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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, 2016
 
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 28, 2016: 263,447,840



Table of Contents

IRON MOUNTAIN INCORPORATED
Index

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

Table of Contents

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, 2015
 
September 30, 2016
ASSETS
 

 
 

Current Assets:
 

 
 

Cash and cash equivalents
$
128,381

 
$
458,128

Accounts receivable (less allowances of $31,447 and $41,636 as of December 31, 2015 and September 30, 2016, respectively)
564,401

 
700,238

Deferred income taxes
22,179

 
11,075

Prepaid expenses and other
142,951

 
169,988

Assets held for sale (see Note 10)

 
127,912

Total Current Assets
857,912

 
1,467,341

Property, Plant and Equipment:
 

 
 

Property, plant and equipment
4,744,236

 
5,574,805

Less—Accumulated depreciation
(2,247,078
)
 
(2,408,277
)
Property, Plant and Equipment, Net
2,497,158

 
3,166,528

Other Assets, Net:
 

 
 

Goodwill
2,360,978

 
3,861,810

Customer relationships and customer inducements
603,314

 
1,306,011

Other
31,225

 
103,226

Total Other Assets, Net
2,995,517

 
5,271,047

Total Assets
$
6,350,587

 
$
9,904,916

LIABILITIES AND EQUITY
 

 
 

Current Liabilities:
 

 
 

Current portion of long-term debt
$
88,068

 
$
121,203

Accounts payable
219,590

 
233,971

Accrued expenses
351,061

 
447,413

Deferred revenue
183,112

 
202,171

Liabilities held for sale (see Note 10)

 
19,269

Total Current Liabilities
841,831

 
1,024,027

Long-term Debt, Net of Current Portion
4,757,610

 
6,338,024

Other Long-term Liabilities
71,844

 
88,794

Deferred Rent
95,693

 
111,035

Deferred Income Taxes
55,002

 
192,782

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 211,340,296 shares and 263,425,012 shares as of December 31, 2015 and September 30, 2016, respectively)
2,113

 
2,634

Additional paid-in capital
1,623,863

 
3,506,913

(Distributions in excess of earnings) Earnings in excess of distributions
(942,218
)
 
(1,246,408
)
Accumulated other comprehensive items, net
(174,917
)
 
(138,446
)
Total Iron Mountain Incorporated Stockholders' Equity
508,841

 
2,124,693

Noncontrolling Interests
19,766

 
25,561

Total Equity
528,607

 
2,150,254

Total Liabilities and Equity
$
6,350,587

 
$
9,904,916

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,
 
2015
 
2016
Revenues:
 

 
 

Storage rental
$
460,052

 
$
576,465

Service
286,477

 
366,357

Total Revenues
746,529

 
942,822

Operating Expenses:
 

 
 

Cost of sales (excluding depreciation and amortization)
317,663

 
429,808

Selling, general and administrative
215,693

 
252,944

Depreciation and amortization
86,492

 
124,670

(Gain) Loss on disposal/write-down of property, plant and equipment (excluding real estate), net
(141
)
 
(54
)
Total Operating Expenses
619,707

 
807,368

Operating Income (Loss)
126,822

 
135,454

Interest Expense, Net (includes Interest Income of $1,132 and $2,118 for the three months ended September 30, 2015 and 2016, respectively)
65,135

 
83,300

Other Expense (Income), Net
35,246

 
23,302

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes and Gain on Sale of Real Estate
26,441

 
28,852

Provision (Benefit) for Income Taxes
3,774

 
23,418

Gain on Sale of Real Estate, Net of Tax
(850
)
 
(325
)
Income (Loss) from Continuing Operations
23,517

 
5,759

Income (Loss) from Discontinued Operations, Net of Tax

 
2,041

Net Income (Loss)
23,517

 
7,800

Less: Net Income (Loss) Attributable to Noncontrolling Interests
407

 
720

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

 
$
7,080

Earnings (Losses) per Share—Basic:
 

 
 

Income (Loss) from Continuing Operations
$
0.11

 
$
0.02

Total Income (Loss) from Discontinued Operations, Net of Tax
$

 
$
0.01

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
0.11

 
$
0.03

Earnings (Losses) per Share—Diluted:
 

 
 

Income (Loss) from Continuing Operations
$
0.11

 
$
0.02

Total Income (Loss) from Discontinued Operations, Net of Tax
$

 
$
0.01

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
0.11

 
$
0.03

Weighted Average Common Shares Outstanding—Basic
210,912

 
263,269

Weighted Average Common Shares Outstanding—Diluted
211,917

 
264,502

Dividends Declared per Common Share
$
0.4751

 
$
0.4852

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

4


IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)
 
Nine Months Ended
September 30,
 
2015
 
2016
Revenues:
 

 
 

Storage rental
$
1,380,133

 
$
1,576,358

Service
875,416

 
1,000,902

Total Revenues
2,255,549

 
2,577,260

Operating Expenses:
 
 


Cost of sales (excluding depreciation and amortization)
965,600

 
1,151,562

Selling, general and administrative
627,992

 
737,787

Depreciation and amortization
259,992

 
326,896

Loss (Gain) on disposal/write-down of property, plant and equipment (excluding real estate), net
707

 
(1,131
)
Total Operating Expenses
1,854,291

 
2,215,114

Operating Income (Loss)
401,258

 
362,146

Interest Expense, Net (includes Interest Income of $2,777 and $5,549 for the nine months ended September 30, 2015 and 2016, respectively)
196,120

 
225,228

Other Expense (Income), Net
59,599

 
37,006

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes and Gain on Sale of Real Estate
145,539

 
99,912

Provision (Benefit) for Income Taxes
27,126

 
46,157

Gain on Sale of Real Estate, Net of Tax
(850
)
 
