35% to 21% for taxable years beginning after December 31, 2017.

a. Deemed Repatriation Transition Tax

The Tax Reform Legislation imposed a transition tax (the “Deemed Repatriation Transition Tax”) on a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits not previously subject to United States tax as of November 2, 2017 or December 31, 2017, whichever was greater (the “Undistributed E&P”), as of the last taxable year beginning before January 1, 2018. The Deemed Repatriation Transition Tax varied depending on whether the Undistributed E&P was held in liquid (as defined in the Tax Reform Legislation) or non-liquid assets. A participation deduction against the deemed repatriation resulted in a Deemed Repatriation Transition Tax on Undistributed E&P of 15.5% if held in cash and liquid assets and 8.0% if held in non-liquid assets. The Deemed Repatriation Transition Tax applied regardless of whether or not an entity had cash in its foreign subsidiaries and regardless of whether the entity actually repatriated the Undistributed E&P back to the United States.

We have completed our analysis and determined that the amount of Undistributed E&P deemed repatriated under the Tax Reform Legislation in our taxable year ending December 31, 2017 was $160.0 million. We opted to include the full amount of Undistributed E&P in our 2017 taxable income, rather than spread it over eight years (as permitted by the Tax Reform Legislation). After applying the participation deduction, included in our REIT taxable income for 2017 was approximately $70.9 million related to the deemed repatriation of Undistributed E&P.

b. Global Intangible Low-Taxed Income

For taxable years beginning after December 31, 2017, the Tax Reform Legislation introduced new provisions intended to prevent the erosion of the United States federal income tax base through the taxation of certain global intangible low-taxed income (“GILTI”). The GILTI provisions created a new requirement that certain income earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFC’s United States tax resident shareholder. Generally, GILTI is the excess of the United States shareholder’s pro rata portion of the income of its foreign subsidiaries over the net deemed tangible income return of such subsidiaries.

The GILTI provisions also provide for certain deductions against the inclusion of GILTI in taxable income; however, REITs are not eligible for such deductions. Therefore, 100% of our GILTI is included in our taxable income and will increase the required minimum distribution to our stockholders. There was no GILTI included in our taxable income for the year ended December 31, 2019 and the amount included in our REIT taxable income for the year ended December 31, 2018 was approximately $41.9 million. We have adopted an accounting policy such that we will recognize no deferred taxes related to basis differences resulting from GILTI.

The Internal Revenue Service issued guidance clarifying that GILTI included in a REIT's taxable income is qualifying income for purposes of the 95% REIT gross income test that we are required to satisfy. We do not expect the GILTI provision will impact our provision for income taxes. However, the GILTI provision may impact the amount and characterization of dividends that we expect to pay in future taxable years.

c. Interest Deduction Limitation

The Tax Reform Legislation also limits, for certain entities, the deduction for net interest expense to the sum of business interest income plus 30% of adjusted taxable income (the “Interest Deduction Limitation”). Adjusted taxable income is defined in the Tax Reform Legislation similar to earnings before interest, taxes, depreciation and amortization for taxable years beginning after December 31, 2017 and before January 1, 2022, and is defined similar to earnings before interest and taxes for taxable years beginning after December 31, 2021.

The Interest Deduction Limitation does not apply to taxpayers that qualify, and make an election, to be treated as an “electing real property trade or business”. As a REIT, IMI, including all of our QRSs, made an election to be treated as an “electing real property trade or business” beginning in our taxable year ended December 31, 2018. As such, the interest deduction limitation does not apply to IMI or our QRSs; however, IMI will be required to utilize the alternative depreciation system for its real property. This election does not have a material impact on our consolidated financial statements. We do not generally believe that our TRSs are eligible for treatment as “electing real property trades or businesses”.

Recent Accounting Pronouncements

See Note 2.w. to Notes to Consolidated Financial Statements included in this Annual Report for a description of recently issued accounting pronouncements, including those recently adopted.

Results of Operations

Comparison of Year Ended December 31, 2019 to Year Ended December 31, 2018 and Comparison of Year Ended December 31, 2018 to Year Ended December 31, 2017 (in thousands):

Year Ended December 31,Dollar ChangePercentage Change
20192018
Revenues$4,262,584$4,225,761$36,8230.9%
Operating Expenses3,481,2463,417,49463,7521.9%
Operating Income781,338808,267(26,929)(3.3)%
Other Expenses, Net513,127440,70972,41816.4%
Income from Continuing Operations268,211367,558(99,347)(27.0)%
Income (Loss) from Discontinued Operations, Net of Tax104(12,427)12,531(100.8)%
Net Income268,315355,131(86,816)(24.4)%
Net Income Attributable to Noncontrolling Interests9381,198(260)(21.7)%
Net Income Attributable to Iron Mountain Incorporated$267,377$353,933$(86,556)(24.5)%
Adjusted EBITDA(1)$1,437,605$1,424,824$12,7810.9%
Adjusted EBITDA Margin(1)33.7%33.7%
Year Ended December 31,Dollar ChangePercentage Change
20182017
Revenues$4,225,761$3,845,578$380,1839.9%
Operating Expenses3,417,4943,211,527205,9676.4%
Operating Income808,267634,051174,21627.5%
Other Expenses, Net440,709456,036(15,327)(3.4)%
Income from Continuing Operations367,558178,015189,543106.5%
(Loss) Income from Discontinued Operations, Net of Tax(12,427)(6,291)(6,136)97.5%
Net Income355,131171,724183,407106.8%
Net Income Attributable to Noncontrolling Interests1,1981,611(413)(25.6)%
Net Income Attributable to Iron Mountain Incorporated$353,933$170,113$183,820108.1%
Adjusted EBITDA(1)$1,424,824$1,243,573$181,25114.6%
Adjusted EBITDA Margin(1)33.7%32.3%
(1)See "Non-GAAP Measures—Adjusted EBITDA" in this Annual Report for the definitions of Adjusted EBITDA and Adjusted EBITDA Margin, reconciliation of Adjusted EBITDA to Income (Loss) from Continuing Operations and a discussion of why we believe these non-GAAP measures provide relevant and useful information to our current and potential investors.

REVENUES

Year Ended December 31,Percentage Change
Dollar ChangeActualConstant Currency(1)Organic Growth(2)
20192018
Storage Rental$2,681,087$2,622,455$58,6322.2%4.3%2.5%
Service1,581,4971,603,306(21,809)(1.4)%0.9%(1.0)%
Total Revenues$4,262,584$4,225,761$36,8230.9%3.0%1.1%
Year Ended December 31,Percentage Change
Dollar ChangeActualConstant Currency(1)Organic Growth(2)
20182017
Storage Rental$2,622,455$2,377,557$244,89810.3%10.6%2.4%
Service1,603,3061,468,021135,2859.2%9.7%5.4%
Total Revenues$4,225,761$3,845,578$380,1839.9%10.2%3.6%
(1)Constant currency growth rates are calculated by translating the 2018 results at the 2019 average exchange rates and the 2017 results at the 2018 average exchange rates.
(2)Our organic revenue growth rate, which is a non-GAAP measure, represents the year-over-year growth rate of our revenues excluding the impact of business acquisitions, divestitures, foreign currency exchange rate fluctuations and the impact of the adoption of ASU 2014-09, but including the impact of acquisitions of customer relationships.

Storage Rental Revenues

In the year ended December 31, 2019, the increase in reported consolidated storage rental revenue was driven by the favorable impact of acquisitions/divestitures and consolidated organic storage rental revenue growth, partially offset by unfavorable fluctuations in foreign currency exchange rates. The net impact of acquisitions/divestitures contributed 1.8% to the reported storage rental revenue growth rates for the year ended December 31, 2019 compared to the prior year period, primarily driven by acquisitions in our Global Data Center Business segment. Organic storage rental revenue growth of 2.5% in the year ended December 31, 2019 compared to the prior year period was driven by organic storage rental revenue growth of 2.2% in our Global RIM Business segment, mainly driven by revenue management. Excluding the impact of acquisitions/divestitures, our Global RIM Business segment net volumes as of December 31, 2019 were relatively steady compared to the ending volume as of December 31, 2018. Including the impact of acquisitions/divestitures, our Global RIM Business segment net volumes as of December 31, 2019 increased by 0.4% over the ending volume at December 31, 2018. Organic storage rental revenue growth in our Global Data Center Business segment was 5.3% compared to the prior year period, primarily related to a $5.4 million lease modification fee that benefited organic storage rental revenue growth for the segment by 2.5%. Foreign currency exchange rate fluctuations decreased our reported storage rental revenue growth rate for the year ended December 31, 2019 by 2.1%, compared to the prior year period.

