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IRON MOUNTAIN INC - Quarter Report: 2015 September (Form 10-Q)

Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
(Mark One)
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Quarterly Period Ended September 30, 2015
 
OR
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Transition Period from                        to                       
 
Commission file number 1-13045
 
IRON MOUNTAIN INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or other Jurisdiction of
Incorporation or Organization)
23-2588479
(I.R.S. Employer
Identification No.)
One Federal Street, Boston, Massachusetts 02110
(Address of Principal Executive Offices, Including Zip Code)

(617) 535-4766
(Registrant's Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
Number of shares of the registrant's Common Stock outstanding at October 23, 2015: 211,152,923



Table of Contents

IRON MOUNTAIN INCORPORATED
Index

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

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Part I. Financial Information
Item 1.    Unaudited Consolidated Financial Statements
IRON MOUNTAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In Thousands, except Share and Per Share Data)
(Unaudited)
 
December 31, 2014
 
September 30, 2015
ASSETS
 

 
 

Current Assets:
 

 
 

Cash and cash equivalents
$
125,933

 
$
492,899

Restricted cash
33,860

 

Accounts receivable (less allowances of $32,141 and $34,538 as of December 31, 2014 and September 30, 2015, respectively)
604,265

 
573,889

Deferred income taxes
14,192

 
22,353

Prepaid expenses and other
139,469

 
139,157

Total Current Assets
917,719

 
1,228,298

Property, Plant and Equipment:
 

 
 

Property, plant and equipment
4,668,705

 
4,643,654

Less—Accumulated depreciation
(2,117,978
)
 
(2,214,929
)
Property, Plant and Equipment, net
2,550,727

 
2,428,725

Other Assets, net:
 

 
 

Goodwill
2,423,783

 
2,347,064

Customer relationships and acquisition costs
607,837

 
575,287

Deferred financing costs
47,077

 
65,868

Other
23,199

 
24,580

Total Other Assets, net
3,101,896

 
3,012,799

Total Assets
$
6,570,342

 
$
6,669,822

LIABILITIES AND EQUITY
 

 
 

Current Liabilities:
 

 
 

Current portion of long-term debt
$
52,095

 
$
253,726

Accounts payable
203,014

 
156,845

Accrued expenses
404,485

 
318,009

Deferred revenue
197,142

 
182,197

Total Current Liabilities
856,736

 
910,777

Long-term Debt, net of current portion
4,611,436

 
4,920,568

Other Long-term Liabilities
73,506

 
74,591

Deferred Rent
104,051

 
97,077

Deferred Income Taxes
54,658

 
47,032

Commitments and Contingencies (see Note 8)


 


Equity:
 

 
 

Iron Mountain Incorporated Stockholders' Equity:
 

 
 

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

 

Common stock (par value $0.01; authorized 400,000,000 shares; issued and outstanding 209,818,812 shares and 211,083,747 shares as of December 31, 2014 and September 30, 2015, respectively)
2,098

 
2,111

Additional paid-in capital
1,588,841

 
1,613,455

(Distributions in excess of earnings) Earnings in excess of distributions
(659,553
)
 
(844,675
)
Accumulated other comprehensive items, net
(75,031
)
 
(163,687
)
Total Iron Mountain Incorporated Stockholders' Equity
856,355

 
607,204

Noncontrolling Interests
13,600

 
12,573

Total Equity
869,955

 
619,777

Total Liabilities and Equity
$
6,570,342

 
$
6,669,822

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

3

Table of Contents

IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)
 
Three Months Ended
September 30,
 
2014
 
2015
Revenues:
 

 
 

Storage rental
$
469,064

 
$
460,052

Service
313,633

 
286,477

Total Revenues
782,697

 
746,529

Operating Expenses:
 

 
 

Cost of sales (excluding depreciation and amortization)
335,506

 
317,663

Selling, general and administrative
216,337

 
215,693

Depreciation and amortization
89,194

 
86,492

Loss (Gain) on disposal/write-down of property, plant and equipment (excluding real estate), net
184

 
(141
)
Total Operating Expenses
641,221

 
619,707

Operating Income (Loss)
141,476

 
126,822

Interest Expense, Net (includes Interest Income of $1,158 and $1,132 for the three months ended September 30, 2014 and 2015, respectively)
63,220

 
65,135

Other Expense (Income), Net
22,508

 
35,246

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes and Gain on Sale of Real Estate
55,748

 
26,441

Provision (Benefit) for Income Taxes
54,890

 
3,774

Gain on Sale of Real Estate, Net of Tax

 
(850
)
Income (Loss) from Continuing Operations
858

 
23,517

(Loss) Income from Discontinued Operations, Net of Tax

 

Net Income (Loss)
858

 
23,517

Less: Net Income (Loss) Attributable to Noncontrolling Interests
792

 
407

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
66

 
$
23,110

Earnings (Losses) per Share—Basic:
 

 
 

Income (Loss) from Continuing Operations
$

 
$
0.11

Total (Loss) Income from Discontinued Operations
$

 
$

Net Income (Loss) Attributable to Iron Mountain Incorporated
$

 
$
0.11

Earnings (Losses) per Share—Diluted:
 

 
 

Income (Loss) from Continuing Operations
$

 
$
0.11

Total (Loss) Income from Discontinued Operations
$

 
$

Net Income (Loss) Attributable to Iron Mountain Incorporated
$

 
$
0.11

Weighted Average Common Shares Outstanding—Basic
193,360

 
210,912

Weighted Average Common Shares Outstanding—Diluted
194,905

 
211,917

Dividends Declared per Common Share
$
4.0960

 
$
0.4751

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

4

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IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(In Thousands, except Per Share Data)
(Unaudited)
 
Nine Months Ended
September 30,
 
2014
 
2015
Revenues:
 

 
 

Storage rental
$
1,394,842

 
$
1,380,133

Service
944,873

 
875,416

Total Revenues
2,339,715

 
2,255,549

Operating Expenses:
 

 
 

Cost of sales (excluding depreciation and amortization)
1,007,612

 
965,600

Selling, general and administrative
644,924

 
627,992

Depreciation and amortization
264,568

 
259,992

Loss (Gain) on disposal/write-down of property, plant and equipment (excluding real estate), net
1,229

 
707

Total Operating Expenses
1,918,333

 
1,854,291

Operating Income (Loss)
421,382

 
401,258

Interest Expense, Net (includes Interest Income of $4,062 and $2,777 for the nine months ended September 30, 2014 and 2015, respectively)
187,733

 
196,120

Other Expense (Income), Net
22,987

 
59,599

Income (Loss) from Continuing Operations Before (Benefit) Provision for Income Taxes and Gain on Sale of Real Estate
210,662

 
145,539

(Benefit) Provision for Income Taxes
(98,151
)
 
27,126

Gain on Sale of Real Estate, Net of Tax
(7,468
)
 
(850
)
Income (Loss) from Continuing Operations
316,281

 
119,263

(Loss) Income from Discontinued Operations, Net of Tax
(938
)
 

Net Income (Loss)
315,343

 
119,263

Less: Net Income (Loss) Attributable to Noncontrolling Interests
1,973

 
1,727

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
313,370

 
$
117,536

Earnings (Losses) per Share—Basic:
 

 
 

Income (Loss) from Continuing Operations
$
1.64

 
$
0.57

Total (Loss) Income from Discontinued Operations
$

 
$

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
1.63

 
$
0.56

Earnings (Losses) per Share—Diluted:
 

 
 

Income (Loss) from Continuing Operations
$
1.63

 
$
0.56

Total (Loss) Income from Discontinued Operations
$

 
$

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
1.62

 
$
0.55

Weighted Average Common Shares Outstanding—Basic
192,540

 
210,616

Weighted Average Common Shares Outstanding—Diluted
193,833

 
212,081

Dividends Declared per Common Share
$
4.6527

 
$
1.4250

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

5

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IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
(Unaudited)
 
Three Months Ended
September 30,
 
2014
 
2015
Net Income (Loss)
$
858

 
$
23,517

Other Comprehensive (Loss) Income:
 

 
 

Foreign Currency Translation Adjustments
(45,423
)
 
(34,594
)
Market Value Adjustments for Securities
(291
)
 
(134
)
Total Other Comprehensive (Loss) Income
(45,714
)
 
(34,728
)
Comprehensive (Loss) Income
(44,856
)
 
(11,211
)
Comprehensive (Loss) Income Attributable to Noncontrolling Interests
(25
)
 
(384
)
Comprehensive (Loss) Income Attributable to Iron Mountain Incorporated
$
(44,831
)
 
$
(10,827
)


 
Nine Months Ended
September 30,
 
2014
 
2015
Net Income (Loss)
$
315,343

 
$
119,263

Other Comprehensive (Loss) Income:
 

 
 

Foreign Currency Translation Adjustments
(39,109
)
 
(89,769
)
Market Value Adjustments for Securities
257

 
(111
)
Total Other Comprehensive (Loss) Income
(38,852
)
 
(89,880
)
Comprehensive Income (Loss)
276,491

 
29,383

Comprehensive Income (Loss) Attributable to Noncontrolling Interests
1,693

 
503

Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated
$
274,798

 
$
28,880












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

6

Table of Contents

IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY
(In Thousands, except Share Data)
(Unaudited)

 
 
 
Iron Mountain Incorporated Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
(Distributions
in Excess
of Earnings)
Earnings
in Excess of
Distributions

 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
Other
Comprehensive
Items, Net
 
 
 
 
 
Common Stock
 
Additional
Paid-in Capital
 
 
 
Noncontrolling
Interests
 
Total
 
Shares
 
Amounts
 
 
 
Balance, December 31, 2013
$
1,051,734

 
191,426,920

 
$
1,914

 
$
980,164

 
$
67,820

 
$
(8,660
)
 
$
10,496

Issuance of shares under employee stock purchase plan and option plans and stock-based compensation, including tax benefit of $40
52,838

 
2,251,674

 
23

 
52,815

 

 

 

Parent cash dividends declared
(197,551
)
 

 

 

 
(197,551
)
 

 

Special distribution in connection with conversion to REIT (see Note 9)
(700,000
)
 

 

 

 
(700,000
)
 

 

Currency translation adjustment
(39,109
)
 

 

 

 

 
(38,829
)
 
(280
)
Market value adjustments for securities
257

 

 

 

 

 
257

 

Net income (loss)
315,343

 

 

 

 
313,370

 

 
1,973

Noncontrolling interests dividends
(1,032
)
 

 

 

 

 

 
(1,032
)
Purchase of noncontrolling interests
(20,376
)
 

 

 
(17,653
)
 

 

 
(2,723
)
Divestiture of noncontrolling interests
5,558

 

 

 
2,102

 

 

 
3,456

Balance, September 30, 2014
$
467,662

 
193,678,594

 
$
1,937

 
$
1,017,428

 
$
(516,361
)
 
$
(47,232
)
 
$
11,890

 
 
 
Iron Mountain Incorporated Stockholders' Equity
 
 
 
 
 
 
 
 
 
(Distributions
in Excess
of Earnings)
Earnings
in Excess of
Distributions
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
Other
Comprehensive
Items, Net
 
 
 
 
 
Common Stock
 
Additional
Paid-in Capital
 
 
 
Noncontrolling
Interests
 
Total
 
Shares
 
Amounts
 
 
 
Balance, December 31, 2014
$
869,955

 
209,818,812

 
$
2,098

 
$
1,588,841

 
$
(659,553
)
 
$
(75,031
)
 
$
13,600

Issuance of shares under employee stock purchase plan and option plans and stock-based compensation, including tax benefit of $323
24,627

 
1,264,935

 
13

 
24,614

 

 

 

Parent cash dividends declared
(302,658
)
 

 

 

 
(302,658
)
 

 

Currency translation adjustment
(89,769
)
 

 

 

 

 
(88,545
)
 
(1,224
)
Market value adjustments for securities
(111
)
 

 

 

 

 
(111
)
 

Net income (loss)
119,263

 

 

 

 
117,536

 

 
1,727

Noncontrolling interests dividends
(1,530
)
 

 

 

 

 

 
(1,530
)
Balance, September 30, 2015
$
619,777

 
211,083,747

 
$
2,111

 
$
1,613,455

 
$
(844,675
)
 
$
(163,687
)
 
$
12,573





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

7

Table of Contents

IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)


 
Nine Months Ended
September 30,
 
2014
 
2015
Cash Flows from Operating Activities:
 

 
 

Net income (loss)
$
315,343

 
$
119,263

Loss (income) from discontinued operations
938

 

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

 
 

Depreciation
227,876

 
226,497

Amortization (includes deferred financing costs and bond discount of $5,535 and $6,443, for the nine months ended September 30, 2014 and 2015, respectively)
42,227

 
39,938

Stock-based compensation expense
23,129

 
20,936

(Benefit) Provision for deferred income taxes
(258,411
)
 
(10,317
)
Loss on early extinguishment of debt, net

 
2,156

(Gain) Loss on disposal/write-down of property, plant and equipment, net (including real estate)
(8,218
)
 
(352
)
Foreign currency transactions and other, net
37,292

 
39,006

Changes in Assets and Liabilities (exclusive of acquisitions):
 

 
 

Accounts receivable
(9,361
)
 
11,096

Prepaid expenses and other
25,309

 
2,687

Accounts payable
(27,307
)
 
(23,977
)
Accrued expenses and deferred revenue
(77,102
)
 
(105,538
)
Other assets and long-term liabilities
10,137

 
(1,300
)
Cash Flows from Operating Activities
301,852

 
320,095

Cash Flows from Investing Activities:
 

 
 

Capital expenditures
(277,386
)
 
(202,581
)
Cash paid for acquisitions, net of cash acquired
(46,366
)
 
(27,975
)
Decrease (increase) in restricted cash

 
33,860

Additions to customer relationship and acquisition costs
(25,847
)
 
(35,163
)
Proceeds from sales of property and equipment and other, net (including real estate)
18,307

 
2,032

Cash Flows from Investing Activities
(331,292
)
 
(229,827
)
Cash Flows from Financing Activities:
 

 
 

Repayment of revolving credit and term loan facilities and other debt
(8,225,563
)
 
(8,539,577
)
Proceeds from revolving credit and term loan facilities and other debt
8,061,747

 
8,142,443

Early retirement of senior subordinated notes
(247,275
)
 

Net proceeds from sales of senior notes
642,417

 
985,000

Debt (repayment to) financing from and equity (distribution to) contribution from noncontrolling interests, net
(14,715
)
 
(1,260
)
Parent cash dividends
(157,018
)
 
(303,712
)
Proceeds from exercise of stock options and employee stock purchase plan
37,356

 
13,988

Excess tax benefit (deficiency) from stock-based compensation
40

 
323

Payment of debt financing and stock issuance costs
(2,156
)
 
(11,665
)
Cash Flows from Financing Activities
94,833

 
285,540

Effect of Exchange Rates on Cash and Cash Equivalents
(1,931
)
 
(8,842
)
Increase (Decrease) in Cash and Cash Equivalents
63,462

 
366,966

Cash and Cash Equivalents, Beginning of Period
120,526

 
125,933

Cash and Cash Equivalents, End of Period
$
183,988

 
$
492,899

Supplemental Information:
 

 
 

Cash Paid for Interest
$
210,770

 
$
218,863

Cash Paid for Income Taxes
$
124,251

 
$
33,411

Non-Cash Investing and Financing Activities:
 

 
 

Capital Leases
$
18,903

 
$
28,598

Accrued Capital Expenditures
$
30,484

 
$
29,626

Dividends Payable
$
795,671

 
$
5,123



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

8

Table of Contents

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(1) General
The interim consolidated financial statements are presented herein and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair presentation. Interim results are not necessarily indicative of results for a full year. Iron Mountain Incorporated, a Delaware corporation ("IMI"), and its subsidiaries ("we" or "us") store records, primarily paper documents and data backup media, and provide information management services in various locations throughout North America, Europe, Latin America and Asia Pacific. We have a diversified customer base consisting of commercial, legal, banking, healthcare, accounting, insurance, entertainment and government organizations.
The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to those rules and regulations, but we believe that the disclosures included herein are adequate to make the information presented not misleading. The Consolidated Financial Statements and Notes thereto, which are included herein, should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended December 31, 2014 included in our Current Report on Form 8-K filed with the SEC on May 7, 2015.
We have been organized and operating as a real estate investment trust for federal income tax purposes ("REIT") effective for our taxable year beginning January 1, 2014.
(2) Summary of Significant Accounting Policies
a.    Principles of Consolidation
The accompanying financial statements reflect our financial position, results of operations, comprehensive income (loss), equity and cash flows on a consolidated basis. All intercompany transactions and account balances have been eliminated.
b.    Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash on hand and cash invested in highly liquid short-term securities, which have remaining maturities at the date of purchase of less than 90 days. Cash and cash equivalents are carried at cost, which approximates fair value.
At December 31, 2014, we had $33,860 of restricted cash associated with a collateral trust agreement with our insurance carrier related to our workers' compensation self-insurance program included in current assets on our Consolidated Balance Sheet. The restricted cash consisted primarily of United States Treasuries. We had no restricted cash at September 30, 2015.
c.    Foreign Currency
Local currencies are the functional currencies for our operations outside the United States, with the exception of certain foreign holding companies and our financing centers in Switzerland, whose functional currency is the United States dollar. In those instances where the local currency is the functional currency, assets and liabilities are translated at period-end exchange rates, and revenues and expenses are translated at average exchange rates for the applicable period. Resulting translation adjustments are reflected in the accumulated other comprehensive items, net component of Iron Mountain Incorporated Stockholders' Equity and Noncontrolling Interests in the accompanying Consolidated Balance Sheets. The gain or loss on foreign currency transactions, calculated as the difference between the historical exchange rate and the exchange rate at the applicable measurement date, including those related to (1) our previously outstanding 71/4% GBP Senior Subordinated Notes due 2014 (the "71/4% Notes"), (2) our 63/4% Euro Senior Subordinated Notes due 2018 (the "63/4% Notes"), (3) borrowings in certain foreign currencies under our revolving credit facility and (4) certain foreign currency denominated intercompany obligations of our foreign subsidiaries to us and between our foreign subsidiaries, which are not considered permanently invested, are included in other expense (income), net, in the accompanying Consolidated Statements of Operations.

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IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

Total loss (gain) on foreign currency transactions for the three and nine months ended September 30, 2014 and 2015 is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2014
 
2015
 
2014
 
2015
 
Total loss (gain) on foreign currency transactions
$
23,500

 
$
32,539

 
$
25,591

 
$
56,461

 
d.    Goodwill and Other Intangible Assets
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. Separable intangible assets that are not deemed to have indefinite lives are amortized over their useful lives. We annually, or more frequently if events or circumstances warrant, assess whether a change in the lives over which our intangible assets are amortized is necessary.
We have selected October 1 as our annual goodwill impairment review date. We performed our most recent annual goodwill impairment review as of October 1, 2014 and concluded there was no impairment of goodwill at such date. As of December 31, 2014 and September 30, 2015, no factors were identified that would alter our October 1, 2014 goodwill assessment. In making this assessment, we relied on 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. When changes occur in the composition of one or more reporting units, the goodwill is reassigned to the reporting units affected based on their relative fair values.
Our reporting units at which level we performed our goodwill impairment analysis as of October 1, 2014 were as follows: (1) North American Records and Information Management; (2) technology escrow services that protect and manage source code (“Intellectual Property Management”); (3) the storage, assembly and detailed reporting of customer marketing literature and delivery to sales offices, trade shows and prospective customers’ sites based on current and prospective customer orders (“Fulfillment Services”); (4) North American Data Management; (5) Adjacent Businesses (which was formerly referred to as the "Emerging Businesses" reporting unit and primarily relates to our data center business in the United States and which is a component of our Corporate and Other Business segment); (6) the United Kingdom, Ireland, Norway, Austria, Belgium, France, Germany, Netherlands, Spain and Switzerland (“New Western Europe”); (7) the remaining countries in Europe in which we operate, excluding Russia, Ukraine and Denmark (“Emerging Markets - Eastern Europe” (formerly referred to as the "New Emerging Markets" reporting unit)); (8) Latin America; (9) Australia and Singapore; (10) China and Hong Kong (“Greater China”); (11) India; and (12) Russia, Ukraine and Denmark.

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IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

The carrying value of goodwill, net for each of our reporting units as of December 31, 2014 was as follows:
 
Carrying Value
as of
December 31, 2014
North American Records and Information Management(1)
$
1,397,484

Intellectual Property Management(1)
38,491

Fulfillment Services(1)
3,247

North American Data Management(2)
375,957

Adjacent Businesses(3)

New Western Europe(4)
354,049

Emerging Markets - Eastern Europe(5)
87,408

Latin America(5)
107,240

Australia and Singapore(5)
55,779

Greater China(5)
3,500

India(5)

Russia, Ukraine and Denmark(5)
628

Total
$
2,423,783

_______________________________________________________________________________
(1)
This reporting unit is included in the North American Records and Information Management Business segment.
(2)
This reporting unit is included in the North American Data Management Business segment.
(3)
This reporting unit is included in the Corporate and Other Business segment.
(4)
This reporting unit is included in the Western European Business segment.
(5)
This reporting unit is included in the Other International Business segment.
Beginning January 1, 2015, as a result of the changes in our reportable operating segments associated with our reorganization (see Note 7 for a description of our reportable operating segments), we reassessed the composition of our reporting units. Our North American Records and Information Management Business segment now consists of two reporting units: (1) North American Records and Information Management (which includes Intellectual Property Management and Fulfillment Services) and (2) North American Secure Shredding. Our Western European Business segment now consists of two reporting units: (1) the United Kingdom, Ireland and Norway (“UKI”) and (2) Austria, Belgium, France, Germany, Netherlands, Spain and Switzerland (“Continental Western Europe”). We have reassigned goodwill associated with the reporting units impacted by the reorganization among the new reporting units on a relative fair value basis. The fair value of each of our new reporting units was determined based on the application of a combined weighted average approach of preliminary fair value multiples of revenue and earnings and discounted cash flow techniques. These fair values represent our best estimate and preliminary assessment of goodwill allocations to each of the new reporting units on a relative fair value basis.

11

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

The carrying value of goodwill, net for each of our reporting units as of September 30, 2015 is as follows:
 
Carrying Value
as of
September 30, 2015
North American Records and Information Management(1)(2)
$
1,379,603

North American Secure Shredding(1)(2)
40,632

North American Data Management(3)
371,090

Adjacent Businesses(4)
4,636

UKI(1)(5)
263,477

Continental Western Europe(1)(5)
76,180

Emerging Markets - Eastern Europe(6)
80,245

Latin America(6)
78,560

Australia and Singapore(6)
48,207

Greater China(6)
3,387

India(6)
468

Russia, Ukraine and Denmark(6)
579

Total
$
2,347,064

_______________________________________________________________________________
(1)
We will finalize our preliminary estimates of fair value for these new reporting units once we finalize multi-year cash flow forecasts of such reporting units and conclude on the fair value of each new reporting unit based on the combined weighting of both fair value multiples and discounted cash flow techniques. To the extent final fair values of our new reporting units differ from our preliminary estimates, we will reassign goodwill amongst the new reporting units in a future period in which the final information is available to complete the fair values and the corresponding allocation of goodwill amongst the new reporting units.
(2)
This reporting unit is included in the North American Records and Information Management Business segment.
(3)
This reporting unit is included in the North American Data Management Business segment.
(4)
This reporting unit is included in the Corporate and Other Business segment.
(5)
This reporting unit is included in the Western European Business segment.
(6)
This reporting unit is included in the Other International Business segment.

As a result of the change in the composition of our reporting units noted above, we concluded that we had an interim triggering event, and, therefore, during the first quarter of 2015, we performed an interim goodwill impairment test, as of January 1, 2015, for the North American Records and Information Management, North American Secure Shredding, UKI and Continental Western Europe reporting units. We concluded that the goodwill for each of our new reporting units was not impaired as of such date. While we continue to refine our preliminary estimates of fair value of certain of our new reporting units for purposes of reallocating goodwill, we do not believe that any such changes to preliminary fair value estimates will result in a change in our conclusion that there is no goodwill impairment as of January 1, 2015.

12

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

The changes in the carrying value of goodwill attributable to each reportable operating segment for the nine months ended September 30, 2015 are as follows:
 
North American
Records and Information
Management
Business
 
North American
Data
Management
Business
 
Western
European Business
 
Other International Business
 
Corporate and Other Business
 
Total
Consolidated
Gross Balance as of December 31, 2014
$
1,645,209

 
$
429,982

 
$
412,322

 
$
254,706

 
$

 
$
2,742,219

Deductible goodwill acquired during the year
29

 
7

 

 

 
4,636

 
4,672

Non-deductible goodwill acquired during the year
2,510

 
567

 
2,507

 
2,249

 

 
7,833

Fair value and other adjustments(1)
104

 
(25
)
 
(415
)
 
(638
)
 

 
(974
)
Currency effects
(22,703
)
 
(5,684
)
 
(18,247
)
 
(44,739
)
 

 
(91,373
)
Gross Balance as of September 30, 2015
$
1,625,149

 
$
424,847

 
$
396,167

 
$
211,578

 
$
4,636

 
$
2,662,377

Accumulated Amortization Balance as of December 31, 2014
$
205,987

 
$
54,025

 
$
58,273

 
$
151

 
$

 
$
318,436

Currency effects
(1,073
)
 
(268
)
 
(1,763
)
 
(19
)
 

 
(3,123
)
Accumulated Amortization Balance as of September 30, 2015
$
204,914

 
$
53,757

 
$
56,510

 
$
132

 
$

 
$
315,313

Net Balance as of December 31, 2014
$
1,439,222

 
$
375,957

 
$
354,049

 
$
254,555

 
$

 
$
2,423,783

Net Balance as of September 30, 2015
$
1,420,235

 
$
371,090

 
$
339,657

 
$
211,446

 
$
4,636

 
$
2,347,064

Accumulated Goodwill Impairment Balance as of December 31, 2014
$
85,909

 
$

 
$
46,500

 
$

 
$

 
$
132,409

Accumulated Goodwill Impairment Balance as of September 30, 2015
$
85,909

 
$

 
$
46,500

 
$

 
$

 
$
132,409

_______________________________________________________________________________
(1)
Total fair value and other adjustments primarily include $622 in net adjustments to deferred income taxes and $(5,202) related to customer relationships and acquisition costs and other assumed liabilities (which represent adjustments, within the applicable measurement period, to provisional amounts recognized in purchase accounting), as well as $3,606 of cash paid related to certain 2014 acquisitions.


13

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

The components of our amortizable intangible assets as of December 31, 2014 and September 30, 2015 are as follows:
 
December 31, 2014
 
September 30, 2015
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Customer Relationships and Acquisition Costs
$
904,866

 
$
(297,029
)
 
$
607,837

 
$
898,153

 
$
(322,866
)
 
$
575,287

Core Technology(1)
3,568

 
(3,540
)
 
28

 
3,420

 
(3,420
)
 

Trademarks and Non-Compete Agreements(1)
7,062

 
(5,068
)
 
1,994

 
6,135

 
(4,762
)
 
1,373

Deferred Financing Costs
63,033

 
(15,956
)
 
47,077

 
83,989

 
(18,121
)
 
65,868

Total
$
978,529

 
$
(321,593
)
 
$
656,936

 
$
991,697

 
$
(349,169
)
 
$
642,528

_______________________________________________________________________________
(1)
Included in Other, a component of Other Assets, net in the accompanying Consolidated Balance Sheets.
Amortization expense associated with amortizable intangible assets (including deferred financing costs) for the three and nine months ended September 30, 2014 and 2015 is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2014
 
2015
 
2014
 
2015
 
Amortization expense associated with amortizable intangible assets (including deferred financing costs)
$
14,269

 
$
13,094

 
$
42,227

 
$
39,939

 
e.    Stock-Based Compensation
We record stock-based compensation expense, utilizing the straight-line method, for the cost of stock options, restricted stock, restricted stock units ("RSUs"), performance units ("PUs") and shares of stock issued under our employee stock purchase plan ("ESPP") (together, "Employee Stock-Based Awards").
Stock-based compensation expense for Employee Stock-Based Awards included in the accompanying Consolidated Statements of Operations for the three and nine months ended September 30, 2014 was $8,671 ($6,132 after tax or $0.03 per basic and diluted share) and $23,129 ($16,683 after tax or $0.09 per basic and diluted share), respectively. Stock-based compensation expense for Employee Stock-Based Awards for the three and nine months ended September 30, 2015 was $6,159 ($4,502 after tax or $0.02 per basic and diluted share) and $20,936 ($14,915 after tax or $0.07 per basic and diluted share), respectively.
Stock-based compensation expense for Employee Stock-Based Awards included in the accompanying Consolidated Statements of Operations related to continuing operations is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2015
 
2014
 
2015
Cost of sales (excluding depreciation and amortization)
$
177

 
$
65

 
$
556

 
$
156

Selling, general and administrative expenses
8,494

 
6,094

 
22,573

 
20,780

Total stock-based compensation
$
8,671

 
$
6,159

 
$
23,129

 
$
20,936


14

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

The benefits associated with the tax deductions in excess of recognized compensation cost are required to be reported as financing activities in the accompanying Consolidated Statements of Cash Flows. This requirement impacts reported operating cash flows and reported financing cash flows. As a result, net financing cash flows from continuing operations included $40 and $323 for the nine months ended September 30, 2014 and 2015, respectively, from the benefit of tax deductions compared to recognized compensation cost. The tax benefit of any resulting excess tax deduction increases the Additional Paid-in Capital ("APIC") pool. Any resulting tax deficiency is deducted from the APIC pool.
Stock Options
Under our various stock option plans, options are generally granted with exercise prices equal to the market price of the stock on the date of grant; however, in certain instances, options are granted at prices greater than the market price of the stock on the date of grant. Certain of the options we issue become exercisable ratably over a period of ten years from the date of grant and have a contractual life of 12 years from the date of grant, unless the holder's employment is terminated sooner. As of September 30, 2015, ten-year vesting options represented 7.1% of total outstanding options. Certain of the options we issue become exercisable ratably over a period of five years from the date of grant and have a contractual life of ten years from the date of grant, unless the holder's employment is terminated sooner. As of September 30, 2015, five-year vesting options represented 43.0% of total outstanding options. The remainder of options we issue become exercisable ratably over a period of three years from the date of grant and have a contractual life of ten years from the date of grant, unless the holder's employment is terminated sooner. As of September 30, 2015, three-year vesting options represented 49.9% of total outstanding options. Our non-employee directors are considered employees for purposes of our stock option plans and stock option reporting. Options granted to our non-employee directors become exercisable immediately upon grant.
The weighted average fair value of options granted for the nine months ended September 30, 2014 and 2015 was $5.60 and $4.88 per share, respectively. These values were estimated on the date of grant using the Black-Scholes option pricing model. The weighted average assumptions used for grants in the respective period are as follows:
 
 
Nine Months Ended
September 30,
Weighted Average Assumptions
 
2014
 
2015
Expected volatility
 
33.9
%
 
28.4
%
Risk-free interest rate
 
2.06
%
 
1.70
%
Expected dividend yield
 
4
%
 
5
%
Expected life
 
6.8 years

 
5.5 years

Expected volatility is calculated utilizing daily historical volatility over a period that equates to the expected life of the option. The risk-free interest rate was based on the United States Treasury interest rates whose term is consistent with the expected life (estimated period of time outstanding) of the stock options. Expected dividend yield is considered in the option pricing model and represents our current annualized expected per share dividends over the current trade price of our common stock. The expected life of the stock options granted is estimated using the historical exercise behavior of employees.