(325
)
Income (Loss) from Continuing Operations
119,263

 
54,080

Income (Loss) from Discontinued Operations, Net of Tax

 
3,628

Net Income (Loss)
119,263

 
57,708

Less: Net Income (Loss) Attributable to Noncontrolling Interests
1,727

 
1,822

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

 
$
55,886

Earnings (Losses) per Share—Basic:
 

 
 

Income (Loss) from Continuing Operations
$
0.57

 
$
0.22

Total Income (Loss) from Discontinued Operations, Net of Tax
$

 
$
0.02

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
0.56

 
$
0.23

Earnings (Losses) per Share—Diluted:
 

 
 

Income (Loss) from Continuing Operations
$
0.56

 
$
0.22

Total Income (Loss) from Discontinued Operations, Net of Tax
$

 
$
0.02

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
0.55

 
$
0.23

Weighted Average Common Shares Outstanding—Basic
210,616

 
240,394

Weighted Average Common Shares Outstanding—Diluted
212,081

 
241,520

Dividends Declared per Common Share
$
1.4250

 
$
1.4886

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


5

Table of Contents

IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
(Unaudited)
 
Three Months Ended
September 30,
 
2015
 
2016
Net Income (Loss)
$
23,517

 
$
7,800

Other Comprehensive (Loss) Income:
 

 
 

Foreign Currency Translation Adjustments
(34,594
)
 
11,304

Market Value Adjustments for Securities
(134
)
 

Total Other Comprehensive (Loss) Income
(34,728
)
 
11,304

Comprehensive (Loss) Income
(11,211
)
 
19,104

Comprehensive (Loss) Income Attributable to Noncontrolling Interests
(384
)
 
1,181

Comprehensive (Loss) Income Attributable to Iron Mountain Incorporated
$
(10,827
)
 
$
17,923


 
Nine Months Ended
September 30,
 
2015
 
2016
Net Income (Loss)
$
119,263

 
$
57,708

Other Comprehensive (Loss) Income:
 

 
 

Foreign Currency Translation Adjustments
(89,769
)
 
38,071

Market Value Adjustments for Securities
(111
)
 
(734
)
Total Other Comprehensive (Loss) Income
(89,880
)
 
37,337

Comprehensive Income (Loss)
29,383

 
95,045

Comprehensive Income (Loss) Attributable to Noncontrolling Interests
503

 
2,688

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

 
$
92,357













 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-in Capital
 
(Distributions in Excess of Earnings) Earnings in Excess of Distributions
 
 
 
Noncontrolling
Interests
 
Total
 
Shares
 
Amounts
 
 
 
Accumulated
Other
Comprehensive
Items, Net
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
)
 

 

Foreign currency translation adjustments
(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

 
 
 
Iron Mountain Incorporated Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-in Capital
 
(Distributions in Excess of Earnings) Earnings in Excess of Distributions
 
 
 
Noncontrolling
Interests
 
Total
 
Shares
 
Amounts
 
 
 
Accumulated
Other
Comprehensive
Items, Net
Balance, December 31, 2015
$
528,607

 
211,340,296

 
$
2,113

 
$
1,623,863

 
$
(942,218
)
 
$
(174,917
)
 
$
19,766

Issuance of shares under employee stock purchase plan and option plans and stock-based compensation, including tax benefit of $91
48,545

 
1,851,304

 
19

 
48,526

 

 

 

Issuance of shares in connection with the acquisition of Recall Holdings Limited (see Note 4)
1,835,026

 
50,233,412

 
502

 
1,834,524

 

 

 

Parent cash dividends declared
(360,076
)
 

 

 

 
(360,076
)
 

 

Foreign currency translation adjustments
38,071

 

 

 

 

 
37,205

 
866

Market value adjustments for securities
(734
)
 

 

 

 

 
(734
)
 

Net income (loss)
57,708

 

 

 

 
55,886

 

 
1,822

Noncontrolling interests equity contributions
1,299

 

 

 

 

 

 
1,299

Noncontrolling interests dividends
(1,698
)
 

 

 

 

 

 
(1,698
)
Purchase of noncontrolling interests
3,506

 

 

 

 

 

 
3,506

Balance, September 30, 2016
$
2,150,254

 
263,425,012

 
$
2,634

 
$
3,506,913

 
$
(1,246,408
)
 
$
(138,446
)
 
$
25,561



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,
 
2015
 
2016
Cash Flows from Operating Activities:
 

 
 

Net income (loss)
$
119,263

 
$
57,708

(Income) loss from discontinued operations

 
(3,628
)
Adjustments to reconcile net income (loss) to cash flows from operating activities:
 

 
 

Depreciation
226,497

 
267,280

Amortization (includes deferred financing costs and bond discount of $6,443 and $9,241, for the nine months ended September 30, 2015 and 2016, respectively)
39,938

 
68,857

Stock-based compensation expense
20,936

 
21,870

(Benefit) Provision for deferred income taxes
(10,317
)
 
(22,196
)
Loss on early extinguishment of debt, net
2,156

 
9,283

(Gain) Loss on disposal/write-down of property, plant and equipment, net (including real estate)
(352
)
 
(1,490
)
Anticipated loss on disposal of assets held for sale

 
14,000

Foreign currency transactions and other, net
39,006

 
24,006

Changes in Assets and Liabilities (exclusive of acquisitions):
 

 
 

Accounts receivable
11,096

 
(6,996
)
Prepaid expenses and other
2,687

 
(642
)
Accounts payable
(23,977
)
 
(39,073
)
Accrued expenses and deferred revenue
(105,538
)
 
39,553

Other assets and long-term liabilities
(1,300
)
 
(9,580
)
Cash Flows from Operating Activities - Continuing Operations
320,095

 
418,952

Cash Flows from Operating Activities - Discontinued Operations

 
3,640

Cash Flows from Operating Activities
320,095

 
422,592

Cash Flows from Investing Activities:
 

 
 

Capital expenditures
(202,581
)
 
(246,029
)
Cash paid for acquisitions, net of cash acquired
(27,975
)
 