Service Revenues

In the year ended December 31, 2019, the decrease in reported consolidated service revenues was driven by unfavorable fluctuations in foreign currency exchange rates and negative organic service revenue growth, partially offset by the favorable impact of acquisitions/divestitures. Foreign currency exchange rate fluctuations decreased our reported service revenue growth rate in the year ended December 31, 2019 by 2.3%, compared to the prior year period. In the year ended December 31, 2019, organic service revenue growth was negative 1.0% compared to the prior year period, primarily driven by continued declines in recycled paper prices, lower destructions and reduced retrieval/re-file and related transportation activity, partially offset by growth in our secure shredding revenue and increased project activity in our Global RIM Business segment. The net impact of acquisitions/divestitures contributed 1.9% to the reported service revenue growth rates in the year ended December 31, 2019, compared to the prior year period.

Total Revenues

For the reasons stated above, our reported consolidated revenues increased $36.8 million, or 0.9%, to $4,262.6 million for the year ended December 31, 2019 from $4,225.8 million for the year ended December 31, 2018. The net impact of acquisitions/divestitures contributed 1.9% to the reported consolidated revenue growth rate for the year ended December 31, 2019 compared to the prior year period. Consolidated organic revenue growth was 1.1% in the year ended December 31, 2019 compared to the prior year period. Foreign currency exchange rate fluctuations decreased our reported consolidated revenues by 2.1% in the year ended December 31, 2019 compared to the prior year period.

Organic Growth—Eight-Quarter Trend

20182019
First QuarterSecond QuarterThird QuarterFourth QuarterFirst QuarterSecond QuarterThird QuarterFourth Quarter
Storage Rental Revenue3.7%1.9%2.3%1.9%2.0%2.4%3.0%2.5%
Service Revenue1.4%7.6%7.1%6.1%1.8%(2.0)%(3.0)%(0.7)%
Total Revenue2.8%4.1%4.1%3.5%1.9%0.7%0.7%1.3%

We expect our consolidated organic storage rental revenue growth rate for 2020 to be approximately 1.0% to 3.0% and our consolidated organic total revenue growth rate to be flat to approximately 2.0%. During the past eight quarters, our organic storage rental revenue growth rate has ranged between 1.9% and 3.7%. Consolidated organic storage rental revenue growth and consolidated total organic revenue growth were benefited by (i) 0.3% and 0.2%, respectively, for the second quarter of 2019 related to a $1.7 million customer lease modification fee in our Global Data Center Business segment, (ii) 0.3% and 0.2%, respectively, for the third quarter of 2019 related to a $1.7 million customer lease modification fee in our Global Data Center Business segment and (iii) 0.3% and 0.2%, respectively, for the fourth quarter of 2019 related to a $2.0 million customer lease modification fee in our Global Data Center Business segment. Our organic storage rental revenue growth rates have increased over the past two fiscal years, as organic storage rental revenue growth for full year 2018 and 2019 was 2.4% and 2.5%, respectively. At various points in the economic cycle, organic storage rental revenue growth may be influenced by changes in pricing and volume. In 2018 and 2019, we experienced relatively steady net volume in our Global RIM Business segment, with organic storage rental revenue growth coming primarily from revenue management. We expect organic storage rental revenue growth to benefit from revenue management and volume to remain relatively consistent in the near term.

The organic growth rate for service revenue is inherently more volatile than the organic growth rate for storage rental revenues due to the more discretionary nature of certain services we offer, such as large special projects, and, as a commodity, the volatility of pricing for recycled paper. These revenues, which are often event-driven and impacted to a greater extent by economic downturns as customers defer or cancel the purchase of certain services as a way to reduce their short-term costs, may be difficult to replicate in future periods. The organic growth rate for total service revenues over the past eight quarters reflects reduced retrieval/re-file activity and a related decrease in transportation revenues within our Global RIM Business segment. The increases in organic service revenue growth rates of 7.6%, 7.1% and 6.1% in the second, third and fourth quarters of 2018 reflect a strong contribution from our secure shredding business, which benefited from higher recycled paper prices, higher destruction activity and acquisitions of customer relationships. Organic service revenue growth declined to 1.8%, negative 2.0%, negative 3.0% and negative 0.7% for the first, second, third and fourth quarters of 2019, respectively, reflecting declining recycled paper prices and moderation of destruction activity compared to previous quarters. We expect these trends to continue into 2020.

OPERATING EXPENSES

Cost of Sales

Consolidated cost of sales (excluding depreciation and amortization) consists of the following expenses (in thousands):

Year Ended December 31,Percentage Change% of Consolidated RevenuesPercentage Change (Favorable)/ Unfavorable
20192018Dollar ChangeActualConstant Currency20192018
Labor$814,459$818,729$(4,270)(0.5)%2.2%19.1%19.4%(0.3)%
Facilities697,330651,11446,2167.1%9.5%16.4%15.4%1.0%
Transportation162,905158,5284,3772.8%5.1%3.8%3.8%—%
Product Cost of Sales and Other158,621165,583(6,962)(4.2)%(1.4)%3.7%3.9%(0.2)%
Total Cost of Sales$1,833,315$1,793,954$39,3612.2%4.8%43.0%42.5%0.5%
Year Ended December 31,Percentage Change% of Consolidated RevenuesPercentage Change (Favorable)/ Unfavorable
20182017Dollar ChangeActualConstant Currency20182017
Labor$818,729$786,314$32,4154.1%4.7%19.4%20.4%(1.0)%
Facilities651,114581,11270,00212.0%12.5%15.4%15.1%0.3%
Transportation158,528142,18416,34411.5%12.2%3.8%3.7%0.1%
Product Cost of Sales and Other165,583155,21510,3686.7%8.0%3.9%4.0%(0.1)%
Total Cost of Sales$1,793,954$1,664,825$129,1297.8%8.4%42.5%43.3%(0.8)%

Labor

Labor expenses decreased to 19.1% of consolidated revenues in the year ended December 31, 2019 compared to 19.4% in the year ended December 31, 2018. The decrease in labor expenses as a percentage of consolidated revenues was primarily driven by improvements in our Global RIM Business segment, partially attributable to ongoing cost management actions. On a constant dollar basis, labor expenses for the year ended December 31, 2019 increased by $17.4 million, or 2.2%, compared to the prior year period, primarily driven by recent acquisitions in our Adjacent Businesses operating segment within our Corporate and Other Business segment, as well as increased labor costs related to the growth of our shredding operations within our Global RIM Business segment.

Facilities

Facilities expenses increased to 16.4% of consolidated revenues in the year ended December 31, 2019 compared to 15.4% in the year ended December 31, 2018. The 100 basis point increase in facilities expenses as a percentage of consolidated revenues was primarily driven by acquisitions in our Global Data Center Business segment and our Adjacent Businesses operating segment within our Corporate and Other Business segment. On a constant dollar basis, facilities expenses for the year ended December 31, 2019 increased by $60.3 million, or 9.5%, compared to the prior year period, driven by higher rent expense, insurance costs, utilities and building maintenance, in part driven by the acquisitions mentioned above.

Transportation

Transportation expenses remained constant at 3.8% of consolidated revenues for the year ended December 31, 2019 compared to 3.8% for the year ended December 31, 2018. This was primarily driven by increases in third party carrier expenses, in part due to recent acquisitions in our Adjacent Businesses operating segment within our Corporate and Other Business segment, offset by a decrease in transportation costs within our Global RIM Business segment. On a constant dollar basis, transportation expenses for the year ended December 31, 2019 increased by $7.9 million, or 5.1%, compared to the prior year period, primarily driven by increases in third party carrier expenses, in part due to recent acquisitions in our Adjacent Businesses operating segment within our Corporate and Other Business segment.

