Edgar Filing: IRON MOUNTAIN INC

Document

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 March 31, 2018

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, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth 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	Emerging growth company o

If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.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 April 20, 2018: 285,923,945

Table of Contents

IRON MOUNTAIN INCORPORATED

Index



	Page
PART I—FINANCIAL INFORMATION
Item 1—Unaudited Condensed Consolidated Financial Statements	3

Condensed Consolidated Balance Sheets at December 31, 2017 and March 31, 2018 (Unaudited)	3

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2018 (Unaudited)	4

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2017 and 2018 (Unaudited)	5

Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2017 and 2018 (Unaudited)	6

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2018 (Unaudited)	7

Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations	51

Item 4—Controls and Procedures	82

PART II—OTHER INFORMATION

Item 2—Unregistered Sales of Equity Securities and Use of Proceeds	83

Item 6—Exhibits	83

Signatures	85

Table of Contents

Part I. Financial Information

Item 1. Unaudited Condensed Consolidated Financial Statements

IRON MOUNTAIN INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, except Share and Per Share Data)

(Unaudited)



	December 31, 2017			March 31, 2018
ASSETS
Current Assets:
Cash and cash equivalents	$	925,699		$	442,491
Accounts receivable (less allowances of $46,648 and $49,512 as of December 31, 2017 and March 31, 2018, respectively)	835,742			859,106
Prepaid expenses and other	188,874			223,276
Total Current Assets	1,950,315			1,524,873
Property, Plant and Equipment:
Property, plant and equipment	6,251,100			7,306,059
Less—Accumulated depreciation	(2,833,421		)	(2,940,588		)
Property, Plant and Equipment, Net	3,417,679			4,365,471
Other Assets, Net:
Goodwill	4,070,267			4,325,478
Customer relationships, customer inducements and data center lease-based intangibles	1,400,547			1,592,488
Other	133,594			189,839
Total Other Assets, Net	5,604,408			6,107,805
Total Assets	$	10,972,402		$	11,998,149
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of long-term debt	$	146,300		$	137,198
Accounts payable	289,137			251,214
Accrued expenses	653,146			574,725
Deferred revenue	241,590			267,925
Total Current Liabilities	1,330,173			1,231,062
Long-term Debt, net of current portion	6,896,971			8,020,873
Other Long-term Liabilities	73,039			96,731
Deferred Rent	126,231			125,442
Deferred Income Taxes	155,728			169,889
Commitments and Contingencies (see Note 8)
Redeemable Noncontrolling Interests	91,418			92,877
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 283,110,183 shares and 285,923,405 shares as of December 31, 2017 and March 31, 2018, respectively)	2,831			2,859
Additional paid-in capital	4,164,562			4,250,757
(Distributions in excess of earnings) Earnings in excess of distributions	(1,765,966		)	(1,919,787		)
Accumulated other comprehensive items, net	(103,989		)	(74,082		)
Total Iron Mountain Incorporated Stockholders' Equity	2,297,438			2,259,747
Noncontrolling Interests	1,404			1,528
Total Equity	2,298,842			2,261,275
Total Liabilities and Equity	$	10,972,402		$	11,998,149

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

Table of Contents

IRON MOUNTAIN INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, except Per Share Data)

(Unaudited)



	Three Months Ended March 31,
	2017			2018
Revenues:
Storage rental	$	572,279		$	651,149
Service	366,597			391,309
Total Revenues	938,876			1,042,458
Operating Expenses:
Cost of sales (excluding depreciation and amortization)	426,707			448,721
Selling, general and administrative	240,166			269,730
Depreciation and amortization	124,707			160,578
(Gain) Loss on disposal/write-down of property, plant and equipment (excluding real estate), net	(459		)	(1,130		)
Total Operating Expenses	791,121			877,899
Operating Income (Loss)	147,755			164,559
Interest Expense, Net (includes Interest Income of $2,293 and $1,386 for the three months ended March 31, 2017 and 2018, respectively)	86,055			97,626
Other (Income) Expense, Net	(6,364		)	20,151
Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes	68,064			46,782
Provision (Benefit) for Income Taxes	9,220			1,168
Income (Loss) from Continuing Operations	58,844			45,614
(Loss) Income from Discontinued Operations, Net of Tax	(337		)	(462		)
Net Income (Loss)	58,507			45,152
Less: Net Income (Loss) Attributable to Noncontrolling Interests	382			468
Net Income (Loss) Attributable to Iron Mountain Incorporated	$	58,125		$	44,684
Earnings (Losses) per Share—Basic:
Income (Loss) from Continuing Operations	$	0.22		$	0.16
Total Income (Loss) from Discontinued Operations, Net of Tax	$	—		$	—
Net Income (Loss) Attributable to Iron Mountain Incorporated	$	0.22		$	0.16
Earnings (Losses) per Share—Diluted:
Income (Loss) from Continuing Operations	$	0.22		$	0.16
Total Income (Loss) from Discontinued Operations, Net of Tax	$	—		$	—
Net Income (Loss) Attributable to Iron Mountain Incorporated	$	0.22		$	0.16
Weighted Average Common Shares Outstanding—Basic	263,855			285,259
Weighted Average Common Shares Outstanding—Diluted	264,810			285,993
Dividends Declared per Common Share	$	0.5504		$	0.5888

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

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IRON MOUNTAIN INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)

(Unaudited)



	Three Months Ended March 31,
	2017			2018
Net Income (Loss)	$	58,507		$	45,152
Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustments	50,784			31,651
Change in Fair Value of Interest Rate Swap Agreements	—			(185		)
Total Other Comprehensive Income (Loss)	50,784			31,466
Comprehensive Income (Loss)	109,291			76,618
Comprehensive (Loss) Income Attributable to Noncontrolling Interests	(168		)	2,027
Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated	$	109,459		$	74,591