(276,371
)
Decrease in restricted cash
33,860

 

Acquisition of customer relationships
(20,208
)
 
(24,756
)
Customer inducements
(14,955
)
 
(16,099
)
Net proceeds from divestments (see Note 10)

 
53,950

Proceeds from sales of property and equipment and other, net (including real estate)
2,032

 
2,197

Cash Flows from Investing Activities - Continuing Operations
(229,827
)
 
(507,108
)
Cash Flows from Investing Activities - Discontinued Operations

 
(12
)
Cash Flows from Investing Activities
(229,827
)
 
(507,120
)
Cash Flows from Financing Activities:
 

 
 

Repayment of revolving credit, term loan and bridge facilities and other debt
(8,539,577
)
 
(11,560,385
)
Proceeds from revolving credit, term loan and bridge facilities and other debt
8,142,443

 
11,427,389

Net proceeds from sales of senior notes
985,000

 
925,443

Debt financing and equity contribution from noncontrolling interests

 
1,299

Debt repayment and equity distribution to noncontrolling interests
(1,260
)
 
(1,305
)
Parent cash dividends
(303,712
)
 
(360,462
)
Net proceeds (payments) associated with employee stock-based awards
13,988

 
26,374

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

 
91

Payment of debt financing and stock issuance costs
(11,665
)
 
(17,107
)
Cash Flows from Financing Activities - Continuing Operations
285,540

 
441,337

Cash Flows from Financing Activities - Discontinued Operations

 

Cash Flows from Financing Activities
285,540

 
441,337

Effect of Exchange Rates on Cash and Cash Equivalents
(8,842
)
 
(27,062
)
Increase (Decrease) in Cash and Cash Equivalents
366,966

 
329,747

Cash and Cash Equivalents, Beginning of Period
125,933

 
128,381

Cash and Cash Equivalents, End of Period
$
492,899

 
$
458,128

Supplemental Information:
 

 
 

Cash Paid for Interest
$
218,863

 
$
226,770

Cash Paid for Income Taxes, Net
$
33,411

 
$
49,776

Non-Cash Investing and Financing Activities:
 

 
 

Capital Leases
$
28,598

 
$
45,997

Accrued Capital Expenditures
$
29,626

 
$
47,900

Dividends Payable
$
5,123

 
$
5,193

Fair Value of Stock Issued for Recall Transaction (see Note 4)
$

 
$
1,835,026



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 physical records and data backup media, and provide information management services in various locations throughout North America, Europe, Latin America, Asia Pacific and Africa. 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, 2015 included in our Annual Report on Form 10-K filed with the SEC on February 26, 2016 (our "Annual Report").
We have been organized and have operated as a real estate investment trust for federal income tax purposes ("REIT") effective for our taxable year beginning January 1, 2014.
On May 2, 2016 (Sydney, Australia time), we completed the acquisition of Recall Holdings Limited ("Recall") pursuant to the Scheme Implementation Deed, as amended, with Recall (the "Recall Transaction"). At the closing of the Recall Transaction, we paid approximately $331,800 and issued 50,233,412 shares of our common stock which, based on the closing price of our common stock as of April 29, 2016 (the last day of trading on the New York Stock Exchange ("NYSE") prior to the closing of the Recall Transaction) of $36.53 per share, resulted in a total purchase price to Recall shareholders of approximately $2,166,900. See Note 4.
(2) Summary of Significant Accounting Policies
This Note 2 to Notes to Consolidated Financial Statements provides information and disclosure regarding certain of our significant accounting policies and should be read in conjunction with Note 2 to Notes to Consolidated Financial Statements included in our Annual Report, which may provide additional information with regard to the accounting policies set forth herein and other of our significant accounting policies.
a. 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 Europe, 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 63/4% Euro Senior Subordinated Notes due 2018 (the "63/4% Notes"), (2) borrowings in certain foreign currencies under our Revolving Credit Facility (as defined in Note 5) and (3) 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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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)

Total loss on foreign currency transactions for the three and nine months ended September 30, 2015 and 2016 is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2015
 
2016
 
2015
 
2016
 
Total loss on foreign currency transactions
$
32,539

 
$
10,685

 
$
56,461

 
$
15,336

 
b.    Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangible assets
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, 2015 and concluded there was no impairment of goodwill at such date. As of December 31, 2015, no factors were identified that would alter our October 1, 2015 goodwill analysis. While several of our reporting units were impacted by our acquisition of Recall, no factors were identified as of September 30, 2016 that would indicate an impairment of goodwill. In making this assessment, we considered a number of factors including operating results, business plans, anticipated future cash flows, transactions and marketplace data. There are inherent uncertainties related to these factors and our judgment in applying them to the analysis of goodwill impairment. 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.
Refer to our Annual Report for information regarding the composition of our reporting units as of December 31, 2015. The carrying value of goodwill, net for each of our reporting units as of December 31, 2015 was as follows:
 
Carrying Value
as of
December 31, 2015
North American Records and Information Management(1)
$
1,342,723

North American Secure Shredding(1)
73,021

North American Data Management(2)
369,907

Adjacent Businesses - Data Centers(3)

Adjacent Businesses - Consumer Storage(3)
4,636

Adjacent Businesses - Fine Arts(3)
21,550

UKI(4)
260,202

Continental Western Europe(4)
63,442

Emerging Markets - Europe(5)
87,378

Latin America(5)
78,537

Australia(5)
47,786

Southeast Asia(5)
5,683

India(5)
6,113

Total
$
2,360,978

_______________________________________________________________________________
(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.