Product Cost of Sales and Other

Product cost of sales and other, which includes cartons, media and other service, storage and supply costs and is highly correlated to service revenue streams, particularly project revenues, were 3.7% of consolidated revenues for the year ended December 31, 2019 compared to 3.9% in the year ended December 31, 2018. On a constant dollar basis, product cost of sales and other decreased by $2.2 million, or 1.4%, compared to the prior year period, primarily driven by lower special project costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consists of the following expenses (in thousands):

Year Ended December 31,Percentage Change% of Consolidated RevenuesPercentage Change (Favorable)/ Unfavorable
Dollar Change
20192018ActualConstant Currency20192018
General and Administrative$563,965$577,451$(13,486)(2.3)%(0.5)%13.2%13.7%(0.5)%
Sales, Marketing and Account Management245,704257,306(11,602)(4.5)%(2.8)%5.8%6.1%(0.3)%
Information Technology162,606153,6019,0055.9%7.1%3.8%3.6%0.2%
Bad Debt Expense19,38918,6257644.1%6.4%0.5%0.4%0.1%
Total Selling, General and Administrative Expenses$991,664$1,006,983$(15,319)(1.5)%0.2%23.3%23.8%(0.5)%
Year Ended December 31,Percentage Change% of Consolidated RevenuesPercentage Change (Favorable)/ Unfavorable
20182017Dollar ChangeActualConstant Currency20182017
General and Administrative$577,451$537,127$40,3247.5%7.9%13.7%14.0%(0.3)%
Sales, Marketing and Account Management257,306253,1174,1891.7%1.6%6.1%6.6%(0.5)%
Information Technology153,601132,11021,49116.3%16.4%3.6%3.4%0.2%
Bad Debt Expense18,62514,8263,79925.6%29.4%0.4%0.4%—%
Total Selling, General and Administrative Expenses$1,006,983$937,180$69,8037.4%7.7%23.8%24.4%(0.6)%

General and Administrative

General and administrative expenses decreased to 13.2% of consolidated revenues for the year ended December 31, 2019 compared to 13.7% for the year ended December 31, 2018. General and administrative expenses for the year ended December 31, 2018 includes $11.0 million of indirect expenses associated with a value-added tax matter in the Netherlands (the "Netherlands VAT Matter"), as described in Note 2.y. to Notes to Consolidated Financial Statements included in this Annual Report. On a constant dollar basis, excluding the impact of the Netherlands VAT Matter, general and administrative expenses for the year ended December 31, 2019 increased by $8.5 million, or 1.5%, compared to the prior year period. The increase in general and administrative expenses as a percentage of consolidated revenues was driven primarily by higher compensation expense and professional fees within our Corporate and Other Business segment, primarily associated with our global operations support team that is tasked with driving operational improvements and continued investment in innovation and product development, as well as acquisitions in our Adjacent Businesses operating segment within our Corporate and Other Business segment. The increase in compensation expense is primarily the result of merit-based increases as well as increased headcount, partially offset by a reduction in variable compensation expense.

Sales, Marketing & Account Management

Sales, marketing and account management expenses decreased to 5.8% of consolidated revenues for the year ended December 31, 2019 compared to 6.1% for the year ended December 31, 2018. The decrease in sales, marketing and account management expenses as a percentage of consolidated revenues was driven by a decrease in compensation expense, primarily due to lower commissions expense, as well as a decrease in marketing costs. On a constant dollar basis, sales, marketing and account management expenses for the year ended December 31, 2019 decreased by $7.1 million, or 2.8%, compared to the prior year period, primarily driven by lower marketing costs.

Information Technology

IT expenses increased to 3.8% of consolidated revenues for the year ended December 31, 2019 compared to 3.6% for the year ended December 31, 2018. IT expenses as a percentage of consolidated revenues reflect an increase in professional fees and compensation expense, primarily related to information security costs and investments in innovation and product development. On a constant dollar basis, IT expenses for the year ended December 31, 2019 increased by $10.8 million, or 7.1%, compared to the prior year period, primarily driven by an increase in professional fees and compensation expense, primarily related to information security costs and investments in innovation and product development.

Bad Debt Expense

We maintain an allowance for doubtful accounts that is calculated based on our past loss experience, current and prior trends in our aged receivables, current economic conditions, and specific circumstances of individual receivable balances. We continue to monitor our customers' payment activity and make adjustments based on their financial condition and in light of historical and expected trends. Bad debt expense for the year ended December 31, 2019 increased by $1.2 million on a constant dollar basis compared to the year ended December 31, 2018, primarily driven by higher bad debt expense associated with our Global RIM Business segment.

Depreciation and Amortization

Our depreciation and amortization charges result primarily from depreciation related to storage systems, which include racking structures, buildings, building and leasehold improvements and computer systems hardware and software. Amortization relates primarily to customer relationship intangible assets, contract fulfillment costs and data center lease-based intangible assets. Both depreciation and amortization are impacted by the timing of acquisitions.

Depreciation expense increased $3.6 million, or 0.8%, on a reported dollar basis for the year ended December 31, 2019 compared to the year ended December 31, 2018. See Note 2.f. to Notes to Consolidated Financial Statements included in this Annual Report for additional information regarding the useful lives over which our property, plant and equipment is depreciated.

Amortization expense increased $15.1 million, or 8.1%, on a reported dollar basis for the year ended December 31, 2019 compared to the year ended December 31, 2018.

Significant Acquisition Costs

Significant Acquisition Costs for the years ended December 31, 2019, 2018 and 2017 were approximately $13.3 million, $50.7 million and $84.9 million, respectively, and primarily consisted of employee severance costs, facility integration costs and advisory and professional fees associated with the Recall Transaction.

Restructuring Charges

Restructuring Charges were approximately $48.6 million for the year ended December 31, 2019, and primarily consisted of employee severance costs and professional fees associated with Project Summit.

Gain on Disposal/Write-Down of Property, Plant and Equipment, Net

Consolidated gain on disposal/write-down of property, plant and equipment, net, for the year ended December 31, 2019 was approximately $63.8 million. The gain consisted primarily of gains associated with (i) sale and sale-leaseback transactions involving the sales of facilities in the United States of approximately $67.8 million and (ii) the sale of certain land and buildings in the United Kingdom of approximately $36.0 million. These gains were partially offset by losses primarily associated with (i) the impairment charge on the assets associated with the select offerings within our Iron Cloud portfolio (as described below) and (ii) the write-down of certain property, plant and equipment in the United States of approximately $15.7 million.

During the second quarter of 2019, we began exploring strategic options regarding how to maintain and support the infrastructure of select offerings within our Iron Mountain Iron Cloud (“Iron Cloud”) portfolio. As a result, during the second quarter of 2019, we performed a long-lived asset impairment analysis on the assets associated with these select offerings and concluded that the associated carrying value of the long-lived assets (which consisted entirely of property, plant and equipment) was not recoverable based upon the underlying cash flows associated with these select offerings. On September 30, 2019, we entered into an agreement (the “Iron Cloud Outsourcing Agreement”) with a wholesale provider of data infrastructure and data management services to outsource the operation, infrastructure management and maintenance and delivery of select offerings within our Iron Cloud portfolio. In conjunction with the entry into the Iron Cloud Outsourcing Agreement, we also sold certain IT infrastructure assets and the rights to certain hardware and software maintenance contracts used to deliver these Iron Cloud offerings. As a result of our long-lived asset impairment analysis and sale of certain IT infrastructure assets and rights to certain hardware and software maintenance contracts, we recognized an impairment charge and a loss on sale of the assets totaling approximately $25.0 million during the year ended December 31, 2019.

Consolidated gain on disposal/write-down of property, plant and equipment, net for the year ended December 31, 2018 was $73.6 million. The gain consisted primarily of (i) the gain on sale of real estate for the sale of buildings in the United Kingdom of approximately $63.8 million and (ii) gains associated with the involuntary conversion of assets included in a facility that we own in Argentina which was partially destroyed in a fire in 2014, for which we received insurance proceeds in excess of the carrying amount of such assets during the fourth quarter of 2018. See Note 10 to Notes to Consolidated Financial Statements included in this Annual Report.