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

Table of Contents

IRON MOUNTAIN INCORPORATED

CONDENSED 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		Additional Paid-in Capital						Accumulated Other Comprehensive Items, Net			Noncontrolling Interests			Redeemable Noncontrolling Interests
Balance, December 31, 2016	$	1,936,671		263,682,670	$	2,636	$	3,489,795		$	(1,343,311	)	$	(212,573	)	$	124		$	54,697
Issuance of shares under employee stock purchase plan and option plans and stock-based compensation	2,453			427,718	5		2,448			—			—			—			—
Change in value of redeemable noncontrolling interests	(307		)	—	—		(307		)	—			—			—			307
Parent cash dividends declared	(145,427		)	—	—		—			(145,427		)	—			—			—
Foreign currency translation adjustment	51,405			—	—		—			—			51,334			71			(621		)
Net income (loss)	58,350			—	—		—			58,125			—			225			157
Noncontrolling interests equity contributions	—			—	—		—			—			—			—			13,230
Noncontrolling interests dividends	(214		)	—	—		—			—			—			(214		)	(462		)
Purchase of noncontrolling interests	843			—	—		—			—			—			843			—
Balance, March 31, 2017	$	1,903,774		264,110,388	$	2,641	$	3,491,936		$	(1,430,613	)	$	(161,239	)	$	1,049		$	67,308



				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		Additional Paid-in Capital						Accumulated Other Comprehensive Items, Net			Noncontrolling Interests			Redeemable Noncontrolling Interests
Balance, December 31, 2017	$	2,298,842		283,110,183	$	2,831	$	4,164,562		$	(1,765,966	)	$	(103,989	)	$	1,404		$	91,418
Cumulative-effect adjustment for adoption of ASU 2014-09 (see Note 2.d.)	(29,461		)	—	—		—			(29,461		)	—			—			—
Issuance of shares under employee stock purchase plan and option plans and stock-based compensation	1,432			364,736	4		1,428			—			—			—			—
Issuance of shares associated with the Over-Allotment Option, net of underwriting discounts and offering expenses (see Note 9)	76,192			2,175,000	22		76,170			—			—			—			—
Issuance of shares through the At the Market (ATM) Equity Program, net of underwriting discounts and offering expenses (see Note 9)	8,716			273,486	2		8,714			—			—			—			—
Change in value of redeemable noncontrolling interests	(117		)	—	—		(117		)	—			—			—			117
Parent cash dividends declared	(169,044		)	—	—		—			(169,044		)	—			—			—
Foreign currency translation adjustment	30,246			—	—		—			—			30,092			154			1,405
Change in fair value of interest rate swap agreements	(185		)	—	—		—			—			(185		)	—
Net income (loss)	44,654			—	—		—			44,684			—			(30		)	498
Noncontrolling interests dividends	—			—	—		—			—			—			—			(561		)
Balance, March 31, 2018	$	2,261,275		285,923,405	$	2,859	$	4,250,757		$	(1,919,787	)	$	(74,082	)	$	1,528		$	92,877

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

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IRON MOUNTAIN INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)



	Three Months Ended March 31,
	2017			2018
Cash Flows from Operating Activities:
Net income (loss)	$	58,507		$	45,152
Loss (Income) from discontinued operations	337			462
Adjustments to reconcile net income (loss) to cash flows from operating activities:
Depreciation	99,592			113,432
Amortization (includes amortization of deferred financing costs and discount of $3,907 and $3,553 for the three months ended March 31, 2017 and 2018, respectively)	29,022			50,699
Revenue reduction associated with amortization of permanent withdrawal fees and above- and below-market leases (see Note 2.c.)	3,158			3,664
Stock-based compensation expense	6,549			7,384
(Benefit) Provision for deferred income taxes	(7,386		)	(387		)
(Gain) Loss on disposal/write-down of property, plant and equipment, net (including real estate)	(459		)	(1,130		)
Foreign currency transactions and other, net	(786		)	23,530
Changes in Assets and Liabilities (exclusive of acquisitions):
Accounts receivable	(8,971		)	(10,590		)
Prepaid expenses and other	(24,826		)	(56,937		)
Accounts payable	5,869			(1,381		)
Accrued expenses and deferred revenue	(36,112		)	(76,324		)
Other assets and long-term liabilities	(2,320		)	(6,006		)
Cash Flows from Operating Activities - Continuing Operations	122,174			91,568
Cash Flows from Operating Activities - Discontinued Operations	(337		)	—
Cash Flows from Operating Activities	121,837			91,568
Cash Flows from Investing Activities:
Capital expenditures	(73,202		)	(95,605		)
Cash paid for acquisitions, net of cash acquired	(12,187		)	(1,428,974		)
Acquisition of customer relationships	(17,132		)	(12,602		)
Customer inducements (see Note 2.c.)	(4,271		)	(130		)
Contract fulfillment costs (see Note 2.d.)	—			(5,314		)
Net proceeds from Divestments	2,423			—
Proceeds from sales of property and equipment and other, net (including real estate)	66			(19,387		)
Cash Flows from Investing Activities - Continuing Operations	(104,303		)	(1,562,012		)
Cash Flows from Investing Activities - Discontinued Operations	—			—
Cash Flows from Investing Activities	(104,303		)	(1,562,012		)
Cash Flows from Financing Activities:
Repayment of revolving credit, term loan and bridge facilities and other debt	(2,682,348		)	(4,410,656		)
Proceeds from revolving credit, term loan and bridge facilities and other debt	2,714,783			5,496,491
Debt financing and equity contribution from noncontrolling interests	13,230			—
Debt repayment and equity distribution to noncontrolling interests	(2,562		)	(561		)
Parent cash dividends	(2,060		)	(169,006		)
Net proceeds associated with the Over-Allotment Option (see Note 9)	—			76,192
Net proceeds associated with the At the Market (ATM) Program	—			8,716
Net (payments) proceeds associated with employee stock-based awards	(4,308		)	(5,950		)
Payment of debt financing and stock issuance costs	(73		)	(9,974		)
Cash Flows from Financing Activities - Continuing Operations	36,662			985,252
Cash Flows from Financing Activities - Discontinued Operations	—			—
Cash Flows from Financing Activities	36,662			985,252
Effect of Exchange Rates on Cash and Cash Equivalents	4,948			1,984
Increase (Decrease) in Cash and Cash Equivalents	59,144			(483,208		)
Cash and Cash Equivalents, including Restricted Cash, Beginning of Period	236,484			925,699
Cash and Cash Equivalents, including Restricted Cash, End of Period	$	295,628		$	442,491
Supplemental Information:
Cash Paid for Interest	$	99,022		$	122,027
Cash Paid for Income Taxes, Net	$	30,422		$	22,292
Non-Cash Investing and Financing Activities:
Capital Leases	$	24,395		$	13,877
Accrued Capital Expenditures	$	63,655		$	36,760
Accrued Purchase Price and Other Holdbacks	$	—		$	149
Decrease in Fair Value of OSG Investment	$	—		$	87
Dividends Payable	$	148,992		$	172,140

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

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IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(1) General

The interim condensed 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, provide colocation and wholesale data center spaces and provide information management and data center solutions that help organizations in various locations throughout North America, Europe, Latin America, Asia and Africa protect their information, lower storage rental costs, comply with regulations, facilitate corporate disaster recovery, and better use their information and information technology ("IT") infrastructure for business advantages, regardless of its format, location or life cycle stage. We currently serve customers across an array of market verticals - commercial, legal, financial, healthcare, insurance, life sciences, energy, business services, entertainment and government organizations.