10

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 the third quarter of 2016, as a result of changes in the management of our businesses included in our Western European Business segment, we reassessed the composition of our reporting units. As a result of this reassessment, we determined that the businesses included in our former UKI reporting unit were now being managed in conjunction with the businesses included in our former Continental Western Europe reporting unit. As a result, as of September 30, 2016, we have concluded that our Western European Business segment consists of one reporting unit, which is referred to herein as the Western Europe reporting unit.
The acquisition of Recall, which is more fully disclosed in Note 4, impacted our reporting units as of September 30, 2016 as follows:
North American Records and Information Management - includes the goodwill associated with the records and information management businesses of Recall in the United States and Canada.
North American Secure Shredding - includes the goodwill associated with the secure shredding businesses of Recall in the United States and Canada.
North American Data Management - includes the goodwill associated with the data management businesses of Recall in the United States and Canada.
Western Europe - includes the goodwill associated with the operations of Recall in Belgium, France, Germany, Spain, Switzerland and the United Kingdom as well as the goodwill associated with the document management solutions (“DMS”) operations of Recall in Sweden.
Northern and Eastern Europe - this reporting unit consists of our former Emerging Markets - Europe reporting unit (as described in our Annual Report), and includes the goodwill associated with the operations of Recall in Denmark, Finland and Norway, as well as the goodwill associated with the records and information management operations of Recall in Sweden. This reporting unit is included in the Other International Business segment.
Latin America - includes the goodwill associated with the operations of Recall in Brazil and Mexico.
Australia and New Zealand - this reporting unit consists of the goodwill associated with the Australia Retained Business (as defined in Note 4), which was a component of our former Australia reporting unit, as well as the operations of Recall in Australia and New Zealand. This reporting unit is included in the Other International Business segment.
Southeast Asia - includes the goodwill associated with the operations of Recall in China, Hong Kong, Malaysia, Singapore, Taiwan and Thailand.
Africa and India - includes the goodwill associated with the operations of Recall in India.

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, 2016 is as follows:
 
Carrying Value
as of
September 30, 2016
North American Records and Information Management
$
2,058,150

North American Secure Shredding
148,905

North American Data Management
499,644

Adjacent Businesses - Data Centers

Adjacent Businesses - Consumer Storage
4,636

Adjacent Businesses - Fine Arts
22,911

Western Europe
454,531

Northern and Eastern Europe(1)
142,285

Latin America
180,664

Australia and New Zealand
152,387

Southeast Asia
177,512

Africa and India(2)
20,185

Total
$
3,861,810

_______________________________________________________________________________

(1) Included in this reporting unit at September 30, 2016 is the goodwill associated with our March 2016 acquisition of Archyvu Sistemos as more fully disclosed in Note 4.
(2) Included in this reporting unit at September 30, 2016 is the goodwill associated with our March 2016 acquisition of Docufile Holdings Proprietary Limited as more fully disclosed in Note 4.

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, 2016 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, 2015
$
1,620,425

 
$
423,606

 
$
381,149

 
$
225,626

 
$
26,186

 
$
2,676,992

Deductible goodwill acquired during the year

 

 

 

 

 

Non-deductible goodwill acquired during the year
790,250

 
128,669

 
161,005

 
474,576

 
215

 
1,554,715

Goodwill reclassified as assets held for sale (see Note 10)
(3,332
)
 

 

 
(40,089
)
 

 
(43,421
)
Fair value and other adjustments(1)
(157
)
 

 

 
(486
)
 
1,146

 
503

Currency effects
4,921

 
1,161

 
(30,939
)
 
13,462

 

 
(11,395
)
Gross Balance as of September 30, 2016
$
2,412,107

 
$
553,436

 
$
511,215

 
$
673,089

 
$
27,547

 
$
4,177,394

Accumulated Amortization Balance as of December 31, 2015
$
204,681

 
$
53,699

 
$
57,505

 
$
129

 
$

 
$
316,014

Currency effects
371

 
93

 
(821
)
 
(73
)
 

 
(430
)
Accumulated Amortization Balance as of September 30, 2016
$
205,052

 
$
53,792

 
$
56,684

 
$
56

 
$

 
$
315,584

Net Balance as of December 31, 2015
$
1,415,744

 
$
369,907

 
$
323,644

 
$
225,497

 
$
26,186

 
$
2,360,978

Net Balance as of September 30, 2016
$
2,207,055

 
$
499,644

 
$
454,531

 
$
673,033

 
$
27,547

 
$
3,861,810

Accumulated Goodwill Impairment Balance as of December 31, 2015
$
85,909

 
$

 
$
46,500

 
$

 
$

 
$
132,409

Accumulated Goodwill Impairment Balance as of September 30, 2016
$
85,909

 
$

 
$
46,500

 
$

 
$

 
$
132,409

_______________________________________________________________________________
(1)
Total fair value and other adjustments primarily include net adjustments of $685 related to property, plant and equipment and customer relationship intangible assets, partially offset by $182 of cash received related to certain acquisitions completed in 2015.


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)

Finite-lived intangible assets
Customer relationship intangible assets, which are acquired through either business combinations or acquisitions of customer relationships, are amortized over periods ranging from 10 to 30 years. The value of customer relationship intangible assets is calculated based upon estimates of their fair value utilizing an income approach based on the present value of expected future cash flows.
Costs related to the acquisition of large volume accounts are capitalized. Free intake costs to transport boxes to one of our facilities, which include labor and transportation charges ("Move Costs"), are amortized over periods ranging from one to 30 years, and are included in depreciation and amortization in the accompanying Consolidated Statements of Operations. Payments that are made to a customer's current records management vendor in order to terminate the customer's existing contract with that vendor, or direct payments to a customer ("Permanent Withdrawal Fees"), are amortized over periods ranging from one to 15 years and are included in storage and service revenue in the accompanying Consolidated Statements of Operations. Move Costs and Permanent Withdrawal Fees are collectively referred to as "Customer Inducements". If the customer terminates its relationship with us, the unamortized carrying value of the Customer Inducement intangible asset is charged to expense or revenue. However, in the event of such termination, we generally collect, and record as income, permanent removal fees that generally equal or exceed the amount of the unamortized Customer Inducement intangible asset.
Other intangible assets, including noncompetition agreements and trademarks, are capitalized and amortized over periods ranging from five to 10 years.