OTHER EXPENSES, NET

Interest Expense, Net

Consolidated interest expense, net increased $9.7 million to $419.3 million for the year ended December 31, 2019 from $409.6 million for the year ended December 31, 2018. The increase in interest expense, net during the year ended December 31, 2019 compared to the year ended December 31, 2018 was the result of higher average debt outstanding during 2019. Our weighted average interest rate was 4.8% and 4.9% at December 31, 2019 and 2018, respectively. See Note 4 to Notes to Consolidated Financial Statements included in this Annual Report for additional information regarding our indebtedness.

Other Expense (Income), Net

Other expense (income), net consists of the following (in thousands):

Year Ended December 31,
Dollar Change
20192018
Foreign currency transaction losses (gains), net$24,852$(15,567)$40,419
Other, net9,0463,8755,171
Other Expense (Income), Net$33,898$(11,692)$45,590

Foreign Currency Transaction Losses (Gains)

We recorded net foreign currency transaction losses of $24.9 million in the year ended December 31, 2019, based on period-end exchange rates. These losses resulted primarily from the impact of changes in the exchange rate of the British pound sterling against the United States dollar compared to December 31, 2018 on our intercompany balances with and between certain of our subsidiaries.

We recorded net foreign currency transaction gains of $15.6 million in the year ended December 31, 2018, based on period-end exchange rates. These gains resulted primarily from the impact of changes in the exchange rate of each of the British pound sterling and Canadian dollar against the United States dollar compared to December 31, 2017 on our intercompany balances with and between certain of our subsidiaries and the Euro Notes (as defined below). These gains were partially offset by losses resulting primarily from the impact of changes in the exchange rate of each of the Australian dollar, Brazilian real and the Turkish lira against the United States dollar compared to December 31, 2017 on our intercompany balances with and between certain of our subsidiaries.

Provision (Benefit) for Income Taxes

Our effective tax rates for the years ended December 31, 2019 and 2018 were 18.3% and 10.4%, respectively. Our effective tax rate is subject to variability in the future due to, among other items: (1) changes in the mix of income between our QRSs and our TRSs, as well as among the jurisdictions in which we operate; (2) tax law changes; (3) volatility in foreign exchange gains and losses; (4) the timing of the establishment and reversal of tax reserves; and (5) our ability to utilize net operating losses that we generate.

On December 22, 2017, the Tax Reform Legislation was enacted into law in the United States. The Tax Reform Legislation amended the Code to reduce tax rates and modify policies, credits and deductions for businesses and individuals. The components of the Tax Reform Legislation are described in detail in Note 7 to Notes to Consolidated Financial Statements included in our Annual Report. One of the primary components of the Tax Reform Legislation was a reduction in the United States corporate federal income tax rate from 35.0% to 21.0% for taxable years beginning after December 31, 2017.

The primary reconciling items between the federal statutory tax rate of 21.0% and our overall effective tax rate for the year ended December 31, 2019 were the benefit derived from the dividends paid deduction of $40.6 million and the impact of differences in the tax rates at which our foreign earnings are subject to, resulting in a tax provision of $8.6 million.

The primary reconciling items between the federal statutory tax rate of 21.0% and our overall effective tax rate for the year ended December 31, 2018 were the benefit derived from the dividends paid deduction of $35.2 million, the impact of differences in the tax rates at which our foreign earnings are subject to, resulting in a tax provision of approximately $1.0 million and a discrete tax benefit of approximately $14.0 million associated with the resolution of a tax matter.

As a REIT, we are entitled to a deduction for dividends paid, resulting in a substantial reduction of federal income tax expense. As a REIT, substantially all of our income tax expense will be incurred based on the earnings generated by our foreign subsidiaries and our domestic TRSs.

We are subject to income taxes in the United States and numerous foreign jurisdictions. We are subject to examination by various tax authorities in jurisdictions in which we have business operations or a taxable presence. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in changes in our estimates.

INCOME (LOSS) FROM CONTINUING OPERATIONS and ADJUSTED EBITDA

The following table reflects the effect of the foregoing factors on our consolidated income from continuing operations and Adjusted EBITDA (in thousands):

Year Ended December 31,Dollar ChangePercentage Change
20192018
Income (Loss) from Continuing Operations$268,211$367,558$(99,347)(27.0)%
Income (Loss) from Continuing Operations as a percentage of Consolidated Revenue6.3%8.7%
Adjusted EBITDA$1,437,605$1,424,824$12,7810.9%
Adjusted EBITDA Margin33.7%33.7%
Year Ended December 31,Dollar ChangePercentage Change
20182017
Income (Loss) from Continuing Operations$367,558$178,015$189,543106.5%
Income (Loss) from Continuing Operations as a percentage of Consolidated Revenue8.7%4.6%
Adjusted EBITDA$1,424,824$1,243,573$181,25114.6%
Adjusted EBITDA Margin33.7%32.3%

Consolidated Adjusted EBITDA for the year ended December 31, 2019 increased by $12.8 million, or 0.9%, and consolidated Adjusted EBITDA Margin remained consistent with the year ended December 31, 2018. Consolidated Adjusted EBITDA for the year ended December 31, 2018 was negatively impacted by $11.0 million of indirect tax expenses associated with the Netherlands VAT Matter that did not repeat in 2019. Excluding the impact of the Netherlands VAT Matter, consolidated Adjusted EBITDA increased $1.7 million for the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to lower variable compensation expense and the impact of cost management actions, partially offset by increased labor costs in our secure shredding business and higher technology costs associated with information security investments.

Consolidated Adjusted EBITDA for the year ended December 31, 2018 increased by $181.3 million, or 14.6%, compared to the year ended December 31, 2017, primarily due to acquisitions within our Global Data Center Business segment, the adoption of ASU 2014-09 and synergies associated with our acquisition of Recall.

Segment Analysis (in thousands)

See Note 9 to Notes to Consolidated Financial Statements included in this Annual Report for a description of our reportable operating segments.

Global RIM Business

Percentage Change
Year Ended December 31,Dollar ChangeActualConstant CurrencyOrganic Growth
20192018
Storage Rental$2,320,076$2,301,344$18,7320.8%3.0%2.2%
Service1,492,3571,541,256(48,899)(3.2)%(1.0)%(1.3)%
Segment Revenue$3,812,433$3,842,600$(30,167)(0.8)%1.4%0.8%
Segment Adjusted EBITDA(1)$1,563,223$1,569,353$(6,130)
Segment Adjusted EBITDA Margin(2)41.0%40.8%
Year Ended December 31,Percentage Change
Dollar ChangeConstant CurrencyOrganic Growth
20182017Actual
Storage Rental$2,301,344$2,261,831$39,5131.7%2.0%2.3%
Service1,541,2561,444,27996,9776.7%7.1%5.1%
Segment Revenue$3,842,600$3,706,110$136,4903.7%4.0%3.4%
Segment Adjusted EBITDA(1)$1,569,353$1,470,579$98,774
Segment Adjusted EBITDA Margin(2)40.8%39.7%
(1)See "Non-GAAP Measures—Adjusted EBITDA" in this Annual Report for the definitions of Adjusted EBITDA and Adjusted EBITDA Margin, a reconciliation of Adjusted EBITDA to Income (Loss) from Continuing Operations and a discussion of why we believe these non-GAAP measures provide relevant and useful information to our current and potential investors.
(2)Segment Adjusted EBITDA Margin is calculated by dividing Segment Adjusted EBITDA by total segment revenues.

For the year ended December 31, 2019, reported revenue in our Global RIM Business segment decreased 0.8%, compared to the year ended December 31, 2018, due to unfavorable fluctuations in foreign currency exchange rates, partially offset by organic revenue growth and the favorable net impact of acquisitions/dispositions. Organic revenue growth of 0.8% was primarily the result of organic storage rental revenue growth of 2.2% driven by revenue management. In addition, negative organic service revenue growth of 1.3% was driven by continued declines in recycled paper prices, lower destructions and reduced retrieval/re-file and related transportation activity, partially offset by growth in our secure shredding revenue and increased project activity. Adjusted EBITDA Margin increased 20 basis points during the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily driven by lower compensation expense and other employee related costs, partially offset by increased facility rent expense and the impact of lower recycled paper prices. The decrease in compensation expense is primarily due to a reduction in variable compensation expense, partially offset by increased labor costs related to growth in our secure shredding operations.