15

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

A summary of option activity for the nine months ended September 30, 2015 is as follows:
 
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term (Years)
 
Average
Intrinsic
Value
Outstanding at December 31, 2014
3,678,246

 
$
23.37

 
 
 
 

Granted
768,916

 
42.48

 
 
 
 

Exercised
(582,404
)
 
21.04

 
 
 
 

Forfeited
(32,926
)
 
25.75

 
 
 
 

Expired
(17,068
)
 
23.85

 
 
 
 

Outstanding at September 30, 2015
3,814,764

 
$
27.55

 
5.64
 
$
22,224

Options exercisable at September 30, 2015
2,505,986

 
$
22.82

 
4.03
 
$
20,566

Options expected to vest
1,233,897

 
$
36.51

 
8.70
 
$
1,590

The aggregate intrinsic value of stock options exercised for the three and nine months ended September 30, 2014 and 2015 is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2014
 
2015
 
2014
 
2015
 
Aggregate intrinsic value of stock options exercised
$
10,194

 
$
1,985

 
$
18,727

 
$
7,868

 
Restricted Stock and Restricted Stock Units
Under our various equity compensation plans, we may also grant restricted stock or RSUs. Our restricted stock and RSUs generally have a vesting period of between three and five years from the date of grant. However, beginning in 2015, RSUs granted to our non-employee directors now vest immediately upon grant. All RSUs accrue dividend equivalents associated with the underlying stock as we declare dividends. Dividends will generally be paid to holders of RSUs in cash upon the vesting date of the associated RSU and will be forfeited if the RSU does not vest. The fair value of restricted stock and RSUs is the excess of the market price of our common stock at the date of grant over the purchase price (which is typically zero).
Cash dividends accrued and paid on RSUs for the three and nine months ended September 30, 2014 and 2015 are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2015
 
2014
 
2015
Cash dividends accrued on RSUs
$
680

 
$
616

 
$
1,530

 
$
1,917

Cash dividends paid on RSUs
124

 
270

 
1,178

 
2,570

The fair value of restricted stock and RSUs vested during the three and nine months ended September 30, 2014 and 2015 are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2015
 
2014
 
2015
Fair value of restricted stock vested
$

 
$

 
$
1

 
$

Fair value of RSUs vested
1,566

 
2,377

 
19,114

 
21,561


16

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

A summary of restricted stock and RSU activity for the nine months ended September 30, 2015 is as follows:
 
Restricted
Stock and RSUs
 
Weighted-
Average
Grant-Date
Fair Value
Non-vested at December 31, 2014
1,405,569

 
$
28.78

Granted
599,580

 
37.69

Vested
(609,109
)
 
31.18

Forfeited
(99,550
)
 
32.84

Non-vested at September 30, 2015
1,296,490

 
$
33.59

Performance Units
Under our various equity compensation plans, we may also make awards of PUs. For the majority of outstanding PUs, the number of PUs earned is determined based on our performance against predefined targets of revenue or revenue growth and return on invested capital ("ROIC"). The number of PUs earned may range from 0% to 150% (for PUs granted prior to 2014) and 0% to 200% (for PUs granted in 2014 and thereafter) of the initial award. The number of PUs earned is determined based on our actual performance as compared to the targets at the end of either a one-year performance period (for PUs granted prior to 2014) or a three-year performance period (for PUs granted in 2014 and thereafter). Certain PUs granted in 2013, 2014 and 2015 will be earned based on a market condition associated with the total return on our common stock in relation to a subset of the S&P 500 rather than the revenue growth and ROIC targets noted above. The number of PUs earned based on this market condition may range from 0% to 200% of the initial award. All of our PUs will be settled in shares of our common stock and are subject to cliff vesting three years from the date of the original PU grant. For those PUs subject to a one-year performance period, employees who subsequently terminate their employment after the end of the one-year performance period and on or after attaining age 55 and completing 10 years of qualifying service (the "Retirement Criteria") shall immediately and completely vest in any PUs earned based on the actual achievement against the predefined targets as discussed above (but delivery of the shares remains deferred). As a result, PUs subject to a one-year performance period are generally expensed over the shorter of (1) the vesting period, (2) achievement of the Retirement Criteria, which may occur as early as January 1 of the year following the year of grant or (3) a maximum of three years. For those PUs subject to a three-year performance period, employees who terminate their employment during the performance period and on or after meeting the Retirement Criteria are eligible for pro rated vesting, subject to the actual achievement against the predefined targets as discussed above, based on the number of full years of service completed following the grant date (but delivery of the shares remains deferred). As a result, PUs subject to a three-year performance period are generally expensed over the three-year performance period. Outstanding PUs accrue dividend equivalents associated with the underlying stock as we declare dividends. Dividends will generally be paid to holders of PUs in cash upon the settlement date of the associated PU and will be forfeited if the PU does not vest.
Cash dividends accrued and paid on PUs for the three and nine months ended September 30, 2014 and 2015 are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2015
 
2014
 
2015
Cash dividends accrued on PUs
$
240

 
$
222

 
$
532

 
$
647

Cash dividends paid on PUs

 

 
312

 
1,015



17

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

During the nine months ended September 30, 2015, we issued 156,182 PUs. The majority of our PUs are earned based on our performance against revenue or revenue growth and ROIC targets during their applicable performance period. We forecast the likelihood of achieving the predefined revenue, revenue growth and ROIC targets in order to calculate the expected PUs to be earned. We record a compensation charge based on either the forecasted PUs to be earned (during the applicable performance period) or the actual PUs earned (at the one-year anniversary date for PUs granted prior to 2014, and at the three-year anniversary date for PUs granted in 2014 and thereafter) over the vesting period for each of the awards. For PUs earned based on a market condition, we utilize a Monte Carlo simulation to fair value these awards at the date of grant, and such fair value is expensed over the three-year performance period. As of September 30, 2015, we expected 0% and 100% achievement of the predefined revenue, revenue growth and ROIC targets associated with the awards of PUs made in 2014 and 2015, respectively.
The fair value of earned PUs that vested during the three and nine months ended September 30, 2014 and 2015 is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2015
 
2014
 
2015
Fair value of earned PUs that vested
$

 
$

 
$
6,296

 
$
2,107

A summary of PU activity for the nine months ended September 30, 2015 is as follows:
 
Original
PU Awards
 
PU Adjustment(1)
 
Total
PU Awards
 
Weighted-
Average
Grant-Date
Fair Value
Non-vested at December 31, 2014
461,666

 
(82,609
)
 
379,057

 
$
30.80

Granted
156,182

 

 
156,182

 
39.41

Vested
(80,035
)
 
(4,350
)
 
(84,385
)
 
29.62

Forfeited
(20,201
)
 

 
(20,201
)
 
31.27

Non-vested at September 30, 2015
517,612

 
(86,959
)
 
430,653

 
$
34.13

_______________________________________________________________________________

(1)
Represents an increase or decrease in the number of original PUs awarded based on either (a) the final performance criteria achievement at the end of the defined performance period of such PUs or (b) a change in estimated awards based on the forecasted performance against the predefined targets.

18

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

Employee Stock Purchase Plan
We offer an ESPP in which participation is available to substantially all United States and Canadian employees who meet certain service eligibility requirements. The ESPP provides a way for our eligible employees to become stockholders on favorable terms. The ESPP provides for the purchase of our common stock by eligible employees through successive offering periods. We have historically had two six-month offering periods per year, the first of which generally runs from June 1 through November 30 and the second of which generally runs from December 1 through May 31. During each offering period, participating employees accumulate after-tax payroll contributions, up to a maximum of 15% of their compensation, to pay the purchase price at the end of the offering. Participating employees may withdraw from an offering before the purchase date and obtain a refund of the amounts withheld as payroll deductions. At the end of the offering period, outstanding options under the ESPP are exercised, and each employee's accumulated contributions are used to purchase our common stock. The price for shares purchased under the ESPP is 95% of the fair market price at the end of the offering period, without a look-back feature. As a result, we do not recognize compensation expense for the ESPP shares purchased. For the nine months ended September 30, 2014 and 2015, there were 69,567 shares and 59,569 shares, respectively, purchased under the ESPP. As of September 30, 2015, we had 901,069 shares available under the ESPP.
_______________________________________________________________________________
As of September 30, 2015, unrecognized compensation cost related to the unvested portion of our Employee Stock-Based Awards was $41,067 and is expected to be recognized over a weighted-average period of 2.1 years.
We generally issue shares of our common stock for the exercises of stock options, restricted stock, RSUs, PUs and shares of our common stock under our ESPP from unissued reserved shares.

19

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

f.    Income (Loss) Per Share—Basic and Diluted
Basic income (loss) per common share is calculated by dividing income (loss) by the weighted average number of common shares outstanding. The calculation of diluted income (loss) per share is consistent with that of basic income (loss) per share but gives effect to all potential common shares (that is, securities such as options, warrants or convertible securities) that were outstanding during the period, unless the effect is antidilutive.
The calculation of basic and diluted income (loss) per share for the three and nine months ended September 30, 2014 and 2015 is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2015
 
2014
 
2015
Income (loss) from continuing operations
$
858

 
$
23,517

 
$
316,281

 
$
119,263

Total (loss) income from discontinued operations
$

 
$

 
$
(938
)
 
$

Net income (loss) attributable to Iron Mountain Incorporated
$
66

 
$
23,110

 
$
313,370

 
$
117,536

 
 
 
 
 
 
 
 
Weighted-average shares—basic
193,360,000

 
210,912,000

 
192,540,000

 
210,616,000

Effect of dilutive potential stock options
1,023,890

 
621,615

 
823,036

 
934,553

Effect of dilutive potential restricted stock, RSUs and PUs
520,644

 
382,995

 
470,060

 
530,252

Weighted-average shares—diluted
194,904,534

 
211,916,610

 
193,833,096

 
212,080,805

 
 
 
 
 
 
 
 
Earnings (losses) per share—basic:
 

 
 

 
 

 
 

Income (loss) from continuing operations
$

 
$
0.11

 
$
1.64

 
$
0.57

Total (loss) income from discontinued operations
$

 
$

 
$

 
$

Net income (loss) attributable to Iron Mountain Incorporated—basic
$

 
$
0.11

 
$
1.63

 
$
0.56

 
 
 
 
 
 
 
 
Earnings (losses) per share—diluted:
 

 
 

 
 

 
 

Income (loss) from continuing operations
$

 
$
0.11

 
$
1.63

 
$
0.56

Total (loss) income from discontinued operations
$

 
$

 
$

 
$

Net income (loss) attributable to Iron Mountain Incorporated—diluted
$

 
$
0.11

 
$
1.62

 
$
0.55

 
 
 
 
 
 
 
 
Antidilutive stock options, RSUs and PUs, excluded from the calculation
609,385

 
2,262,827

 
1,149,441

 
1,318,811


20

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

g.    Revenues
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). Service revenues include charges for related service activities, which include: (1) the handling of records, including the addition of new records, temporary removal of records from storage, refiling of removed records and the destruction of records; (2) courier operations, consisting primarily of the pickup and delivery of records upon customer request; (3) secure shredding of sensitive documents and the related sale of recycled paper, the price of which can fluctuate from period to period; (4) other services, including the scanning, imaging and document conversion services of active and inactive records, or Document Management Solutions ("DMS"), which relate to physical and digital records, and project revenues; (5) customer termination and permanent withdrawal fees; (6) data restoration projects; (7) special project work; (8) Fulfillment Services; (9) consulting services; and (10) Intellectual Property Management and other technology services and product sales (including specially designed storage containers and related supplies).
We recognize revenue when the following criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable and collectability of the resulting receivable is reasonably assured. 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 have historically not been significant.
h.    Allowance for Doubtful Accounts and Credit Memo Reserves
We maintain an allowance for doubtful accounts and credit memos for estimated losses resulting from the potential inability of our customers to make required payments and potential disputes regarding billing and service issues. When calculating the allowance, we consider our past loss experience, current and prior trends in our aged receivables and credit memo activity, current economic conditions and specific circumstances of individual receivable balances. If the financial condition of our customers were to significantly change, resulting in a significant improvement or impairment of their ability to make payments, an adjustment of the allowance may be required. We charge-off uncollectible balances as circumstances warrant, generally, no later than one year past due.
i.    Income Taxes
As noted previously, we have elected to be taxed as a REIT effective since our taxable year that began January 1, 2014. 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 may be taxed at the stockholder level. The income of our domestic taxable REIT subsidiaries (“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 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 tax purposes or as TRSs. We will also be subject to a separate corporate income tax on any gains recognized during a specified period (generally ten years) following the REIT conversion that are attributable to “built‑in” gains with respect to the assets that we owned on January 1, 2014. This built‑in gains tax has been imposed on our depreciation recapture recognized into income in 2014 and generally will be imposed in subsequent years as a result of accounting method changes commenced in our pre‑REIT period. If we fail to remain qualified for taxation as a REIT, we will be subject to federal income tax at regular corporate 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.

21

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IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period they occur. 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 qualified REIT subsidiaries and our TRSs, as well as between 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. 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.
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.
We have elected to recognize interest and penalties associated with uncertain tax positions as a component of the provision (benefit) for income taxes in the accompanying Consolidated Statements of Operations. We recorded an increase of $246 and $581 for gross interest and penalties for the three and nine months ended September 30, 2014, respectively. We recorded an increase of $180 and $1,759 for gross interest and penalties for the three and nine months ended September 30, 2015, respectively. We had $5,884 and $6,595 accrued for the payment of interest and penalties as of December 31, 2014 and September 30, 2015, respectively.
As a result of our REIT conversion, we recorded a net tax benefit of $212,151 during the nine months ended September 30, 2014 for the revaluation of certain deferred tax assets and liabilities and other income taxes associated with the REIT conversion. Also, in the third quarter of 2014, we recorded an increase of $26,390 to the tax provision related to certain amended tax returns filed principally to reflect tax accounting method changes consistent with our REIT conversion. The other primary reconciling items between the federal statutory rate of 35% and our overall effective tax rate in the three and nine months ended September 30, 2014 were an increase of $13,226 and $49,310, respectively, in our tax provision associated with incremental federal and state income taxes and foreign withholding taxes on earnings of our foreign subsidiaries no longer considered permanently invested and other net tax adjustments related to the REIT conversion, including a tax benefit of $7,993 and $41,828, respectively, primarily related to the dividends paid deduction.
Our effective tax rates for the three and nine months ended September 30, 2015 were 14.3% and 18.6%, respectively. The primary reconciling items between the federal statutory rate of 35% and our overall effective tax rate in the three and nine months ended September 30, 2015 were the benefit derived from the dividends paid deduction, differences in the rates of tax at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates and state income taxes (net of federal tax benefit). In the third quarter of 2015, we recorded a tax benefit of $4,100 related to the expiration of certain statutes of limitations and an out-of-period tax adjustment ($9,000 tax benefit) to correct the valuation of certain deferred tax assets associated with the REIT conversion that occurred in 2014.
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.

22

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

j.    Concentrations of Credit Risk
Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents (including money market funds and time deposits), restricted cash (primarily United States Treasuries) and accounts receivable. The only significant concentrations of liquid investments as of December 31, 2014 relate to cash and cash equivalents and restricted cash held on deposit and as of September 30, 2015 relate to cash and cash equivalents. At December 31, 2014, we had money market funds with two "Triple A" rated money market funds and time deposits with three global banks. At September 30, 2015, we had money market funds with two "Triple A" rated money market funds and time deposits with eight global banks. We consider the "Triple A" rated money market funds and the global banks to be large, highly-rated investment-grade institutions. 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 $50,000 or in any one financial institution to a maximum of $75,000. As of December 31, 2014 and September 30, 2015, our cash and cash equivalents and restricted cash balance was $159,793 and $492,899, respectively, including money market funds and time deposits amounting to $53,032 and $379,056, respectively. The money market funds were invested substantially in United States Treasuries.
k.    Fair Value Measurements
Entities are permitted under GAAP to elect to measure many financial instruments and certain other items at either fair value or cost. We have elected the cost measurement option.
Our financial assets or liabilities that are carried at fair value are required to be measured using inputs from the three levels of the fair value hierarchy. A financial asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The three levels of the fair value hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3—Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

23

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

The assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2014 and September 30, 2015, respectively, are as follows:
 
 
 
 
Fair Value Measurements at
December 31, 2014 Using
Description
 
Total Carrying
Value at
December 31,
2014
 
Quoted prices
in active
markets
(Level 1)
 
 
 
Significant other
observable
inputs
(Level 2)
 
 
 
Significant
unobservable
inputs
(Level 3)
Money Market Funds(1)
 
$
36,828

 
$

 
 
 
$
36,828

 
 
 
$

Time Deposits(1)
 
16,204

 

 
 
 
16,204

 
 
 

Trading Securities
 
13,172

 
12,428

 
(2)
 
744

 
(1)
 

Derivative Liabilities(3)
 
2,411

 

 
 
 
2,411

 
 
 

 
 
 
 
Fair Value Measurements at
September 30, 2015 Using
Description
 
Total Carrying
Value at
September 30,
2015
 
Quoted prices
in active
markets
(Level 1)
 
 
 
Significant other
observable
inputs
(Level 2)
 
 
 
Significant
unobservable
inputs
(Level 3)
Money Market Funds(1)
 
$
175,000

 
$

 
 
 
$
175,000

 
 
 
$

Time Deposits(1)
 
204,056

 

 
 
 
204,056

 
 
 

Trading Securities
 
9,960

 
9,111

 
(2)
 
849

 
(1)
 

Derivative Assets(3)
 
305

 

 
 
 
305

 
 
 

Derivative Liabilities(3)
 
666

 
 
 
 
 
666

 
 
 
 
_______________________________________________________________________________

(1)
Money market funds and time deposits (including certain trading securities) are measured based on quoted prices for similar assets and/or subsequent transactions.

(2)
Securities are measured at fair value using quoted market prices.

(3)
Our derivative assets and liabilities relate to short-term (six months or less) foreign currency contracts that we have entered into to hedge certain of our intercompany exposures, as more fully disclosed at Note 3. We calculate the value of such forward contracts by adjusting the spot rate utilized at the balance sheet date for translation purposes by an estimate of the forward points observed in active markets.
Disclosures are required in the financial statements for items measured at fair value on a non-recurring basis. We did not have any material items that are measured at fair value on a non-recurring basis for the three and nine months ended September 30, 2014 and 2015.
l.    Use of Estimates
The preparation of financial statements in conformity with GAAP 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.

24

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

m.    Accumulated Other Comprehensive Items, Net
The changes in accumulated other comprehensive items, net for the three months ended September 30, 2014 and 2015, respectively, are as follows:
 
Foreign
Currency
Translation
Adjustments
 
Market Value
Adjustments for
Securities
 
Total
Balance as of June 30, 2014
$
(3,809
)
 
$
1,474

 
$
(2,335
)
Other comprehensive (loss) income:
 

 
 

 


Foreign currency translation adjustments
(44,606
)
 

 
(44,606
)
Market value adjustments for securities

 
(291
)
 
(291
)
Total other comprehensive (loss) income
(44,606
)
 
(291
)
 
(44,897
)
Balance as of September 30, 2014
$
(48,415
)
 
$
1,183

 
$
(47,232
)

 
Foreign
Currency
Translation
Adjustments
 
Market Value
Adjustments for
Securities
 
Total
Balance as of June 30, 2015
$
(130,752
)
 
$
1,002

 
$
(129,750
)
Other comprehensive (loss) income:


 


 


Foreign currency translation adjustments
(33,803
)
 

 
(33,803
)
Market value adjustments for securities

 
(134
)
 
(134
)
Total other comprehensive (loss) income
(33,803
)
 
(134
)
 
(33,937
)
Balance as of September 30, 2015
$
(164,555
)
 
$
868

 
$
(163,687
)
The changes in accumulated other comprehensive items, net for the nine months ended September 30, 2014 and 2015, respectively, are as follows:
 
Foreign
Currency
Translation
Adjustments
 
Market Value
Adjustments for
Securities
 
Total
Balance as of December 31, 2013
$
(9,586
)
 
$
926

 
$
(8,660
)
Other comprehensive (loss) income:
 
 
 
 


Foreign currency translation adjustments
(38,829
)
 

 
(38,829
)
Market value adjustment for securities

 
257

 
257

Total other comprehensive (loss) income
(38,829
)
 
257

 
(38,572
)
Balance as of September 30, 2014
$
(48,415
)
 
$
1,183

 
$
(47,232
)

25

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

 
Foreign
Currency
Translation
Adjustments
 
Market Value
Adjustments for
Securities
 
Total
Balance as of December 31, 2014
$
(76,010
)
 
$
979

 
$
(75,031
)
Other comprehensive (loss) income:


 


 


Foreign currency translation adjustments
(88,545
)
 

 
(88,545
)
Market value adjustments for securities

 
(111
)
 
(111
)
Total other comprehensive (loss) income
(88,545
)
 
(111
)
 
(88,656
)
Balance as of September 30, 2015
$
(164,555
)
 
$
868

 
$
(163,687
)
n.    Other (Income) Expense, Net
Other (income) expense, net is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2015
 
2014
2015
Foreign currency transaction losses (gains), net
$
23,500

 
$
32,539

 
$
25,591

$
56,461

Debt extinguishment expense, net

 
2,156

 

2,156

Other, net
(992
)
 
551

 
(2,604
)
982

 
$
22,508

 
$
35,246

 
$
22,987

$
59,599

o.    Property, Plant and Equipment and Long-Lived Assets
We develop various software applications for internal use. Computer software costs associated with internal use software are expensed as incurred until certain capitalization criteria are met. Payroll and related costs for employees directly associated with, and devoting time to, the development of internal use computer software projects (to the extent time is spent directly on the project) are capitalized. During the three and nine months ended September 30, 2014, we capitalized $4,769 and $14,527 of costs, respectively, associated with the development of internal use computer software projects. During the three and nine months ended September 30, 2015, we capitalized $6,844 and $19,279 of costs, respectively, associated with the development of internal use computer software projects. Capitalization begins when the design stage of the application has been completed and it is probable that the project will be completed and used to perform the function intended. Capitalization ends when the asset is ready for its intended use. Depreciation begins when the software is placed in service. Computer software costs that are capitalized are periodically evaluated for impairment.
We review long-lived assets and all amortizable intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing 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 the operation is determined to be unable to recover the carrying amount of its 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.


26

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

Consolidated loss on disposal/write-down of property, plant and equipment (excluding real estate), net was $184 and $1,229 for the three and nine months ended September 30, 2014, respectively. Losses for both the three and nine months ended September 30, 2014 were primarily associated with the disposal of certain equipment associated with our North American Records and Information Management Business segment and the write-off of certain software associated with our Western European Business segment. Consolidated (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net was $(141) and $707 for the three and nine months ended September 30, 2015, respectively. Gains in the three months ended September 30, 2015 were primarily associated with the disposal of leased vehicles in our North American Records and Information Management Business segment. Losses in the nine months ended September 30, 2015 consisted primarily of the write-off of certain property associated with our North American Records and Information Management Business segment.
Consolidated gain on sale of real estate was $7,468, net of tax of $1,991, for the nine months ended September 30, 2014 associated with the sale of two buildings in the United Kingdom. Consolidated gain on sale of real estate was $850, net of tax of $209, for the three and nine months ended September 30, 2015 associated with the sale of a building in the United Kingdom.
p.    New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 provides additional guidance for management to reassess revenue recognition as it relates to: (1) transfer of control, (2) variable consideration, (3) allocation of transaction price based on relative standalone selling price, (4) licenses, (5) time value of money and (6) contract costs. Further disclosures will be required to provide a better understanding of revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date ("ASU 2015-14"). ASU 2015-14 defers the effective date of ASU 2014-09 for one year, making it effective for our year beginning January 1, 2018, with early adoption permitted as of January 1, 2017. We are currently evaluating the impact ASU 2014-09 will have on our consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles of current United States auditing standards. Specifically, the amendments (1) provide a definition of the term “substantial doubt”, (2) require an evaluation every reporting period, including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is still present, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU 2014‑15 is effective for us on January 1, 2017, with early adoption permitted. We do not believe that this pronouncement will have an impact on our consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015‑02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015‑02”). ASU 2015‑02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015‑02 is effective for us on January 1, 2016, with early adoption permitted. We do not believe that this pronouncement will have an impact on our consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”).  The amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03.  ASU 2015‑03 is effective for us on January 1, 2016, with early adoption permitted. We do not believe that this pronouncement will have a material impact on our consolidated financial statements.