The unaudited condensed 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 Condensed 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, 2017 included in our Annual Report on Form 10-K filed with the SEC on February 16, 2018 (our "Annual Report").

We have been organized and have operated as a real estate investment trust for United States federal income tax purposes ("REIT") beginning with our taxable year ended December 31, 2014.

On January 1, 2018, we adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). See Note 2.d.

On January 10, 2018, we completed the acquisition of IO Data Centers, LLC ("IODC"). See Note 4.

(2) Summary of Significant Accounting Policies

This Note 2 to Notes to Condensed 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. 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, 2017 and March 31, 2018, we had approximately $22,167 and $18,360, respectively, of restricted cash held by certain financial institutions related to bank guarantees.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

b. 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. 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 (i) borrowings in certain foreign currencies under our Former Revolving Credit Facility and Revolving Credit Facility (both as defined and discussed more fully in Note 5), (ii) our Euro Notes (as defined and discussed more fully in Note 5), and (iii) 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 (income) expense, net, in the accompanying Condensed Consolidated Statements of Operations.

Total (gain) loss on foreign currency transactions for the three months ended March 31, 2017 and 2018 is as follows:



	Three Months Ended March 31,
	2017			2018
Total (gain) loss on foreign currency transactions	$	(4,164	)	$	21,785

c. Goodwill and Other Intangible Assets and Liabilities

Goodwill

Goodwill is not amortized but is reviewed annually for impairment, or more frequently if impairment indicators arise. 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, 2017 and as a result of that review, we determined that the fair value of the Consumer Storage reporting unit was less than its carrying value and, therefore, we recorded a $3,011 impairment charge on the goodwill associated with this reporting unit during the fourth quarter of 2017, which represents a write-off of all goodwill associated with this reporting unit. As of December 31, 2017 and March 31, 2018, no factors were identified that would alter our October 1, 2017 goodwill impairment analysis. In making this assessment, we considered a number of factors including operating results, business plans, anticipated future cash flows, transactions and marketplace data. There are inherent uncertainties related to these factors and our judgment in applying them to the analysis of goodwill impairment. 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 as of December 31, 2017 are described in detail in Note 2.h. to Notes to Consolidated Financial Statements included in our Annual Report. The goodwill associated with acquisitions completed during the first three months of 2018 (which are described in Note 4) has been incorporated into our reporting units as they existed as of December 31, 2017.

During the first quarter of 2018, as a result of changes in the management of our businesses included in our Other International Business segment, we reassessed the composition of our reporting units. As a result of this reassessment, we determined that our business in South Africa, which was previously being managed in conjunction with our businesses in Northern and Eastern Europe and Middle East and India as a part of our former Northern and Eastern Europe and Middle East, Africa and India (“NEE and MEAI”) reporting unit, was now being managed in conjunction with our businesses included in our Australia and New Zealand reporting unit. This newly formed reporting unit, which consists of (i) the businesses included in our former Australia and New Zealand reporting unit and (ii) our business in South Africa is referred to as the Australia, New Zealand and South Africa (“ANZ-SA”) reporting unit. The former NEE and MEAI reporting unit is now referred to as the Northern and Eastern Europe and Middle East and India ("NEE and MEI") reporting unit.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED 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 three months ended March 31, 2018 are as follows:



	North American Records and Information Management Business			North American Data Management Business			Western European Business		Other International Business		Global Data Center Business		Corporate and Other Business		Total Consolidated
Gross Balance as of December 31, 2017	$	2,474,829		$	551,726		$	453,537	$	846,721	$	—	$	60,048	$	4,386,861
Non-deductible goodwill acquired during the year	—			—			—		—		229,539		—		229,539
Fair value and other adjustments(1)	122			—			—		5,886		—		4,704		10,712
Currency effects	(5,593		)	(1,528		)	13,885		7,713		—		621		15,098
Gross Balance as of March 31, 2018	$	2,469,358		$	550,198		$	467,422	$	860,320	$	229,539	$	65,373	$	4,642,210
Accumulated Amortization Balance as of December 31, 2017	$	205,383		$	53,875		$	57,048	$	288	$	—	$	—	$	316,594
Currency effects	(198		)	(50		)	376		10		—		—		138
Accumulated Amortization Balance as of March 31, 2018	$	205,185		$	53,825		$	57,424	$	298	$	—	$	—	$	316,732
Net Balance as of December 31, 2017	$	2,269,446		$	497,851		$	396,489	$	846,433	$	—	$	60,048	$	4,070,267
Net Balance as of March 31, 2018	$	2,264,173		$	496,373		$	409,998	$	860,022	$	229,539	$	65,373	$	4,325,478
Accumulated Goodwill Impairment Balance as of December 31, 2017	$	85,909		$	—		$	46,500	$	—	$	—	$	3,011	$	135,420
Accumulated Goodwill Impairment Balance as of March 31, 2018	$	85,909		$	—		$	46,500	$	—	$	—	$	3,011	$	135,420

_______________________________________________________________________________


(1)	Total fair value and other adjustments include $10,712 in net adjustments primarily related to property, plant and equipment, customer relationship intangible assets and deferred income taxes and other liabilities.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

Finite-lived intangible assets and liabilities

i. Customer Relationship 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 and are included in depreciation and amortization in the accompanying Condensed Consolidated Statements of Operations. 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.

ii. Customer Inducements

Prior to the adoption of ASU 2014-09, free intake costs to transport boxes to one of our facilities, which include labor and transportation costs ("Free Move Costs"), were capitalized and amortized over periods ranging from 10 to 30 years. The amortization of Free Move Costs is included in depreciation and amortization in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2017. Subsequent to the adoption of ASU 2014-09, Free Move Costs are considered a Contract Fulfillment Cost (as defined in Note 2.d.) and, therefore, are now deferred and amortized over three years, consistent with the transfer of the performance obligation to the customer to which the asset relates. See Note 2.d. for information regarding the accounting for Free Move Costs, which are now a component of Intake Costs (as defined in Note 2.d.), following the adoption of ASU 2014-09.