The components of our finite-lived intangible assets as of December 31, 2015 and September 30, 2016 are as follows:
 
December 31, 2015
 
September 30, 2016
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Customer relationship intangible assets and Customer Inducements
$
937,174

 
$
(333,860
)
 
$
603,314

 
$
1,684,891

 
$
(378,880
)
 
$
1,306,011

Core Technology(1)
3,370

 
(3,370
)
 

 
1,625

 
(1,625
)
 

Trademarks and Non-Compete Agreements(1)
7,741

 
(4,955
)
 
2,786

 
24,448

 
(6,985
)
 
17,463

Total
$
948,285

 
$
(342,185
)
 
$
606,100

 
$
1,710,964

 
$
(387,490
)
 
$
1,323,474

_______________________________________________________________________________
(1)
Included in Other, a component of Other Assets, Net in the accompanying Consolidated Balance Sheets.
Amortization expense associated with finite-lived intangible assets and deferred financing costs for the three and nine months ended September 30, 2015 and 2016 is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2016
 
2015
 
2016
Amortization expense associated with finite-lived intangible assets and deferred financing costs
$
13,094

 
$
29,899

 
$
39,939

 
$
68,857


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)

c.    Stock-Based Compensation
We record stock-based compensation expense, utilizing the straight-line method, for the cost of stock options, 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, 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 for the three and nine months ended September 30, 2016 was $5,957 ($4,245 after tax or $0.02 per basic and diluted share) and $21,870 ($16,170 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 is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2016
 
2015
 
2016
Cost of sales (excluding depreciation and amortization)
$
65

 
$
28

 
$
156

 
$
80

Selling, general and administrative expenses
6,094

 
5,929

 
20,780

 
21,790

Total stock-based compensation
$
6,159

 
$
5,957

 
$
20,936

 
$
21,870

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 included $323 and $91 for the nine months ended September 30, 2015 and 2016, 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
A summary of our stock options outstanding as of September 30, 2016 by vesting terms is as follows:
 
September 30, 2016
 
Stock Options Outstanding
 
% of
Stock Options Outstanding
Three-year vesting period (10 year contractual life)
2,826,698

 
76.3
%
Five-year vesting period (10 year contractual life)
622,057

 
16.8
%
Ten-year vesting period (12 year contractual life)
255,255

 
6.9
%
 
3,704,010

 
 

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)

The weighted average fair value of stock options granted for the nine months ended September 30, 2015 and 2016 was $4.88 and $2.55 per share, respectively. These values were estimated on the date of grant using the Black-Scholes stock 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
 
2015
 
2016
Expected volatility
 
28.4
%
 
27.2
%
Risk-free interest rate
 
1.70
%
 
1.32
%
Expected dividend yield
 
5
%
 
7
%
Expected life
 
5.5 years

 
5.6 years

Expected volatility is calculated utilizing daily historical volatility over a period that equates to the expected life of the stock 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 stock 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.
A summary of stock option activity for the nine months ended September 30, 2016 is as follows:
 
Stock Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term (Years)
 
Average
Intrinsic
Value
Outstanding at December 31, 2015
3,688,814

 
$
27.79

 
 
 
 

Granted
1,435,879

 
34.02

 
 
 
 

Exercised
(1,373,290
)
 
24.12

 
 
 
 

Forfeited
(35,927
)
 
32.43

 
 
 
 

Expired
(11,466
)
 
30.50

 
 
 
 

Outstanding at September 30, 2016
3,704,010

 
$
31.51

 
7.08
 
$
26,628

Options exercisable at September 30, 2016
1,553,980

 
$
26.08

 
4.54
 
$
19,208

Options expected to vest
2,025,402

 
$
35.44

 
8.91
 
$
7,020

The aggregate intrinsic value of stock options exercised for the three and nine months ended September 30, 2015 and 2016 is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2016
 
2015
 
2016
Aggregate intrinsic value of stock options exercised
$
1,985

 
$
5,433

 
$
7,868

 
$
16,792

Restricted Stock Units
Under our various equity compensation plans, we may also grant RSUs. Our RSUs generally have a vesting period of between three and five years from the date of grant. However, RSUs granted to our non-employee directors in 2015 and thereafter 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 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).

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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)

Cash dividends accrued and paid on RSUs for the three and nine months ended September 30, 2015 and 2016 are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2016
 
2015
 
2016
Cash dividends accrued on RSUs
$
616

 
$
620

 
$
1,917

 
$
1,867

Cash dividends paid on RSUs
270

 
129

 
2,570

 
1,960

The fair value of RSUs vested during the three and nine months ended September 30, 2015 and 2016 is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2016
 
2015
 
2016
Fair value of RSUs vested
$
2,377

 
$
1,486

 
$
21,561

 
$
19,271

A summary of RSU activity for the nine months ended September 30, 2016 is as follows:
 
RSUs
 
Weighted-
Average
Grant-Date
Fair Value
Non-vested at December 31, 2015
1,217,597

 
$
33.68

Granted
671,385

 
32.36

Vested
(575,875
)
 
33.47

Forfeited
(59,627
)
 
33.74

Non-vested at September 30, 2016
1,253,480

 
$
33.07

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 and return on invested capital ("ROIC"). The number of PUs earned may range from 0% to 200% 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 a three-year performance period. Certain PUs that we grant will be earned based on a market condition associated with the total return on our common stock in relation to a subset of the Standard & Poor's 500 Index rather than the revenue 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. PUs awarded to employees who terminate their employment during the three-year performance period and on or after attaining age 55 and completing 10 years of qualifying service are eligible for pro-rated vesting, subject to the actual achievement against the predefined targets or a market condition 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 are generally expensed over the three-year performance period.
All 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.