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Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). ASU 2015-16 requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified, with the prior period impact of the adjustment being disclosed within the consolidated financial statements. ASU 2015-16 is effective for us on January 1, 2016, with early adoption permitted. We adopted ASU 2015-16 during the third quarter of 2015. This pronouncement did not have a material impact on our consolidated financial statements.
(3) Derivative Instruments and Hedging Activities
Every derivative instrument is required to be recorded in the balance sheet as either an asset or a liability measured at its fair value. Periodically, we acquire derivative instruments that are intended to hedge either cash flows or values that are subject to foreign exchange or other market price risk and not for trading purposes. We have formally documented our hedging relationships, including identification of the hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking each hedge transaction. Given the recurring nature of our revenues and the long-term nature of our asset base, we have the ability and the preference to use long-term, fixed interest rate debt to finance our business, thereby preserving our long-term returns on invested capital. We target approximately 75% of our debt portfolio to be fixed with respect to interest rates. Occasionally, we may use interest rate swaps as a tool to maintain our targeted level of fixed rate debt. In addition, we may use borrowings in foreign currencies, either obtained in the United States or by our foreign subsidiaries, to hedge foreign currency risk associated with our international investments. Sometimes we enter into currency swaps to temporarily hedge an overseas investment, such as a major acquisition, while we arrange permanent financing or to hedge our exposure due to foreign currency exchange movements related to our intercompany accounts with and between our foreign subsidiaries. As of December 31, 2014 and September 30, 2015, none of our derivative instruments contained credit-risk related contingent features.
We have entered into a number of separate forward contracts to hedge our exposures in Euros, British pounds sterling and Australian dollars. As of September 30, 2015, we had outstanding forward contracts to purchase 222,000 Euros and sell $249,471 United States dollars to hedge our intercompany exposures with our European operations. At the maturity of the forward contracts, we may enter into new forward contracts to hedge movements in the underlying currencies. At the time of settlement, we either pay or receive the net settlement amount from the forward contract and recognize this amount in other expense (income), net in the Consolidated Statements of Operations as a realized foreign exchange gain or loss. At the end of each month, we mark the outstanding forward contracts to market and record an unrealized foreign exchange gain or loss for the mark-to-market valuation. We have not designated forward contracts as hedges.
Net cash (receipts) payments included in cash from operating activities related to settlements associated with foreign currency forward contracts for the three and nine months ended September 30, 2014 and 2015 are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2015
 
2014
 
2015
Net cash (receipts) payments
$
(9,536
)
 
$
(7,024
)
 
$
4,993

 
$
22,164



28

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(3) Derivative Instruments and Hedging Activities (Continued)

Our policy is to record the fair value of each derivative instrument on a gross basis. The fair values of our derivative instruments as of December 31, 2014 and September 30, 2015 and their gains and losses for the three and nine months ended September 30, 2014 and 2015 are as follows:
 
 
Asset Derivatives
 
 
December 31, 2014
 
September 30, 2015
Derivatives Not Designated as
Hedging Instruments
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
Foreign exchange contracts
 
Prepaid expenses and other
 
$

 
Prepaid expenses and other
 
$
305

Total
 
 
 
$

 
 
 
$
305

 
 
Liability Derivatives
 
 
December 31, 2014
 
September 30, 2015
Derivatives Not Designated as
Hedging Instruments
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
Foreign exchange contracts
 
Accrued expenses
 
$
2,411

 
Accrued expenses
 
$
666

Total
 
 
 
$
2,411

 
 
 
$
666

 
 
 
 
 
Amount of (Gain)
Loss
Recognized in
Income
on Derivatives
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Derivatives Not Designated as
Hedging Instruments
 
Location of (Gain) Loss
Recognized in Income
on Derivative
 
2014
 
2015
 
2014
 
2015
Foreign exchange contracts
 
Other expense (income), net
 
$
(4,025
)
 
$
(301
)
 
$
10,625

 
$
20,113

Total
 
 
 
 
$
(4,025
)
 
$
(301
)
 
$
10,625

 
$
20,113

We have designated a portion of the 63/4% Notes as a hedge of net investment of certain of our Euro denominated subsidiaries. For the nine months ended September 30, 2014 and 2015, we designated on average 51,481 and 35,151 Euros, respectively, of the 63/4% Notes as a hedge of net investment of certain of our Euro denominated subsidiaries. As a result, we recorded the following foreign exchange gains (losses), net of tax, related to the change in fair value of such debt due to currency translation adjustments, which is a component of accumulated other comprehensive items, net:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2014
 
2015
 
2014
 
2015
Foreign exchange gains (losses)
 
$
3,729

 
$
(85
)
 
$
4,537

 
$
3,381

Less: Tax expense (benefit) on foreign exchange gains (losses)
 

 

 
57

 

Foreign exchange gains (losses), net of tax
 
$
3,729

 
$
(85
)
 
$
4,480

 
$
3,381

As of September 30, 2015, cumulative net gains of $17,193, net of tax are recorded in accumulated other comprehensive items, net associated with this net investment hedge.

29

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(4) Acquisitions

We account for acquisitions using the acquisition method of accounting, and, accordingly, the assets and liabilities acquired were recorded at their estimated fair values and the results of operations for each acquisition have been included in our consolidated results from their respective acquisition dates. Cash consideration for our various acquisitions was primarily provided through borrowings under our credit facilities and cash equivalents on‑hand. The unaudited pro forma results of operations (including revenue and earnings) for the current and prior periods are not presented due to the insignificant impact of the 2014 and 2015 acquisitions on our consolidated results of operations.

In the first nine months of 2015, in order to enhance our existing operations in Australia, Austria, Canada, Chile, China, India, the United Kingdom and the United States, we completed nine acquisitions for total consideration of approximately $24,900. These acquisitions included six storage and records management companies, two storage and data management companies and one personal storage company. The individual purchase prices of these acquisitions ranged from approximately $1,000 to approximately $5,400.
A summary of the cumulative consideration paid and the preliminary allocation of the purchase price paid for these acquisitions is as follows:
Cash Paid (gross of cash acquired)
$
24,930

(1)
Total Consideration
24,930

 
Fair Value of Identifiable Assets Acquired:
 
 
Cash, Accounts Receivable, Prepaid Expenses, Deferred Income Taxes and Other
2,095

 
Property, Plant and Equipment(2)
5,899

 
Customer Relationship Assets(3)
10,634

 
Other Assets
622

 
Liabilities Assumed and Deferred Income Taxes(4)
(6,825
)
 
Total Fair Value of Identifiable Net Assets Acquired
12,425

 
Goodwill Initially Recorded
$
12,505

 
_______________________________________________________________________________

(1)
Included in cash paid for acquisitions in the Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 is net cash acquired of $(561) and contingent and other payments of $3,606 related to acquisitions made in previous years.

(2)
Consists primarily of buildings, racking structures, leasehold improvements and computer hardware and software.

(3)
The weighted average lives of customer relationship intangible assets associated with acquisitions in 2015 was 22 years.

(4)
Consists primarily of accrued expenses and deferred income taxes.

Allocations of the purchase price paid for certain acquisitions made in 2015 were based on estimates of the fair value of net assets acquired and are subject to adjustment as additional information becomes available to us. We are not aware of any information that would indicate that the final purchase price allocations for these 2015 acquisitions will differ meaningfully from preliminary estimates. The purchase price allocations of these 2015 acquisitions are subject to finalization of the assessment of the fair value of intangible assets (primarily customer relationship intangible assets), property, plant and equipment (primarily racking structures), operating leases, contingencies and income taxes (primarily deferred income taxes).

30

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(4) Acquisitions (Continued)

On June 8, 2015, we entered into a binding Scheme Implementation Deed (the “Recall Agreement”) with Recall Holdings Limited (“Recall”) to acquire Recall (the “Recall Transaction”) by way of a recommended court approved Scheme of Arrangement (the “Scheme”). Under the terms of the Recall Agreement, Recall shareholders are entitled to receive the Australian dollar equivalent of US$0.50 in cash for each outstanding share of Recall common stock (the “Cash Supplement”) as well as either (1) 0.1722 shares of our common stock for each Recall share or (2) 8.50 Australian dollars less the Australian dollar equivalent of US$0.50 in cash for each Recall share (the “Cash Election”). The Cash Election is subject to a proration mechanism that will cap the total amount of cash paid to Recall shareholders electing the Cash Election at 225,000 Australian dollars (the “Cash Election Cap”). Amounts paid to Recall shareholders that represent the Cash Supplement are excluded from the calculation of the Cash Election Cap. Assuming a sufficient number of Recall shareholders elect the Cash Election such that we pay the Cash Election Cap, we expect to issue approximately 50,700,000 shares of our common stock and, based on the exchange rate between the United States dollar and the Australian dollar as of September 30, 2015, pay approximately     US$319,000 to Recall shareholders in connection with the Recall Transaction which, based on the closing price of our common stock as of September 30, 2015, would result in a total purchase price to Recall shareholders of approximately $1,880,000. Completion of the Scheme is subject to customary closing conditions, including among others, (i) approval by Recall shareholders of the Scheme by the requisite majorities under the Australian Corporations Act, (ii) approval by our shareholders of the issuance of shares of our common stock in connection with the Recall Transaction by the requisite majority, (iii) expiration or earlier termination of any applicable waiting period and receipt of regulatory consents, approvals and clearances, in each case, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and under relevant antitrust/competition and foreign investment legislation in other relevant jurisdictions, (iv) the absence of any final and non-appealable order, decree or law preventing, making illegal or prohibiting the completion of the Recall Transaction, (v) approval from the New York Stock Exchange to the listing of additional shares of our common stock to be issued in the Recall Transaction, (vi) the establishment of a secondary listing on the Australian Securities Exchange (the “ASX”) to allow Recall shareholders to trade our common stock via CHESS Depository Interests on the ASX, (vii) Recall’s delivery of tax opinions in accordance and in compliance with certain tax matter agreements to which Recall is a party and (viii) no events having occurred that would have a material adverse effect on Recall or us. We expect the Recall Transaction to close in the first half of 2016.

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Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5) Debt


Long-term debt is as follows:
 
December 31, 2014
 
September 30, 2015
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
IMI Revolving Credit Facility(1)
$
883,428

 
$
883,428

 
$

 
$

IMI Term Loan (1)
249,375

 
249,375

 

 

New Revolving Credit Facility(1)

 

 
284,886

 
284,886

New Term Loan(1)

 

 
246,875

 
246,875

6 3/4% Euro Senior Subordinated Notes due 2018 (the "6 3/4% Notes")(2)(3)
308,616

 
309,634

 
285,202

 
285,306

7 3/4% Senior Subordinated Notes due 2019 (the "7 3/4% Notes")(2)(3)
400,000

 
429,000

 
400,000

 
416,060

6% Senior Notes due 2020 (the "6% Notes due 2020")(2)(3)(4)

 

 
1,000,000

 
1,012,500

8 3/8% Senior Subordinated Notes due 2021 (the "8 3/8% Notes")(2)(3)
106,030

 
110,500

 
106,055

 
108,890

6 1/8% CAD Senior Notes due 2021 (the "CAD Notes")(2)(5)
172,420

 
175,437

 
149,240

 
151,852

6 1/8% GBP Senior Notes due 2022 (the "GBP Notes")(2)(4)(6)
622,960

 
639,282

 
606,180

 
600,118

6% Senior Notes due 2023 (the "6% Notes due 2023")(2)(3)
600,000

 
625,500

 
600,000

 
591,000

5 3/4% Senior Subordinated Notes due 2024 (the "5 3/4% Notes")(2)(3)
1,000,000

 
1,005,000

 
1,000,000

 
960,000

Accounts Receivable Securitization Program(7)(8)

 

 
198,300

 
198,300

Real Estate Mortgages, Capital Leases and Other(8)
320,702

 
320,702

 
297,556

 
297,556

Total Long-term Debt
4,663,531

 
 

 
5,174,294

 
 

Less Current Portion(9)
(52,095
)
 
 

 
(253,726
)
 
 

Long-term Debt, Net of Current Portion
$
4,611,436

 
 

 
$
4,920,568

 
 

______________________________________________________________________________
(1)
The capital stock or other equity interests of most of our United States subsidiaries, and up to 66% of the capital stock or other equity interests of our first-tier foreign subsidiaries, are pledged to secure these debt instruments, together with all intercompany obligations (including promissory notes) of subsidiaries owed to us or to one of our United States subsidiary guarantors. In addition, Iron Mountain Canada Operations ULC ("Canada Company") has pledged 66% of the capital stock of its subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by it, to secure the Canadian dollar subfacility under both the IMI Revolving Credit Facility and the New Revolving Credit Facility (each of which is defined below). The fair value (Level 3 of fair value hierarchy described at Note 2.k.) of these debt instruments approximates the carrying value (as borrowings under these debt instruments are based on current variable market interest rates (plus a margin that is subject to change based on our consolidated leverage ratio)), as of both December 31, 2014 and September 30, 2015.

(2)
The fair values (Level 1 of fair value hierarchy described at Note 2.k.) of these debt instruments are based on quoted market prices for these notes on December 31, 2014 and September 30, 2015, respectively.

(3)
Collectively, the "Parent Notes." IMI is the direct obligor on the Parent Notes, which are fully and unconditionally guaranteed, on a senior or senior subordinated basis, as the case may be, by most of its direct and indirect 100% owned United States subsidiaries (the "Guarantors"). These guarantees are joint and several obligations of the Guarantors. Canada Company, Iron Mountain Europe PLC ("IME"), the Special Purpose Subsidiaries (as defined below) and the remainder of our subsidiaries do not guarantee the Parent Notes.
 
(4)
The 6% Notes due 2020 and the GBP Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or under the securities laws of any other jurisdiction. Unless they are registered, the 6% Notes due 2020 and the GBP Notes may be offered only in transactions that are exempt from registration under the Securities Act or the securities laws of any other jurisdiction.
(5)
Canada Company is the direct obligor on the CAD Notes, which are fully and unconditionally guaranteed, on a senior basis, by IMI and the Guarantors. These guarantees are joint and several obligations of IMI and the Guarantors. See Note 6 to Notes to Consolidated Financial Statements.

(6)
IME is the direct obligor on the GBP Notes, which are fully and unconditionally guaranteed, on a senior basis, by IMI and the Guarantors. These guarantees are joint and several obligations of IMI and the Guarantors. See Note 6 to Notes to Consolidated Financial Statements.

(7)
The Special Purpose Subsidiaries are the obligors under this program.

(8)
We believe the fair value (Level 3 of fair value hierarchy described at Note 2.k.) of this debt approximates its carrying
value.

(9)
The Current Portion of Long-term debt at September 30, 2015 includes $175,000 in aggregate principal amount of our outstanding 63/4% Notes, 73/4% Notes and 83/8% Notes redeemed in October 2015. The $175,000 presented within the Current Portion of Long-term debt represents the portion of the 63/4% Notes, the 73/4% Notes and the 83/8% Notes redeemed in October 2015 utilizing funds that were invested in money market funds as of September 30, 2015. See Note 11 to Notes to Consolidated Financial Statements.
On July 2, 2015, we entered into a new credit agreement (the "New Credit Agreement") to refinance our then existing credit agreement (the "Credit Agreement") which consisted of a revolving credit facility (the "IMI Revolving Credit Facility") and a term loan (the "IMI Term Loan") and was scheduled to terminate on June 27, 2016. The New Credit Agreement consists of a revolving credit facility (the "New Revolving Credit Facility") and a term loan (the "New Term Loan").
The New Revolving Credit Facility is supported by a group of 25 banks and 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, Euros and Australian dollars, among other currencies) in an aggregate outstanding amount not to exceed $1,500,000. Commencing on September 30, 2015, the New Term Loan is to be paid in quarterly installments in an amount equal to $3,125 per quarter, with the remaining balance due on July 3, 2019. The New Credit Agreement includes an option to allow us to request additional commitments of up to $500,000, in the form of term loans or through increased commitments under the New Revolving Credit Facility, subject to the conditions as defined in the New Credit Agreement. The New Credit Agreement terminates on July 6, 2019, at which point all obligations become due, but may be extended by one year at our option, subject to the conditions set forth in the New Credit Agreement. Borrowings under the New Credit Agreement may be prepaid without penalty or premium, in whole or in part, at any time.

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Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5) Debt (Continued)


IMI and the Guarantors guarantee all obligations under the New Credit Agreement, and have pledged the capital stock or other equity interests of most of their United States subsidiaries, up to 66% of the capital stock or other equity interests of their first-tier foreign subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by them to secure the New Credit Agreement. In addition, Canada Company has pledged 66% of the capital stock of its subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by it to secure the Canadian dollar subfacility under the New Revolving Credit Facility. The interest rate on borrowings under the New Credit Agreement varies depending on our choice of interest rate and currency options, plus an applicable margin, which varies based on our consolidated leverage ratio. Additionally, the New Credit Agreement requires the payment of a commitment fee on the unused portion of the New Revolving Credit Facility, which fee ranges from between 0.25% to 0.4% based on our consolidated leverage ratio and fees associated with outstanding letters of credit. As of September 30, 2015, we had $284,886 and $246,875 of outstanding borrowings under the New Revolving Credit Facility and the New Term Loan, respectively. Of the $284,886 of outstanding borrowings under the New Revolving Credit Facility, $78,400 was denominated in United States dollars, 75,000 was denominated in Canadian dollars, 73,750 was denominated in Euros, 11,600 was denominated in British pounds sterling and 71,600 was denominated in Australian dollars. In addition, we also had various outstanding letters of credit totaling $35,611. The remaining amount available for borrowing under the New Revolving Credit Facility as of September 30, 2015, 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 New Credit Agreement and current external debt, was $1,179,503 (which amount represents the maximum availability as of such date). The average interest rate in effect under the New Credit Agreement was 2.7% as of September 30, 2015. The average interest rate in effect under the New Revolving Credit Facility was 2.9% and ranged from 2.3% to 4.5% as of September 30, 2015 and the interest rate in effect under the New Term Loan as of September 30, 2015 was 2.5%.
We recorded a charge of $2,156 to other expense (income), net in the third quarter of 2015 related to the refinancing of the Credit Agreement, representing a write-off of unamortized deferred financing costs.
In September 2015, IMI completed a private offering of $1,000,000 in aggregate principal amount of the 6% Notes due 2020 which were issued at par. IMI received net proceeds of $985,000 from the offering, after paying the initial purchasers’ discounts and commissions. As of September 30, 2015, the net proceeds were used for investments in money market funds and time deposits with large, highly-rated investment-grade institutions or to repay indebtedness outstanding under the New Revolving Credit Facility. In October 2015, utilizing the funds invested in money market funds and capacity under the New Revolving Credit Facility as of September 30, 2015 created by applying a portion of the net proceeds from the issuance of the 6% Notes due 2020 to the repayment of borrowings under the New Revolving Credit Facility, IMI redeemed all of the outstanding 63/4% Notes, 73/4% Notes and 83/8% Notes for aggregate redemption payments, including applicable redemption premiums and interest to the redemption date of $826,875. IMI intends to use the remaining proceeds from the issuance of the 6% Notes due 2020 for general corporate purposes and, pending such use, has invested such proceeds in time deposits with large, highly-rated investment-grade institutions. A debt extinguishment charge of approximately $25,200 will be recorded to other expense (income), net in the fourth quarter of 2015 related to the redemption of the 63/4% Notes, the 73/4% Notes and the 83/8% Notes. This charge consists of call premiums, original issue discounts and unamortized deferred financing costs. See Note 11 to Notes to Consolidated Financial Statements.

33

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5) Debt (Continued)


In March 2015, we entered into a $250,000 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 "Special Purpose Subsidiaries"). The Special Purpose Subsidiaries use the accounts receivable balances to collateralize loans obtained from certain financial institutions. The Special Purpose Subsidiaries are consolidated subsidiaries of IMI. The Accounts Receivable Securitization Program is accounted for as a collateralized financing activity, rather than a sale of assets, and therefore: (a) accounts receivable balances pledged as collateral are presented as assets and borrowings are presented as liabilities on our Consolidated Balance Sheet, (b) our Consolidated Statements of Operations reflect the associated charges for bad debt expense related to pledged accounts receivable (a component of selling, general and administrative expenses) and reductions to revenue due to billing and service related credit memos issued to customers and related reserves, as well as interest expense associated with the collateralized borrowings and (c) receipts from customers related to the underlying accounts receivable are reflected as operating cash flows and borrowings and repayments under the collateralized loans are reflected as financing cash flows within our Consolidated Statement of Cash Flows. Iron Mountain Information Management, LLC retains the responsibility of servicing the accounts receivable balances pledged as collateral in this transaction and IMI provides a performance guaranty. The Accounts Receivable Securitization Program terminates on March 6, 2018, at which point all obligations become due. The maximum availability allowed is limited by eligible accounts receivable, as defined under the terms of the Accounts Receivable Securitization Program. As of September 30, 2015, the maximum availability allowed and amount outstanding under the Accounts Receivable Securitization Program was $198,300. The interest rate in effect under the Accounts Receivable Securitization Program was 1.1% as of September 30, 2015. Commitment fees at a rate of 40 basis points are charged on amounts made available but not borrowed under the Accounts Receivable Securitization Program.
The New 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 New Credit Agreement, our indentures or other agreements governing our indebtedness. The New 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 both the Credit Agreement and the New Credit Agreement as of December 31, 2014 and September 30, 2015, respectively, and our leverage ratio under our indentures as of December 31, 2014 and September 30, 2015 are as follows:
 
December 31, 2014
 
September 30, 2015
 
Maximum//Minimum Allowable(1)
Net total lease adjusted leverage ratio
5.4

 
5.7

 
Maximum allowable of 6.5
Net secured debt lease adjusted leverage ratio
2.6

 
1.9

 
Maximum allowable of 4.0
Bond leverage ratio (not lease adjusted)
5.7

 
5.7

 
Maximum allowable of 6.5
Fixed charge coverage ratio
2.5

 
2.3

 
Minimum allowable of 1.5
______________________________________________________________________________
(1)
The maximum and minimum allowable ratios under the New Credit Agreement are substantially similar to the Credit Agreement.
Noncompliance with these leverage and fixed charge coverage ratios would have a material adverse effect on our financial condition and liquidity.

34

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5) Debt (Continued)


Commitment fees and letters of credit fees, which are based on the unused balances under the IMI Revolving Credit Facility, the New Revolving Credit Facility and the Accounts Receivable Securitization Program for the three and nine months ended September 30, 2014 and 2015 are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2015
 
2014
 
2015
Commitment fees and letters of credit fees
$
700

 
$
883

 
$
1,867

 
$
2,741

(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors
The following data summarizes the consolidating results of IMI on the equity method of accounting as of December 31, 2014 and September 30, 2015 and for the three and nine months ended September 30, 2014 and 2015 and are prepared on the same basis as the consolidated financial statements.
The Parent Notes, CAD Notes and GBP Notes are guaranteed by the subsidiaries referred to below as the Guarantors. These subsidiaries are 100% owned by IMI. The guarantees are full and unconditional, as well as joint and several.
Additionally, IMI guarantees the CAD Notes, which were issued by Canada Company, and the GBP Notes, which were issued by IME. Canada Company and IME do not guarantee the Parent Notes. The subsidiaries that do not guarantee the Parent Notes, the CAD Notes and the GBP Notes, including IME and the Special Purpose Subsidiaries but excluding Canada Company, are referred to below as the Non-Guarantors.
In the normal course of business we periodically change the ownership structure of our subsidiaries to meet the requirements of our business. In the event of such changes, we recast the prior period financial information within this footnote to conform to the current period presentation in the period such changes occur. Generally, these changes do not alter the designation of the underlying subsidiaries as Guarantors or Non-Guarantors. However, they may change whether the underlying subsidiary is owned by the Parent, a Guarantor, Canada Company or a Non-Guarantor. If such a change occurs, the amount of investment in subsidiaries in the below Consolidated Balance Sheets and equity in the earnings (losses) of subsidiaries, net of tax in the below Consolidated Statements of Operations with respect to the relevant Parent, Guarantors, Canada Company, Non-Guarantors and Eliminations columns also would change.
In March 2015, we entered into the Accounts Receivable Securitization Program, which is described more fully in Note 5. The Special Purpose Subsidiaries, which were established in conjunction with the Accounts Receivable Securitization Program, are included in the Non-Guarantors column in the below Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statement of Cash Flows from that date forward. As a result of the Accounts Receivable Securitization Program, certain of our Guarantors sold substantially all of their United States accounts receivable balances to the Special Purpose Subsidiaries. As of September 30, 2015, this resulted in a decrease in accounts receivable, an increase in intercompany receivable and a decrease in long-term debt related to our Guarantors and a corresponding increase in accounts receivable, an increase in intercompany payable and an increase in long-term debt related to our Non-Guarantors. There was no material impact to the Guarantors and Non-Guarantors columns of the below Consolidated Statements of Operations for the three and nine months ended September 30, 2015. Additionally, the Accounts Receivable Securitization Program resulted in increased financing cash flow activity for our Non-Guarantor subsidiaries for the nine months ended September 30, 2015, as the proceeds from borrowings under the Accounts Receivable Securitization Program were used to repay intercompany loans with certain of our Guarantor subsidiaries, which resulted in increased cash flows from investing activities for our Guarantor subsidiaries for the nine months ended September 30, 2015.

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Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)


CONSOLIDATED BALANCE SHEETS
 
December 31, 2014
 
Parent
 
Guarantors
 
Canada
Company
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Assets
 

 
 

 
 

 
 

 
 

 
 

Current Assets:
 

 
 

 
 

 
 

 
 

 
 

Cash and Cash Equivalents
$
2,399

 
$
4,713

 
$
4,979

 
$
113,842

 
$

 
$
125,933

Restricted Cash
33,860

 

 

 

 

 
33,860

Accounts Receivable

 
361,330

 
37,137

 
205,798

 

 
604,265

Intercompany Receivable

 
586,725

 

 

 
(586,725
)
 

Other Current Assets
153

 
88,709

 
2,925

 
61,908

 
(34
)
 
153,661

Total Current Assets
36,412

 
1,041,477

 
45,041

 
381,548

 
(586,759
)
 
917,719

Property, Plant and Equipment, Net
840

 
1,580,337

 
160,977

 
808,573

 

 
2,550,727

Other Assets, Net:
 

 
 

 
 

 
 

 
 

 
 

Long-term Notes Receivable from Affiliates and Intercompany Receivable
2,851,651

 
245

 
2,448

 

 
(2,854,344
)
 

Investment in Subsidiaries
917,170

 
656,877

 
30,751

 
93,355

 
(1,698,153
)
 

Goodwill

 
1,611,957

 
180,342

 
631,484

 

 
2,423,783

Other
31,108

 
375,082

 
26,672

 
245,251

 

 
678,113

Total Other Assets, Net
3,799,929

 
2,644,161

 
240,213

 
970,090

 
(4,552,497
)
 
3,101,896

Total Assets
$
3,837,181

 
$
5,265,975

 
$
446,231

 
$
2,160,211

 
$
(5,139,256
)
 
$
6,570,342

Liabilities and Equity
 

 
 

 
 

 
 

 
 

 
 

Intercompany Payable
$
505,083

 
$

 
$
3,564

 
$
78,078

 
$
(586,725
)
 
$

Current Portion of Long-term Debt

 
24,955

 

 
27,174

 
(34
)
 
52,095

Total Other Current Liabilities
60,097

 
470,122

 
35,142

 
239,280

 

 
804,641

Long-term Debt, Net of Current Portion
2,414,646

 
908,431

 
245,861

 
1,042,498

 

 
4,611,436

Long-term Notes Payable to Affiliates and Intercompany Payable
1,000

 
2,851,384

 

 
1,960

 
(2,854,344
)
 

Other Long-term Liabilities

 
115,789

 
37,558

 
78,868

 

 
232,215

Commitments and Contingencies (See Note 8)
 

 
 

 
 

 
 

 
 

 
 

Total Iron Mountain Incorporated Stockholders' Equity           
856,355

 
895,294

 
124,106

 
678,753

 
(1,698,153
)
 
856,355

Noncontrolling Interests

 

 

 
13,600

 

 
13,600

Total Equity
856,355

 
895,294

 
124,106

 
692,353

 
(1,698,153
)
 
869,955

Total Liabilities and Equity
$
3,837,181

 
$
5,265,975

 
$
446,231

 
$
2,160,211

 
$
(5,139,256
)
 
$
6,570,342


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Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)


CONSOLIDATED BALANCE SHEETS (Continued)
 
September 30, 2015
 
Parent
 
Guarantors
 
Canada
Company
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Assets
 

 
 

 
 

 
 

 
 

 
 

Current Assets:
 

 
 

 
 

 
 

 
 

 
 

Cash and Cash Equivalents
$
295,424

 
$
67,225

 
$
11,176

 
$
119,074

 
$

 
$
492,899

Accounts Receivable

 
32,055

 
33,332

 
508,502

 

 
573,889

Intercompany Receivable

 
450,587

 

 

 
(450,587
)
 

Other Current Assets
305

 
102,004

 
3,095

 
56,135

 
(29
)
 
161,510

Total Current Assets
295,729

 
651,871

 
47,603

 
683,711

 
(450,616
)
 
1,228,298

Property, Plant and Equipment, Net
706

 
1,560,442

 
141,561

 
726,016

 

 
2,428,725

Other Assets, Net:
 

 
 

 
 

 
 

 
 

 
 

Long-term Notes Receivable from Affiliates and Intercompany Receivable
3,092,734

 
1,000

 
1,251

 

 
(3,094,985
)
 

Investment in Subsidiaries
818,906

 
559,382

 
28,177

 
96,971

 
(1,503,436
)
 

Goodwill

 
1,617,933

 
158,665

 
570,466

 

 
2,347,064

Other
43,990

 
391,165

 
25,131

 
205,449

 

 
665,735

Total Other Assets, Net
3,955,630

 
2,569,480

 
213,224

 
872,886

 
(4,598,421
)
 
3,012,799

Total Assets
$
4,252,065

 
$
4,781,793

 
$
402,388

 
$
2,282,613

 
$
(5,049,037
)
 
$
6,669,822

Liabilities and Equity
 

 
 

 
 

 
 

 
 

 
 

Intercompany Payable
$
207,322

 
$

 
$
2,343

 
$
240,922

 
$
(450,587
)
 
$

Current Portion of Long-term Debt
175,000

 
35,547

 

 
43,208

 
(29
)
 
253,726

Total Other Current Liabilities
45,282

 
398,152

 
27,261

 
186,356

 

 
657,051

Long-term Debt, Net of Current Portion
3,216,257

 
348,763

 
210,943

 
1,144,605

 

 
4,920,568

Long-term Notes Payable to Affiliates and Intercompany Payable
1,000

 
3,093,985

 

 

 
(3,094,985
)
 

Other Long-term Liabilities

 
107,547

 
36,693

 
74,460

 

 
218,700

Commitments and Contingencies (See Note 8)
 

 
 

 
 

 
 

 
 

 
 

Total Iron Mountain Incorporated Stockholders' Equity           
607,204

 
797,799

 
125,148

 
580,489

 
(1,503,436
)
 
607,204

Noncontrolling Interests

 

 

 
12,573

 