For the year ended December 31, 2018, reported revenue in our Global RIM Business segment increased 3.7% compared to the year ended December 31, 2017, due to organic revenue growth, the favorable net impact of acquisitions/divestitures and the adoption of ASU 2014-09, partially offset by unfavorable fluctuations in foreign currency exchange rates. Organic revenue growth of 3.4% was primarily the result of organic storage rental revenue growth of 2.3%, driven by revenue management and organic service revenue growth of 5.1%, driven by growth in secure shredding revenue, in part due to higher recycled paper prices and acquisitions of customer relationships, as well as increased project and destruction activity. The net impact of acquisitions/divestitures and the adoption of ASU 2014-09 contributed 0.6% to the reported revenue growth rates in our Global RIM Business segment for the year ended December 31, 2018, compared to the year ended December 31, 2017. Adjusted EBITDA Margin increased 110 basis points during the year ended December 31, 2018 compared to the year ended December 31, 2017, primarily driven by a decrease in wages and benefits as a percentage of segment revenue, partially attributable to synergies associated with our acquisition of Recall, cost management initiatives, the capitalization of certain commissions as a result of our adoption of ASU 2014-09 and the benefit of revenue management.

Global Data Center Business

Percentage Change
Year Ended December 31,Dollar ChangeActualConstant CurrencyOrganic Growth
20192018
Storage Rental$246,925$218,675$28,25012.9%13.4%5.3%
Service10,22610,308(82)(0.8)%(0.7)%(4.8)%
Segment Revenue$257,151$228,983$28,16812.3%12.8%4.8%
Segment Adjusted EBITDA(1)$121,517$99,574$21,943
Segment Adjusted EBITDA Margin(2)47.3%43.5%
Percentage Change
Year Ended December 31,Dollar ChangeActualConstant CurrencyOrganic Growth
20182017
Storage Rental$218,675$35,839$182,836510.2%510.2%8.2%
Service10,3081,8558,453455.7%455.7%24.5%
Segment Revenue$228,983$37,694$191,289507.5%507.5%9.0%
Segment Adjusted EBITDA(1)$99,574$11,275$88,299
Segment Adjusted EBITDA Margin(2)43.5%29.9%
(1)See "Non-GAAP Measures—Adjusted EBITDA" in this Annual Report for the definitions of Adjusted EBITDA and Adjusted EBITDA Margin, a reconciliation of Adjusted EBITDA to Income (Loss) from Continuing Operations and a discussion of why we believe these non-GAAP measures provide relevant and useful information to our current and potential investors.
(2)Segment Adjusted EBITDA Margin is calculated by dividing Segment Adjusted EBITDA by total segment revenues.

For the year ended December 31, 2019, reported revenue in our Global Data Center Business segment increased 12.3% compared to the year ended December 31, 2018, primarily due to the impact of acquisitions (see Note 6 of Notes to Consolidated Financial Statements included in this Annual Report for additional acquisition details). The impact of acquisitions contributed 8.0% to the reported revenue growth rate in our Global Data Center Business segment for the year ended December 31, 2019 compared to the prior year period. Organic storage rental revenue growth in our Global Data Center Business segment was 5.3% for the year ended December 31, 2019 compared to the prior year period, primarily related to a $5.4 million lease modification fee that benefited organic storage rental revenue growth by 2.5%. Adjusted EBITDA Margin increased 380 basis points during the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to the impact of cost management actions, the lease modification fee described above and a $4.0 million contractual settlement, partially offset by higher facilities costs, in part due to acquisitions, and increased overhead to support the growth of this business.

Corporate and Other Business

Year Ended December 31,Percentage Change
Dollar ChangeActualConstant CurrencyOrganic Growth
20192018
Storage Rental$114,086$102,436$11,65011.4%11.9%3.2%
Service78,91451,74227,17252.5%55.0%8.2%
Segment Revenue$193,000$154,178$38,82225.2%26.3%4.9%
Segment Adjusted EBITDA(1)$(247,135)$(244,103)$(3,032)
Segment Adjusted EBITDA(1) as a Percentage of Consolidated Revenue(5.8)%(5.8)%
Year Ended December 31,Percentage Change
Dollar ChangeActualConstant CurrencyOrganic Growth
20182017
Storage Rental$102,436$79,887$22,54928.2%28.4%3.7%
Service51,74221,88729,855136.4%143.9%21.2%
Segment Revenue$154,178$101,774$52,40451.5%52.6%7.5%
Segment Adjusted EBITDA(1)$(244,103)$(238,281)$(5,822)
Segment Adjusted EBITDA(1) as a Percentage of Consolidated Revenue(5.8)%(6.2)%
(1)See "Non-GAAP Measures—Adjusted EBITDA" in this Annual Report for the definition of Adjusted EBITDA, a reconciliation of Adjusted EBITDA to Income (Loss) from Continuing Operations and a discussion of why we believe this non-GAAP measure provides relevant and useful information to our current and potential investors.

For the year ended December 31, 2019, reported revenue in our Corporate and Other Business segment increased 25.2% compared to the year ended December 31, 2018, primarily due to the impact of acquisitions. The impact of acquisitions contributed 21.4% to the reported revenue growth rate in our Corporate and Other Business segment for the year ended December 31, 2019 compared to the prior year period. Adjusted EBITDA in our Corporate and Other Business segment decreased $3.0 million in the year ended December 31, 2019 compared to the year ended December 31, 2018. Adjusted EBITDA for the year ended December 31, 2018 was negatively impacted by $11.0 million of indirect tax expenses associated with the Netherlands VAT Matter that did not repeat in 2019. Excluding the impact of the Netherlands VAT Matter, Adjusted EBITDA in our Corporate and Other Business segment decreased $14.1 million in the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily driven by higher compensation expense and professional fees associated with investments in our global operations support team that is tasked with driving operational improvements and continued investment in innovation and product development, partially offset by profitability associated with recent acquisitions in our Adjacent Businesses operating segment. The increase in compensation expense is primarily the result of merit-based increases as well as increased headcount, partially offset by a reduction in variable compensation expense.

Liquidity and Capital Resources

Project Summit

As disclosed above, in October 2019, we announced Project Summit. We estimate that the implementation of Project Summit will result in total costs of approximately $240.0 million. During the fourth quarter of 2019, we incurred approximately $48.6 million of costs related to Project Summit which were comprised entirely of Restructuring Charges, primarily related to employee severance costs and professional fees.

Cash Flows

The following is a summary of our cash balances and cash flows (in thousands) as of and for the years ended December 31,

201920182017
Cash flows from operating activities—continuing operations$966,655$936,544$724,259
Cash flows from investing activities—continuing operations(735,946)(2,230,128)(599,448)
Cash flows from financing activities—continuing operations(198,973)550,678540,425
Cash and cash equivalents at the end of year193,555165,485925,699

a. Cash Flows from Operating Activities

For the year ended December 31, 2019, net cash flows provided by operating activities increased by $30.1 million compared to the prior year period primarily due to a decrease in cash used in working capital of $47.6 million, primarily related to the timing of collections of accounts receivable and certain prepaid and accrued expenses, partially offset by a decrease in net income (including non-cash charges and realized foreign exchange losses) of $17.5 million.

b. Cash Flows from Investing Activities

Our business requires capital expenditures to maintain our ongoing operations, support our expected revenue growth and new products and services, and increase our profitability. These expenditures are included in the cash flows from investing activities. The nature of our capital expenditures has evolved over time along with the nature of our business. Our capital goes to support business-line growth and our ongoing operations, but we also expend capital to support the development and improvement of products and services and projects designed to increase our profitability. These expenditures are generally discretionary in nature.