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)

Cash dividends accrued and paid on PUs for the three and nine months ended September 30, 2015 and 2016 are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2016
 
2015
 
2016
Cash dividends accrued on PUs
$
222

 
$
264

 
$
647

 
$
789

Cash dividends paid on PUs

 

 
1,015

 
645

During the nine months ended September 30, 2016, we issued 230,052 PUs. The majority of our PUs are earned based on our performance against revenue and ROIC targets during their applicable performance period; therefore, we forecast the likelihood of achieving the predefined revenue 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 performance period) or the actual PUs earned (at the three-year anniversary of the grant date) 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, 2016, we expected 0%, 50% and 100% achievement of the predefined revenue and ROIC targets associated with the awards of PUs made in 2014, 2015 and 2016, respectively.
The fair value of earned PUs that vested during the three and nine months ended September 30, 2015 and 2016 is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2016
 
2015
 
2016
Fair value of earned PUs that vested
$

 
$
17

 
$
2,107

 
$
5,272

A summary of PU activity for the nine months ended September 30, 2016 is as follows:
 
Original
PU Awards
 
PU Adjustment(1)
 
Total
PU Awards
 
Weighted-
Average
Grant-Date
Fair Value
Non-vested at December 31, 2015
520,764

 
(86,959
)
 
433,805

 
$
34.11

Granted
230,052

 

 
230,052

 
35.84

Vested
(148,855
)
 

 
(148,855
)
 
35.42

Forfeited/Performance or Market Conditions Not Achieved
(7,690
)
 
(34,079
)
 
(41,769
)
 
42.87

Non-vested at September 30, 2016
594,271

 
(121,038
)
 
473,233

 
$
33.77

_______________________________________________________________________________

(1)
Represents an increase or decrease in the number of original PUs awarded based on either the final performance criteria or market condition achievement at the end of the performance period of such PUs or a change in estimated awards based on the forecasted performance against the predefined targets.
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 price for shares purchased under the ESPP is 95% of the market price of our common stock 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, 2015 and 2016, there were 59,569 shares and 56,662 shares, respectively, purchased under the ESPP. As of September 30, 2016, we had 781,767 shares available under the ESPP.
_______________________________________________________________________________

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)

As of September 30, 2016, unrecognized compensation cost related to the unvested portion of our Employee Stock-Based Awards was $43,137 and is expected to be recognized over a weighted-average period of 2.0 years.
We generally issue shares of our common stock for the exercises of stock options, RSUs, PUs and shares of our common stock under our ESPP from unissued reserved shares.
d.    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 stock 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, 2015 and 2016 is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2016
 
2015
 
2016
Income (loss) from continuing operations
$
23,517

 
$
5,759

 
$
119,263

 
$
54,080

Less: Net income (loss) attributable to noncontrolling interests
407

 
720

 
1,727

 
1,822

Income (loss) from continuing operations (utilized in numerator of Earnings Per Share calculation)
$
23,110

 
$
5,039

 
$
117,536

 
$
52,258

Income (loss) from discontinued operations, net of tax
$

 
$
2,041

 
$

 
$
3,628

Net income (loss) attributable to Iron Mountain Incorporated
$
23,110

 
$
7,080

 
$
117,536

 
$
55,886

 
 
 
 
 
 
 
 
Weighted-average shares—basic
210,912,000

 
263,269,000

 
210,616,000

 
240,394,000

Effect of dilutive potential stock options
621,615

 
640,202

 
934,553

 
628,263

Effect of dilutive potential RSUs and PUs
382,995

 
592,773

 
530,252

 
497,658

Weighted-average shares—diluted
211,916,610

 
264,501,975

 
212,080,805

 
241,519,921

 
 
 
 
 
 
 
 
Earnings (losses) per share—basic:
 

 
 

 
 

 
 

Income (loss) from continuing operations
$
0.11

 
$
0.02

 
$
0.57

 
$
0.22

Income (loss) from discontinued operations, net of tax

 
0.01

 

 
0.02

Net income (loss) attributable to Iron Mountain Incorporated(1)
$
0.11

 
$
0.03

 
$
0.56

 
$
0.23

 
 
 
 
 
 
 
 
Earnings (losses) per share—diluted:
 

 
 

 
 

 
 

Income (loss) from continuing operations
$
0.11

 
$
0.02

 
$
0.56

 
$
0.22

Income (loss) from discontinued operations, net of tax

 
0.01

 

 
0.02

Net income (loss) attributable to Iron Mountain Incorporated(1)
$
0.11

 
$
0.03

 
$
0.55

 
$
0.23

 
 
 
 
 
 
 
 
Antidilutive stock options, RSUs and PUs, excluded from the calculation
2,262,827

 
759,478

 
1,318,811

 
1,725,249


_______________________________________________________________________________

(1) Columns may not foot due to rounding.

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)

e.    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 among the jurisdictions in which we operate; (2) tax law changes; (3) volatility in foreign exchange gains and losses; (4) the timing of the establishment and reversal of tax reserves; and (5) our ability to utilize net operating losses that we generate.
Our effective tax rates for the three and nine months ended September 30, 2015 were 14.3% and 18.6%, respectively. Our effective tax rates for the three and nine months ended September 30, 2016 were 81.2% and 46.2%, respectively. The primary reconciling items between the federal statutory tax rate of 35.0% and our overall effective tax rates 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. The primary reconciling items between the federal statutory tax rate of 35.0% and our overall effective tax rates in the three and nine months ended September 30, 2016 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 the impact of the $14,000 charge (described in Note 2.i.) recorded during the third quarter of 2016 related to the anticipated loss on disposal of the Australia Divestment Business (as defined in Note 4), which had no associated tax benefit.
f.    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) and accounts receivable. The only significant concentrations of liquid investments as of December 31, 2015 and September 30, 2016 relate to cash and cash equivalents. At December 31, 2015, we had time deposits with four global banks. At September 30, 2016, we had time deposits with six global banks. We consider the global banks to be large, highly-rated investment-grade institutions. As of December 31, 2015 and September 30, 2016, our cash and cash equivalents were $128,381 and $458,128, respectively, including time deposits amounting to $18,645 and $18,687, respectively.
g.    Fair Value Measurements
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.