 
12,573

Total Equity
607,204

 
797,799

 
125,148

 
593,062

 
(1,503,436
)
 
619,777

Total Liabilities and Equity
$
4,252,065

 
$
4,781,793

 
$
402,388

 
$
2,282,613

 
$
(5,049,037
)
 
$
6,669,822


37

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)


CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended September 30, 2014
 
Parent
 
Guarantors
 
Canada
Company
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Revenues:
 

 
 

 
 

 
 

 
 

 
 

Storage Rental
$

 
$
302,695

 
$
31,540

 
$
134,829

 
$

 
$
469,064

Service

 
186,906

 
17,582

 
109,145

 

 
313,633

Intercompany Service

 

 

 
16,679

 
(16,679
)
 

Total Revenues

 
489,601

 
49,122

 
260,653

 
(16,679
)
 
782,697

Operating Expenses:
 

 
 

 
 

 
 

 
 

 


Cost of Sales (Excluding Depreciation and Amortization)

 
197,079

 
5,181

 
133,246

 

 
335,506

Selling, General and Administrative
58

 
143,555

 
3,505

 
69,219

 

 
216,337

Intercompany Service Charges

 

 
16,679

 

 
(16,679
)
 

Depreciation and Amortization
46

 
54,040

 
2,989

 
32,119

 

 
89,194

(Gain) Loss on Disposal/Write-down of Property, Plant and Equipment (Excluding Real Estate), net

 
(12
)
 
11

 
185

 

 
184

Total Operating Expenses
104

 
394,662

 
28,365

 
234,769

 
(16,679
)
 
641,221

Operating (Loss) Income
(104
)
 
94,939

 
20,757

 
25,884

 

 
141,476

Interest Expense (Income), Net
46,571

 
(9,730
)
 
8,544

 
17,835

 

 
63,220

Other (Income) Expense, Net
(22,468
)
 
(212,113
)
 
(31
)
 
257,120

 

 
22,508

(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes
(24,207
)
 
316,782

 
12,244

 
(249,071
)
 

 
55,748

Provision (Benefit) for Income Taxes

 
53,142

 
3,249

 
(1,501
)
 

 
54,890

Equity in the (Earnings) Losses of Subsidiaries, Net of Tax
(24,273
)
 
240,121

 
(432
)
 
(8,996
)
 
(206,420
)
 

Net Income (Loss)
66

 
23,519

 
9,427

 
(238,574
)
 
206,420

 
858

Less: Net Income (Loss) Attributable to Noncontrolling Interests

 

 

 
792

 

 
792

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
66

 
$
23,519

 
$
9,427

 
$
(239,366
)
 
$
206,420

 
$
66

Net Income (Loss)
$
66

 
$
23,519

 
$
9,427

 
$
(238,574
)
 
$
206,420

 
$
858

Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign Currency Translation Adjustments
3,729

 

 
(4,560
)
 
(44,592
)
 

 
(45,423
)
Market Value Adjustments for Securities

 
(291
)
 

 

 

 
(291
)
Equity in Other Comprehensive (Loss) Income of Subsidiaries
(48,626
)
 
(48,335
)
 
(874
)
 
(4,560
)
 
102,395

 

Total Other Comprehensive (Loss) Income
(44,897
)
 
(48,626
)
 
(5,434
)
 
(49,152
)
 
102,395

 
(45,714
)
Comprehensive (Loss) Income
(44,831
)
 
(25,107
)
 
3,993

 
(287,726
)
 
308,815

 
(44,856
)
Comprehensive (Loss) Income Attributable to Noncontrolling Interests

 

 

 
(25
)
 

 
(25
)
Comprehensive (Loss) Income Attributable to Iron Mountain Incorporated
$
(44,831
)
 
$
(25,107
)
 
$
3,993

 
$
(287,701
)
 
$
308,815

 
$
(44,831
)


38

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)


CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
 
Three Months Ended September 30, 2015
 
Parent
 
Guarantors
 
Canada
Company
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Revenues:
 

 
 

 
 

 
 

 
 

 
 

Storage Rental
$

 
$
308,336

 
$
29,164

 
$
122,552

 
$

 
$
460,052

Service

 
181,230

 
14,558

 
90,689

 

 
286,477

Intercompany Service

 
1,042

 

 
16,243

 
(17,285
)
 

Total Revenues

 
490,608

 
43,722

 
229,484

 
(17,285
)
 
746,529

Operating Expenses:
 

 
 

 
 

 
 

 
 

 
 

Cost of Sales (Excluding Depreciation and Amortization)

 
196,060

 
6,008

 
115,595

 

 
317,663

Selling, General and Administrative
19

 
154,202

 
3,565

 
57,907

 

 
215,693

Intercompany Service Charges

 
3,257

 
12,986

 
1,042

 
(17,285
)
 

Depreciation and Amortization
45

 
56,145

 
3,089

 
27,213

 

 
86,492

(Gain) Loss on Disposal/Write-down of Property, Plant and Equipment (Excluding Real Estate), net

 
(197
)
 
34

 
22

 

 
(141
)
Total Operating Expenses
64

 
409,467

 
25,682

 
201,779

 
(17,285
)
 
619,707

Operating (Loss) Income
(64
)
 
81,141

 
18,040

 
27,705

 

 
126,822

Interest Expense (Income), Net
39,302

 
(7,281
)
 
7,784

 
25,330

 

 
65,135

Other Expense (Income), Net
686

 
1,577

 
(98
)
 
33,081

 

 
35,246

(Loss) Income from Continuing Operations Before (Benefit) Provision for Income Taxes and (Gain) Loss on Sale of Real Estate
(40,052
)

86,845


10,354


(30,706
)



26,441

(Benefit) Provision for Income Taxes

 
(5,210
)
 
3,041

 
5,943

 

 
3,774

(Gain) Loss on Sale of Real Estate, Net of Tax

 

 

 
(850
)
 

 
(850
)
Equity in the (Earnings) Losses of Subsidiaries, Net of Tax
(63,162
)
 
28,343

 
(605
)
 
(7,313
)
 
42,737

 

Net Income (Loss)
23,110

 
63,712

 
7,918

 
(28,486
)
 
(42,737
)
 
23,517

Less: Net Income (Loss) Attributable to Noncontrolling Interests

 

 

 
407

 

 
407

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
23,110

 
$
63,712

 
$
7,918

 
$
(28,893
)
 
$
(42,737
)
 
$
23,110

Net Income (Loss)
$
23,110

 
$
63,712

 
$
7,918

 
$
(28,486
)
 
$
(42,737
)
 
$
23,517

Other Comprehensive (Loss) Income:
 

 
 

 
 

 
 

 
 

 
 

Foreign Currency Translation Adjustments
(85
)
 

 
(7,709
)
 
(26,800
)
 

 
(34,594
)
Market Value Adjustments for Securities

 
(134
)
 

 

 

 
(134
)
Equity in Other Comprehensive (Loss) Income of Subsidiaries
(33,852
)
 
(33,637
)
 
(1,805
)
 
(7,709
)
 
77,003

 

Total Other Comprehensive (Loss) Income
(33,937
)
 
(33,771
)
 
(9,514
)
 
(34,509
)
 
77,003

 
(34,728
)
Comprehensive (Loss) Income
(10,827
)
 
29,941

 
(1,596
)
 
(62,995
)
 
34,266

 
(11,211
)
Comprehensive (Loss) Income Attributable to Noncontrolling Interests

 

 

 
(384
)
 

 
(384
)
Comprehensive (Loss) Income Attributable to Iron Mountain Incorporated
$
(10,827
)
 
$
29,941

 
$
(1,596
)
 
$
(62,611
)
 
$
34,266

 
$
(10,827
)
 

39

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)


CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
 
Nine Months Ended September 30, 2014
 
Parent
 
Guarantors
 
Canada
Company
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Revenues:
 

 
 

 
 

 
 

 
 

 
 

Storage Rental
$

 
$
904,707

 
$
93,246

 
$
396,889

 
$

 
$
1,394,842

Service

 
563,949

 
51,323

 
329,601

 

 
944,873

Intercompany Service

 

 

 
49,231

 
(49,231
)
 

Total Revenues

 
1,468,656

 
144,569

 
775,721

 
(49,231
)
 
2,339,715

Operating Expenses:
 

 
 

 
 

 
 

 
 

 


Cost of Sales (Excluding Depreciation and Amortization)

 
596,327

 
17,745

 
393,540

 

 
1,007,612

Selling, General and Administrative
122

 
432,831

 
10,348

 
201,623

 

 
644,924

Intercompany Service Charges

 

 
49,231

 

 
(49,231
)
 

Depreciation and Amortization
179

 
159,002

 
8,967

 
96,420

 

 
264,568

Loss (Gain) on Disposal/Write-down of Property, Plant and Equipment (Excluding Real Estate), net

 
820

 
12

 
397

 

 
1,229

Total Operating Expenses
301

 
1,188,980

 
86,303

 
691,980

 
(49,231
)
 
1,918,333

Operating (Loss) Income
(301
)
 
279,676

 
58,266

 
83,741

 

 
421,382

Interest Expense (Income), Net
141,410

 
(17,586
)
 
25,927

 
37,982

 

 
187,733

Other (Income) Expense, Net
(15,643
)
 
(204,392
)
 
(51
)
 
243,073

 

 
22,987

(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes and (Gain) Loss on Sale of Real Estate
(126,068
)

501,654


32,390


(197,314
)



210,662

Provision (Benefit) for Income Taxes

 
(116,186
)
 
9,359

 
8,676

 

 
(98,151
)
(Gain) Loss on Sale of Real Estate, Net of Tax

 
(197
)
 

 
(7,271
)
 

 
(7,468
)
Equity in the (Earnings) Losses of Subsidiaries, Net of Tax
(439,438
)
 
180,061

 
(1,073
)
 
(23,032
)
 
283,482

 

Income (Loss) from Continuing Operations
313,370

 
437,976

 
24,104

 
(175,687
)
 
(283,482
)
 
316,281

(Loss) Income from Discontinued Operations, Net of Tax

 
(960
)
 

 
22

 

 
(938
)
Net Income (Loss)
313,370

 
437,016

 
24,104

 
(175,665
)
 
(283,482
)
 
315,343

Less: Net Income (Loss) Attributable to Noncontrolling Interests

 

 

 
1,973

 

 
1,973

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
313,370

 
$
437,016

 
$
24,104

 
$
(177,638
)
 
$
(283,482
)
 
$
313,370

Net Income (Loss)
$
313,370

 
$
437,016

 
$
24,104

 
$
(175,665
)
 
$
(283,482
)
 
$
315,343

Other Comprehensive Income (Loss):
 

 
 

 
 

 
 

 
 

 
 

Foreign Currency Translation Adjustments
4,480

 
84

 
(4,997
)
 
(38,676
)
 

 
(39,109
)
Market Value Adjustments for Securities

 
257

 

 

 

 
257

Equity in Other Comprehensive (Loss) Income of Subsidiaries
(43,052
)
 
(44,290
)
 
(371
)
 
(4,997
)
 
92,710

 

Total Other Comprehensive (Loss) Income
(38,572
)
 
(43,949
)
 
(5,368
)
 
(43,673
)
 
92,710

 
(38,852
)
Comprehensive Income (Loss)
274,798

 
393,067

 
18,736

 
(219,338
)
 
(190,772
)
 
276,491

Comprehensive Income (Loss) Attributable to Noncontrolling Interests

 

 

 
1,693

 

 
1,693

Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated
$
274,798

 
$
393,067

 
$
18,736

 
$
(221,031
)
 
$
(190,772
)
 
$
274,798

 

40

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)


CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
 
Nine Months Ended September 30, 2015
 
Parent
 
Guarantors
 
Canada
Company
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Revenues:
 

 
 

 
 

 
 

 
 

 
 

Storage Rental
$

 
$
918,841

 
$
90,836

 
$
370,456

 
$

 
$
1,380,133

Service

 
551,363

 
47,223

 
276,830

 

 
875,416

Intercompany Service

 
2,449

 

 
54,788

 
(57,237
)
 

Total Revenues

 
1,472,653

 
138,059

 
702,074

 
(57,237
)
 
2,255,549

Operating Expenses:
 

 
 

 
 

 
 

 
 

 


Cost of Sales (Excluding Depreciation and Amortization)

 
588,801

 
19,815

 
356,984

 

 
965,600

Selling, General and Administrative
116

 
435,445

 
11,527

 
180,904

 

 
627,992

Intercompany Service Charges

 
9,657

 
45,131

 
2,449

 
(57,237
)
 

Depreciation and Amortization
136

 
167,908

 
9,306

 
82,642

 

 
259,992

Loss (Gain) on Disposal/Write-down of Property, Plant and Equipment (Excluding Real Estate), net

 
565

 
34

 
108

 

 
707

Total Operating Expenses
252

 
1,202,376

 
85,813

 
623,087

 
(57,237
)
 
1,854,291

Operating (Loss) Income
(252
)
 
270,277

 
52,246

 
78,987

 

 
401,258

Interest Expense (Income), Net
117,694

 
(20,373
)
 
24,329

 
74,470

 

 
196,120

Other (Income) Expense, Net
(225
)
 
6,099

 
(235
)
 
53,960

 

 
59,599

(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes and (Gain) Loss on Sale of Real Estate
(117,721
)

284,551


28,152


(49,443
)



145,539

Provision (Benefit) for Income Taxes

 
3,455

 
10,900

 
12,771

 

 
27,126

(Gain) Loss on Sale of Real Estate, Net of Tax

 

 

 
(850
)
 

 
(850
)
Equity in the (Earnings) Losses of Subsidiaries, Net of Tax
(235,257
)
 
46,440

 
(2,538
)
 
(17,252
)
 
208,607

 

Net Income (Loss)
117,536

 
234,656

 
19,790

 
(44,112
)
 
(208,607
)
 
119,263

Less: Net Income (Loss) Attributable to Noncontrolling Interests

 

 

 
1,727

 

 
1,727

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
117,536

 
$
234,656

 
$
19,790

 
$
(45,839
)
 
$
(208,607
)
 
$
117,536

Net Income (Loss)
$
117,536

 
$
234,656

 
$
19,790

 
$
(44,112
)
 
$
(208,607
)
 
$
119,263

Other Comprehensive Income (Loss):
 

 
 

 
 

 
 

 
 

 
  

Foreign Currency Translation Adjustments
3,381

 

 
(14,612
)
 
(78,538
)
 

 
(89,769
)
Market Value Adjustments for Securities

 
(111
)
 

 

 

 
(111
)
Equity in Other Comprehensive (Loss) Income of Subsidiaries
(92,037
)
 
(91,626
)
 
(3,270
)
 
(14,612
)
 
201,545

 
 

Total Other Comprehensive (Loss) Income
(88,656
)
 
(91,737
)
 
(17,882
)
 
(93,150
)
 
201,545

 
(89,880
)
Comprehensive Income (Loss)
28,880

 
142,919

 
1,908

 
(137,262
)
 
(7,062
)
 
29,383

Comprehensive Income (Loss) Attributable to Noncontrolling Interests

 

 

 
503

 

 
503

Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated
$
28,880

 
$
142,919

 
$
1,908

 
$
(137,765
)
 
$
(7,062
)
 
$
28,880


41

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)


CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine Months Ended September 30, 2014
 
Parent
 
Guarantors
 
Canada
Company
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Cash Flows from Operating Activities:
 

 
 

 
 

 
 

 
 

 
 

Cash Flows from Operating Activities
$
(154,848
)
 
$
291,455

 
$
43,186

 
$
122,059

 
$

 
$
301,852

Cash Flows from Investing Activities:
 

 
 

 
 

 
 

 
 

 
 

Capital expenditures

 
(171,331
)
 
(4,800
)
 
(101,255
)
 

 
(277,386
)
Cash paid for acquisitions, net of cash acquired

 
1,117

 

 
(47,483
)
 

 
(46,366
)
Intercompany loans to subsidiaries
541,044

 
768,486

 

 

 
(1,309,530
)
 

Investment in subsidiaries
(19,508
)
 
(19,508
)
 

 

 
39,016

 

Additions to customer relationship and acquisition costs

 
(20,607
)
 
(767
)
 
(4,473
)
 

 
(25,847
)
Proceeds from sales of property and equipment and other, net (including real estate)

 
2,406

 
64

 
15,837

 

 
18,307

Cash Flows from Investing Activities
521,536

 
560,563

 
(5,503
)
 
(137,374
)
 
(1,270,514
)
 
(331,292
)
Cash Flows from Financing Activities:
 

 
 

 
 

 
 

 
 

 
 

Repayment of revolving credit and term loan facilities and other debt

 
(7,571,268
)
 
(518,520
)
 
(135,775
)
 

 
(8,225,563
)
Proceeds from revolving credit and term loan facilities and other debt

 
7,391,058

 
480,387

 
190,302

 

 
8,061,747

Early retirement of senior subordinated notes
(247,275
)
 

 

 

 

 
(247,275
)
Net proceeds from sales of senior notes

 

 

 
642,417

 

 
642,417

Debt financing (repayment to) and equity contribution from (distribution to) noncontrolling interests, net

 
5,716

 

 
(20,431
)
 

 
(14,715
)
Intercompany loans from parent

 
(653,034
)
 
3,571

 
(660,067
)
 
1,309,530

 

Equity contribution from parent

 
19,508

 

 
19,508

 
(39,016
)
 

Parent cash dividends
(157,018
)
 

 

 

 

 
(157,018
)
Proceeds from exercise of stock options and employee stock purchase plan
37,356

 

 

 

 

 
37,356

Excess tax benefit (deficiency) from stock-based compensation
40

 

 

 

 

 
40

Payment of debt financing and stock issuance costs              
(1,034
)
 
(499
)
 
(12
)
 
(611
)
 

 
(2,156
)
Cash Flows from Financing Activities
(367,931
)
 
(808,519
)
 
(34,574
)
 
35,343

 
1,270,514

 
94,833

Effect of exchange rates on cash and cash equivalents

 
(895
)
 
399

 
(1,435
)
 

 
(1,931
)
(Decrease) Increase in cash and cash equivalents
(1,243
)
 
42,604

 
3,508

 
18,593

 

 
63,462

Cash and cash equivalents, beginning of period
1,243

 
10,366

 
1,094

 
107,823

 

 
120,526

Cash and cash equivalents, end of period
$

 
$
52,970

 
$
4,602

 
$
126,416

 
$

 
$
183,988


42

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)


CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 
Nine Months Ended September 30, 2015
 
Parent
 
Guarantors
 
Canada
Company
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Cash Flows from Operating Activities:
 

 
 

 
 

 
 

 
 

 
 

Cash Flows from Operating Activities
$
(130,151
)
 
$
365,002

 
$
27,249

 
$
57,995

 
$

 
$
320,095

Cash Flows from Investing Activities:
 

 
 

 
 

 
 

 
 

 
 

Capital expenditures

 
(128,461
)
 
(11,341
)
 
(62,779
)
 

 
(202,581
)
Cash paid for acquisitions, net of cash acquired

 
(9,871
)
 
(5,260
)
 
(12,844
)
 

 
(27,975
)
Intercompany loans to subsidiaries
(290,254
)
 
136,995

 

 

 
153,259

 

Investment in subsidiaries
(16,000
)
 
(16,000
)
 

 

 
32,000

 

Decrease in restricted cash
33,860

 

 

 

 

 
33,860

Additions to customer relationship and acquisition costs

 
(26,920
)
 
(677
)
 
(7,566
)
 

 
(35,163
)
Proceeds from sales of property and equipment and other, net (including real estate)

 
475

 
32

 
1,525

 

 
2,032

Cash Flows from Investing Activities
(272,394
)
 
(43,782
)
 
(17,246
)
 
(81,664
)
 
185,259

 
(229,827
)
Cash Flows from Financing Activities:
 

 
 

 
 

 
 

 
 

 
 

Repayment of revolving credit and term loan facilities and other debt

 
(6,732,070
)
 
(510,109
)
 
(1,297,398
)
 

 
(8,539,577
)
Proceeds from revolving credit and term loan facilities and other debt

 
6,169,400

 
507,741

 
1,465,302

 

 
8,142,443

Net proceeds from sales of senior notes
985,000

 

 

 

 

 
985,000

Debt (repayment to) financing and equity (distribution to) contribution from noncontrolling interests, net

 

 

 
(1,260
)
 

 
(1,260
)
Intercompany loans from parent

 
298,690

 
(636
)
 
(144,795
)
 
(153,259
)
 

Equity contribution from parent

 
16,000

 

 
16,000

 
(32,000
)
 

Parent cash dividends
(303,712
)
 

 

 

 

 
(303,712
)
Proceeds from exercise of stock options and employee stock purchase plan
13,988

 

 

 

 

 
13,988

Excess tax benefit (deficiency) from stock-based compensation
323

 

 

 

 

 
323

Payment of debt financing and stock issuance costs              
(29
)
 
(10,661
)
 

 
(975
)
 

 
(11,665
)
Cash Flows from Financing Activities
695,570

 
(258,641
)
 
(3,004
)
 
36,874

 
(185,259
)
 
285,540

Effect of exchange rates on cash and cash equivalents

 
(67
)
 
(802
)
 
(7,973
)
 

 
(8,842
)
Increase (Decrease) in cash and cash equivalents
293,025

 
62,512

 
6,197

 
5,232

 

 
366,966

Cash and cash equivalents, beginning of period
2,399

 
4,713

 
4,979

 
113,842

 

 
125,933

Cash and cash equivalents, end of period
$
295,424

 
$
67,225

 
$
11,176

 
$
119,074

 
$

 
$
492,899


43

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(7) Segment Information


As a result of a realignment in our senior management reporting structure during the first quarter of 2015, we modified our internal financial reporting to better align internal reporting with how we manage our business. These modifications resulted in the separation of our former International Business segment into two unique reportable operating segments, which we refer to as (1) Western European Business segment and (2) Other International Business segment. Additionally, during the first quarter of 2015, we reassessed the nature of certain costs which were previously being allocated to the North American Records and Information Management Business and North American Data Management Business segments. As a result of this reassessment, we determined that certain product management functions, which were previously being performed to solely benefit our North American operating segments, are now being performed in a manner that benefits the enterprise as a whole. Accordingly, the costs associated with these product management functions are now included within the Corporate and Other Business segment. Previously reported segment information has been restated to conform to the current period presentation.
Our five reportable operating segments are described as follows:
North American Records and Information Management Business—storage and information management services throughout the United States and Canada, including the storage of paper documents, as well as other media such as microfilm and microfiche, master audio and videotapes, film, X‑rays and blueprints, including healthcare information services, vital records services, service and courier operations, and the collection, handling and disposal of sensitive documents for corporate customers (“Records Management”); information destruction services (“Destruction”); DMS; Fulfillment Services; and Intellectual Property Management.
North American Data Management Business—storage and rotation of backup computer media as part of corporate disaster recovery plans throughout the United States and Canada, including service and courier operations (“Data Protection & Recovery”); server and computer backup services; digital content repository systems to house, distribute, and archive key media assets; and storage, safeguarding and electronic or physical delivery of physical media of all types, primarily for entertainment and media industry clients.
Western European Business—Records Management, Data Protection & Recovery and DMS throughout the United Kingdom, Ireland, Norway, Austria, Belgium, France, Germany, Netherlands, Spain and Switzerland. Until December 2014, our Western European Business segment offered Destruction in the United Kingdom and Ireland.
Other International Business—storage and information management services throughout the remaining European countries in which we operate, Latin America and Asia Pacific, including Records Management, Data Protection & Recovery and DMS. Our European operations included within the Other International Business segment provide Records Management, Data Protection & Recovery and DMS. Our Latin America operations provide Records Management, Data Protection & Recovery, Destruction and DMS throughout Argentina, Brazil, Chile, Colombia, Mexico and Peru. Our Asia Pacific operations provide Records Management, Data Protection & Recovery and DMS throughout Australia, with Records Management and Data Protection & Recovery also provided in certain cities in India, Singapore, Hong Kong‑SAR and China. Until December 2014, our Other International Business segment offered Destruction in Australia.
Corporate and Other Business—consists of our data center business in the United States, the primary product offering of our Adjacent Businesses segment (which was formerly referred to as our Emerging Business segment), as well as costs related to executive and staff functions, including finance, human resources and information technology, which benefit the enterprise as a whole. These costs are primarily related to the general management of these functions on a corporate level and the design and development of programs, policies and procedures that are then implemented in the individual segments, with each segment bearing its own cost of implementation. Our Corporate and Other Business segment also includes stock‑based employee compensation expense associated with all Employee Stock‑Based Awards.

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Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(7) Segment Information (Continued)


An analysis of our business segment information and reconciliation to the accompanying Consolidated Financial Statements is as follows:
 
 
North American
Records and
Information
Management
Business
 
North American
Data
Management
Business
 
Western European Business
 
Other International Business
 
Corporate
and Other
Business
 
Total
Consolidated
Three Months Ended September 30, 2014
 
 

 
 

 
 
 
 

 
 

 
 

Total Revenues
 
$
450,279

 
$
96,735

 
$
115,218

 
$
116,947

 
$
3,518

 
$
782,697

Depreciation and Amortization
 
47,686

 
2,377

 
13,750

 
16,724

 
8,657

 
89,194

Depreciation
 
42,958

 
2,281

 
11,659

 
11,249

 
8,612

 
76,759

Amortization
 
4,728

 
96

 
2,091

 
5,475

 
45

 
12,435

Adjusted OIBDA
 
179,590

 
54,799

 
35,923

 
18,867

 
(53,788
)
 
235,391

Expenditures for Segment Assets
 
47,047

 
2,727

 
10,477

 
23,730

 
13,297

 
97,278

Capital Expenditures
 
41,854

 
2,727

 
8,632

 
23,609

 
11,819

 
88,641

Cash Paid for Acquisitions, Net of Cash Acquired
 

 

 

 

 

 

Additions to Customer Relationship and Acquisition Costs
 
5,193

 

 
1,845

 
121

 
1,478

 
8,637

Three Months Ended September 30, 2015
 
 

 
 

 
 
 
 

 
 

 
 

Total Revenues
 
441,237

 
97,385

 
100,938

 
101,392

 
5,577

 
746,529

Depreciation and Amortization
 
45,985

 
5,389

 
11,287

 
14,238

 
9,593

 
86,492

Depreciation
 
41,034

 
5,142

 
9,792

 
9,830

 
9,684

 
75,482

Amortization
 
4,951

 
247

 
1,495

 
4,408

 
(91
)
 
11,010

Adjusted OIBDA
 
175,331

 
50,268

 
31,511

 
20,545

 
(49,820
)
 
227,835

Expenditures for Segment Assets
 
42,670

 
1,891

 
7,138

 
17,809

 
10,934

 
80,442

Capital Expenditures
 
32,026

 
1,891

 
3,417

 
14,957

 
10,934

 
63,225

Cash Paid for Acquisitions, Net of Cash Acquired
 
3,986

 

 

 
2,275

 

 
6,261

Additions to Customer Relationship and Acquisition Costs
 
6,658

 

 
3,721

 
577

 

 
10,956

Nine Months Ended September 30, 2014
 
 

 
 

 
 
 
 

 
 

 
 

Total Revenues
 
1,348,682

 
291,010

 
350,746

 
339,439

 
9,838

 
2,339,715

Depreciation and Amortization
 
135,999

 
12,345

 
42,511

 
48,521

 
25,192

 
264,568

Depreciation
 
121,923

 
12,122

 
35,731

 
32,997

 
25,103

 
227,876

Amortization
 
14,076

 
223

 
6,780

 
15,524

 
89

 
36,692

Adjusted OIBDA
 
524,226

 
168,887

 
104,881

 
64,376

 
(156,606
)
 
705,764

Total Assets (1)
 
3,627,490

 
662,175

 
1,045,687

 
995,236

 
305,751

 
6,636,339

Expenditures for Segment Assets
 
137,761

 
13,047

 
30,521

 
118,503

 
49,767

 
349,599

Capital Expenditures
 
119,093

 
12,936

 
27,278

 
69,790

 
48,289

 
277,386

Cash Paid for Acquisitions, Net of Cash Acquired
 
(1,077
)
 
(40
)
 
296

 
47,187

 

 
46,366

Additions to Customer Relationship and Acquisition Costs
 
19,745

 
151

 
2,947

 
1,526

 
1,478

 
25,847

Nine Months Ended September 30, 2015
 
 

 
 

 
 
 
 

 
 

 
 

Total Revenues
 
1,332,811

 
294,220

 
301,910

 
311,805

 
14,803

 
2,255,549

Depreciation and Amortization
 
137,581

 
16,231

 
34,498

 
43,077

 
28,605

 
259,992

Depreciation
 
122,705

 
15,726

 
30,066

 
29,446

 
28,554

 
226,497

Amortization
 
14,876

 
505

 
4,432

 
13,631

 
51

 
33,495

Adjusted OIBDA
 
533,598

 
152,178

 
88,859

 
61,430

 
(153,784
)
 
682,281

Total Assets (1)
 
3,610,618

 
645,832

 
923,358

 
845,341

 
644,673

 
6,669,822

Expenditures for Segment Assets
 
129,512

 
15,879

 
19,676

 
61,111

 
39,541

 
265,719

Capital Expenditures
 
96,135

 
8,837

 
11,967

 
48,500

 
37,142

 
202,581

Cash Paid for Acquisitions, Net of Cash Acquired
 
12,764

 
(21
)
 
2,510

 
10,323

 
2,399

 
27,975

Additions to Customer Relationship and Acquisition Costs
 
20,613

 
7,063

 
5,199

 
2,288

 

 
35,163

_______________________________________________________________________________

(1)
Excludes all intercompany receivables or payables and investment in subsidiary balances.