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 5 to 15 years and are included in storage and service revenue in the accompanying Condensed Consolidated Statements of Operations. Our accounting for Permanent Withdrawl Fees did not change as a result of the adoption of ASU 2014-09.

Free Move Costs (prior to the adoption of ASU 2014-09) 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.

Table of Contents

IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

iii. Data Center Intangible Assets and Liabilities

Finite-lived intangible assets associated with our data center business consist of the following:

Data Center In-Place Lease Intangible Assets and Data Center Tenant Relationship Intangible Assets

Data Center In-Place Lease Intangible Assets (“Data Center In-Place Leases”) and Data Center Tenant Relationship Intangible Assets (“Data Center Tenant Relationships") are acquired through either business combinations or asset acquisitions in our data center business. These intangible assets reflect the value associated with acquiring a data center operation with active tenants as of the date of acquisition. The value of Data Center In-Place Leases is determined based upon an estimate of the economic costs (such as lost revenues and unreimbursed operating expenses during the lease-up period, tenant improvement costs, commissions, legal expenses and other costs to acquire new data center leases) avoided by acquiring a data center operation with active tenants that would have otherwise been incurred if the data center operation was purchased vacant. Data Center In-Place Leases are amortized over the weighted average remaining term of the acquired data center leases and are included in depreciation and amortization in the accompanying Condensed Consolidated Statements of Operations. The value of Data Center Tenant Relationships is determined based upon an estimate of the economic costs avoided upon lease renewal of the acquired tenants, based upon expectations of lease renewal. Data Center Tenant Relationships are amortized over the weighted average remaining anticipated life of the relationship with the acquired tenant and are included in depreciation and amortization in the accompanying Condensed Consolidated Statements of Operations. Data Center In-Place Leases and Data Center Tenant Relationships are included in Customer relationships, customer inducements and data center lease-based intangibles in the accompanying Condensed Consolidated Balance Sheets.

Data Center Above-Market and Below-Market In-Place Lease Intangible Assets

Data Center Above-Market In-Place Lease Intangible Assets (“Data Center Above-Market Leases”) and Data Center Below-Market In-Place Lease Intangible Assets (“Data Center Below-Market Leases”) are acquired through either business combinations or asset acquisitions in our data center business. We record Data Center Above-Market Leases and Data Center Below-Market Leases at the net present value of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of the fair market lease rates for each corresponding in-place lease. Data Center Above-Market Leases and Data Center Below-Market Leases are amortized over the remaining non-cancellable term of the acquired in-place lease to storage revenue in the accompanying Condensed Consolidated Statements of Operations. Data Center Above-Market Leases are included in Customer relationships, customer inducements and data center lease-based intangibles in the accompanying Condensed Consolidated Balance Sheets. Data Center Below-Market Leases are included in Other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets.

Table of Contents

IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

The components of our finite-lived intangible assets related to customer relationship value, customer inducements and data center lease-based intangible assets and liabilities as of December 31, 2017 and March 31, 2018 are as follows:



	December 31, 2017							March 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Assets:
Customer relationship intangible assets	$	1,704,105	$	(395,278	)	$	1,308,827	$	1,728,685	$	(427,550	)	$	1,301,135
Customer inducements(1)	140,030		(66,981		)	73,049		57,502		(35,149		)	22,353
Data center lease-based intangible assets(2)	19,314		(643		)	18,671		282,609		(13,609		)	269,000
	$	1,863,449	$	(462,902	)	$	1,400,547	$	2,068,796	$	(476,308	)	$	1,592,488
Liabilities:
Data center below-market leases	$	—	$	—		$	—	$	11,421	$	(349	)	$	11,072

_______________________________________________________________________________

(1)

The gross carrying amount, accumulated amortization and net carrying amount of customer inducements as of December 31, 2017 includes Free Move Costs, which were capitalized as Customer Inducements prior to the adoption of ASU 2014-09. Subsequent to the adoption of ASU 2014-09, Free Move Costs are considered a Contract Fulfillment Cost. Contract Fulfillment Costs are included in Other, a component of Other Assets, Net, in the accompanying Condensed Consolidated Balance Sheet as of March 31, 2018. See Note 2.d. for information regarding Contract Fulfillment Costs included in our Condensed Consolidated Balance Sheet as of March 31, 2018.


(2)	Includes Data Center In-Place Leases, Data Center Tenant Relationships and Data Center Above-Market Leases.

Other finite-lived intangible assets, including trade names, noncompetition agreements and trademarks, are capitalized and amortized over a weighted average of four years and are included in depreciation and amortization in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 and 2018. The other finite-lived intangible assets as of December 31, 2017 and March 31, 2018 are as follows:



	December 31, 2017							March 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Other finite-lived intangible assets (included in other assets, net)	$	20,929	$	(10,728	)	$	10,201	$	20,974	$	(11,936	)	$	9,038

Table of Contents

IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

Amortization expense associated with finite-lived intangible assets, revenue reduction associated with the amortization of Permanent Withdrawal Fees and net revenue reduction associated with the amortization of Data Center Above-Market Leases and Data Center Below-Market Leases for the three months ended March 31, 2017 and 2018 are as follows:



	Three Months Ended March 31,
	2017		2018
Amortization expense included in depreciation and amortization associated with:
Customer relationship intangible assets	$	20,133	$	26,337
Customer inducements	2,666		2,469
Data center in-place leases and tenant relationships	—		10,838
Other finite-lived intangible assets	2,316		1,185
Revenue reduction associated with amortization of:
Permanent withdrawal fees	$	3,158	$	2,585
Data center above-market leases and data center below-market leases	—		1,079