Our significant investing activities for the year ended December 31, 2019 are highlighted below:

•We paid cash for acquisitions (net of cash acquired) of $58.2 million, primarily funded by borrowings under our Revolving Credit Facility.
•We paid cash for capital expenditures of $693.0 million. Our business requires capital expenditures to maintain our ongoing operations, support our expected revenue growth and new products and services, and increase our profitability. All of these expenditures are included in the cash flows from investing activities. Additional details of our capital spending is included in the Capital Expenditures section below.
•We acquired customer relationships, and incurred both customer inducements (which consists of permanent withdrawal fees following the adoption of ASU 2014-09) and Contract Fulfillment Costs (as defined in Note 2.l. to Notes to Consolidated Financial Statements included in this Annual Report) and third-party commissions for the year ended December 31, 2019 of $46.1 million, $9.4 million and $76.2 million, respectively.
•We paid $19.2 million as part of our investment in the MakeSpace JV (as discussed above).
•We received proceeds of $166.1 million primarily related to the sale of facilities in the United States and the United Kingdom.

c. Cash Flows from Financing Activities

Our significant financing activities for the year ended December 31, 2019 included:

•Net proceeds of $987.5 million associated with the issuance of the 47/8% Senior Notes due 2029 (as defined below).
•Net payments of $475.3 million primarily associated with the repayments on our Revolving Credit Facility.
•Payment of dividends in the amount of $704.5 million on our common stock.

Capital Expenditures

We present two categories of capital expenditures: (1) Growth Investment Capital Expenditures and (2) Recurring Capital Expenditures with the following sub-categories: (i) Real Estate, (ii) Non-Real Estate, (iii) Data Center and (iv) Innovation (for growth investment only).

Growth Investment Capital Expenditures:

•Real Estate: Expenditures primarily related to investments in land, buildings, building improvements, leasehold improvements and racking structures to grow our revenues or achieve operational efficiencies.
•Non-Real Estate: Expenditures that support the growth of our business, and/or increase our profitability, such as customer-inventory technology systems, security upgrades or system enhancements.
•Data Center: Expenditures primarily related to investments in new construction of data center facilities (including the acquisition of land and development of facilities) or capacity expansion in existing buildings.
•Innovation: Discretionary capital expenditures in significant new products and services in new, existing or adjacent business opportunities.

Recurring Capital Expenditures:

•Real Estate: Expenditures primarily related to the replacement of components of real estate assets such as buildings, building improvements, leasehold improvements and racking structures.
•Non-Real Estate: Expenditures primarily related to the replacement of customer-facing assets such as containers and shred bins, warehouse equipment, fixtures, computer hardware, or third-party or internally-developed software assets.
•Data Center: Expenditures related to the upgrade or re-configuration of existing data center assets.

The following table presents our capital spend for 2019, 2018 and 2017 organized by the type of the spending as described above.

Nature of Capital Spend (in thousands)201920182017
Growth Investment Capital Expenditures:
Real Estate$133,093$138,307$139,822
Non-Real Estate47,22152,73756,297
Data Center402,741162,66692,265
Innovation14,70515,85720,583
Total Growth Investment Capital Expenditures597,760369,567308,967
Recurring Capital Expenditures:
Real Estate55,44473,14677,660
Non-Real Estate28,88223,18729,721
Data Center8,5899,051332
Total Recurring Capital Expenditures92,915105,384107,713
Total Capital Spend (on accrual basis)690,675474,951416,680
Net increase (decrease) in prepaid capital expenditures510(1,844)1,629
Net decrease (increase) in accrued capital expenditures(1)1,798(13,045)(75,178)
Total Capital Spend (on cash basis)$692,983$460,062$343,131
(1)The amount at December 31, 2017 includes approximately $66,800 related to a financing lease associated with our data center in Manassas, Virginia.

Excluding capital expenditures associated with potential future acquisitions, opportunistic real estate investments and capital expenditures associated with Project Summit, we expect our recurring capital expenditures on real estate and non-real estate, as well as non-real estate growth investment capital expenditures, to be approximately $140.0 million to $160.0 million, our capital expenditures on our Global Data Center Business to be approximately $200.0 million and our capital expenditures on real estate growth investment and innovation to be approximately $150.0 million to $175.0 million in the year ending December 31, 2020.

Dividends

See Note 12 to Notes to Consolidated Financial Statements included in this Annual Report for information on dividends.

Financial Instruments and Debt

Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents (including money market funds and time deposits) and accounts receivable. As per our risk management investment policy, we limit exposure to concentration of credit risk by limiting the amount invested in any one mutual fund to a maximum of 1% of the fund total assets or in any one financial institution to a maximum of $75.0 million. As of December 31, 2019, our cash and cash equivalents balance, including restricted cash, was $193.6 million.

Long-term debt as of December 31, 2019 is as follows (in thousands):

December 31, 2019
Debt (inclusive of discount)Unamortized Deferred Financing CostsCarrying Amount
Revolving Credit Facility$348,808$(12,053)$336,755
Term Loan A228,125—228,125
Term Loan B686,395(7,493)678,902
Australian Dollar Term Loan (the "AUD Term Loan")226,924(2,313)224,611
UK Bilateral Revolving Credit Facility (the "UK Bilateral Facility")184,601(1,801)182,800
43/8% Senior Notes due 2021 (the "43/8% Notes")500,000(2,436)497,564
6% Senior Notes due 2023600,000(4,027)595,973
53/8% CAD Senior Notes due 2023 (the "CAD Notes due 2023")192,058(2,071)189,987
53/4% Senior Subordinated Notes due 20241,000,000(6,409)993,591
3% Euro Senior Notes due 2025 (the "Euro Notes")336,468(3,462)333,006
37/8% GBP Senior Notes due 2025 (the "GBP Notes due 2025")527,432(5,809)521,623
53/8% Senior Notes due 2026 (the "53/8% Notes")250,000(2,756)247,244
47/8% Senior Notes due 2027 (the "47/8% Notes due 2027")1,000,000(11,020)988,980
51/4% Senior Notes due 2028 (the "51/4% Notes")825,000(9,742)815,258
47/8% Senior Notes due 2029 (the "47/8% Notes due 2029")1,000,000(14,104)985,896
Real Estate Mortgages, Financing Lease Liabilities and Other523,671(406)523,265
Accounts Receivable Securitization Program272,062(81)271,981
Mortgage Securitization Program50,000(982)49,018
Total Long-term Debt8,751,544(86,965)8,664,579
Less Current Portion(389,013)—(389,013)
Long-term Debt, Net of Current Portion$8,362,531$(86,965)$8,275,566

See Note 4 to Notes to Consolidated Financial Statements included in this Annual Report for additional information regarding our long-term debt.

a. Credit Agreement

On August 21, 2017, we entered into a new credit agreement (the "Credit Agreement") which amended and restated our then existing credit agreement which consisted of a revolving credit facility (the "Former Revolving Credit Facility") and a term loan and was scheduled to terminate on July 6, 2019. The Credit Agreement consists of a revolving credit facility (the "Revolving Credit Facility") and a term loan (the "Term Loan A"). The maximum amount permitted to be borrowed under the Revolving Credit Facility is $1,750.0 million. The original principal amount of the Term Loan A was $250.0 million. Under the Revolving Credit Facility, we had the option to request additional commitments of up to $500.0 million, in the form of term loans or through increased commitments under the Revolving Credit Facility, subject to the conditions specified in the Credit Agreement. The Credit Agreement was originally scheduled to mature on August 21, 2022, at which point all obligations were to become due.

On March 22, 2018, we entered into an amendment (the “March 2018 Amendment”) to the Credit Agreement which provided us with the option to request additional commitments of up to approximately $1,260.0 million under the Credit Agreement in the form of term loans or through increased commitments under the Revolving Credit Facility, subject to the conditions specified in the Credit Agreement. On June 4, 2018, we entered into another amendment (the "June 2018 Amendment") to the Credit Agreement which (i) reduced interest rate margins applicable to existing and future borrowings under the Revolving Credit Facility and Term Loan A by 0.25% and (ii) extended the maturity date of the Credit Agreement to June 4, 2023. The Term Loan A is to be paid in quarterly installments in an amount equal to $3.1 million per quarter, with the remaining balance due on June 4, 2023.

On December 20, 2019, we entered into an amendment (the “December 2019 Amendment”) to the Credit Agreement. The December 2019 Amendment amended the definition of EBITDA and certain other definitions and restrictive covenants contained in the Credit Agreement.

The Revolving Credit Facility enables IMI and certain of its United States and foreign subsidiaries to borrow in United States dollars and (subject to sublimits) a variety of other currencies (including Canadian dollars, British pounds sterling and Euros, among other currencies) in an aggregate outstanding amount not to exceed $1,750.0 million.