45

Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(7) Segment Information (Continued)


The accounting policies of the reportable segments are the same as those described in Note 2. Adjusted OIBDA for each segment is defined as operating income before depreciation, amortization, intangible impairments, (gain) loss on disposal/write-down of property, plant and equipment, net (excluding real estate), Recall Costs (as defined below) and REIT Costs (as defined below) directly attributable to the segment. Internally, we use Adjusted OIBDA as the basis for evaluating the performance of, and allocating resources to, our operating segments.
A reconciliation of Adjusted OIBDA to income (loss) from continuing operations before provision (benefit) for income taxes and (gain) loss on sale of real estate on a consolidated basis is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2015
 
2014
 
2015
Adjusted OIBDA
$
235,391

 
$
227,835

 
$
705,764

 
$
682,281

Less: Depreciation and Amortization
89,194

 
86,492

 
264,568

 
259,992

Loss (Gain) on Disposal/Write-Down of Property, Plant and Equipment (Excluding Real Estate), Net
184

 
(141
)
 
1,229

 
707

Recall Costs(1)

 
14,662

 

 
20,324

REIT Costs(2)
4,537

 

 
18,585

 

Interest Expense, Net
63,220

 
65,135

 
187,733

 
196,120

Other Expense (Income), Net
22,508

 
35,246

 
22,987

 
59,599

Income (Loss) from Continuing Operations before Provision (Benefit) for Income Taxes and Gain on Sale of Real Estate
$
55,748

 
$
26,441

 
$
210,662

 
$
145,539

_______________________________________________________________________________

(1)
Includes costs associated with our proposed acquisition of Recall, including costs to complete the acquisition (including advisory and professional fees) as well as costs incurred once we close the Recall Transaction to integrate Recall with our existing operations (including moving, severance, facility upgrade, REIT conversion and system upgrade costs) ("Recall Costs").

(2)
Includes costs associated with our conversion to a REIT, excluding REIT compliance costs beginning January 1, 2014 which we expect to recur in future periods ("REIT Costs").
(8) Commitments and Contingencies
a.    Litigation—General
We are involved in litigation from time to time in the ordinary course of business. A portion of the defense and/or settlement costs associated with such litigation is covered by various commercial liability insurance policies purchased by us and, in limited cases, indemnification from third parties. Our policy is to establish reserves for loss contingencies when the losses are both probable and reasonably estimable. We record legal costs associated with loss contingencies as expenses in the period in which they are incurred. The matters described below represent our significant loss contingencies. We have evaluated each matter and, if both probable and estimable, accrued an amount that represents our estimate of any probable loss associated with such matter. In addition, we have estimated a reasonably possible range for all loss contingencies including those described below. We believe it is reasonably possible that we could incur aggregate losses in addition to amounts currently accrued for all matters up to an additional $6,000 over the next several years, of which certain amounts would be covered by insurance or indemnity arrangements.

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Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(8) Commitments and Contingencies (Continued)



b. Italy Fire
On November 4, 2011, we experienced a fire at a facility we leased in Aprilia, Italy. The facility primarily stored archival and inactive business records for local area businesses. Despite quick response by local fire authorities, damage to the building was extensive, and the building and its contents were a total loss. Although our warehouse legal liability insurer has reserved its rights to contest coverage related to certain types of potential claims, we believe we carry adequate insurance. We have been sued by five customers, of which three of those matters have been settled. We have also received correspondence from other customers, under various theories of liabilities. We deny any liability with respect to the fire and we have referred these claims to our warehouse legal liability insurer for an appropriate response. We do not expect that this event will have a material impact on our consolidated financial condition, results of operations or cash flows. We sold our Italian operations on April 27, 2012, and we indemnified the buyers related to certain obligations and contingencies associated with the fire.
Our policy related to business interruption insurance recoveries is to record gains within other expense (income), net in our Consolidated Statements of Operations and proceeds received within cash flows from operating activities in our Consolidated Statements of Cash Flows. Such amounts are recorded in the period the cash is received. Our policy with respect to involuntary conversion of property, plant and equipment is to record any gain or loss within (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net within operating income in our Consolidated Statements of Operations and proceeds received within cash flows from investing activities within our Consolidated Statements of Cash Flows. Losses are recorded when incurred and gains are recorded in the period when the cash received exceeds the carrying value of the related property, plant and equipment. As a result of the sale of the Italian operations, statement of operations and cash flow impacts related to the fire will be reflected as discontinued operations.
c. Argentina Fire
On February 5, 2014, we experienced a fire at a facility we own in Buenos Aires, Argentina. As a result of the quick response by local fire authorities, the fire was contained before the entire facility was destroyed and all employees were safely evacuated; however, a number of first responders lost their lives, or in some cases, were severely injured. The cause of the fire is currently being investigated. We believe we carry adequate insurance and do not expect that this event will have a material impact to our consolidated financial condition, results of operations or cash flows. Revenues from our operations at this facility represent less than 0.5% of our consolidated revenues.
(9) Stockholders' Equity Matters
In February 2010, our board of directors adopted a dividend policy under which we have paid, and in the future intend to pay, quarterly cash dividends on our common stock. The amount and timing of future dividends will continue to be subject to the approval of our board of directors, in its sole discretion, and to applicable legal requirements.
On September 15, 2014, we announced the declaration by our board of directors of a special distribution of $700,000 (the "Special Distribution"), payable to stockholders of record as of September 30, 2014 (the "Record Date"). The Special Distribution represented the remaining amount of our undistributed earnings and profits attributable to all taxable periods ending on or prior to December 31, 2013, which in accordance with tax rules applicable to REIT conversions, we were required to pay to our stockholders on or before December 31, 2014 in connection with our conversion to a REIT. The Special Distribution also included certain items of taxable income that we recognized in 2014, such as depreciation recapture in respect of accounting method changes commenced in our pre-REIT period as well as foreign earnings and profits recognized as dividend income. The Special Distribution followed an initial special distribution of $700,000 paid to stockholders in November 2012.

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Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(9) Stockholders' Equity Matters (Continued)


The Special Distribution was paid on November 4, 2014 (the "Payment Date") to stockholders of record as of the Record Date in a combination of common stock and cash. Stockholders had the right to elect to be paid their pro rata portion of the Special Distribution in all common stock or all cash, with the total cash payment to stockholders limited to no more than $140,000, or 20% of the total Special Distribution, not including cash paid in lieu of fractional shares. Based on stockholder elections, we paid $140,000 of the Special Distribution in cash, not including cash paid in lieu of fractional shares, with the balance paid in the form of common stock. Our shares of common stock were valued for purposes of the Special Distribution based upon the average closing price on the three trading days following October 24, 2014, or $35.55 per share, and as such, we issued approximately 15,750,000 shares of common stock in the Special Distribution. These shares impact weighted average shares outstanding from the date of issuance, and thus will impact our earnings per share data prospectively from the Payment Date.
In November 2014, our board of directors declared a distribution of $0.255 per share (the “Catch‑Up Distribution”) payable on December 15, 2014 to stockholders of record on November 28, 2014. Our board of directors declared the Catch‑Up Distribution because our cash distributions paid from January 2014 through July 2014 were declared and paid before our board of directors had determined that we would elect REIT status effective January 1, 2014 and were lower than they otherwise would have been if the final determination to elect REIT status effective January 1, 2014 had been prior to such distributions.
In fiscal year 2014 and in the first nine months of 2015, our board of directors declared the following dividends:
Declaration Date
 
Dividend
Per Share
 
Record Date
 
Total
Amount
 
Payment Date
March 14, 2014
 
$
0.2700

 
March 25, 2014
 
$
51,812

 
April 15, 2014
May 28, 2014
 
0.2700

 
June 25, 2014
 
52,033

 
July 15, 2014
September 15, 2014
 
0.4750

 
September 25, 2014
 
91,993

 
October 15, 2014
September 15, 2014 (1)
 
3.6144

 
September 30, 2014
 
700,000

 
November 4, 2014
November 17, 2014 (2)
 
0.2550

 
November 28, 2014
 
53,450

 
December 15, 2014
November 17, 2014
 
0.4750

 
December 5, 2014
 
99,617

 
December 22, 2014
February 19, 2015
 
0.4750

 
March 6, 2015
 
99,795

 
March 20, 2015
May 28, 2015
 
0.4750

 
June 12, 2015
 
100,119

 
June 26, 2015
August 27, 2015
 
0.4750

 
September 11, 2015
 
100,213

 
September 30, 2015
_______________________________________________________________________________

(1) Represents Special Distribution.

(2) Represents Catch-Up Distribution.

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Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(10) Overhead Optimization Plan


During the third quarter of 2015, we implemented a plan that calls for certain organizational realignments to reduce our overhead costs, particularly in our developed markets, in order to optimize our selling, general and administrative cost structure and to support investments to advance our growth strategy. As a result of these realignments, we recorded a charge in selling, general and administrative expenses of approximately $9,100 during the third quarter of 2015, primarily related to employee severance and associated benefits. Of this charge, approximately $5,300, $200, $1,400 and $2,200 is reflected in the results of operations of our North American Records and Information Management Business, North American Data Management Business, Western European Business and Corporate and Other Business segments, respectively. We had $4,929 accrued as of September 30, 2015 related to this plan. We expect that this liability will be paid throughout the fourth quarter of 2015 and the first half of 2016.
(11) Subsequent Events
In October 2015, utilizing the funds invested in money market funds and capacity under the New Revolving Credit Facility as of September 30, 2015 created by applying a portion of the net proceeds from the issuance of the 6% Notes due 2020 to the repayment of borrowings under the New Revolving Credit Facility, IMI redeemed all of the outstanding 63/4% Notes, 73/4% Notes, and 83/8% Notes. A debt extinguishment charge of approximately $25,200 will be recorded to other expense (income), net in the fourth quarter of 2015 related to the redemption of the 63/4% Notes, the 73/4% Notes and the 83/8% Notes. This charge consists of call premiums, original issue discounts and unamortized deferred financing costs.




49

Table of Contents

IRON MOUNTAIN INCORPORATED
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2015 should be read in conjunction with our Consolidated Financial Statements and Notes thereto for the three and nine months ended September 30, 2015, included herein, and for the year ended December 31, 2014, included in our Current Report on Form 8-K filed with the United States Securities and Exchange Commission ("SEC") on May 7, 2015 (our "Current Report").
FORWARD-LOOKING STATEMENTS
We have made statements in this Quarterly Report on Form 10-Q ("Quarterly Report") that constitute "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements concern our operations, economic performance, financial condition, goals, beliefs, future growth strategies, investment objectives, plans and current expectations, such as our (1) commitment to future dividend payments, (2) expected growth in volume of records stored with us from existing customers, (3) expected 2015 consolidated revenue internal growth rate and capital expenditures, (4) expected target leverage ratio, (5) the proposed acquisition of Recall Holdings Limited ("Recall") pursuant to the Scheme Implementation Deed (the "Recall Agreement") with Recall, including our expected consideration to be paid to Recall shareholders, expected total cost of the Recall Transaction (as defined below) and expected time of closing, and (6) expected cost savings associated with the Transformation Initiative (as defined below). These forward-looking statements are subject to various known and unknown risks, uncertainties and other factors. When we use words such as "believes," "expects," "anticipates," "estimates" or similar expressions, we are making forward-looking statements. Although we believe that our forward-looking statements are based on reasonable assumptions, our expected results may not be achieved, and actual results may differ materially from our expectations. In addition, important factors that could cause actual results to differ from expectations include, among others:
our ability to remain qualified for taxation as a real estate investment trust ("REIT");
the adoption of alternative technologies and shifts by our customers to storage of data through non-paper based technologies;
changes in customer preferences and demand for our storage and information management services;
the cost to comply with current and future laws, regulations and customer demands relating to privacy issues;
the impact of litigation or disputes that may arise in connection with incidents in which we fail to protect our customers' information;
changes in the price for our storage and information management services relative to the cost of providing such storage and information management services;
changes in the political and economic environments in the countries in which our international subsidiaries operate;
our ability or inability to complete acquisitions on satisfactory terms and to integrate acquired companies efficiently;
changes in the amount of our capital expenditures;
changes in the cost of our debt;
the impact of alternative, more attractive investments on dividends;
the cost or potential liabilities associated with real estate necessary for our business;
the performance of business partners upon whom we depend for technical assistance or management expertise outside the United States; and
other trends in competitive or economic conditions affecting our financial condition or results of operations not presently contemplated.
In addition, with respect to the potential Recall transaction, our ability to close the proposed transaction in accordance with the terms of the Recall Agreement, or at all, is dependent on our and Recall's ability to satisfy the closing conditions set forth in the Recall Agreement, including the receipt of governmental and shareholder approvals. Additional risks and facts that may affect results are set forth in our filings with the SEC, including under "Item 1A. Risk Factors" in this Quarterly Report, our Annual Report on Form 10-K for the fiscal year ending December 31, 2014 filed with the SEC on February 27, 2015 (our “Annual Report”) and our Current Report.

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You should not rely upon forward-looking statements except as statements of our present intentions and of our present expectations, which may or may not occur. You should read these cautionary statements as being applicable to all forward-looking statements wherever they appear. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures we have made in this document, as well as our other periodic reports filed with the SEC.
Non-GAAP Measures
Adjusted OIBDA
Adjusted OIBDA is defined as operating income before depreciation, amortization, intangible impairments, (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net, Recall Costs (as defined below) and REIT Costs (as defined below). Adjusted OIBDA Margin is calculated by dividing Adjusted OIBDA by total revenues. We use multiples of current or projected Adjusted OIBDA in conjunction with our discounted cash flow models to determine our overall enterprise valuation and to evaluate acquisition targets. We believe Adjusted OIBDA and Adjusted OIBDA Margin provide our current and potential investors with relevant and useful information regarding our ability to generate cash flow 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 OIBDA does not include 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 (excluding real estate), net; (2) (gain) loss on sale of real estate, net of tax; (3) intangible impairments; (4) Recall Costs (as defined below); (5) REIT Costs (as defined below); (6) other expense (income), net; (7) income (loss) from discontinued operations, net of tax; (8) gain (loss) on sale of discontinued operations, net of tax; and (9) net income (loss) attributable to noncontrolling interests.
Adjusted OIBDA also does not include 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 OIBDA 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 OIBDA and Adjusted OIBDA 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 or net income (loss) or cash flows from operating activities from continuing operations (as determined in accordance with GAAP).
Reconciliation of Operating Income to Adjusted OIBDA (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2015
 
2014
 
2015
Operating Income
$
141,476

 
$
126,822

 
$
421,382

 
$
401,258

Add: Depreciation and Amortization
89,194

 
86,492

 
264,568

 
259,992

Loss (Gain) on Disposal/Write-Down of Property, Plant and Equipment (Excluding Real Estate), Net
184

 
(141
)
 
1,229

 
707

Recall Costs(1)

 
14,662

 

 
20,324

REIT Costs(2)
4,537

 

 
18,585

 

Adjusted OIBDA
$
235,391

 
$
227,835

 
$
705,764

 
$
682,281

_______________________________________________________________________________

(1)
Includes costs associated with our proposed acquisition of Recall, including costs to complete the acquisition (including advisory and professional fees) as well as costs incurred once we close the Recall Transaction to integrate Recall with our existing operations (including moving, severance, facility upgrade, REIT conversion and system upgrade costs) ("Recall Costs").

(2)
Includes costs associated with our conversion to a REIT, excluding REIT compliance costs beginning January 1, 2014 which we expect to recur in future periods ("REIT Costs").

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Adjusted EPS
Adjusted EPS is defined as reported earnings per share from continuing operations excluding: (1) (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net; (2) (gain) loss on sale of real estate, net of tax; (3) intangible impairments; (4) Recall Costs; (5) REIT Costs; (6) other expense (income), net; and (7) the tax impact of reconciling items and discrete tax items. 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:
 
Three Months
Ended
September 30,
 
Nine Months
Ended
September 30,
 
2014
 
2015
 
2014
 
2015
Reported EPS—Fully Diluted from Continuing Operations
$

 
$
0.11

 
$
1.63

 
$
0.56

Add: Loss on Disposal/Write-Down of Property, Plant and Equipment (Excluding Real Estate), Net

 

 
0.01

 

Gain on Sale of Real Estate, Net of Tax

 

 
(0.04
)
 

Other Expense, Net
0.12

 
0.17

 
0.12

 
0.28

Recall Costs

 
0.07

 

 
0.10

REIT Costs
0.02

 

 
0.10

 

Tax Impact of Reconciling Items and Discrete Tax Items(1)
0.21

 
(0.04
)
 
(0.72
)
 
(0.05
)
Adjusted EPS—Fully Diluted from Continuing Operations
$
0.35

 
$
0.31

 
$
1.10

 
$
0.89

_______________________________________________________________________________

(1)
The Adjusted EPS for the three and nine months ended September 30, 2014 reflects an estimated annual effective tax rate of approximately 16.3%. The Adjusted EPS for the three and nine months ended September 30, 2015 reflects an estimated annual effective tax rate of approximately 16.5%.


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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 attributable to Iron Mountain Incorporated excluding (i) gain on sale of real estate, net of tax and (ii) depreciation on real estate assets (“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 clear view of our operating performance. Our most directly comparable GAAP measure to FFO (NAREIT) is net income attributable to Iron Mountain Incorporated. 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) Recall Costs; (4) REIT Costs; (5) other expense (income), net; (6) deferred income taxes and REIT tax adjustments; (7) income (loss) from discontinued operations, net of tax; and (8) gain (loss) on sale of discontinued operations, net of tax.
Reconciliation of Net Income Attributable to Iron Mountain Incorporated to FFO (NAREIT) and FFO (Normalized) (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2015
 
2014
 
2015
Net Income Attributable to Iron Mountain Incorporated
$
66

 
$
23,110

 
$
313,370

 
$
117,536

Add: Real Estate Depreciation(1)
45,416

 
44,896

 
137,742

 
134,454

Gain on Sale of Real Estate, Net of Tax

 
(850
)
 
(7,468
)
 
(850
)
FFO (NAREIT)
45,482

 
67,156

 
443,644

 
251,140

Add: Loss (Gain) on Disposal/Write-Down of Property, Plant and Equipment (Excluding Real Estate), Net
184

 
(141
)
 
1,229

 
707

Other Expense (Income), Net(2)
22,508

 
35,246

 
22,987

 
59,599

Deferred Income Taxes and REIT Tax Adjustments(3)
37,780

 
(685
)
 
(148,109
)
 
(7,175
)
Loss from Discontinued Operations, Net of Tax

 

 
938

 

Recall Costs

 
14,662

 

 
20,324

REIT Costs
4,537

 

 
18,585

 

FFO (Normalized)
$
110,491

 
$
116,238

 
$
339,274

 
$
324,595

_______________________________________________________________________________

(1)
Includes depreciation expense related to real estate assets (land improvements, buildings, building improvements and racking).
(2)
Includes foreign currency transaction gains and losses, net of $32.5 million and $56.5 million in the three and nine months ended September 30, 2015, respectively, and $23.5 million and $25.6 million in the three and nine months ended September 30, 2014, respectively.
(3)
REIT Tax Adjustments primarily include the impact of the repatriation of foreign earnings and accounting method changes related to the REIT conversion (including the impact of amended tax returns).

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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
Accounting for Acquisitions
Impairment of Tangible and Intangible Assets
Income Taxes
Further detail regarding our critical accounting policies can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Current Report, and the Consolidated Financial Statements and the Notes included therein. We have determined that no material changes concerning our critical accounting policies have occurred since December 31, 2014.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 provides additional guidance for management to reassess revenue recognition as it relates to: (1) transfer of control, (2) variable consideration, (3) allocation of transaction price based on relative standalone selling price, (4) licenses, (5) time value of money and (6) contract costs. Further disclosures will be required to provide a better understanding of revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date ("ASU 2015-14"). ASU 2015-14 defers the effective date of ASU 2014-09 for one year, making it effective for our year beginning January 1, 2018, with early adoption permitted as of January 1, 2017. We are currently evaluating the impact ASU 2014-09 will have on our consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles of current United States auditing standards. Specifically, the amendments (1) provide a definition of the term “substantial doubt”, (2) require an evaluation every reporting period, including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is still present, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU 2014‑15 is effective for us on January 1, 2017, with early adoption permitted. We do not believe that this pronouncement will have an impact on our consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis ("ASU 2015-02"). ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 is effective for us on January 1, 2016, with early adoption permitted. We do not believe that this pronouncement will have an impact on our consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”).  The amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03.  ASU 2015‑03 is effective for us on January 1, 2016, with early adoption permitted.  We do not believe that this pronouncement will have a material impact on our consolidated financial statements.


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In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). ASU 2015-16 requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified, with the prior period impact of the adjustment being disclosed within the consolidated financial statements. ASU 2015-16 is effective for us on January 1, 2016, with early adoption permitted. We adopted ASU 2015-16 during the third quarter of 2015. This pronouncement did not have a material impact on our consolidated financial statements.
Overview
The following discussions set forth, for the periods indicated, management's discussion and analysis of financial condition and results of operations. Significant trends and changes are discussed for the three and nine month periods ended September 30, 2015 within each section. Trends and changes that are consistent with the three and nine month periods are not repeated and are discussed on a year to date basis.
Proposed Recall Acquisition
On June 8, 2015, we entered into the Recall Agreement with Recall to acquire Recall (the “Recall Transaction”) by way of a recommended court approved Scheme of Arrangement (the “Scheme”). Under the terms of the Recall Agreement, Recall shareholders are entitled to receive the Australian dollar equivalent of US$0.50 in cash for each outstanding share of Recall common stock (the “Cash Supplement”) as well as either (1) 0.1722 shares of our common stock for each Recall share or (2) 8.50 Australian dollars less the Australian dollar equivalent of US$0.50 in cash for each Recall share (the “Cash Election”). The Cash Election is subject to a proration mechanism that will cap the total amount of cash paid to Recall shareholders electing the Cash Election at 225.0 million Australian dollars (the “Cash Election Cap”). Amounts paid to Recall shareholders that represent the Cash Supplement are excluded from the calculation of the Cash Election Cap. Assuming a sufficient number of Recall shareholders elect the Cash Election such that we pay the Cash Election Cap, we expect to issue approximately 50.7 million shares of our common stock and, based on the exchange rate between the United States dollar and the Australian dollar as of September 30, 2015, pay approximately US$319.0 million to Recall shareholders in connection with the Recall Transaction which, based on the closing price of our common stock as of September 30, 2015, would result in a total purchase price to Recall shareholders of approximately $1,880.0 million. Completion of the Scheme is subject to customary closing conditions, including among others, (i) approval by Recall shareholders of the Scheme by the requisite majorities under the Australian Corporations Act, (ii) approval by our shareholders of the issuance of shares of our common stock in connection with the Recall Transaction by the requisite majority, (iii) expiration or earlier termination of any applicable waiting period and receipt of regulatory consents, approvals and clearances, in each case, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and under relevant antitrust/competition and foreign investment legislation in other relevant jurisdictions, (iv) the absence of any final and non-appealable order, decree or law preventing, making illegal or prohibiting the completion of the Recall Transaction, (v) approval from the New York Stock Exchange (the "NYSE") to the listing of additional shares of our common stock to be issued in the Recall Transaction, (vi) the establishment of a secondary listing on the Australian Securities Exchange (the “ASX”) to allow Recall shareholders to trade our common stock via CHESS Depository Interests on the ASX, (vii) Recall’s delivery of tax opinions in accordance and in compliance with certain tax matter agreements to which Recall is a party and (viii) no events having occurred that would have a material adverse effect on Recall or us. We expect the Recall Transaction to close in the first half of 2016.
Divestitures
In December 2014, we divested our secure shredding operations in Australia, Ireland and the United Kingdom (the ‘‘International Shredding Operations’’) in a stock transaction for approximately $26.2 million of cash at closing. The assets sold primarily consisted of customer contracts and certain long-lived assets. We have concluded that this divestiture did not meet the requirements to be presented as a discontinued operation. Revenues from our International Shredding Operations during the nine months ended September 30, 2014 and the full year 2014 represented less than 1% of our consolidated revenues. The International Shredding Operations in Australia were previously included in the Other International Business segment and the International Shredding Operations in Ireland and the United Kingdom were previously included in the Western European Business segment.

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Overhead Optimization Plan
During the third quarter of 2015, we implemented a plan that calls for certain organizational realignments to reduce our overhead costs, particularly in our developed markets, in order to optimize our selling, general and administrative cost structure and to support investments to advance our growth strategy (the "Transformation Initiative"). The Transformation Initiative is expected to generate annual cost savings of approximately $125.0 million by 2018. Actions we have taken to date under the Transformation Initiative are expected to deliver approximately $50.0 million of cost savings in 2016. As a result of these actions, we recorded a charge in selling, general and administrative expenses of $9.1 million during the third quarter of 2015, primarily related to employee severance and associated benefits. Of this charge, approximately $5.3 million, $0.2 million, $1.4 million and $2.2 million is reflected in the results of operations of our North American Records and Information Management Business, North American Data Management Business, Western European Business and Corporate and Other Business segments, respectively. As we quantify incremental costs associated with future Transformation Initiative actions to achieve our $125.0 million cost reduction goal, we will disclose the relevant cost estimates and charges in the period that such actions are approved.
General
As a result of a realignment in our senior management reporting structure during the first quarter of 2015, we modified our internal financial reporting to better align internal reporting with how we manage our business. These modifications resulted in the separation of our former International Business segment into two unique reportable operating segments, which we refer to as (1) Western European Business segment and (2) Other International Business segment. Additionally, during the first quarter of 2015, we reassessed the nature of certain costs which were previously being allocated to the North American Records and Information Management Business and North American Data Management Business segments. As a result of this reassessment, we determined that certain product management functions, which were previously being performed to solely benefit our North American operating segments, are now being performed in a manner that benefits the enterprise as a whole. Accordingly, the costs associated with these product management functions are now included within the Corporate and Other Business segment. Previously reported segment information has been restated to conform to the current period presentation.
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. Service revenues include charges for related service activities, which include: (1) the handling of records, including the addition of new records, temporary removal of records from storage, refiling of removed records and the destruction of records; (2) courier operations, consisting primarily of the pickup and delivery of records upon customer request; (3) secure shredding of sensitive documents and the related sale of recycled paper, the price of which can fluctuate from period to period; (4) other services, including the scanning, imaging and document conversion services of active and inactive records, or Document Management Solutions ("DMS"), which relate to physical and digital records, and project revenues; (5) customer termination and permanent withdrawal fees; (6) data restoration projects; (7) special project work; (8) the storage, assembly and detailed reporting of customer marketing literature and delivery to sales offices, trade shows and prospective customers' sites based on current and prospective customer orders ("Fulfillment Services"); (9) consulting services; and (10) technology escrow services that protect and manage source code ("Intellectual Property Management") and other technology services and product sales (including specially designed storage containers and related supplies). 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 with us, they are less likely than they have been in the past to retrieve records for research purposes, thereby reducing service activity levels.
We recognize revenue when the following criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable and collectability of the resulting receivable is reasonably assured. 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 have historically not been significant.

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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, information technology, 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 operating 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 than our operations in North America and, therefore, labor costs are a higher percentage of international segment revenue. In addition, the overhead structure of our expanding international operations has not achieved the same level of overhead leverage as our North American segments, which may result in an increase in selling, general and administrative expenses, as a percentage of consolidated revenue, as our international operations become a more meaningful percentage of our consolidated results.
Our depreciation and amortization charges result primarily from the capital-intensive nature of our business. The principal components of depreciation relate to storage systems, which include racking structures, building and leasehold improvements, computer systems hardware and software and buildings. Amortization relates primarily to customer relationship acquisition costs and is impacted by the nature and timing of acquisitions.
Our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues and expenses incurred by our entities 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 Statement 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 2014 results at the 2015 average exchange rates.