d. Revenues

In May 2014, the Financial Accounting Standards Board ("FASB") issued 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. We adopted ASU 2014-09 as of January 1, 2018 using the modified retrospective method for all of our customer contracts, whereby the cumulative effect of applying ASU 2014-09 is recognized at the date of initial application. At January 1, 2018, we recognized the cumulative effect of initially applying ASU 2014-09 as an adjustment to the opening balance of (distributions in excess of earnings) earnings in excess of distributions, resulting in a decrease of $29,461 to stockholders' equity. The reduction of (distribution in excess of earnings) earnings in excess of distributions represents the net effect of (i) the write off of Free Move Costs, net (which were capitalized and amortized prior to the adoption of ASU 2014-09) based upon the net book value of the Free Move Costs as of December 31, 2017, (ii) the recognition of certain Contract Fulfillment Assets, specifically Intake Costs (each as defined below) and commission assets, (iii) the recognition of deferred revenue associated with Intake Costs billed to our customers (as discussed below), and (iv) the deferred income tax impact of the aforementioned items. As we adopted ASU 2014-09 on a modified retrospective basis, the comparative Condensed Consolidated Balance Sheet as of December 31, 2017, and the Condensed Consolidated Statement of Operations, the Condensed Consolidated Statement of Comprehensive Income (Loss), the Condensed Consolidated Statement of Equity and the Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2017 have not been restated to reflect the adoption of ASU 2014-09 and reflect our revenue policies in place at that time, as disclosed in Note 2.l. to Notes to Consolidated Financial Statements included in our Annual Report.

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. The performance obligation is a series of distinct services (as determined for purposes of ASU 2014-09, a “series”) that have the same pattern of transfer to the customer that is satisfied over time. For those contracts that qualify as a series, we have a right to consideration from the customer in an amount that corresponds directly with the value of the underlying performance obligation transferred to the customer to date. This concept is known as "right to invoice" and we are applying the "right to invoice" practical expedient to all revenues, with the exception of storage revenues in our data center business.

Table of Contents

IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

For all of our businesses, with the exception of the storage component of our data center business, each purchasing decision is fully in the control of the customer and, therefore, consideration beyond the current reporting period is variable and allocated to the specific period, which is consistent with the practical expedient above. Our data center business features storage rental provided to the customer at contractually specified rates over a fixed contractual period. The storage rental revenue related to the storage component of our data center business is recognized on a straight-line basis over the contract term. The revenue related to the service component of our data center business is recognized in the period the data center access or related services are provided. Total data center revenues represent less than 5% of our total consolidated revenues at March 31, 2018.

The costs associated with the initial movement of customer records into physical storage and certain commissions are considered costs to obtain or fulfill customer contracts (“Contract Fulfillment Costs”). The following describes each of these Contract Fulfillment Costs recognized under ASC 2014-09:

Intake Costs (and associated deferred revenue)

Prior to the adoption of ASU 2014-09, intake costs incurred but not charged to a customer to transport records to our facilities (or Free Move Costs, as described in Note 2.c.), which include labor and transportation costs, were capitalized and amortized as a component of depreciation and amortization in our Consolidated Statements of Operations. The initial movement of customer records into physical storage must take place prior to initiation of the storage of records and is not considered a separate performance obligation and, therefore, the costs of the initial intake of customer records into physical storage (“Intake Costs”) represent a contract fulfillment cost for the storage of records as the earnings process does not commence until a customer’s records or other assets are in our possession. Accordingly, upon the adoption of ASU 2014-09, all Intake Costs, regardless of whether or not the services associated with such initial moves are billed to the customer or are provided to the customer at no charge, will be deferred and amortized as a component of depreciation and amortization in our Consolidated Statements of Operations over three years, consistent with the transfer of the performance obligation to the customer to which the asset relates. Similarly, in instances where such Intake Costs are billed to the customer, the associated revenue will be deferred and recognized over the same three year period.

Commissions

Prior to the adoption of ASU 2014-09, commissions we paid related to our long-term storage contracts were expensed as incurred. Upon the adoption of ASU 2014-09, certain commission payments that are directly associated with the fulfillment of long-term storage contracts are capitalized and amortized as a component of depreciation and amortization in our Consolidated Statements of Operations over three years, consistent with the transfer of the performance obligation to the customer to which the asset relates. Certain direct commission payments associated with contracts with a duration of one year or less are expensed as incurred under the practical expedient which allows an entity to expense as incurred an incremental cost of obtaining a contract if the amortization period of the asset that the entity otherwise would have recognized is one year or less.

The Contract Fulfillment Assets recorded as a result of the adoption of ASU 2014-09 as of January 1, 2018 and March 31, 2018 are as follows:



		January 1, 2018 (Date of Adoption of ASU 2014-09)							March 31, 2018
Description	Location in Balance Sheet	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Commissions asset	Other (within Other Assets, Net)	$	42,072	$	(21,173	)	$	20,899	$	44,729	$	(24,781	)	$	19,948
Intake Costs asset	Other (within Other Assets, Net)	31,604		(14,954		)	16,650		34,408		(17,875		)	16,533

Table of Contents

IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

Amortization expense associated with the commissions asset and Intake Costs asset was $3,587 and $2,730, respectively, for the three months ended March 31, 2018.

Deferred revenue liabilities, associated with billed Intake Costs, recorded as a result of the adoption of ASU 2014-09 as of January 1, 2018 and March 31, 2018 are as follows:



Description	Location in Balance Sheet	January 1, 2018 (Date of Adoption of ASU 2014-09)		March 31, 2018
Deferred revenue - Current	Deferred revenue	$	9,953	$	10,482
Deferred revenue - Long-term	Other Long-term Liabilities	9,453		9,639

The following table presents certain components of our Condensed Consolidated Statements of Operations as of March 31, 2018 as reported and if we had not adopted ASU 2014-09 on January 1, 2018:



	Three Months Ended March 31, 2018 (As Reported)		Three Months Ended March 31, 2018 (If ASU 2014-09 was not adopted)
Revenues	$	1,042,458	$	1,041,264
Operating Income	$	164,559	$	165,319
Income from Continuing Operations	$	45,614	$	46,374

Per Share Income from Continuing Operations - Basic	$	0.16	$	0.16
Per Share Income from Continuing Operations - Diluted	$	0.16	$	0.16

e. 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 for the three months ended March 31, 2017 and 2018 was $6,549 ($5,777 after tax or $0.02 per basic and diluted share) and $7,384 ($6,833 after tax or $0.02 per basic and diluted share), respectively.