The amount available for borrowing under the Revolving Credit Facility as of December 31, 2019, which is based on IMI's leverage ratio, the last 12 months' earnings before interest, taxes, depreciation and amortization and rent expense ("EBITDAR"), other adjustments as defined in the Credit Agreement and current external debt, was $1,396.3 million (which amount represents the maximum availability as of such date). Available borrowings under the Revolving Credit Facility are subject to compliance with our indenture covenants as described more fully below.

In connection with the March 2018 Amendment, IMI's wholly owned subsidiary, Iron Mountain Information Management, LLC ("IMIM"), entered into an incremental term loan activation notice (the "Activation Notice"), with certain lenders pursuant to which the lenders party to the Activation Notice agreed to provide commitments to fund an incremental term loan B in the original principal amount of $700.0 million (the “Term Loan B”). On March 26, 2018, IMIM borrowed the full amount of the Term Loan B, which matures on January 2, 2026. The Term Loan B was issued at 99.75% of par. The aggregate net proceeds of approximately $689.9 million, after paying commissions to the joint lead arrangers and net of the original discount, were used to repay outstanding borrowings under the Revolving Credit Facility. The Term Loan B holders benefit from the same security and guarantees as other borrowings under the Credit Agreement. The Term Loan B holders also benefit from the same affirmative and negative covenants as other borrowings under the Credit Agreement; however, the Term Loan B holders are not generally entitled to the benefits of the financial covenants under the Credit Agreement.

As of December 31, 2019, we had $686.4 million outstanding on the Term Loan B and the interest rate in effect under the Term Loan B was 3.6%. The amount of debt for the Term Loan B reflects an unamortized original issue discount of $1.4 million as of December 31, 2019.

b. Issuance of 47/8% Notes due 2029

In September 2019, IMI completed a private offering of $1,000.0 million in aggregate principal amount of the 47/8% Notes due 2029. The 47/8% Notes due 2029 were issued at par. The net proceeds of approximately $987.5 million from the 47/8% Notes due 2029, after paying the initial purchasers' commissions, were used to repay outstanding borrowings under the Revolving Credit Facility.

c. Australian Dollar Term Loan Amendment

On March 27, 2018, Iron Mountain Australia Group Pty Ltd. ("IM Australia"), a wholly owned subsidiary of IMI, amended its AUD Term Loan (the "AUD Term Loan Amendment") to (i) increase the borrowings under the AUD Term Loan from 250.0 million Australian dollars to 350.0 million Australian dollars; (ii) increase the quarterly principal payments from 6.3 million Australian dollars per year to 8.8 million Australian dollars per year; and (iii) decrease the interest rate on the AUD Term Loan from BBSY (an Australian benchmark variable interest rate) plus 4.3% to BBSY plus 3.875%. The interest rate in effect under the AUD Term Loan was 4.8% as of December 31, 2019. The AUD Term Loan matures in September 2022. All indebtedness associated with the AUD Term Loan was issued at 99% of par. The net proceeds associated with the AUD Term Loan Amendment of approximately 99.0 million Australian dollars (or approximately $75.6 million, based upon the exchange rate between the Australian dollar and the United States dollar on March 29, 2018 (the closing date of the AUD Term Loan Amendment)), net of the original discount, were used to repay outstanding borrowings under the Revolving Credit Facility. See Note 4 to Notes to Consolidated Financial Statements included in this Annual Report for additional details on the AUD Term Loan.

d. UK Bilateral Revolving Credit Facility

On September 24, 2018, Iron Mountain (UK) PLC ("IM UK") and Iron Mountain (UK) Data Centre Limited entered into a 140.0 million British pounds sterling Revolving Credit Facility (the "UK Bilateral Facility") with Barclays Bank PLC. The maximum amount permitted to be borrowed under the UK Bilateral Facility is 140.0 million British pounds sterling, and we have the option to request additional commitments of up to 125.0 million British pounds sterling, subject to the conditions specified in the UK Bilateral Facility. The UK Bilateral Facility was fully utilized on September 24, 2018 (the closing date of the UK Bilateral Facility). The initial net proceeds received under the UK Bilateral Facility of 138.3 million British pounds sterling (or approximately $180.3 million, based upon the exchange rate between the British pound sterling and the United States dollar on September 24, 2018 (the closing date of the UK Bilateral Facility)), net of upfront fees, were used to repay borrowings under the Revolving Credit Facility. The UK Bilateral Facility is secured by certain properties in the United Kingdom. IMI and its direct and indirect 100% owned United States subsidiaries that represent the substantial majority of its United States operations guarantee all the obligations under the UK Bilateral Facility. The UK Bilateral Facility is scheduled to mature on September 23, 2022, at which point all obligations become due. The UK Bilateral Facility contains an option to extend the maturity date for an additional year, subject to the conditions specified in the UK Bilateral Facility, including the lender's consent. The UK Bilateral Facility bears interest at LIBOR plus 2.25%. The interest rate in effect under the UK Bilateral Facility as of December 31, 2019 was 3.1%.

e. Accounts Receivable Securitization Program

In March 2015, we entered into a $250.0 million accounts receivable securitization program (the "Accounts Receivable Securitization Program") involving several of our wholly owned subsidiaries and certain financial institutions. Under the Accounts Receivable Securitization Program, certain of our subsidiaries sell substantially all of their United States accounts receivable balances to our wholly owned special purpose entities, Iron Mountain Receivables QRS, LLC and Iron Mountain Receivables TRS, LLC (the "Accounts Receivable Securitization Special Purpose Subsidiaries"). The Accounts Receivable Securitization Special Purpose Subsidiaries use the accounts receivable balances to collateralize loans obtained from certain financial institutions. The Accounts Receivable Securitization Special Purpose Subsidiaries are consolidated subsidiaries of IMI. IMIM retains the responsibility of servicing the accounts receivable balances pledged as collateral for the Accounts Receivable Securitization Program and IMI provides a performance guaranty. The maximum availability allowed is limited by eligible accounts receivable, as defined under the terms of the Accounts Receivable Securitization Program.

On July 31, 2017, we amended the Accounts Receivable Securitization Program to (i) increase the maximum amount available from $250.0 million to $275.0 million and (ii) to extend the maturity date from March 6, 2018 to July 30, 2020, at which point all obligations become due. As the Accounts Receivable Securitization Program matures on July 30, 2020, the amount outstanding under the Accounts Receivable Securitization Program is classified within the current portion of long-term debt in our Consolidated Balance Sheet as of December 31, 2019. As of December 31, 2019, the maximum availability allowed and amount outstanding under the Accounts Receivable Securitization Program was $272.1 million. The interest rate in effect under the Accounts Receivable Securitization Program was 2.8% as of December 31, 2019. Commitment fees at a rate of 40 basis points are charged on amounts made available but not borrowed under the Accounts Receivable Securitization Program.

f. Letters of Credit

As of December 31, 2019, we had outstanding letters of credit totaling $35.3 million, of which $4.9 million reduce our borrowing capacity under the Revolving Credit Facility (as described above). The letters of credit expire at various dates between January 2020 and January 2033.

g. Debt Covenants

The Credit Agreement, our indentures and other agreements governing our indebtedness contain certain restrictive financial and operating covenants, including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take certain other corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under the Credit Agreement, our indentures or other agreements governing our indebtedness. The Credit Agreement uses EBITDAR-based calculations as the primary measures of financial performance, including leverage and fixed charge coverage ratios.

Our leverage and fixed charge coverage ratios under the Credit Agreement as of December 31, 2019 and 2018, as well as our leverage ratio under our indentures as of December 31, 2019 and 2018 are as follows:

December 31, 2019December 31, 2018Maximum/Minimum Allowable
Net total lease adjusted leverage ratio5.75.6Maximum allowable of 6.5
Net secured debt lease adjusted leverage ratio2.32.6Maximum allowable of 4.0
Bond leverage ratio (not lease adjusted)5.95.8Maximum allowable of 6.5-7.0(1)
Fixed charge coverage ratio2.22.2Minimum allowable of 1.5
(1)The maximum allowable leverage ratio under our indentures for the GBP Notes due 2025, the 47/8% Notes due 2027, the 51/4% Notes and the 47/8% Notes due 2029 is 7.0, while the maximum allowable leverage ratio under the indentures pertaining to our remaining senior and senior subordinated notes is 6.5. In certain instances as provided in our indentures, we have the ability to incur additional indebtedness that would result in our bond leverage ratio exceeding the maximum allowable ratio under our indentures and still remain in compliance with the covenant.