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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:
 
Average Exchange
Rates for the
Three Months
Ended
September 30,
 
 
 
Percentage
Strengthening /
(Weakening) of
Foreign Currency
 
2014
 
2015
 
Australian dollar
$
0.925

 
$
0.726

 
(21.5
)%
Brazilian real
$
0.440

 
$
0.284

 
(35.5
)%
British pound sterling
$
1.670

 
$
1.549

 
(7.2
)%
Canadian dollar
$
0.919

 
$
0.765

 
(16.8
)%
Euro
$
1.325

 
$
1.113

 
(16.0
)%

 
Average Exchange
Rates for the
Nine Months
Ended
September 30,
 
 
 
Percentage
Strengthening /
(Weakening) of
Foreign Currency
 
2014
 
2015
 
Australian dollar
$
0.918

 
$
0.763

 
(16.9
)%
Brazilian real
$
0.437

 
$
0.320

 
(26.8
)%
British pound sterling
$
1.669

 
$
1.532

 
(8.2
)%
Canadian dollar
$
0.914

 
$
0.795

 
(13.0
)%
Euro
$
1.356

 
$
1.115

 
(17.8
)%


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Results of Operations
Comparison of three and nine months ended September 30, 2015 to three and nine months ended September 30, 2014 (in thousands):
 
Three Months Ended
September 30,
 
 
 
 
 
 
Dollar
Change
 
Percentage
Change
 
2014
 
2015
 
 
Revenues
$
782,697

 
$
746,529

 
$
(36,168
)
 
(4.6
)%
Operating Expenses
641,221

 
619,707

 
(21,514
)
 
(3.4
)%
Operating Income
141,476

 
126,822

 
(14,654
)
 
(10.4
)%
Other Expenses, Net
140,618

 
103,305

 
(37,313
)
 
(26.5
)%
Income from Continuing Operations
858

 
23,517

 
22,659

 
2,640.9
 %
Loss from Discontinued Operations, Net of Tax

 

 

 
 %
Net Income
858

 
23,517

 
22,659

 
2,640.9
 %
Net Income Attributable to Noncontrolling Interests
792

 
407

 
(385
)
 
(48.6
)%
Net Income Attributable to Iron Mountain Incorporated
$
66

 
$
23,110

 
$
23,044

 
34,915.2
 %
Adjusted OIBDA(1)
$
235,391

 
$
227,835

 
$
(7,556
)
 
(3.2
)%
Adjusted OIBDA Margin(1)
30.1
%
 
30.5
%
 
 
 
 
 
Nine Months Ended
September 30,
 
 
 
 
 
 
Dollar
Change
 
Percentage
Change
 
2014
 
2015
 
 
Revenues
$
2,339,715

 
$
2,255,549

 
$
(84,166
)
 
(3.6
)%
Operating Expenses
1,918,333

 
1,854,291

 
(64,042
)
 
(3.3
)%
Operating Income
421,382

 
401,258

 
(20,124
)
 
(4.8
)%
Other Expenses, Net
105,101

 
281,995

 
176,894

 
168.3
 %
Income from Continuing Operations
316,281

 
119,263

 
(197,018
)
 
(62.3
)%
Loss from Discontinued Operations, Net of Tax
(938
)
 

 
938

 
100.0
 %
Net Income
315,343

 
119,263

 
(196,080
)
 
(62.2
)%
Net Income Attributable to Noncontrolling Interests
1,973

 
1,727

 
(246
)
 
(12.5
)%
Net Income Attributable to Iron Mountain Incorporated
$
313,370

 
$
117,536

 
$
(195,834
)
 
(62.5
)%
Adjusted OIBDA(1)
$
705,764

 
$
682,281

 
$
(23,483
)
 
(3.3
)%
Adjusted OIBDA Margin(1)
30.2
%
 
30.2
%
 
 
 
 
_______________________________________________________________________________

(1)
See "Non-GAAP Measures—Adjusted OIBDA" in this Quarterly Report for the definition, reconciliation and a discussion of why we believe these measures provide relevant and useful information to our current and potential investors.



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REVENUES
Consolidated revenues consists of the following (in thousands):
 
Three Months Ended
September 30,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency(1)
 
Internal
Growth(2)
 
2014
 
2015
 
 
 
 
Storage Rental
$
469,064

 
$
460,052

 
$
(9,012
)
 
(1.9
)%
 
4.1
 %
 
2.8
 %
Service
313,633

 
286,477

 
(27,156
)
 
(8.7
)%
 
(1.6
)%
 
(0.9
)%
Total Revenues
$
782,697

 
$
746,529

 
$
(36,168
)
 
(4.6
)%
 
1.8
 %
 
1.3
 %
 
Nine Months Ended
September 30,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency(1)
 
Internal
Growth(2)
 
2014
 
2015
 
 
 
 
Storage Rental
$
1,394,842

 
$
1,380,133

 
$
(14,709
)
 
(1.1
)%
 
4.3
 %
 
2.8
 %
Service
944,873

 
875,416

 
(69,457
)
 
(7.4
)%
 
(1.2
)%
 
(0.6
)%
Total Revenues
$
2,339,715

 
$
2,255,549

 
$
(84,166
)
 
(3.6
)%
 
2.1
 %
 
1.5
 %
_______________________________________________________________________________
(1)
Constant currency growth rates are calculated by translating the 2014 results at the 2015 average exchange rates.
(2)
Our revenue internal growth rate represents the weighted average year-over-year growth rate of our revenues after removing the effects of acquisitions, divestitures and foreign currency exchange rate fluctuations. We calculate revenue internal growth in local currency for our international operations.
Consolidated storage rental revenues decreased $9.0 million, or 1.9%, to $460.1 million and $14.7 million, or 1.1%, to $1,380.1 million for the three and nine months ended September 30, 2015, respectively, from $469.1 million and $1,394.8 million for the three and nine months ended September 30, 2014, respectively. Consolidated storage rental internal growth and the net impact of acquisitions/divestitures were offset by unfavorable fluctuations in foreign exchange rates compared to the three and nine months ended September 30, 2014. Foreign currency exchange rate fluctuations decreased our reported storage rental revenue growth rates for the three and nine months ended September 30, 2015 by 6.0% and 5.4%, respectively, compared to the same prior year periods. This decrease was partially offset by storage rental revenue internal growth of 2.8% in each of the three and nine months ended September 30, 2015, as well as the net impact of acquisitions/divestitures of 1.3% and 1.5% in the three and nine months ended September 30, 2015, respectively, compared to the three and nine months ended September 30, 2014. Our consolidated storage rental revenue internal growth in the first nine months of 2015 was driven by sustained storage rental revenue internal growth of 5.3%, 2.8% and 11.4% in our North American Data Management, Western European and Other International Business segments, respectively. Global records management net volumes as of September 30, 2015 increased by 2.7% over the ending volume at September 30, 2014, supported by 8.7% volume increases in our Other International Business segment.
Consolidated service revenues decreased $27.2 million, or 8.7%, to $286.5 million and $69.5 million, or 7.4%, to $875.4 million for the three and nine months ended September 30, 2015, respectively, from $313.6 million and $944.9 million for the three and nine months ended September 30, 2014, respectively. Service revenue internal growth was negative 0.9% and negative 0.6% for the three and nine months ended September 30, 2015, respectively, compared to the same prior year periods. The negative service revenue internal growth for the three and nine months ended September 30, 2015, respectively, reflects reduced retrieval/re-file activity and a related decrease in transportation revenues within our North American Records and Information Management Business segment, as well as continued declines in service revenue activity levels in our North American Data Management Business segment as the storage business becomes more archival in nature. In the North American Records and Information Management Business segment, the decline in service activities has begun to stabilize in recent periods, while service revenue declines in the North American Data Management Business segment are reflecting more recent reductions in service activity levels. Foreign currency exchange rate fluctuations decreased our reported total service revenues by 7.1% and 6.2% for the three and nine months ended September 30, 2015, respectively, compared to the same prior year periods. Net acquisitions/divestitures decreased reported service revenues by 0.6% for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014, primarily due to a $19.0 million reduction in consolidated service revenue associated with the disposition of our International Shredding Operations.

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For the reasons stated above, our consolidated revenues decreased $36.2 million, or 4.6%, to $746.5 million and $84.2 million, or 3.6%, to $2,255.5 million for the three and nine months ended September 30, 2015, respectively, from $782.7 million and $2,339.7 million for the three and nine months ended September 30, 2014, respectively. For the three and nine months ended September 30, 2015, foreign currency exchange rate fluctuations decreased our reported consolidated revenues by 6.4% and 5.7%, respectively, compared to the same prior year periods, primarily due to the weakening of the Australian dollar, Brazilian real, British pound sterling, Canadian dollar and the Euro against the United States dollar, based on an analysis of weighted average rates for the comparable periods. This decrease was partially offset by consolidated revenue internal growth of 1.3% and 1.5% in the three and nine months ended September 30, 2015, respectively, as well as the net impact of acquisitions/divestitures of 0.5% and 0.6% in the three and nine months ended September 30, 2015, respectively, compared to the three and nine months ended September 30, 2014.
Internal Growth—Eight-Quarter Trend
 
2013
 
2014
 
2015
 
Fourth
Quarter
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
Storage Rental Revenue
1.3
 %
 
1.4
 %
 
1.6
 %
 
2.2
 %
 
3.5
%
 
3.0
 %
 
2.7
%
 
2.8
 %
Service Revenue
(4.4
)%
 
(0.7
)%
 
(1.9
)%
 
(2.7
)%
 
2.3
%
 
(1.0
)%
 
%
 
(0.9
)%
Total Revenue
(1.1
)%
 
0.5
 %
 
0.1
 %
 
0.2
 %
 
3.0
%
 
1.4
 %
 
1.6
%
 
1.3
 %

We expect our consolidated revenue internal growth rate for 2015 to be approximately 1% to 2%. During the past eight quarters, our storage rental revenue internal growth rate has ranged between 1.3% and 3.5%. Storage rental revenue internal growth rates have been relatively stable over the past two fiscal years, averaging between 2.1% and 2.2% for full-year 2013 and 2014. At various points in the economic cycle, storage rental revenue internal growth may be influenced by changes in pricing and volume. Recently, we initiated sales force programs focused on increasing volume through new sales and improved customer retention. In addition, we are working on enhancing our pricing strategy through implementing a statistical-based approach, which enables customized pricing based on customer profiles and needs. Within our international portfolio, the Western European Business segment is generating consistent low-to-mid single-digit storage rental revenue internal growth, while the Other International Business segment is producing strong double-digit storage rental revenue internal growth by capturing the first-time outsourcing trends for physical records storage and management in those markets. The internal growth rate for service revenue is inherently more volatile than the storage rental revenue internal growth rate 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 internal growth rate for total service revenues reflects reduced retrieval/re-file activity and a related decrease in transportation revenues within our North American Records and Information Management Business segment, as well as continued service declines in service revenue activity levels in our North American Data Management Business segment as the storage business becomes more archival in nature.

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OPERATING EXPENSES
Cost of Sales
Consolidated cost of sales (excluding depreciation and amortization) consists of the following expenses (in thousands):
 
Three Months Ended
September 30,
 
 
 
Percentage Change
 
% of
Consolidated
Revenues
 
Percentage
Change
(Favorable)/
Unfavorable
 
 
 
 
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
 
 
2014
 
2015
 
 
 
 
2014
 
2015
 
Labor
$
166,133

 
$
158,905

 
$
(7,228
)
 
(4.4
)%
 
4.0
 %
 
21.2
%
 
21.3
%
 
0.1
 %
Facilities
107,966

 
105,024

 
(2,942
)
 
(2.7
)%
 
4.3
 %
 
13.8
%
 
14.1
%
 
0.3
 %
Transportation
30,506

 
24,958

 
(5,548
)
 
(18.2
)%
 
(12.9
)%
 
3.9
%
 
3.3
%
 
(0.6
)%
Product Cost of Sales and Other
30,901

 
28,776

 
(2,125
)
 
(6.9
)%
 
2.1
 %
 
3.9
%
 
3.9
%
 
 %
 
$
335,506

 
$
317,663

 
$
(17,843
)
 
(5.3
)%
 
2.4
 %
 
42.9
%
 
42.6
%
 
(0.3
)%
 
Nine Months Ended
September 30,
 
 
 
Percentage Change
 
% of
Consolidated
Revenues
 
Percentage
Change
(Favorable)/
Unfavorable
 
 
 
 
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
 
 
2014
 
2015
 
 
 
 
2014
 
2015
 
Labor
$
501,025

 
$
484,389

 
$
(16,636
)
 
(3.3
)%
 
3.8
 %
 
21.4
%
 
21.5
%
 
0.1
 %
Facilities
330,227

 
319,833

 
(10,394
)
 
(3.1
)%
 
2.8
 %
 
14.1
%
 
14.2
%
 
0.1
 %
Transportation
89,338

 
75,310

 
(14,028
)
 
(15.7
)%
 
(11.0
)%
 
3.8
%
 
3.3
%
 
(0.5
)%
Product Cost of Sales and Other
87,022

 
86,068

 
(954
)
 
(1.1
)%
 
7.6
 %
 
3.7
%
 
3.8
%
 
0.1
 %
 
$
1,007,612

 
$
965,600

 
$
(42,012
)
 
(4.2
)%
 
2.5
 %
 
43.1
%
 
42.8
%
 
(0.3
)%

Labor
Labor expense increased to 21.5% of consolidated revenues in the nine months ended September 30, 2015 compared to 21.4% in the nine months ended September 30, 2014. Labor costs were favorably impacted by 7.1 percentage points due to currency rate changes during the nine months ended September 30, 2015. Labor expense for the nine months ended September 30, 2015 increased by 3.8% on a constant dollar basis compared to the nine months ended September 30, 2014. This increase was primarily due to a $13.5 million increase in labor costs in our Other International Business segment, primarily associated with the impact of recent acquisitions, and a $7.7 million increase in labor costs in our North American Records and Information Management Business segment, primarily associated with an increase in medical expenses. These increases were partially offset by a $1.3 million reduction in restructuring costs, primarily associated with our North American Records and Information Management Business segment, in the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014.
Facilities
Facilities costs increased to 14.2% of consolidated revenues in the nine months ended September 30, 2015 compared to 14.1% in the nine months ended September 30, 2014. Facilities costs were favorably impacted by 5.9 percentage points due to currency rate changes during the nine months ended September 30, 2015. Rent expense increased by $6.7 million on a constant dollar basis for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014, primarily driven by increased costs in our Other International Business segment. Other facilities costs increased by $2.1 million on a constant dollar basis for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014, primarily due to higher property taxes and common area charges of $2.9 million and building maintenance and security costs of $3.1 million, partially offset by a decrease in insurance costs of $4.2 million primarily associated with a fire at one of our facilities in Buenos Aires, Argentina in February 2014.

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Transportation
Transportation costs decreased by $9.3 million on a constant dollar basis in the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014, primarily as a result of decreased fuel and insurance costs of $5.8 million and $2.6 million, respectively. Transportation costs were favorably impacted by 4.7 percentage points due to currency rate changes during the nine months ended September 30, 2015.
Product Cost of Sales and Other
Product cost of sales and other, which includes cartons, media and other service, storage and supply costs, is highly correlated to service revenue streams, particularly project revenues. For the nine months ended September 30, 2015, product cost of sales and other decreased by $1.0 million compared to the nine months ended September 30, 2014 on an actual basis, primarily associated with lower special project costs within our North American Records and Information Management Business and Other International Business segments. These costs were favorably impacted by 8.7 percentage points due to currency rate changes during the nine months ended September 30, 2015.

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Selling, General and Administrative Expenses
Selling, general and administrative expenses consists of the following expenses (in thousands):
 
Three Months Ended
September 30,
 
 
 
Percentage Change
 
% of
Consolidated
Revenues
 
Percentage
Change
(Favorable)/
Unfavorable
 
 
 
 
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
 
 
2014
 
2015
 
 
 
 
2014
 
2015
 
General and Administrative
$
132,335

 
$
130,957

 
$
(1,378
)
 
(1.0
)%
 
4.9
%
 
16.9
%
 
17.5
%
 
0.6
%
Sales, Marketing & Account Management
53,239

 
54,079

 
840

 
1.6
 %
 
7.4
%
 
6.8
%
 
7.2
%
 
0.4
%
Information Technology
25,579

 
25,433

 
(146
)
 
(0.6
)%
 
4.7
%
 
3.3
%
 
3.4
%
 
0.1
%
Bad Debt Expense
5,184

 
5,224

 
40

 
0.8
 %
 
1.6
%
 
0.7
%
 
0.7
%
 
%
 
$
216,337

 
$
215,693

 
$
(644
)
 
(0.3
)%
 
5.4
%
 
27.6
%
 
28.9
%
 
1.3
%
 
Nine Months Ended
September 30,
 
 
 
Percentage Change
 
% of
Consolidated
Revenues
 
Percentage
Change
(Favorable)/
Unfavorable
 
 
 
 
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
 
 
2014
 
2015
 
 
 
 
2014
 
2015
 
General and Administrative
$
394,468

 
$
375,893

 
$
(18,575
)
 
(4.7
)%
 
0.4
%
 
16.9
%
 
16.7
%
 
(0.2
)%
Sales, Marketing & Account Management
159,390

 
160,959

 
1,569

 
1.0
 %
 
6.1
%
 
6.8
%
 
7.1
%
 
0.3
 %
Information Technology
76,408

 
75,493

 
(915
)
 
(1.2
)%
 
3.5
%
 
3.3
%
 
3.3
%
 
 %
Bad Debt Expense
14,658

 
15,647

 
989

 
6.7
 %
 
8.3
%
 
0.6
%
 
0.7
%
 
0.1
 %
 
$
644,924

 
$
627,992

 
$
(16,932
)
 
(2.6
)%
 
2.3
%
 
27.6
%
 
27.8
%
 
0.2
 %

General and Administrative
General and administrative expenses increased to 17.5% of consolidated revenues during the three months ended September 30, 2015 compared to 16.9% in the three months ended September 30, 2014. On a constant dollar basis, general and administrative expenses increased by $6.1 million during the three months ended September 30, 2015 compared to the three months ended September 30, 2014, primarily as a result of a $14.7 million increase in Recall Costs and a $5.0 million increase in costs associated with the Transformation Initiative. These increases were partially offset by a $4.5 million decrease in REIT Costs, a $3.8 million decrease in professional fees and other overhead expenses and a $3.4 million decrease in compensation costs primarily associated with incentive compensation. General and administrative expenses decreased to 16.7% of consolidated revenues during the nine months ended September 30, 2015 compared to 16.9% in the nine months ended September 30, 2014. On a constant dollar basis, general and administrative expenses increased by $1.3 million during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014, primarily as a result of a $20.3 million increase in Recall Costs, a $5.0 million increase in costs associated with the Transformation Initiative and a $2.1 million increase in general and administrative expenses associated with our Other International Business segment, partially offset by a $18.6 million decrease in REIT Costs, a $5.3 million decrease in professional fees associated with our North American Records and Information Management Business segment and a $2.2 million decrease in restructuring costs. General and administrative expenses were favorably impacted by 5.1 percentage points due to currency rate changes during the nine months ended September 30, 2015.
Sales, Marketing & Account Management
Sales, marketing and account management expenses increased to 7.1% of consolidated revenues during the nine months ended September 30, 2015 compared to 6.8% in the nine months ended September 30, 2014. On a constant dollar basis, sales, marketing and account management expenses during the nine months ended September 30, 2015 increased by $9.2 million compared to the nine months ended September 30, 2014, primarily due to an increase in compensation expenses of $5.7 million, primarily associated with higher sales commissions in our North American Data Management Business segment, as well as an increase in marketing expenses of $2.3 million. Sales, marketing and account management expenses were favorably impacted by 5.1 percentage points due to currency rate changes during the nine months ended September 30, 2015.

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Information Technology
On a constant dollar basis, information technology expenses increased $2.6 million during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014, primarily due to increased compensation expenses of $2.2 million. Information technology expenses were favorably impacted by 4.7 percentage points due to currency rate changes during the nine months ended September 30, 2015.
Bad Debt Expense
Consolidated bad debt expense for the nine months ended September 30, 2015 increased $1.0 million to $15.6 million (0.7% of consolidated revenues) from $14.7 million (0.6% of consolidated revenues) in the nine months ended September 30, 2014. 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.
Depreciation, Amortization, and (Gain) Loss on Disposal/Write-down of Property, Plant and Equipment (Excluding Real Estate), Net
Depreciation expense increased $10.9 million on a constant dollar basis for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014, primarily due to the increased depreciation of property, plant and equipment acquired through business combinations.
Amortization expense increased $0.4 million on a constant dollar basis for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014, primarily due to the increased amortization of customer relationship intangible assets acquired through business combinations.
Consolidated (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net was $(0.1) million and $0.7 million for the three and nine months ended September 30, 2015, respectively. Gains in the three months ended September 30, 2015 were primarily associated with the disposal of leased vehicles in our North American Records and Information Management Business segment. Losses in the nine months ended September 30, 2015 consisted primarily of the write-off of certain property associated with our North American Records and Information Management Business segment. Consolidated loss on disposal/write-down of property, plant and equipment (excluding real estate), net was $1.2 million for the nine months ended September 30, 2014 and consisted primarily of losses associated with the disposal of certain equipment associated with our North American Records and Information Management Business segment and the write-off of certain software associated with our Western European Business segment.

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Table of Contents

OPERATING INCOME AND ADJUSTED OIBDA (in thousands)
The following table reflects the effect of the foregoing factors on our consolidated operating income and Adjusted OIBDA:
 
Three Months Ended
September 30,
 
Dollar
Change
 
Percentage Change
 
2014
 
2015
 
Operating Income
$
141,476

 
$
126,822

 
$
(14,654
)
 
(10.4
)%
Operating Income as a Percentage of Consolidated Revenue
18.1
%
 
17.0
%
 
 
 
 
Adjusted OIBDA
235,391

 
227,835

 
(7,556
)
 
(3.2
)%
Adjusted OIBDA Margin
30.1
%
 
30.5
%
 
 
 
 
 
Nine Months Ended
September 30,
 
Dollar
Change
 
Percentage Change
 
2014
 
2015
 
Operating Income
$
421,382

 
$
401,258

 
$
(20,124
)
 
(4.8
)%
Operating Income as a Percentage of Consolidated Revenue
18.0
%
 
17.8
%
 
 
 
 
Adjusted OIBDA
705,764

 
682,281

 
(23,483
)
 
(3.3
)%
Adjusted OIBDA Margin
30.2
%
 
30.2
%
 
 
 
 
OTHER EXPENSES, NET
Interest Expense, Net
Consolidated interest expense, net increased $1.9 million to $65.1 million (8.7% of consolidated revenues) and $8.4 million to $196.1 million (8.7% of consolidated revenues) for the three and nine months ended September 30, 2015, respectively, from $63.2 million (8.1% of consolidated revenues) and $187.7 million (8.0% of consolidated revenues) for the three and nine months ended September 30, 2014, respectively, primarily due to the issuance in September 2014 of 400.0 million British pounds sterling in aggregate principal amount of the 61/8% Senior Notes due 2022 (the "GBP Notes") by Iron Mountain Europe PLC ("IME"), partially offset by the redemption in December 2014 of $306.0 million aggregate principal outstanding of our 83/8% Senior Subordinated Notes due 2021, as well as the redemption in January 2014 of 150.0 million British pounds sterling of the 71/4% GBP Senior Subordinated Notes due 2014. Our weighted average interest rate was 5.8% and 6.3% at September 30, 2015 and 2014, respectively.

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Other Expense (Income), Net (in thousands)
 
Three Months Ended
September 30,
 
Dollar
Change
 
Nine Months Ended
September 30,
 
Dollar
Change
 
2014
 
2015
 
 
2014
 
2015
 
Foreign currency transaction (gains) losses, net
$
23,500

 
$
32,539

 
$
9,039

 
$
25,591

 
$
56,461

 
$
30,870

Debt extinguishment expense, net

 
2,156

 
2,156

 

 
2,156

 
2,156

Other, net
(992
)
 
551

 
1,543

 
(2,604
)
 
982

 
3,586

 
$
22,508

 
$
35,246

 
$
12,738

 
$
22,987

 
$
59,599

 
$
36,612

We recorded net foreign currency transaction losses of $56.5 million in the nine months ended September 30, 2015, based on period-end exchange rates. These losses resulted primarily from changes in the exchange rate of each of the Argentine peso, Brazilian real, Euro, Russian ruble and Ukrainian hryvnia against the United States dollar compared to December 31, 2014, as these currencies relate to our intercompany balances with and between our Latin American and European subsidiaries, as well as Euro forward contracts. These losses were partially offset by gains primarily from changes in the exchange rate of the British pound sterling as it relates to our intercompany balances with and between our European subsidiaries, and Euro denominated bonds issued by Iron Mountain Incorporated ("IMI").
We recorded net foreign currency transaction losses of $25.6 million in the nine months ended September 30, 2014, based on period-end exchange rates. These losses resulted primarily from changes in the exchange rate of each of the Argentine peso, Brazilian real, British pound sterling, Euro, Russian ruble and Ukrainian hryvnia against the United States dollar compared to December 31, 2013, as these currencies relate to our intercompany balances with and between our Latin American and European subsidiaries, as well as losses on Australian dollar and Euro forward contracts. These losses were partially offset by gains primarily from British pound sterling borrowings on our revolving credit facility, British pound sterling forward contracts, and Euro denominated bonds issued by IMI.

We recorded a charge of approximately $2.2 million in the third quarter of 2015 related to the refinancing of the Credit Agreement (as defined below), representing a write-off of unamortized deferred financing costs.
 
Other, net in the nine months ended September 30, 2015 consisted primarily of $0.6 million related to the write-down of certain investments. Other, net in the nine months ended September 30, 2014 consisted primarily of $0.9 million of royalty income and $0.9 million of gains associated with a deferred compensation plan.
Provision for Income Taxes
We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period they occur. 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 qualified REIT subsidiaries and our domestic taxable REIT subsidiaries ("TRSs"), as well as between 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. 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.
Our effective tax rates for the three and nine months ended September 30, 2015 were 14.3% and 18.6%, respectively. The primary reconciling items between the federal statutory rate of 35% and our overall effective tax rate in the three and nine months ended September 30, 2015 were the benefit derived from the dividends paid deduction, differences in the rates of tax at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates and state income taxes (net of federal tax benefit). In the third quarter of 2015, we recorded a tax benefit of $4.1 million related to the expiration of certain statutes of limitations and an out-of-period tax adjustment ($9.0 million tax benefit) to correct the valuation of certain deferred tax assets associated with the REIT conversion that occurred in 2014.

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As a result of our REIT conversion, we recorded a net tax benefit of $212.2 million during the nine months ended September 30, 2014 for the revaluation of certain deferred tax assets and liabilities and other income taxes associated with the REIT conversion. Also, in the third quarter of 2014, we recorded an increase of $26.4 million to the tax provision related to certain amended tax returns filed principally to reflect tax accounting method changes consistent with our REIT conversion. The other primary reconciling items between the federal statutory rate of 35% and our overall effective tax rate in the three and nine months ended September 30, 2014 were an increase of $13.2 million and $49.3 million, respectively, in our tax provision associated with incremental federal and state income taxes and foreign withholding taxes on earnings of our foreign subsidiaries no longer considered permanently invested and other net tax adjustments related to the REIT conversion, including a tax benefit of $8.0 million and $41.8 million, respectively, primarily related to the dividends paid deduction.
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 TRSs.
Gain on Sale of Real Estate, Net of Tax
Consolidated gain on sale of real estate for the nine months ended September 30, 2015 was $0.9 million, net of tax of $0.2 million, associated with the sale of a building in the United Kingdom. Consolidated gain on sale of real estate for the nine months ended September 30, 2014 was $7.5 million, net of tax of $2.0 million associated with the sale of two buildings in the United Kingdom.
INCOME FROM CONTINUING OPERATIONS (in thousands)
The following table reflects the effect of the foregoing factors on our consolidated income from continuing operations:
 
Three Months Ended
September 30,
 
Dollar
Change
 
Percentage Change
 
2014
 
2015
 
Income from Continuing Operations
$
858

 
$
23,517

 
$
22,659

 
2,640.9
%
Income from Continuing Operations as a Percentage of Consolidated Revenue
0.1
%
 
3.2
%
 
 
 
 
 
Nine Months Ended
September 30,
 
Dollar
Change
 
Percentage Change
 
2014
 
2015
 
Income from Continuing Operations
$
316,281

 
$
119,263

 
$
(197,018
)
 
(62.3
)%
Income from Continuing Operations as a Percentage of Consolidated Revenue
13.5
%
 
5.3
%
 
 
 
 
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX
Loss from discontinued operations, net of tax was $0.9 million for the nine months ended September 30, 2014, primarily related to legal reserves.
NONCONTROLLING INTERESTS
For the three and nine months ended September 30, 2015, net income attributable to noncontrolling interests resulted in a decrease in net income attributable to IMI of $0.4 million and $1.7 million, respectively. For the three and nine months ended September 30, 2014, net income attributable to noncontrolling interests resulted in a decrease in net income attributable to IMI of $0.8 million and $2.0 million, respectively. These amounts represent our noncontrolling partners' share of earnings/losses in our majority-owned international subsidiaries that are consolidated in our operating results.