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)

The assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2015 and September 30, 2016, respectively, are as follows:
 
 
 
 
Fair Value Measurements at
December 31, 2015 Using
Description
 
Total Carrying
Value at
December 31,
2015
 
Quoted prices
in active
markets
(Level 1)
 
 
 
Significant other
observable
inputs
(Level 2)
 
 
 
Significant
unobservable
inputs
(Level 3)
Time Deposits(1)
 
$
18,645

 
$

 
 
 
$
18,645

 
 
 
$

Trading Securities
 
10,371

 
9,514

 
(2)
 
857

 
(1)
 

Available-for-Sale Securities
 
624

 
624

 
(2)
 

 
 
 

 
 
 
 
Fair Value Measurements at
September 30, 2016 Using
Description
 
Total Carrying
Value at
September 30,
2016
 
Quoted prices
in active
markets
(Level 1)
 
 
 
Significant other
observable
inputs
(Level 2)
 
 
 
Significant
unobservable
inputs
(Level 3)
Time Deposits(1)
 
$
18,687

 
$

 
 
 
$
18,687

 
 
 
$

Trading Securities
 
10,708

 
10,225

 
(2)
 
483

 
(1)
 

_______________________________________________________________________________

(1)
Time deposits and certain trading securities are measured based on quoted prices for similar assets and/or subsequent transactions and are included in Prepaid expenses and other in our Consolidated Balance Sheets.

(2)
Available-for-sale securities and certain trading securities are measured at fair value using quoted market prices.
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 at December 31, 2015 and September 30, 2016, with the exception of: (i) goodwill (as disclosed in Note 2.b.); (ii) the assets and liabilities acquired through acquisitions (as disclosed in Note 4); (iii) the Access Contingent Consideration (as defined and disclosed in Note 4); and (iv) assets and liabilities held for sale (as disclosed in Note 10), all of which are based on Level 3 inputs.       
The fair value of our long-term debt, which was determined based on either Level 1 inputs or Level 3 inputs, is disclosed in Note 5. Long-term debt is measured at cost in our Consolidated Balance Sheets as of December 31, 2015 and September 30, 2016.

21

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)

h.    Accumulated Other Comprehensive Items, Net
The changes in accumulated other comprehensive items, net for the three months ended September 30, 2015 and 2016, respectively, are as follows:
 
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
)
 
Foreign
Currency
Translation
Adjustments
 
Market Value
Adjustments for
Securities
 
Total
Balance as of June 30, 2016
$
(149,289
)
 
$

 
$
(149,289
)
Other comprehensive income (loss):


 


 


Foreign currency translation adjustments
10,843

 

 
10,843

Total other comprehensive income (loss)
10,843

 

 
10,843

Balance as of September 30, 2016
$
(138,446
)
 
$

 
$
(138,446
)
The changes in accumulated other comprehensive items, net for the nine months ended September 30, 2015 and 2016, respectively, are as follows:
 
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
)

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)

 
Foreign
Currency
Translation
Adjustments
 
Market Value
Adjustments for
Securities
 
Total
Balance as of December 31, 2015
$
(175,651
)
 
$
734

 
$
(174,917
)
Other comprehensive income (loss):


 


 


Foreign currency translation adjustments
37,205

 

 
37,205

Market value adjustments for securities

 
(734
)
 
(734
)
Total other comprehensive income (loss)
37,205

 
(734
)
 
36,471

Balance as of September 30, 2016
$
(138,446
)
 
$

 
$
(138,446
)
i.    Other Expense (Income), Net
Other expense (income), net for the three and nine months ended September 30, 2015 and 2016 are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2016
 
2015
 
2016
Foreign currency transaction losses (gains), net
$
32,539

 
$
10,685

 
$
56,461

 
$
15,336

Debt extinguishment expense
2,156

 

 
2,156

 
9,283

Other, net
551

 
12,617

 
982

 
12,387

 
$
35,246

 
$
23,302

 
$
59,599

 
$
37,006


Other, net for the three and nine months ended September 30, 2016 includes a charge of $14,000 associated with the anticipated loss on disposal of the Australia Divestment Business. As disclosed in Note 10, we have determined that the Australia Divestment Business met the criteria to be reported as held for sale beginning in the second quarter of 2016. Accordingly, the Australia Divestment Business is reflected in our Consolidated Balance Sheet at the lower of its carrying value or its fair value (less costs to sell). This charge represents the excess of the carrying value of the Australia Divestment Business compared to its fair value (less costs to sell) as of September 30, 2016, based upon the sale price of the business described more fully in Note 13.
j.    Property, Plant and Equipment and Long-Lived Assets
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. During the three and nine months ended September 30, 2016, we capitalized $3,601 and $12,139 of costs, respectively, associated with the development of internal use computer software projects.
Consolidated (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net for the three and nine months ended September 30, 2015 was $(141) and $707, respectively. 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 gains on disposal/write-down of property, plant and equipment (excluding real estate), net for the three and nine months ended September 30, 2016 was $54 and $1,131, respectively, which were primarily associated with the retirement of leased vehicles accounted for as capital lease assets within our North American Records and Information Management Business segment.
Consolidated gain on sale of real estate was $850, net of tax of $209, for the three and nine months ended September 30, 2015, which was associated with the sale of a building in the United Kingdom. Consolidated gain on sale of real estate for the three and nine months ended September 30, 2016 was $325, net of tax of $34, associated with the sale of land in North America.