Noncompliance with these leverage and fixed charge coverage ratios would have a material adverse effect on our financial condition and liquidity.

Our ability to pay interest on or to refinance our indebtedness depends on our future performance, working capital levels and capital structure, which are subject to general economic, financial, competitive, legislative, regulatory and other factors which may be beyond our control. There can be no assurance that we will generate sufficient cash flow from our operations or that future financings will be available on acceptable terms or in amounts sufficient to enable us to service or refinance our indebtedness or to make necessary capital expenditures.

Derivative Instruments

In July 2019, we entered into forward-starting interest rate swap agreements to limit our exposure to changes in interest rates on a portion of our floating rate indebtedness once our current interest rate swaps expire in March 2022. The forward-starting interest rate swap agreements have $350.0 million in notional value, commence in March 2022 and expire in March 2024. Under the swap agreements we will receive variable rate interest payments based upon one-month LIBOR, in exchange for the payment of fixed interest rate payments at the rates specified in the interest rate swap agreements. We have designated these interest rate swap agreements as cash flow hedges.

In August 2019, we entered into cross-currency swap agreements to hedge the variability of exchange rate impacts between the United States dollar and the Euro. Under the terms of the cross-currency swap agreements we notionally exchanged approximately $110.0 million at an interest rate of 6.0% for approximately 99.1 million Euros at a weighted average interest rate of approximately 3.65%. The cross-currency swap agreements, which expire in August 2023, are designated as a hedge of net investment against certain of our Euro denominated subsidiaries and require an exchange of the notional amounts at maturity. We have designated these cross-currency swap agreements as net investment hedges.

See Note 3 to Notes to Consolidated Financial Statements included in this Annual Report for additional information on our derivative instruments.

Equity Financing

In October 2017, we entered into the Distribution Agreement with the Agents pursuant to which we may sell, from time to time, up to an aggregate sales price of $500.0 million of our common stock through the At The Market (ATM) Equity Program. Sales of our common stock made pursuant to the Distribution Agreement may be made in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE, or sales made to or through a market maker other than on an exchange, or as otherwise agreed between the applicable Agent and us. We intend to use the net proceeds from sales of our common stock pursuant to the At The Market (ATM) Equity Program for general corporate purposes, which may include acquisitions and investments, including acquisitions and investments in our Global Data Center Business, and repaying amounts outstanding from time to time under the Revolving Credit Facility.

During the quarter and year ended December 31, 2019, there were no shares of common stock sold under the At The Market (ATM) Equity Program. As of December 31, 2019, the remaining aggregate sale price of shares of our common stock available for distribution under the At The Market (ATM) Equity Program was approximately $431.2 million.

See Note 12 to Notes to Consolidated Financial Statements included in this Annual Report for additional information regarding our equity financing.

Acquisitions

a. Acquisitions

See Note 6 to Notes to Consolidated Financial Statements included in this Annual Report for information regarding our 2019 acquisitions.

On January 9, 2020, we acquired the remaining 75% equity interest in OSG for cash consideration of 6,026 million Russian rubles (or approximately $95.1 million, based upon the exchange rate between the Russian ruble and the United States dollar on the closing date of the OSG Acquisition) (the "OSG Acquisition"). The OSG Acquisition will enable us to extend our Global RIM Business in Russia, Ukraine, Kazakhstan, Belarus, and Armenia. Commencing on the date of the OSG Acquisition we will fully consolidate the results of OSG within our consolidated financial statements.

b. Significant Acquisition Costs and Capital Expenditures

Included in Significant Acquisition Costs are certain costs associated with the Recall Transaction and the IODC Transaction. Significant Acquisition Costs associated with the Recall Transaction and the IODC Transaction and capital expenditures to integrate Recall with our existing operations ("Recall Capital Expenditures"), were $403.8 million, the substantial majority of which were incurred prior to the end of 2018.

The following table presents the cumulative amount of Significant Acquisition Costs and Recall Capital Expenditures incurred for the years ended December 31, 2019, 2018 and 2017 and the cumulative amount incurred through December 31, 2019 (in thousands):

Year Ended December 31,Cumulative Total Through December 31, 2019
201920182017
Significant Acquisition Costs$13,293$50,665$84,901$327,817
Recall Capital Expenditures2,44723,64031,44175,984
Total$15,740$74,305$116,342$403,801

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2019 and the anticipated effect of these obligations on our liquidity in future years (in thousands):

Payments Due by Period
TotalLess than 1 Year1–3 Years3–5 YearsMore than 5 Years
Financing Lease Obligations(1)$511,019$62,271$99,879$70,979$277,890
Long-Term Debt Obligations (excluding Financing Lease Obligations)8,386,949342,4301,026,3532,376,1654,642,001
Interest Payments(2)2,241,373395,344713,343568,046564,640
Operating Lease Obligations(3)2,915,409339,469615,609505,4131,454,918
Purchase, Asset Retirement and Other Obligations(4)269,975134,127100,6883,98931,171
Total(5)(6)$14,324,725$1,273,641$2,555,872$3,524,592$6,970,620
(1)Excluded from our financing lease obligations is the potential obligation related to an agreement we entered into in the fourth quarter of 2019 to lease a facility in the United Kingdom that is currently under construction. The exact terms of the lease will be determined upon the completion of building construction, which is expected to occur in late 2020. We expect the rent due in the first year of the lease to be approximately $5.0 million, and we expect the term of the lease to be approximately 25 years.
(2)Amounts include variable rate interest payments, which are calculated utilizing the applicable interest rates as of December 31, 2019; see Note 4 to Notes to Consolidated Financial Statements included in this Annual Report.
(3)These amounts are net of sublease income of $34.1 million in total (including $7.7 million, $10.3 million, $8.4 million and $7.7 million, in less than 1 year, 1-3 years, 3-5 years and more than 5 years, respectively).
(4)Purchase commitments include obligations for future construction costs associated with the expansion of our Global Data Center Business, which represent a significant amount of the purchase commitments due in less than one year.
(5)The table above excludes $35.1 million in uncertain tax positions as we are unable to make reliable estimates of the period of cash settlement, if any, with the respective taxing authorities.
(6)The table above excludes $67.7 million of redeemable noncontrolling interests, which represents the estimated redemption value of the redeemable noncontrolling interests. See Note 2.v. to Notes to Consolidated Financial Statements included in this Annual Report. This table also excludes purchase commitments associated with acquisitions closed or expected to close in 2020.

We expect to meet our cash flow requirements for the next twelve months from cash generated from operations, cash on hand, borrowings under the Credit Agreement and other financings (including the issuance of equity under our At The Market (ATM) Equity Program). We expect to meet our long-term cash flow requirements using the same means described above. We are currently operating above our long-term targeted leverage ratio and expect our leverage ratio to reduce over time through effective capital allocation strategies and business growth.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4)(ii).

Net Operating Losses

At December 31, 2019, we have federal net operating loss carryforwards of $152.7 million available to reduce future federal taxable income, the majority of which expire from 2024 through 2037. Of the $152.7 million, we expect to utilize $39.2 million and realize a federal tax benefit of $8.2 million. We can carry forward these net operating losses to the extent we do not utilize them in any given available year. We have state net operating loss carryforwards, which expire from 2020 through 2039, of which an insignificant state tax benefit is expected to be realized. We have assets for foreign net operating losses of $90.8 million, with various expiration dates (and in some cases no expiration date), subject to a valuation allowance of approximately 64%.

Inflation

Certain of our expenses, such as wages and benefits, insurance, occupancy costs and equipment repair and replacement, are subject to normal inflationary pressures. Although to date we have been able to offset inflationary cost increases with increased operating efficiencies, the negotiation of favorable long-term real estate leases and an ability to increase prices in our customer contracts (many of which contain provisions for inflationary price escalators), we can give no assurance that we will be able to offset any future inflationary cost increases through similar efficiencies, leases or increased storage rental or service charges.

Previous: Item 6. Selected Financial Data. · Next: Item 7A. Quantitative and Qualitative Disclosures About Market Risk.