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Segment Analysis (in thousands)
As a result of a realignment in our senior management reporting structure during the first quarter of 2015, we modified our internal financial reporting to better align internal reporting with how we manage our business. These modifications resulted in the separation of our former International Business segment into two unique reportable operating segments, which we refer to as (1) Western European Business segment and (2) Other International Business segment. Additionally, during the first quarter of 2015, we reassessed the nature of certain costs which were previously being allocated to the North American Records and Information Management Business and North American Data Management Business segments. As a result of this reassessment, we determined that certain product management functions, which were previously being performed to solely benefit our North American operating segments, are now being performed in a manner that benefits the enterprise as a whole. Accordingly, the costs associated with these product management functions are now included within the Corporate and Other Business segment. Previously reported segment information has been restated to conform to the current period presentation.
Our five reportable operating segments are described as follows:

North American Records and Information Management Business—storage and information management services throughout the United States and Canada, including the storage of paper documents, as well as other media such as microfilm and microfiche, master audio and videotapes, film, X-rays and blueprints, including healthcare information services, vital records services, service and courier operations, and the collection, handling and disposal of sensitive documents for corporate customers (“Records Management”); information destruction services (“Destruction”); DMS; Fulfillment Services; and Intellectual Property Management.
North American Data Management Business—storage and rotation of backup computer media as part of corporate disaster recovery plans throughout the United States and Canada, including service and courier operations (“Data Protection & Recovery”); server and computer backup services; digital content repository systems to house, distribute, and archive key media assets; and storage, safeguarding and electronic or physical delivery of physical media of all types, primarily for entertainment and media industry clients.
Western European Business—Records Management, Data Protection & Recovery and DMS throughout the United Kingdom, Ireland, Norway, Austria, Belgium, France, Germany, Netherlands, Spain and Switzerland. Until December 2014, our Western European Business segment offered Destruction in the United Kingdom and Ireland.
Other International Business—storage and information management services throughout the remaining European countries in which we operate, Latin America and Asia Pacific, including Records Management, Data Protection & Recovery and DMS. Our European operations included within the Other International Business segment provide Records Management, Data Protection & Recovery and DMS. Our Latin America operations provide Records Management, Data Protection & Recovery, Destruction and DMS throughout Argentina, Brazil, Chile, Colombia, Mexico and Peru. Our Asia Pacific operations provide Records Management, Data Protection & Recovery and DMS throughout Australia, with Records Management and Data Protection & Recovery also provided in certain cities in India, Singapore, Hong Kong‑SAR and China. Until December 2014, our Other International Business segment offered Destruction in Australia.
Corporate and Other Business—consists of our data center business in the United States, the primary product offering of our Adjacent Businesses segment (which was formerly referred to as our Emerging Businesses segment), as well as costs related to executive and staff functions, including finance, human resources and information technology, which benefit the enterprise as a whole. These costs are primarily related to the general management of these functions on a corporate level and the design and development of programs, policies and procedures that are then implemented in the individual segments, with each segment bearing its own cost of implementation. Our Corporate and Other Business segment also includes stock-based employee compensation expense associated with all stock options, restricted stock, restricted stock units, performance units and shares of stock issued under our employee stock purchase plan.

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North American Records and Information Management Business
 
Three Months Ended
September 30,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
Internal
Growth
 
2014
 
2015
 
 
 
 
Storage Rental
$
271,417

 
$
269,239

 
$
(2,178
)
 
(0.8
)%
 
0.9
 %
 
(0.3
)%
Service
178,862

 
171,998

 
(6,864
)
 
(3.8
)%
 
(1.6
)%
 
(2.6
)%
Segment Revenue
$
450,279

 
$
441,237

 
$
(9,042
)
 
(2.0
)%
 
(0.1
)%
 
(1.2
)%
Segment Adjusted OIBDA(1)
$
179,590

 
$
175,331

 
$
(4,259
)
 
 
 
 
 
 
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue
39.9
%
 
39.7
%
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
Internal
Growth
 
2014
 
2015
 
 
 
 
Storage Rental
$
810,402

 
$
809,039

 
$
(1,363
)
 
(0.2
)%
 
1.2
 %
 
 %
Service
538,280

 
523,772

 
(14,508
)
 
(2.7
)%
 
(1.0
)%
 
(1.9
)%
Segment Revenue
$
1,348,682

 
$
1,332,811

 
$
(15,871
)
 
(1.2
)%
 
0.3
 %
 
(0.7
)%
Segment Adjusted OIBDA(1)
$
524,226

 
$
533,598

 
$
9,372

 
 
 
 
 
 
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue
38.9
%
 
40.0
%
 
 
 
 
 
 
 
 
_______________________________________________________________________________

(1)
See Note 7 to Notes to the Consolidated Financial Statements included in this Quarterly Report for the definition of Adjusted OIBDA and for the basis on which allocations are made and a reconciliation of Adjusted OIBDA to income (loss) from continuing operations before provision (benefit) for income taxes and (gain) loss on sale of real estate.
For the three and nine months ended September 30, 2015, reported revenue in our North American Records and Information Management Business segment decreased 2.0% and 1.2%, respectively, compared to the three and nine months ended September 30, 2014, primarily due to negative internal growth and foreign currency exchange rate fluctuations. For the three and nine months ended September 30, 2015, foreign currency exchange rate fluctuations decreased our reported revenues for the North American Records and Information Management Business segment by 1.9% and 1.5%, respectively, compared to the same prior year periods due to the weakening of the Canadian dollar against the United States dollar. Negative internal growth of 1.2% and 0.7% in the three and nine months ended September 30, 2015, respectively, was primarily the result of negative service revenue internal growth of 2.6% and 1.9% in the three and nine months ended September 30, 2015, respectively, resulting from reduced retrieval/re-file activity and a related decrease in transportation revenues. Net acquisitions/divestitures increased reported revenue in our North American Records and Information Management Business segment by 1.1% and 1.0% in the three and nine months ended September 30, 2015, respectively, compared to the three and nine months ended September 30, 2014. Adjusted OIBDA as a percentage of segment revenue increased 110 basis points during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014, primarily driven by a $6.4 million decrease in professional fees, a $5.8 million decrease in fuel and insurance costs and a $4.0 million decrease in incentive compensation, as well as a decrease in sales, marketing and account management costs. These decreases were partially offset by the $5.3 million of employee severance costs during the nine months ended September 30, 2015 associated with the Transformation Initiative.

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North American Data Management Business
 
Three Months Ended
September 30,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
Internal
Growth
 
2014
 
2015
 
 
 
 
Storage Rental
$
61,250

 
$
63,947

 
$
2,697

 
4.4
 %
 
5.6
 %
 
5.4
 %
Service
35,485

 
33,438

 
(2,047
)
 
(5.8
)%
 
(4.6
)%
 
(4.9
)%
Segment Revenue
$
96,735

 
$
97,385

 
$
650

 
0.7
 %
 
1.9
 %
 
1.6
 %
Segment Adjusted OIBDA(1)
$
54,799

 
$
50,268

 
$
(4,531
)
 
 
 
 
 
 
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue
56.6
%
 
51.6
%
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
Internal
Growth
 
2014
 
2015
 
 
 
 
Storage Rental
$
183,424

 
$
191,867

 
$
8,443

 
4.6
 %
 
5.5
 %
 
5.3
 %
Service
107,586

 
102,353

 
(5,233
)
 
(4.9
)%
 
(4.0
)%
 
(4.1
)%
Segment Revenue
$
291,010

 
$
294,220

 
$
3,210

 
1.1
 %
 
2.0
 %
 
1.8
 %
Segment Adjusted OIBDA(1)
$
168,887

 
$
152,178

 
$
(16,709
)
 
 
 
 
 
 
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue
58.0
%
 
51.7
%
 
 
 
 
 
 
 
 
_______________________________________________________________________________

(1)
See Note 7 to Notes to the Consolidated Financial Statements included in this Quarterly Report for the definition of Adjusted OIBDA and for the basis on which allocations are made and a reconciliation of Adjusted OIBDA to income (loss) from continuing operations before provision (benefit) for income taxes and (gain) loss on sale of real estate.

During the three and nine months ended September 30, 2015, reported revenue in our North American Data Management Business segment increased 0.7% and 1.1%, respectively, compared to the three and nine months ended September 30, 2014, primarily due to internal growth of 1.6% and 1.8% in the three and nine months ended September 30, 2015, respectively. The internal revenue growth was primarily attributable to storage rental revenue internal growth of 5.4% and 5.3% for the three and nine months ended September 30, 2015, respectively, partially offset by negative service revenue internal growth of 4.9% and 4.1% in the three and nine months ended September 30, 2015, respectively, which was due to declines in service revenue activity levels as the business becomes more archival in nature. For the three and nine months ended September 30, 2015, foreign currency exchange rate fluctuations decreased our reported revenues for the North American Data Management Business segment by 1.2% and 0.9%, respectively, compared to the same prior year periods due to the weakening of the Canadian dollar against the United States dollar. Adjusted OIBDA as a percentage of segment revenue decreased 630 basis points during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014, primarily due to increased overhead expenses of $12.7 million, primarily associated with higher sales, marketing and account management expenses and, to a lesser extent, reduced gross profit related to a decline in service revenues without a corresponding decrease in costs.


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Western European Business
 
Three Months Ended
September 30,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
Internal
Growth
 
2014
 
2015
 
 
 
 
Storage Rental
$
67,277

 
$
61,654

 
$
(5,623
)
 
(8.4
)%
 
2.5
 %
 
1.4
 %
Service
47,941

 
39,284

 
(8,657
)
 
(18.1
)%
 
(8.2
)%
 
(1.3
)%
Segment Revenue
$
115,218

 
$
100,938

 
$
(14,280
)
 
(12.4
)%
 
(1.9
)%
 
0.3
 %
Segment Adjusted OIBDA(1)
$
35,923

 
$
31,511

 
$
(4,412
)
 
 
 
 
 
 
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue
31.2
%
 
31.2
%
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
Internal
Growth
 
2014
 
2015
 
 
 
 
Storage Rental
$
199,438

 
$
182,825

 
$
(16,613
)
 
(8.3
)%
 
4.0
 %
 
2.8
 %
Service
151,308

 
119,085

 
(32,223
)
 
(21.3
)%
 
(10.6
)%
 
(2.9
)%
Segment Revenue
$
350,746

 
$
301,910

 
$
(48,836
)
 
(13.9
)%
 
(2.3
)%
 
0.5
 %
Segment Adjusted OIBDA(1)
$
104,881

 
$
88,859

 
$
(16,022
)
 
 
 
 
 
 
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue
29.9
%
 
29.4
%
 
 
 
 
 
 
 
 
_______________________________________________________________________________

(1)
See Note 7 to Notes to the Consolidated Financial Statements included in this Quarterly Report for the definition of Adjusted OIBDA and for the basis on which allocations are made and a reconciliation of Adjusted OIBDA to income (loss) from continuing operations before provision (benefit) for income taxes and (gain) loss on sale of real estate.
During the three and nine months ended September 30, 2015, reported revenue in our Western European Business segment decreased 12.4% and 13.9%, respectively, compared to the three and nine months ended September 30, 2014, primarily as a result of fluctuations in foreign currency exchange rates. Foreign currency fluctuations resulted in decreased revenue in the three and nine months ended September 30, 2015, respectively, as measured in United States dollars, of approximately 10.5% and 11.6%, as compared to the same prior year periods, due to the weakening of the British pound sterling and the Euro against the United States dollar. Internal revenue growth for the three and nine months ended September 30, 2015 was 0.3% and 0.5%, respectively, supported by 1.4% and 2.8% storage rental revenue internal growth in the three and nine months ended September 30, 2015, respectively. Net acquisitions/divestitures decreased reported revenue in our Western European Business segment by 2.8% in the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014, primarily due to an $12.1 million reduction in reported service revenues associated with the disposition of our shredding operations in the United Kingdom and Ireland in December 2014. Adjusted OIBDA as a percentage of segment revenue decreased 50 basis points during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014, primarily due to an increase in legal reserves.

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Other International Business
 
Three Months Ended
September 30,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
Internal
Growth
 
2014
 
2015
 
 
 
 
Storage Rental
$
66,061

 
$
59,176

 
$
(6,885
)
 
(10.4
)%
 
15.0
%
 
11.5
%
Service
50,886

 
42,216

 
(8,670
)
 
(17.0
)%
 
9.5
%
 
12.3
%
Segment Revenue
$
116,947

 
$
101,392

 
$
(15,555
)
 
(13.3
)%
 
12.6
%
 
11.8
%
Segment Adjusted OIBDA(1)
$
18,867

 
$
20,545

 
$
1,678

 
 
 
 
 
 
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue
16.1
%
 
20.3
%
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
Internal
Growth
 
2014
 
2015
 
 
 
 
Storage Rental
$
192,797

 
$
182,653

 
$
(10,144
)
 
(5.3
)%
 
16.2
%
 
11.4
%
Service
146,642

 
129,152

 
(17,490
)
 
(11.9
)%
 
10.1
%
 
10.9
%
Segment Revenue
$
339,439

 
$
311,805

 
$
(27,634
)
 
(8.1
)%
 
13.6
%
 
11.2
%
Segment Adjusted OIBDA(1)
$
64,376

 
$
61,430

 
$
(2,946
)
 
 
 
 
 
 
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue
19.0
%
 
19.7
%
 
 
 
 
 
 
 
 
_____________________________________________________________________________

(1)
See Note 7 to Notes to the Consolidated Financial Statements included in this Quarterly Report for the definition of Adjusted OIBDA and for the basis on which allocations are made and a reconciliation of Adjusted OIBDA to income (loss) from continuing operations before provision (benefit) for income taxes and (gain) loss on sale of real estate.
During the three and nine months ended September 30, 2015, reported revenues in our Other International Business segment decreased 13.3% and 8.1%, respectively, compared to the three and nine months ended September 30, 2014, primarily as a result of fluctuations in foreign currency exchange rates. Foreign currency fluctuations in the three and nine months ended September 30, 2015 resulted in decreased revenue, as measured in United States dollars, of approximately 25.9% and 21.7%, respectively, as compared to the same prior year periods, primarily due to the weakening of the Australian dollar, Brazilian real and Euro against the United States dollar. Internal revenue growth for the three and nine months ended September 30, 2015 was 11.8% and 11.2%, respectively, supported by 11.5% and 11.4% storage rental revenue internal growth for the three and nine months ended September 30, 2015, respectively. Net acquisitions/divestitures increased reported revenue in our Other International Business segment by 0.8% and 2.4% in the three and nine months ended September 30, 2015, respectively, compared to the three and nine months ended September 30, 2014, as the impact of our recent acquisitions in Brazil, Turkey and Poland were partially offset by a $2.4 million and a $6.9 million decrease in reported service revenues for the three and nine months ended September 30, 2015, respectively, associated with the disposition of our Australian shredding operations in December 2014. Adjusted OIBDA as a percentage of segment revenue increased 420 basis points and 70 basis points during the three and nine months ended September 30, 2015, respectively, compared to the three and nine months ended September 30, 2014. The increase in Adjusted OIBDA as a percentage of segment revenue during the three and nine months ended September 30, 2015 was primarily a result of a constant dollar increase in gross profit of 16.5% and 11.3% in the three and nine months ended September 30, 2015, respectively, compared to the same prior year period. The constant dollar increases in gross profit for the three and nine months ended September 30, 2015 were offset by the impact of changes in foreign currency exchange rates.

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Corporate and Other Business
 
Three Months Ended
September 30,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
Internal
Growth
 
2014
 
2015
 
 
 
 
Storage Rental
$
3,059

 
$
6,036

 
$
2,977

 
97.3
 %
 
97.3
 %
 
84.4
 %
Service
459

 
(459
)
 
(918
)
 
(200.0
)%
 
(200.0
)%
 
(288.0
)%
Segment Revenue
$
3,518

 
$
5,577

 
$
2,059

 
58.5
 %
 
58.5
 %
 
60.5
 %
Segment Adjusted OIBDA(1)
$
(53,788
)
 
$
(49,820
)
 
$
3,968

 
 
 
 
 
 
Segment Adjusted OIBDA(1) as a Percentage of Consolidated Revenue
(6.9
)%
 
(6.7
)%
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
Internal
Growth
 
2014
 
2015
 
 
 
 
Storage Rental
$
8,781

 
$
13,749

 
$
4,968

 
56.6
 %
 
56.6
 %
 
50.8
%
Service
1,057

 
1,054

 
(3
)
 
(0.3
)%
 
(0.3
)%
 
29.0
%
Segment Revenue
$
9,838

 
$
14,803

 
$
4,965

 
50.5
 %
 
50.5
 %
 
48.9
%
Segment Adjusted OIBDA(1)
$
(156,606
)
 
$
(153,784
)
 
$
2,822

 
 
 
 
 
 
Segment Adjusted OIBDA(1) as a Percentage of Consolidated Revenue
(6.7
)%
 
(6.8
)%
 
 
 
 
 
 
 
 
_______________________________________________________________________________

(1)
See Note 7 to Notes to the Consolidated Financial Statements included in this Quarterly Report for the definition of Adjusted OIBDA and for the basis on which allocations are made and a reconciliation of Adjusted OIBDA to income (loss) from continuing operations before provision (benefit) for income taxes and (gain) loss on sale of real estate.
During the three months ended September 30, 2015, Adjusted OIBDA in the Corporate and Other Business segment as a percentage of consolidated revenue increased 20 basis points compared to the three months September 30, 2014, primarily due to a $1.0 million decrease in stock-based compensation expense, as well as lower headcount and incentive compensation costs, partially offset by a $2.2 million increase in employee severance costs associated with the Transformation Initiative. During the nine months ended September 30, 2015, Adjusted OIBDA in the Corporate and Other Business segment as a percentage of consolidated revenue decreased 10 basis points compared to the nine months ended September 30, 2014, primarily due to an increase in overhead expenses of $5.9 million, primarily related to sales, marketing and account management expenses, partially offset by a decrease in facilities costs of $2.3 million, primarily associated with a fire at one of our facilities in Buenos Aires, Argentina in February 2014. The negative service revenue in the three months ended September 30, 2015 is the result of a year-to-date revenue reclassification of approximately $0.9 million recorded in the third quarter of 2015 between service revenue and storage rental revenue.

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Liquidity and Capital Resources
The following is a summary of our cash balances and cash flows (in thousands) as of and for the nine months ended September 30,
 
2014
 
2015
Cash flows from operating activities
$
301,852

 
$
320,095

Cash flows from investing activities
(331,292
)
 
(229,827
)
Cash flows from financing activities
94,833

 
285,540

Cash and cash equivalents at the end of period
183,988

 
492,899

Net cash provided by operating activities was $320.1 million for the nine months ended September 30, 2015 compared to $301.9 million for the nine months ended September 30, 2014. The 6.0% period over period increase resulted primarily from an increase in net income, including non-cash charges and realized foreign exchange losses, of $56.2 million, partially offset by an increase in cash used in working capital of $38.0 million, primarily related to the timing of operating accounts payable and accruals.
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. Cash paid for our capital expenditures, cash paid for acquisitions (net of cash acquired) and additions to customer acquisition costs during the nine months ended September 30, 2015 amounted to $202.6 million, $28.0 million and $35.2 million, respectively. For the nine months ended September 30, 2015, these expenditures were primarily funded with cash flows provided by borrowings under the New Revolving Credit Facility, the IMI Revolving Credit Facility and the Accounts Receivable Securitization Program (each as discussed and defined below). Excluding capital expenditures associated with potential future acquisitions and opportunistic real estate purchases above our plan, we expect our capital expenditures to be approximately $325.0 million to $345.0 million in the year ending December 31, 2015 (inclusive of approximately $50.0 million in planned real estate purchases).
Net cash provided by financing activities was $285.5 million for the nine months ended September 30, 2015. During the nine months ended September 30, 2015, we received net proceeds of $587.9 million of debt (primarily associated with the issuance of the 6% Notes due 2020 (as defined below) in September 2015 and the Accounts Receivable Securitization Program) as well as $14.0 million from proceeds from the exercise of stock options and the employee stock purchase plan. We used the proceeds from these transactions, as well as cash flows provided by operating activities, for the payment of dividends in the amount of $303.7 million on our common stock.
Dividends and Distributions
In February 2010, our board of directors adopted a dividend policy under which we have paid, and in the future intend to pay, quarterly cash dividends on our common stock. The amount and timing of future dividends will continue to be subject to the approval of our board of directors, in its sole discretion, and to applicable legal requirements.
On September 15, 2014, we announced the declaration by our board of directors of a special distribution of $700.0 million (the "Special Distribution"), payable to stockholders of record as of September 30, 2014 (the "Record Date"). The Special Distribution represented the remaining amount of our undistributed earnings and profits attributable to all taxable periods ending on or prior to December 31, 2013, which in accordance with tax rules applicable to REIT conversions, we were required to pay to our stockholders on or before December 31, 2014 in connection with our conversion to a REIT. The Special Distribution also included certain items of taxable income that we recognized in 2014, such as depreciation recapture in respect of accounting method changes commenced in our pre-REIT period as well as foreign earnings and profits recognized as dividend income. The Special Distribution followed an initial special distribution of $700.0 million paid to stockholders in November 2012.

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The Special Distribution was paid on November 4, 2014 (the ‘‘Payment Date’’) to stockholders of record as of the Record Date in a combination of common stock and cash. Stockholders had the right to elect to be paid their pro rata portion of the Special Distribution in all common stock or all cash, with the total cash payment to stockholders limited to no more than $140.0 million, or 20% of the total Special Distribution, not including cash paid in lieu of fractional shares. Based on stockholder elections, we paid $140.0 million of the Special Distribution in cash, not including cash paid in lieu of fractional
shares, with the balance paid in the form of common stock. Our shares of common stock were valued for purposes of the Special Distribution based upon the average closing price on the three trading days following October 24, 2014, or $35.55 per share, and as such, we issued approximately 15.8 million shares of common stock in the Special Distribution. These shares impact weighted average shares outstanding from the date of issuance, and thus will impact our earnings per share data prospectively from the Payment Date.

In November 2014, our board of directors declared a distribution of $0.255 per share (the ‘‘Catch-Up Distribution’’) payable on December 15, 2014 to stockholders of record on November 28, 2014. Our board of directors declared the Catch-Up Distribution because our cash distributions paid from January 2014 through July 2014 were declared and paid before our board of directors had determined that we would elect REIT status effective January 1, 2014 and were lower than they otherwise would have been if the final determination to elect REIT status effective January 1, 2014 had been prior to such distributions.
In fiscal year 2014 and in the first nine months of 2015, our board of directors declared the following dividends:
Declaration Date
 
Dividend
Per Share
 
Record Date
 
Total
Amount
(in thousands)
 
Payment
Date
March 14, 2014
 
$
0.2700

 
March 25, 2014
 
$
51,812

 
April 15, 2014
May 28, 2014
 
0.2700

 
June 25, 2014
 
52,033

 
July 15, 2014
September 15, 2014
 
0.4750

 
September 25, 2014
 
91,993

 
October 15, 2014
September 15, 2014(1)
 
3.6144

 
September 30, 2014
 
700,000

 
November 4, 2014
November 17, 2014(2)
 
0.2550

 
November 28, 2014
 
53,450

 
December 15, 2014
November 17, 2014
 
0.4750

 
December 5, 2014
 
99,617

 
December 22, 2014
February 19, 2015
 
0.4750

 
March 6, 2015
 
99,795

 
March 20, 2015
May 28, 2015
 
0.4750

 
June 12, 2015
 
100,119

 
June 26, 2015
August 27, 2015
 
0.4750

 
September 11, 2015
 
100,213

 
September 30, 2015
_______________________________________________________________________________

(1) Represents Special Distribution.

(2) Represents Catch-Up Distribution.
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. The only significant concentrations of liquid investments as of September 30, 2015 relate to cash and cash equivalents held in money market funds with two "Triple A" rated money market funds and time deposits with eight global banks, all of which we consider to be large, highly-rated investment-grade institutions. 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 $50.0 million or in any one financial institution to a maximum of $75.0 million. As of September 30, 2015, our cash and cash equivalents balance was $492.9 million, including money market funds and time deposits amounting to $379.1 million.

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Our consolidated debt as of September 30, 2015 is as follows (in thousands):
New Revolving Credit Facility(1)
$
284,886

New Term Loan(1)
246,875

63/4% Euro Senior Subordinated Notes due 2018 (the "63/4% Notes")(2)
285,202

73/4% Senior Subordinated Notes due 2019 (the "73/4% Notes ")(2)
400,000

6% Senior Notes due 2020 (the "6% Notes due 2020")(2)(3)
1,000,000

83/8% Senior Subordinated Notes due 2021 (the "83/8% Notes")(2)
106,055

61/8% CAD Senior Notes due 2021 (the "CAD Notes")(4)
149,240

61/8% GBP Senior Notes due 2022 (the "GBP Notes")(3)(5)
606,180

6% Senior Notes due 2023 (the "6% Notes due 2023")(2)
600,000

53/4% Senior Subordinated Notes due 2024 (the "53/4% Notes")(2)
1,000,000

Accounts Receivable Securitization Program(6)
198,300

Real Estate Mortgages, Capital Leases and Other
297,556

Total Long-term Debt
5,174,294

Less Current Portion(7)
(253,726
)
Long-term Debt, Net of Current Portion
$
4,920,568

_______________________________________________________________________________
(1)
The capital stock or other equity interests of most of our United States subsidiaries, and up to 66% of the capital stock or other equity interests of our first-tier foreign subsidiaries, are pledged to secure these debt instruments, together with all intercompany obligations (including promissory notes) of subsidiaries owed to us or to one of our United States subsidiary guarantors. In addition, Iron Mountain Canada Operations ULC ("Canada Company") has pledged 66% of the capital stock of its subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by it, to secure the Canadian dollar subfacility under the New Revolving Credit Facility.
 
(2)
Collectively, the "Parent Notes." IMI is the direct obligor on the Parent Notes, which are fully and unconditionally guaranteed, on a senior or senior subordinated basis, as the case may be, by most of its direct and indirect 100% owned United States subsidiaries (the "Guarantors"). These guarantees are joint and several obligations of the Guarantors. Canada Company, IME, the Special Purpose Subsidiaries (as defined below) and the remainder of our subsidiaries do not guarantee the Parent Notes.

(3)
The 6% Notes due 2020 and the GBP Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or under the securities laws of any other jurisdiction. Unless they are registered, the 6% Notes due 2020 and the GBP Notes may be offered only in transactions that are exempt from registration under the Securities Act or the securities laws of any other jurisdiction.

(4) Canada Company is the direct obligor on the CAD Notes, which are fully and unconditionally guaranteed, on a senior basis, by IMI and the Guarantors. These guarantees are joint and several obligations of IMI and the Guarantors. See Note 6 to Notes to Consolidated Financial Statements included in this Quarterly Report.

(5)
IME is the direct obligor on the GBP Notes, which are fully and unconditionally guaranteed, on a senior basis, by IMI and the Guarantors. These guarantees are joint and several obligations of IMI and the Guarantors. See Note 6 to Notes to Consolidated Financial Statements included in this Quarterly Report.

(6)
The Special Purpose Subsidiaries are the obligors under this program.

(7) The Current Portion of Long-term debt at September 30, 2015 includes $175.0 million in aggregate principal amount of our outstanding 63/4% Notes, 73/4% Notes and 83/8% Notes redeemed in October 2015. The $175.0 million presented within the Current Portion of Long-term debt represents the portion of the 63/4% Notes, the 73/4% Notes and the 83/8% Notes redeemed in October 2015 utilizing funds that were invested in money market funds as of September 30, 2015.