Stock-based compensation expense for Employee Stock-Based Awards included in the accompanying Condensed Consolidated Statements of Operations is as follows:



	Three Months Ended March 31,
	2017		2018
Cost of sales (excluding depreciation and amortization)	$	28	$	29
Selling, general and administrative expenses	6,521		7,355
Total stock-based compensation	$	6,549	$	7,384

Table of Contents

IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

Stock Options

A summary of our stock options outstanding as of March 31, 2018 by vesting terms is as follows:



	March 31, 2018
	Stock Options Outstanding	% of Stock Options Outstanding
Three-year vesting period (10 year contractual life)	4,111,684	91.8	%
Five-year vesting period (10 year contractual life)	366,855	8.2	%
	4,478,539	100.0	%

The weighted average fair value of stock options granted for the three months ended March 31, 2017 and 2018 was $4.26 and $3.50 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 periods are as follows:



	Three Months Ended March 31,
Weighted Average Assumptions	2017		2018
Expected volatility	25.8	%	25.4	%
Risk-free interest rate	1.96	%	2.65	%
Expected dividend yield	6	%	7	%
Expected life	5.0 years		5.0 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.

A summary of stock option activity for the three months ended March 31, 2018 is as follows:



	Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Average Intrinsic Value
Outstanding at December 31, 2017	3,671,740		$	34.41
Granted	839,437		33.72
Exercised	(20,223	)	19.41
Forfeited	(9,673	)	35.12
Expired	(2,742	)	37.71
Outstanding at March 31, 2018	4,478,539		$	34.34	7.58	$	8,201
Options exercisable at March 31, 2018	2,498,039		$	33.73	6.39	$	7,815
Options expected to vest	1,831,809		$	35.12	9.08	$	367

Table of Contents

IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

The aggregate intrinsic value of stock options exercised for the three months ended March 31, 2017 and 2018 is as follows:



	Three Months Ended March 31,
	2017		2018
Aggregate intrinsic value of stock options exercised	$	1,912	$	393

Restricted Stock Units

Under our various equity compensation plans, we may also grant RSUs. Our RSUs generally have a vesting period of three years from the date of grant. However, RSUs granted to our non-employee directors 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).

Cash dividends accrued and paid on RSUs for the three months ended March 31, 2017 and 2018 are as follows:



	Three Months Ended March 31,
	2017		2018
Cash dividends accrued on RSUs	$	683	$	721
Cash dividends paid on RSUs	1,855		2,043

The fair value of RSUs vested during the three months ended March 31, 2017 and 2018 is as follows:



	Three Months Ended March 31,
	2017		2018
Fair value of RSUs vested	$	14,026	$	15,330

A summary of RSU activity for the three months ended March 31, 2018 is as follows:



	RSUs		Weighted- Average Grant-Date Fair Value
Non-vested at December 31, 2017	1,071,469		$	35.38
Granted	611,030		33.58
Vested	(436,489	)	35.12
Forfeited	(24,035	)	36.43
Non-vested at March 31, 2018	1,221,975		$	34.55

Table of Contents

IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

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") and, beginning with PUs granted in 2018, Adjusted EBITDA (as defined in Note 7). 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 either (i) a subset of the Standard & Poor's 500 Index (for certain PUs granted prior to 2017), or (ii) the MSCI United States REIT Index (for certain PUs granted in 2017 and thereafter), rather than the revenue, ROIC and Adjusted EBITDA targets noted above. The number of PUs earned based on the applicable 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.

Cash dividends accrued and paid on PUs for the three months ended March 31, 2017 and 2018 are as follows:



	Three Months Ended March 31,
	2017		2018
Cash dividends accrued on PUs	$	324	$	450
Cash dividends paid on PUs	205		644

The majority of our PUs are earned based on our performance against revenue, ROIC and, beginning with PUs granted in 2018, Adjusted EBITDA targets during their applicable performance period; therefore, we forecast the likelihood of achieving the predefined revenue, ROIC and Adjusted EBITDA 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. The fair value of PUs based on our performance against revenue, ROIC and Adjusted EBITDA targets is the excess of the market price of our common stock at the date of grant over the purchase price (which is typically zero). 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 March 31, 2018, we expected 100%, 100% and 100% achievement of the predefined revenue, ROIC and Adjusted EBITDA targets associated with the awards of PUs made in 2016, 2017 and 2018, respectively.

The fair value of earned PUs that vested during the three months ended March 31, 2017 and 2018 is as follows:



	Three Months Ended March 31,
	2017		2018
Fair value of earned PUs that vested	$	905	$	3,033

Table of Contents

IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

A summary of PU activity for the three months ended March 31, 2018 is as follows:



	Original PU Awards		PU Adjustment(1)		Total PU Awards		Weighted- Average Grant-Date Fair Value
Non-vested at December 31, 2017	717,878		(250,067	)	467,811		$	39.28
Granted	347,576		—		347,576		33.64
Vested	(79,121	)	—		(79,121	)	38.34
Forfeited/Performance or Market Conditions Not Achieved	(2,626	)	(49,881	)	(52,507	)	38.28
Non-vested at March 31, 2018	983,707		(299,948	)	683,759		$	36.60

_______________________________________________________________________________


(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 of our employees employed in the United States and Canada 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. As of March 31, 2018, we have 624,768 shares available under the ESPP.

As of March 31, 2018, unrecognized compensation cost related to the unvested portion of our Employee Stock-Based Awards was $64,416 and is expected to be recognized over a weighted-average period of 2.3 years.

We generally issue shares of our common stock for the exercises of stock options, the vesting of RSUs and PUs and under our ESPP from unissued reserved shares.

Table of Contents

IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED 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 stock options, RSUs or PUs) that were outstanding during the period, unless the effect is antidilutive.

The calculation of basic and diluted income (loss) per share for the three months ended March 31, 2017 and 2018 is as follows:



	Three Months Ended March 31,
	2017			2018
Income (loss) from continuing operations	$	58,844		$	45,614
Less: Net income (loss) attributable to noncontrolling interests	382			468
Income (loss) from continuing operations (utilized in numerator of Earnings Per Share calculation)	$	58,462		$	45,146
(Loss) income from discontinued operations, net of tax	$	(337	)	$	(462	)
Net income (loss) attributable to Iron Mountain Incorporated	$	58,125		$	44,684

Weighted-average shares—basic	263,855,000			285,259,000
Effect of dilutive potential stock options	461,761			249,564
Effect of dilutive potential RSUs and PUs	492,905			484,314
Weighted-average shares—diluted	264,809,666			285,992,878

Earnings (losses) per share—basic:
Income (loss) from continuing operations	$	0.22		$	0.16
Income (loss) from discontinued operations, net of tax	—			—
Net income (loss) attributable to Iron Mountain Incorporated(1)	$	0.22		$	0.16

Earnings (losses) per share—diluted:
Income (loss) from continuing operations	$	0.22		$	0.16
Income (loss) from discontinued operations, net of tax	—			—
Net income (loss) attributable to Iron Mountain Incorporated(1)	$	0.22		$	0.16

Antidilutive stock options, RSUs and PUs, excluded from the calculation	2,494,255			3,242,141

_______________________________________________________________________________

(1) Columns may not foot due to rounding.