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)

k.    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 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 deferred the effective date of ASU 2014-09 for one year, making it effective for us on January 1, 2018, with early adoption permitted as of January 1, 2017. We will adopt ASU 2014-09 as of January 1, 2018. 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 will adopt ASU 2014-15 as of January 1, 2017. We do not believe that the adoption of ASU 2014-15 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. We adopted ASU 2015-02 on January 1, 2016. The adoption of ASU 2015-02 did not impact our consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes ("ASU 2015-17"). ASU No. 2015-17 eliminates the requirement for reporting entities to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, reporting entities will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments in ASU 2015-17 may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. ASU 2015-17 is effective for us on January 1, 2017, with early adoption permitted. We are currently evaluating the impact ASU 2015-17 will have on our consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The pronouncement also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for us on January 1, 2018. We do not believe that the adoption of ASU 2016-01 will have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU 2016-02 also will require certain qualitative and quantitative disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 will be effective for us on January 1, 2019, with early adoption permitted. We are currently evaluating the impact ASU 2016-02 will have on our consolidated financial statements.


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)

In March 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting ("ASU 2016-07"). ASU 2016-07 eliminates the requirement for a reporting entity to apply the equity method of accounting retrospectively when they obtain significant influence over a previously held investment. Furthermore, under ASU 2016-07, for any available-for-sale securities that become eligible for the equity method of accounting, the unrealized gain or loss recorded within other comprehensive income (loss) associated with the securities should be recognized in earnings at the date the investment initially qualifies for the use of the equity method. We adopted ASU 2016-07 on April 1, 2016. The adoption of ASU 2016-07 did not have a material impact on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation-Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under ASU 2016-09, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the statement of operations and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. Additionally, under ASU 2016-09, excess tax benefits should be classified along with other income tax cash flows as an operating activity. ASU 2016-09 will be effective for us on January 1, 2017, with early adoption permitted. We are currently evaluating the impact ASU 2016-09 will have on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 addresses eight specific cash flow changes with the objective of reducing the existing diversity in the practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. We adopted ASU 2016-15 during the third quarter of 2016. ASU 2016-15 did not have an impact on our consolidated financial statements.

25

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

Historically, we have entered into forward contracts to hedge our exposures in Euros, British pounds sterling and Australian dollars. As of December 31, 2015 and September 30, 2016, however, we had no forward contracts outstanding.
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, 2015 and 2016 are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2016
 
2015
 
2016
Net cash (receipts) payments
$
(7,024
)
 
$

 
$
22,164

 
$

(Gains) losses for our derivative instruments for the three and nine months ended September 30, 2015 and 2016 are as follows:
 
 
 
 
 
 
 
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
 
2015
 
2016
 
2015
 
2016
Foreign exchange contracts
 
Other expense (income), net
 
$
(301
)
 
$

 
$
20,113

 
$

We have designated a portion of our previously outstanding 63/4% Notes and Euro denominated borrowings by IMI under our Revolving Credit Facility (discussed more fully in Note 5) as a hedge of net investment of certain of our Euro denominated subsidiaries. For the nine months ended September 30, 2015 and 2016, we designated, on average, 35,151 and 29,858 Euros, respectively, of the previously outstanding 63/4% Notes and Euro denominated borrowings by IMI under our Revolving Credit Facility as a hedge of net investment of certain of our Euro denominated subsidiaries. As a result, we recorded the following foreign exchange (losses) gains, 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,
 
 
2015
 
2016
 
2015
 
2016
Foreign exchange (losses) gains
 
$
(85
)
 
$
(313
)
 
$
3,381

 
$
(901
)
Less: Tax (benefit) expense on foreign exchange (losses) gains
 

 

 

 

Foreign exchange (losses) gains, net of tax
 
$
(85
)
 
$
(313
)
 
$
3,381

 
$
(901
)
As of September 30, 2016, cumulative net gains of $16,195, net of tax, are recorded in accumulated other comprehensive items, net associated with this net investment hedge.

26

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 are 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 in 2016 was primarily provided through borrowings under our Revolving Credit Facility and Bridge Facility (each as defined in Note 5), as well as cash and cash equivalents on-hand.
a. Acquisition of Recall

On May 2, 2016 (Sydney, Australia time), we completed the Recall Transaction. At the closing of the Recall Transaction, we paid approximately $331,800 and issued 50,233,412 shares of our common stock which, based on the closing price of our common stock as of April 29, 2016 (the last day of trading on the NYSE prior to the closing of the Recall Transaction) of $36.53 per share, resulted in a total purchase price to Recall shareholders of approximately $2,166,900.

Regulatory Approvals
In connection with the acquisition of Recall, we sought regulatory approval of the Recall Transaction from the United States Department of Justice (the “DOJ”), the Australian Competition and Consumer Commission (the “ACCC”), the Canada Competition Bureau (the “CCB”), and the United Kingdom Competition and Markets Authority (the “CMA”).
As part of the regulatory approval process, we agreed to make certain divestments, which are described below in greater detail, in order to address competition concerns raised by the DOJ, the ACCC, the CCB and the CMA in respect of the Recall Transaction (the “Divestments”).
See Note 10 for additional information regarding the Divestments, including the presentation of the Divestments in our Consolidated Balance Sheet as of September 30, 2016, our Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2016, respectively, and our Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2016, respectively.

Divestments and Management Pending Sales

i. United States

The DOJ’s approval of the Recall Transaction was subject to the following divestments being made by us following the closing of the Recall Transaction:

Recall’s records and information management facilities, including all associated tangible and intangible assets, in the following 13 United States cities: Buffalo, New York; Charlotte, North Carolina; Detroit, Michigan; Durham, North Carolina; Greenville/Spartanburg, South Carolina; Kansas City, Kansas/Missouri; Nashville, Tennessee; Pittsburgh, Pennsylvania; Raleigh, North Carolina; Richmond, Virginia; San Antonio, Texas; Tulsa, Oklahoma; and San Diego, California (the “Initial United States Divestments”); and