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On July 2, 2015, we entered into a new credit agreement (the "New Credit Agreement") to refinance our then existing credit agreement (the "Credit Agreement") which consisted of a revolving credit facility (the "IMI Revolving Credit Facility") and a term loan (the "IMI Term Loan") and was scheduled to terminate on June 27, 2016. The New Credit Agreement consists of a revolving credit facility (the "New Revolving Credit Facility") and a term loan (the "New Term Loan").
The New Revolving Credit Facility is supported by a group of 25 banks and 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, Euros and Australian dollars, among other currencies) in an aggregate outstanding amount not to exceed $1,500.0 million. Commencing on September 30, 2015, the New Term Loan is to be paid in quarterly installments in an amount equal to $3.1 million per quarter, with the remaining balance due on July 3, 2019. The New Credit Agreement includes an option to allow us to request additional commitments of up to $500.0 million, in the form of term loans or through increased commitments under the New Revolving Credit Facility, subject to the conditions as defined in the New Credit Agreement. The New Credit Agreement terminates on July 6, 2019, at which point all obligations become due, but may be extended by one year at our option, subject to the conditions set forth in the New Credit Agreement. Borrowings under the New Credit Agreement may be prepaid without penalty or premium, in whole or in part, at any time.
IMI and the Guarantors guarantee all obligations under the New Credit Agreement, and have pledged the capital stock or other equity interests of most of their United States subsidiaries, up to 66% of the capital stock or other equity interests of their first-tier foreign subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by them to secure the New Credit Agreement. In addition, Canada Company has pledged 66% of the capital stock of its subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by it, to secure the Canadian dollar subfacility under the New Revolving Credit Facility. The interest rate on borrowings under the New Credit Agreement varies depending on our choice of interest rate and currency options, plus an applicable margin, which varies based on our consolidated leverage ratio. Additionally, the New Credit Agreement requires the payment of a commitment fee on the unused portion of the New Revolving Credit Facility, which fee ranges from between 0.25% to 0.4% based on our consolidated leverage ratio and fees associated with outstanding letters of credit. As of September 30, 2015, we had $284.9 million and $246.9 million of outstanding borrowings under the New Revolving Credit Facility and the New Term Loan, respectively. Of the $284.9 million of outstanding borrowings under the New Revolving Credit Facility, $78.4 million was denominated in United States dollars, 75.0 million was denominated in Canadian dollars, 73.8 million was denominated in Euros, 11.6 million was denominated in British pounds sterling and 71.6 million was denominated in Australian dollars. In addition, we also had various outstanding letters of credit totaling $35.6 million. The remaining amount available for borrowing under the New Revolving Credit Facility as of September 30, 2015, 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 New Credit Agreement and current external debt, was $1,179.5 million (which amount represents the maximum availability as of such date). The average interest rate in effect under the New Credit Agreement was 2.7% as of September 30, 2015. The average interest rate in effect under the New Revolving Credit Facility was 2.9% and ranged from 2.3% to 4.5% as of September 30, 2015 and the interest rate in effect under the New Term Loan as of September 30, 2015 was 2.5%.
In September 2015, IMI completed a private offering of $1,000.0 million in aggregate principal amount of the 6% Notes due 2020 which were issued at par. IMI received net proceeds of $985.0 million from the offering, after paying the initial purchasers’ discounts and commissions. As of September 30, 2015, the net proceeds were used for investments in money market funds and time deposits with large, highly-rated investment-grade institutions or to repay indebtedness outstanding under the New Revolving Credit Facility. In October 2015, utilizing the funds invested in money market funds and capacity under the New Revolving Credit Facility as of September 30, 2015 created by applying a portion of the net proceeds from the issuance of the 6% Notes due 2020 to the repayment of borrowings under the New Revolving Credit Facility, IMI redeemed all of the outstanding 63/4% Notes, 73/4% Notes and 83/8% Notes for aggregate redemption payments, including applicable redemption premiums and interest to the redemption date of approximately $826.9 million. IMI intends to use the remaining proceeds from the issuance of the 6% Notes due 2020 for general corporate purposes and, pending such use, has invested such proceeds in time deposits with large, highly-rated investment-grade institutions. A debt extinguishment charge of approximately $25.2 million will be recorded to other expense (income), net in the fourth quarter of 2015 related to the redemption of the 63/4% Notes, the 73/4% Notes and the 83/8% Notes. This charge consists of call premiums, original issue discounts and unamortized deferred financing costs.

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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 "Special Purpose Subsidiaries"). The Special Purpose Subsidiaries use the accounts receivable balances to collateralize loans obtained from certain financial institutions. The Special Purpose Subsidiaries are consolidated subsidiaries of IMI. The Accounts Receivable Securitization Program is accounted for as a collateralized financing activity, rather than a sale of assets, and therefore: (a) accounts receivable balances pledged as collateral are presented as assets and borrowings are presented as liabilities on our Consolidated Balance Sheet, (b) our Consolidated Statements of Operations reflect the associated charges for bad debt expense related to pledged accounts receivable (a component of selling, general and administrative expenses) and reductions to revenue due to billing and service related credit memos issued to customers and related reserves, as well as, interest expense associated with the collateralized borrowings and (c) receipts from customers related to the underlying accounts receivable are reflected as operating cash flows and borrowings and repayments under the collateralized loans are reflected as financing cash flows within our Consolidated Statement of Cash Flows. Iron Mountain Information Management, LLC retains the responsibility of servicing the accounts receivable balances pledged as collateral in this transaction and IMI provides a performance guaranty. The Accounts Receivable Securitization Program terminates on March 6, 2018, at which point all obligations become due. The maximum availability allowed is limited by eligible accounts receivable, as defined under the terms of the Accounts Receivable Securitization Program.  As of September 30, 2015, the maximum availability allowed and amount outstanding under the Accounts Receivable Securitization Program was $198.3 million. The interest rate in effect under the Accounts Receivable Securitization Program was 1.1% as of September 30, 2015. Commitment fees at a rate of 40 basis points are charged on amounts made available but not borrowed under the Accounts Receivable Securitization Program.
The New 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 New Credit Agreement, our indentures or other agreements governing our indebtedness. The New 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 both the Credit Agreement and the New Credit Agreement as of December 31, 2014 and September 30, 2015, respectively, and our leverage ratio under our indentures as of December 31, 2014 and September 30, 2015 are as follows:
 
December 31, 2014
 
September 30, 2015
 
Maximum//Minimum Allowable(1)
Net total lease adjusted leverage ratio
5.4

 
5.7

 
Maximum allowable of 6.5
Net secured debt lease adjusted leverage ratio
2.6

 
1.9

 
Maximum allowable of 4.0
Bond leverage ratio (not lease adjusted)
5.7

 
5.7

 
Maximum allowable of 6.5
Fixed charge coverage ratio
2.5

 
2.3

 
Minimum allowable of 1.5
______________________________________________________________________________
(1)
The maximum and minimum allowable ratios under the New Credit Agreement are substantially similar to the Credit Agreement.
Noncompliance with these leverage and fixed charge coverage ratios would have a material adverse effect on our financial condition and liquidity.
Commitment fees and letters of credit fees, which are based on the unused balances under the IMI Revolving Credit Facility, the New Revolving Credit Facility and the Accounts Receivable Securitization Program for the three and nine months ended September 30, 2014 and 2015, respectively, are as follows (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2015
 
2014
 
2015
Commitment fees and letters of credit fees
$
700

 
$
883

 
$
1,867

 
$
2,741


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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.
Acquisitions
In the first nine months of 2015, in order to enhance our existing operations in Australia, Austria, Canada, Chile, China, India, the United Kingdom and the United States, we completed nine acquisitions for total consideration of approximately $24.9 million. These acquisitions included six storage and records management companies, two storage and data management companies and one personal storage company. The individual purchase prices of these acquisitions ranged from approximately $1.0 million to approximately $5.4 million.
Proposed Recall Acquisition
On June 8, 2015, we entered into the Recall Agreement with Recall to acquire the Recall Transaction by way of the Scheme. Under the terms of the Recall Agreement, Recall shareholders are entitled to receive the Cash Supplement as well as either (1) 0.1722 shares of our common stock for each Recall share or (2) the Cash Election. The Cash Election is subject to the Cash Election Cap. Amounts paid to Recall shareholders that represent the Cash Supplement are excluded from the calculation of the Cash Election Cap. Assuming a sufficient number of Recall shareholders elect the Cash Election such that we pay the Cash Election Cap, we expect to issue approximately 50.7 million shares of our common stock and, based on the exchange rate between the United States dollar and the Australian dollar as of September 30, 2015, pay approximately US$319.0 million to Recall shareholders in connection with the Recall Transaction which, based on the closing price of our common stock as of September 30, 2015, would result in a total purchase price to Recall shareholders of approximately $1,880.0 million. Completion of the Scheme is subject to customary closing conditions, including among others, (i) approval by Recall shareholders of the Scheme by the requisite majorities under the Australian Corporations Act, (ii) approval by our shareholders of the issuance of shares of our common stock in connection with the Recall Transaction by the requisite majority, (iii) expiration or earlier termination of any applicable waiting period and receipt of regulatory consents, approvals and clearances, in each case, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and under relevant antitrust/competition and foreign investment legislation in other relevant jurisdictions, (iv) the absence of any final and non-appealable order, decree or law preventing, making illegal or prohibiting the completion of the Recall Transaction, (v) approval from the NYSE to the listing of additional shares of our common stock to be issued in the Recall Transaction, (vi) the establishment of a secondary listing on the ASX to allow Recall shareholders to trade our common stock via CHESS Depository Interests on the ASX, (vii) Recall’s delivery of tax opinions in accordance and in compliance with certain tax matter agreements to which Recall is a party and (viii) no events having occurred that would have a material adverse effect on Recall or us. We expect the Recall Transaction to close in the first half of 2016.

There are significant costs associated with the Recall Transaction, including (i) costs to complete the acquisition (including advisory and professional fees) as well as costs incurred once we close the Recall Transaction to integrate Recall with our existing operations (including moving, severance, facility upgrade, REIT conversion and system upgrade costs), (ii) the cash components of the purchase price noted above and (iii) the payoff of outstanding borrowings under Recall’s existing revolving credit facility upon closing of the transaction. We expect the cost of the Recall Transaction (including costs to complete the acquisition, the cash components of the purchase price and the payoff of Recall's revolving credit facility, but excluding integration costs) to be approximately $1,000.0 million. We intend to fund these costs through a combination of cash on hand, availability under our New Credit Agreement and, as necessary, public or private debt financing.
Contractual Obligations
We expect to meet our cash flow requirements for the next twelve months from cash generated from operations, existing cash, cash equivalents, borrowings under the New Credit Agreement and other financings, which may include senior or senior subordinated notes, secured credit facilities, securitizations and mortgage or capital lease financings, and the issuance of equity. We expect to meet our long-term cash flow requirements using the same means described above. We are highly leveraged. While we expect to continue to be highly leveraged for the foreseeable future, as a REIT we expect our long-term capital allocation strategy will naturally shift toward increased use of equity to support lower leverage, though our leverage has increased, in the short- term, to fund the costs of our conversion to a REIT.

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Net Operating Losses
We have federal net operating loss carryforwards, which expire from 2021 through 2033, of $79.4 million at September 30, 2015 to reduce future federal taxable income, of which $6.0 million of federal tax benefit is expected to be realized. As a REIT, 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 2016 through 2033, of $74.4 million at September 30, 2015 to reduce future state taxable income. We have assets for foreign net operating losses of $72.4 million, with various expiration dates (and in some cases no expiration date), subject to a valuation allowance of approximately 65%.
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 through increased operating efficiencies, the negotiation of favorable long-term real estate leases and customer contracts 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.

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Item 4. Controls and Procedures
Disclosure Controls and Procedures
The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These rules refer to the controls and other procedures of a company that are designed to ensure that information is recorded, processed, summarized and communicated to management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding what is required to be disclosed by a company in the reports that it files under the Exchange Act. As of September 30, 2015 (the "Evaluation Date"), we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, our chief executive officer and chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
Our management, with the participation of our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements.
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Securities Act of 1934) during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1A. Risk Factors
Our businesses face many risks. You should carefully consider the risks and uncertainties described below and under “Forward Looking Statements” in this Quarterly Report on Form 10‑Q, as well as in Part I-Item 1A under the heading “Risk Factors” and the information contained under the heading “Cautionary Note Regarding Forward‑Looking Statements” in our Annual Report, and the other information included or incorporated by reference in this Quarterly Report on Form 10‑Q and in other documents that we file with the SEC from time to time before making an investment decision regarding our securities. If any of the events or circumstances described in the following risks actually occurs, our businesses, financial condition or results of operations could suffer and the trading price of our debt or equity securities could decline.
The information presented below updates and should be read in connection with the risk factors and information disclosed in our Annual Report. In particular, these risk factors are intended to be read in connection with the risk factors under the heading "Risk Factors - Acquisition and Expansion Risks” in our Annual Report.
Risks Related to the Recall Transaction
The integration of Recall will subject us to liabilities that may exist at Recall or may arise in connection with the consummation of the Recall Transaction.
Our integration with Recall may pose special risks, including one-time write-offs or restructuring charges, unanticipated costs, and the loss of key employees. There can be no assurance that our integration with Recall will be accomplished effectively or in a timely manner. In addition, our integration with Recall will subject us to liabilities (including tax liabilities) that may exist at Recall or may arise in connection with the consummation of the Recall Transaction, some of which may be unknown. Although we and our advisors have conducted due diligence on the operations of Recall, there can be no guarantee that we are aware of all liabilities of Recall. These liabilities, and any additional risks and uncertainties related to the Recall Transaction not currently known to us or that we may currently deem immaterial or unlikely to occur, could negatively impact our future business, financial condition and results of operations.

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The price of our common stock and our results of operations after the Recall Transaction may be affected by factors different from those currently affecting the price of our common stock and our results of operations.
Recall's business is different in certain ways from ours, and our results of operations, as well as the price of our common stock after the Recall Transaction, may be affected by factors different from those currently affecting the results of our operations and the price of our common stock. The price of our common stock may fluctuate significantly following the Recall Transaction, including as a result of factors over which we and Recall have no control. Current stockholders may not wish to continue to invest in us if the Recall Transaction is consummated or for other reasons may wish to dispose of some or all of their shares of our common stock. If, following the consummation of the Recall Transaction, there is selling pressure on our common stock that exceeds demand at the market price, the price of our common stock could decline. In addition, if the Recall Transaction is completed, the Recall shareholders will own a significant percentage of the issued and outstanding shares of common stock of the combined company, and they may determine not to hold their shares of our common stock following the Recall Transaction, which may result in additional pressure on the price of our common stock.
We will incur significant transaction and combination-related costs in connection with the Recall Transaction.
We and Recall expect to incur significant costs associated with the Recall Transaction and combining the operations of the two companies. Our fees and expenses related to the Recall Transaction include financial advisors' fees, filing fees, legal and accounting fees, soliciting fees and regulatory fees, some of which will be paid regardless of whether the Recall Transaction is completed. Furthermore, we will incur costs associated with combining the operations of the two companies. However, it is difficult to predict the amount of these costs before we begin the integration process. We may incur additional unanticipated costs as a consequence of difficulties arising from efforts to integrate the companies.
We will need additional debt financing, which may not be available on favorable terms, if at all, in order to consummate the Recall Transaction.
We currently anticipate that we will need to raise additional debt financing to consummate the Recall Transaction. Such additional financing may not be available on favorable terms, if at all. If we are unable to obtain sufficient financing and consummate the Recall Transaction, we may be subject to significant monetary or other damages under the Recall Agreement.
The Recall Agreement limits our ability to pursue alternatives to the Recall Transaction, and in certain instances requires payment of a reimbursement fee, which could deter a third party from proposing an alternative transaction to the Recall Transaction.
While the Recall Agreement is in effect, subject to certain limited exceptions, we are prohibited from soliciting, initiating, encouraging or entering into certain transactions, such as a merger, sale of assets or other business combination, with any third party. As a result of these limitations, we may lose opportunities to enter into a more favorable transaction than the Recall Transaction.
Moreover, under specified circumstances, we could be required to pay Recall a reimbursement fee of A$25.5 million in connection with the termination of the Recall Agreement. The reimbursement fee could deter a third party from proposing an alternative to the Recall Transaction.
The Recall Transaction is subject to conditions to closing that could result in the Recall Transaction being delayed or not completed and the Recall Agreement can be terminated in certain circumstances, each of which could negatively impact the price of our common stock and our future business and operations.
Consummation of the Recall Transaction is subject to conditions, including, among others:
the approval by the Recall shareholders of the Recall Transaction;
the approval by our stockholders of the issuance of our common stock to Recall shareholders as part of the Scheme consideration (the “Transaction Proposal”);
the approval of the Scheme by the Federal Court of Australia, Sydney Registry (the “Sydney Federal Court”) (or such other competent court agreed by us and Recall);
the absence of any law, order or injunction that would prohibit, restrain or make illegal the Recall Transaction;
the receipt of regulatory approvals;
the approval for listing on the NYSE of our common stock to be issued in the Recall Transaction and the establishment of a secondary listing on the ASX to allow shareholders of Recall to trade our common stock via CHESS Depository Interests on the ASX;
the accuracy of the representations and warranties and compliance with the respective covenants of the parties, subject to specified materiality qualifiers; and
no events having occurred that would have a material adverse effect on Recall or us.
In addition, we and Recall each has the right, in certain circumstances, to terminate the Recall Agreement. If the Recall Agreement is terminated or any of the conditions to closing are not satisfied and, where permissible, not waived, the Recall Transaction will not be completed.

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Failure to complete the Recall Transaction or any delay in the completion of the Recall Transaction or any uncertainty about the completion of the Recall Transaction may adversely affect the price of our common stock or have an adverse impact on our future business and operations.
If the Recall Transaction is not completed, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Recall Transaction, we would be subject to a number of risks, including the following:
negative reactions from the financial markets;
incurring and paying significant expenses in connection with the Recall Transaction, such as financial advisors' fees, filing fees, legal and accounting fees, soliciting fees, regulatory fees and other related expenses;
paying a reimbursement fee of A$25.5 million if the Recall Agreement is terminated in certain circumstances; and
paying a reimbursement fee of A$76.5 million if the Recall Agreement is terminated due to our inability to obtain the necessary antitrust/competition approvals required to consummate the Recall Transaction.
In addition, we could be subject to litigation related to any failure to complete the Recall Transaction or seeking to require us to perform our obligations under the Recall Agreement.
The exchange ratio is fixed and will not be adjusted in the event of any change in either Recall's share price or our stock price.
Subject to the terms and conditions set forth in the Recall Agreement, after the effective date of the Scheme and upon the completion of the Recall Transaction, each outstanding ordinary share of Recall will be transferred to us in exchange for the Cash Supplement and either (1) 0.1722 of a newly issued share of our common stock or (2) the Cash Election, subject to the Cash Election Cap. The exchange ratio is fixed and will not be adjusted for changes in the market price of either Recall shares or our shares. Changes in the price of our shares prior to completion of the Scheme may affect the market value that holders of Recall shares will receive on the date of the effective time for the Scheme. Share price changes may result from a variety of factors (many of which are beyond our or Recall's control).
If the share price of our common stock increases before the closing of the Recall Transaction, Recall shareholders will receive shares of our common stock that have a market value that is greater than the current market value of such shares. Alternatively, if the share price of our common stock decreases before the closing of the Recall Transaction, Recall shareholders will receive shares of our common stock that have a market value that is less than the current market value of such shares. Therefore, because the exchange ratio is fixed, prior to the closing of the Recall Transaction, our stockholders and Recall shareholders cannot be sure of the market value of the share consideration that will be paid to Recall shareholders upon completion of the Recall Transaction.
Obtaining required governmental and court approvals necessary to satisfy closing conditions may delay or prevent completion of the Recall Transaction.
Completion of the Recall Transaction is conditioned upon the receipt of certain governmental authorizations, consents, orders or other approvals, including approvals, clearances, filings or expiration or termination of waiting periods required in relation to the Recall Transaction under antitrust laws of Australia, the United States and the United Kingdom. The Recall Transaction must also be approved by the Sydney Federal Court (or such other competent court agreed by us and Recall). No assurance can be given that the approvals will be obtained. Even if such approvals or conditional approvals are obtained, no assurance can be given as to the terms, conditions and timing of the approvals or that they will satisfy the terms of the Recall Agreement. We have agreed to pay a reimbursement fee of A$76.5 million if antitrust/competition approval is not obtained.
Following the Recall Transaction, our exposure to foreign exchange translation risk will be increased.
We are currently subject to foreign exchange translation risk because we conduct business operations in several foreign countries through our foreign subsidiaries or affiliates, which conduct business in their respective local currencies. Recall conducts a significant portion of its operations outside of the United States through its foreign subsidiaries or affiliates, which also operate in their respective local currencies. Therefore, following the completion of the Recall Transaction, our international operations will account for a more significant portion of our overall operations than they do presently. Because our financial statements will continue to be presented in United States dollars subsequent to the Recall Transaction, the local currencies will be translated into United States dollars at the applicable exchange rates for inclusion in our consolidated financial statements. The results of operations of, and certain of our intercompany balances associated with, our international storage and information management services businesses will continue to be exposed to foreign exchange rate fluctuations, and due to the Recall Transaction, our exposure to exchange rate fluctuations will increase. Upon translation, operating results may differ materially from expectations, and significant shifts in foreign currencies can impact our short-term results, as well as our long-term forecasts and targets.

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In certain circumstances, if the Recall Agreement is terminated without any payment of a termination payment by Recall, we may not be fully reimbursed for our out of pocket expenses.
Under the Recall Agreement, Recall would be required to reimburse us for our reasonable, documented out of pocket expenses actually incurred in connection with the Recall Transaction up to a maximum of $5.0 million if (i) the Recall board of directors withdraws or adversely modifies its recommendation that Recall shareholders vote in favor of the resolution to approve the Recall Transaction as a result of the report of the independent expert opining that the Recall Transaction is not in the best interests of Recall's shareholders (other than where the reason for such opinion is a Recall competing transaction) and (ii) the Recall Agreement is terminated by Recall or us prior to the Recall shareholders meeting. Given that such reimbursed expenses cannot exceed $5.0 million, we may not be fully reimbursed for our out of pocket expenses in the event of such a termination.
Our due diligence of Recall may have failed to identify key issues that could have an adverse effect on our performance and financial condition.
Before executing the Recall Agreement, we and Recall undertook a period of mutual due diligence for the purpose of negotiating the terms of the Recall Transaction. Although we and Recall decided to proceed with the Recall Transaction following that due diligence exercise, there is a risk that the due diligence undertaken was insufficient or failed to identify key issues. Furthermore, after implementation of the Recall Transaction, we will be subject to any unknown liabilities of Recall which could have an adverse effect on our performance and financial condition.
We will guarantee certain obligations of Recall to Brambles relating to Brambles' prior demerger transaction.
On December 18, 2013, Brambles Limited, an Australian corporation ("Brambles"), implemented a demerger transaction by way of a distribution of shares of Recall to Brambles’ shareholders (the “Demerger”). Prior to and in connection with the Demerger, Brambles spun off certain of its United States and Canadian subsidiaries, directly or indirectly, to Recall. Such spin-offs were intended to be tax-free or tax-deferred under United States and Canadian tax laws, respectively, and Brambles obtained rulings from the United States Internal Revenue Service (with respect to the United States spin-off) and the Canada Revenue Agency (with respect to the Canadian spin-off), as well as opinions of its tax advisors, to such effect. However, the tax-free status of the spin-off of such United States subsidiaries could be adversely affected under certain circumstances if a 50% or greater interest in such United States subsidiaries were acquired as part of a plan or series of related transactions that included such spin-off. Similarly, the tax-deferred status of the spin-off of the Canadian subsidiaries could be adversely affected under certain circumstances if control of such subsidiaries were acquired as part of a series of transactions or events that included such spin-off.
In connection with the Demerger, Recall agreed to indemnify Brambles and certain of its affiliates for taxes to the extent that actions by Recall (e.g., an acquisition of Recall shares) resulted in the United States spin-off or the Canadian spin-off described above failing to qualify as tax-free or tax-deferred for United States or Canadian tax purposes, respectively. In addition, Recall agreed, among other things, that it would not, within two years of the 2013 spin-offs, enter into a proposed acquisition transaction, merger or consolidation (with respect to the United States spin-off) or take any action that could reasonably be expected to jeopardize, directly or indirectly, any of the conclusions reached in the Canadian tax ruling or opinion, without obtaining either a supplemental tax ruling from the relevant taxing authority, the consent of Brambles or an opinion of a tax advisor, acceptable to Brambles in its reasonable discretion, that such transaction should not result in the spin-offs failing to be tax-free under United States federal income tax law or Canadian tax law, respectively. Recall has obtained or intends to obtain such tax opinions, based on, among other things, representations and warranties made by Recall and us. Such opinions, once accepted by Brambles, do not affect Recall’s obligation to indemnify Brambles for an adverse impact on the tax-free status of such prior spin-offs. The delivery of those opinions is a condition to our obligation to consummate the Recall Transaction.
We have agreed, contingent on the consummation of the Recall Transaction, to guarantee the foregoing indemnification obligations of Recall. Consistent with the foregoing tax opinions, we believe that the Recall Transaction is not part of a plan or series of related transactions, or part of a series of transactions or events, that included the United States spin-off or the Canadian spin-off, respectively. However, if the United States Internal Revenue Service or the Canadian Revenue Agency were to prevail in asserting a contrary view, we and Recall would be liable for the resulting taxes, which could be material.

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Risks Related to Us and Recall
The failure to integrate successfully Recall’s business with our business in the expected time frame would adversely affect our future results.
The success of the Recall Transaction will depend, in large part, on our ability to realize the anticipated benefits, including cost savings from combining Recall’s businesses with ours. To realize these anticipated benefits, our business and Recall’s must be successfully integrated. This integration will be complex and time-consuming. The failure to integrate successfully and to manage successfully the challenges presented by the integration process may result in us not fully achieving the anticipated benefits of the Recall Transaction.
Potential difficulties that may be encountered in the integration process include the following:
challenges and difficulties associated with managing the larger, more complex, combined company;
conforming standards, controls, procedures and policies, business cultures and compensation structures between the entities;
integrating personnel from the two entities while maintaining focus on developing, producing and delivering consistent, high quality services;
consolidating corporate and administrative infrastructures;
coordinating geographically dispersed organizations;
potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the Recall Transaction;
performance shortfalls at one or both of the entities as a result of the diversion of management's attention caused by completing the Recall Transaction and integrating the entities' operations; and
our ability to deliver on our strategy going forward.
We would incur adverse tax consequences if the combined company following the Recall Transaction failed to qualify as a REIT for United States federal income tax purposes.
We believe that, following the Recall Transaction, we will integrate Recall's assets and operations in a manner that will allow us to timely satisfy the REIT income, asset, and distribution tests applicable to us. However, if we fail to do so, we could jeopardize or lose our qualification for taxation as a REIT, particularly if we were ineligible to utilize relief provisions set forth in the Internal Revenue Code of 1986, as amended. For any taxable year that we fail to qualify for taxation as a REIT, we would not be allowed a deduction for distributions to our stockholders in computing our taxable income, and thus would be subject to United States federal and state income tax at the regular corporate rates on all of our United States federal and state taxable income in the manner of a regular corporation. Those corporate level taxes would reduce the amount of cash available for distribution to our stockholders or for reinvestment or other purposes, and would adversely affect our earnings. As a result, our failure to qualify for taxation as a REIT during any taxable year could have a material adverse effect upon us and our stockholders. Furthermore, unless prescribed relief provisions apply, we would not be eligible to elect REIT status again until the fifth taxable year that begins after the first year for which we failed to qualify as a REIT. Finally, even if we are able to utilize relief provisions and thereby avoid disqualification for taxation as a REIT, relief provisions typically involve paying a penalty tax in proportion to the severity and duration of the noncompliance with REIT requirements, and thus these penalty taxes could be significant in the context of noncompliance stemming from a transaction as large as the Recall Transaction.
The Recall Transaction, if completed, will dilute the ownership position of our current stockholders.
If the Recall Transaction is completed, the Recall shareholders are expected to beneficially own a significant percentage of our issued and outstanding shares of common stock. Consequently, our current stockholders will own a smaller proportion of our common stock than the proportion of common stock they owned before the Recall Transaction and, as a result, they will have less influence on our management and policies following the Recall Transaction than they now have on our management and policies.

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Our and Recall's business relationships may be subject to disruption due to uncertainty associated with the Recall Transaction, which could have an adverse effect on our and Recall's results of operations, cash flows and financial position and, following the completion of the Recall Transaction, the combined company.
Parties with which we and Recall do business may experience uncertainty associated with the Recall Transaction, including with respect to current or future business relationships with us, Recall or the combined company following the completion of the Recall Transaction. Our and Recall's relationships may be subject to disruption as customers, suppliers and other persons with whom we and Recall have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with us or Recall, as applicable, or consider entering into business relationships with parties other than us or Recall. These disruptions could have an adverse effect on the results of operations, cash flows and financial position of us, Recall or the combined company following the completion of the Recall Transaction, including an adverse effect on our ability to realize the expected synergies and other benefits of the Recall Transaction. The risk, and adverse effect, of any disruption could be exacerbated by a delay in the completion of the Recall Transaction or the termination of the Recall Agreement.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not sell any unregistered securities during the three months ended September 30, 2015, nor did we repurchase any shares of our common stock during the three months ended September 30, 2015.

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Item 6. Exhibits
(a)    Exhibits
Certain exhibits indicated below are incorporated by reference to documents we have filed with the SEC.
Exhibit No.
 
Description
2.1

 
Amendment to Scheme Implementation Deed, dated as of October 13, 2015, by and between the Company and Recall Holdings Limited (Filed herewith.)
 
 
 
4.1

 
Senior Indenture, dated as of September 29, 2015, among the Company, the Guarantors named therein and Wells Fargo Bank, National Association, as trustee. (Incorporated by reference to the Company's Current Report on Form 8-K dated September 29, 2015.)
 
 
 
12

 
Statement: re Computation of Ratios. (Filed herewith.)
 
 
 
31.1

 
Rule 13a-14(a) Certification of Chief Executive Officer. (Filed herewith.)
 
 
 
31.2

 
Rule 13a-14(a) Certification of Chief Financial Officer. (Filed herewith.)
 
 
 
32.1

 
Section 1350 Certification of Chief Executive Officer. (Furnished herewith.)
 
 
 
32.2

 
Section 1350 Certification of Chief Financial Officer. (Furnished herewith.)
 
 
 
101.1

 
The following materials from Iron Mountain Incorporated's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and in detail. (Filed herewith.)

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
IRON MOUNTAIN INCORPORATED
 
By:
/s/ RODERICK DAY
 
 
 
 
 
 
 
 
Roderick Day
 Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: October 30, 2015

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