Table of Contents

IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

g. Income Taxes

We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Our estimate of the effective tax rate for the year ending December 31, 2018 reflects the impact of the Tax Reform Legislation (as defined below). 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 ("QRSs") 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 months ended March 31, 2017 and 2018 were 13.5% and 2.5%, respectively. The primary reconciling items between the federal statutory tax rate of 35.0% and our overall effective tax rate for the three months ended March 31, 2017 were the benefit derived from the dividends paid deduction, a release of valuation allowances on certain of our foreign net operating losses of $7,511 as a result of the merger of certain of our foreign subsidiaries and 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. These benefits were partially offset by the impact of a legislative change enacted in the first quarter of 2017 in the United Kingdom which eliminated the deductibility of certain interest expense and increased our tax provision for the first quarter of 2017 by $1,764, or 2.5%. The primary reconciling items between the federal statutory tax rate of 21.0% and our overall effective tax rate for the three months ended March 31, 2018 were the benefit derived from the dividends paid deduction, a discrete tax benefit of approximately $14,000 associated with the resolution of a tax matter (as disclosed in Note 7 to Notes to Consolidated Financial Statements included in our Annual Report), and the impact of differences in the tax rates at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates.

On December 22, 2017, legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Legislation”) was enacted into law in the United States. The Tax Reform Legislation amends the Internal Revenue Code of 1986, as amended (the “Code”), to reduce tax rates and modify policies, credits and deductions for businesses and individuals. The components of the Tax Reform Legislation are described in detail in Note 7 to Notes to Consolidated Financial Statements included in our Annual Report. One of the primary components of the Tax Reform Legislation was a reduction in the United States corporate federal income tax rate from 35.0% to 21.0% for taxable years beginning after December 31, 2017.

The Tax Reform Legislation also imposes a transition tax (the “Deemed Repatriation Transition Tax”) on a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits not previously subject to United States tax as of November 2, 2017 or December 31, 2017, whichever is greater (the “Undistributed E&P”) as of the last taxable year beginning before January 1, 2018. The Deemed Repatriation Transition Tax varies depending on whether the Undistributed E&P is held in liquid (as defined in the Tax Reform Legislation) or non-liquid assets. A participation deduction against the deemed repatriation will result in a Deemed Repatriation Transition Tax on Undistributed E&P of 15.5% if held in cash and liquid assets and 8% if held in non-liquid assets. The Deemed Repatriation Transition Tax applies regardless of whether or not an entity has cash in its foreign subsidiaries and regardless of whether the entity actually repatriates the Undistributed E&P back to the United States.

Our estimate of the amount of Undistributed E&P deemed repatriated under the Tax Reform Legislation in our taxable year ending December 31, 2017 is approximately $186,000 (the “Estimated Undistributed E&P”). We will opt to include the full amount of Estimated Undistributed E&P in our 2017 taxable income, rather than spread it over eight years (as permitted by the Tax Reform Legislation). Accordingly, included in our REIT taxable income for 2017 was approximately $82,000 related to the deemed repatriation of Undistributed E&P (the “Deemed Repatriation Taxable Income”). To remain qualified for taxation as a REIT, we are generally required to distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding net capital gains) each year to our stockholders.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

The Estimated Undistributed E&P includes certain assumptions made by us regarding the cumulative earnings and profits of our foreign subsidiaries, as well as the characterization of such Estimated Undistributed E&P (liquid versus non-liquid assets). We are currently performing additional analysis to determine the actual amount of Undistributed E&P associated with our foreign subsidiaries, as well as the characterization of such Undistributed E&P, and anticipate this analysis will continue throughout 2018. We do not believe this will have an impact on our provision for income taxes or our qualification as a REIT. However, it may impact our shareholder dividend reporting.

h. 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, 2017 and March 31, 2018, respectively, related to cash and cash equivalents. At December 31, 2017, we had money market funds with 12 "Triple A" rated money market funds and time deposits with seven global banks. At March 31, 2018, we had time deposits with seven global banks. As of December 31, 2017, our cash and cash equivalents balance was $925,699, including money market funds of $585,000 and time deposits of $24,482. As of March 31, 2018, our cash and cash equivalents was $442,491, including time deposits of $16,678. We had no money market funds as of March 31, 2018.

i. 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.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED 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, 2017 and March 31, 2018, respectively, are as follows:



			Fair Value Measurements at December 31, 2017 Using
Description	Total Carrying Value at December 31, 2017		Quoted prices in active markets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
Money Market Funds(1)	$	585,000	$	—		$	585,000		$	—
Time Deposits(1)	24,482		—			24,482			—
Trading Securities	11,784		11,279		(2)	505		(3)	—
Derivative Assets(4)	1,579		—			1,579			—
Derivative Liabilities(4)	2,329		—			2,329			—



			Fair Value Measurements at March 31, 2018 Using
Description	Total Carrying Value at March 31, 2018		Quoted prices in active markets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
Time Deposits(1)	$	16,678	$	—		$	16,678		$	—
Trading Securities	11,129		10,739		(2)	390		(3)	—
Derivative Liabilities(4)	1,102		—			1,102			—
Interest Rate Swap Agreements(5)	185		—			185			—

_______________________________________________________________________________


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


(2)	Certain trading securities are measured at fair value using quoted market prices.


(3)	Certain trading securities are measured based on inputs other than quoted market prices that are observable.

(4)

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 foreign exchange 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.


(5)	We have entered into interest rate swap agreements to hedge certain of our interest rate exposures, as more fully disclosed in Note 3. The interest rate swap agreements are designated as cash flow hedges and are measured based on inputs other than quoted market prices that are observable.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

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, 2017 and March 31, 2018, with the exception of: (i) the reporting units as presented in our goodwill impairment analysis (as disclosed in Note 2.h. to Notes to Consolidated Financial Statements included in our Annual Report); (ii) the assets and liabilities acquired through acquisitions (as disclosed in Note 6 to Notes to Consolidated Financial Statements included in our Annual Report and Note 4); (iii) the Access Contingent Consideration (as defined and disclosed in Note 6 to Notes to Consolidated Financial Statements included in our Annual Report); (iv) the redemption value of certain redeemable noncontrolling interests (as disclosed in Note 2.x. to Notes to Consolidated Financial Statements included in our Annual Report); and (v) our investment in OSG Records Management (Europe) Limited (as disclosed in Note 14 to Notes to Consolidated Financial Statements included in our Annual Report), 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 Condensed Consolidated Balance Sheets as of December 31, 2017 and March 31, 2018.

j. Accumulated Other Comprehensive Items, Net

The changes in accumulated other comprehensive items, net for the three months ended March 31, 2017 and 2018, respectively, are as follows:



	Foreign Currency Translation Adjustments			Total
Balance as of December 31, 2016	$	(212,573	)	$	(212,573	)
Other comprehensive income (loss):
Foreign currency translation adjustments	51,334			51,334
Total other comprehensive income (loss)	51,334			51,334
Balance as of March 31, 2017	$	(161,239	)	$	(161,239	)



	Foreign Currency Translation Adjustments			Fair Value Adjustments for Interest Rate Swap Agreements			Total
Balance as of December 31, 2017	$	(103,989	)	$	—		$	(103,989	)
Other comprehensive income (loss):
Foreign currency translation adjustments	30,092			—			30,092
Fair value adjustments for interest rate swap agreements	—			(185		)	(185		)
Total other comprehensive income (loss)	30,092			(185		)	29,907
Balance as of March 31, 2018	$	(73,897	)	$	(185	)	$	(74,082	)

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IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

k. Other (Income) Expense, Net

Other (income) expense, net for the three months ended March 31, 2017 and 2018 consists of the following:



	Three Months Ended March 31,
	2017			2018
Foreign currency transaction (gains) losses, net	$	(4,164	)	$	21,785
Other, net	(2,200		)	(1,634		)
	$	(6,364	)	$	20,151

l. Property, Plant and Equipment and Long-Lived Assets

During the three months ended March 31, 2017 and 2018, we capitalized $5,283 and $3,789 of costs, respectively, associated with the development of internal use computer software projects.

Consolidated gain on disposal/write-down of property, plant and equipment (excluding real estate), net for the three months ended March 31, 2017 was $459 and primarily consists of gains 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 disposal/write-down of property, plant and equipment (excluding real estate), net for the three months ended March 31, 2018 was $1,130 and primarily consists of gains associated with the retirement of leased vehicles accounted for as capital lease assets within our North American Records and Information Management Business segment and gains on sale of other property and equipment within our Other International Business segment.

m. New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09. We adopted ASU 2014-09 on January 1, 2018 using the modified retrospective method. See Note 2.d. for information regarding the impact of the adoption of ASU 2014-09 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, while eliminating the available-for-sale classification for equity securities with readily determinable fair values and the cost method for equity investments without readily determinable fair values. ASU 2016-01 also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. We adopted ASU 2016-01 on January 1, 2018. ASU 2016-01 did not have an impact on our consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). ASU 2017-12 amends the hedge accounting recognition and presentation requirements as outlined in Accounting Standards Codification Topic 815 with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and enhance the transparency and understandability of hedge transactions. In addition, ASU 2017-12 simplifies the application of the hedge accounting guidance. We adopted ASU 2017-12 on January 1, 2018. ASU 2017-12 did not have a material impact on our consolidated financial statements.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

Other As Yet Adopted Accounting Pronouncements

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 in the process of establishing a cross-functional project team responsible for the assessment and implementation of ASU 2016-02. We are also in the process of identifying and evaluating the technology options available to update our lease accounting processes and systems in anticipation of our future adoption of ASU 2016-02. We are currently evaluating the impact ASU 2016-02 will have on our consolidated financial statements.

(3) Derivative Instruments and Hedging Activities

Historically, we have entered into forward contracts to hedge our exposures associated with certain foreign currencies. 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 (income) expense, 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 any of the forward contracts we have entered into as hedges. As of December 31, 2017, we had outstanding forward contracts to (i) purchase $138,823 United States dollars and sell 176,000 Canadian dollars, (ii) purchase 135,000 Euros and sell $160,757 United States dollars and (iii) purchase $114,390 United States dollars and sell 96,150 Euros to hedge our foreign exchange exposures. As of March 31, 2018, we had outstanding forward contracts to purchase 133,000 Euros and sell $165,799 United States dollars to hedge our foreign exchange exposures. During the three months ended March 31, 2017, there were no cash receipts or payments included in cash from operating activities from continuing operations related to settlements associated with foreign currency forward contracts. During the three months ended March 31, 2018, cash receipts included in cash from operating activities from continuing operations related to settlements associated with foreign currency forward contracts was $6,343.

Our policy is to record the fair value of each derivative instrument on a gross basis. The following table provides the fair value of our derivative instruments not designated as hedging instruments as of December 31, 2017 and March 31, 2018:



Derivatives Not Designated as Hedging Instruments	Balance Sheet Location	December 31, 2017		March 31, 2018
Derivative assets	Prepaid expenses and other	$	1,579	$	—
Derivative liabilities	Accrued expenses	2,329		1,102

(Gains) losses for our derivative instruments not recognized as hedging instruments for the three months ended March 31, 2017 and 2018 are as follows:



		Three Months Ended March 31,
Derivatives Not Designated as Hedging Instruments	Location of Loss (Gain) Recognized in Income on Derivative	2017		2018
Foreign exchange contracts	Other (income) expense, net	$	—	$	(5,991	)

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IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(3) Derivative Instruments and Hedging Activities (Continued)

We have designated a portion of our (i) Euro denominated borrowings by IMI under our Former Revolving Credit Facility and (ii) Euro Notes (each as defined in Note 5) as a hedge of net investment of certain of our Euro denominated subsidiaries. For the three months ended March 31, 2017, we designated, on average, 49,600 Euros of our Euro denominated borrowings by IMI under our Former Revolving Credit Facility as a hedge of net investment of certain of our Euro denominated subsidiaries. For the three months ended March 31, 2018, we designated, on average, 164,244 Euros of our Euro Notes as a hedge of net investment of certain of our Euro denominated subsidiaries. As a result, we recorded the following foreign exchange (losses) gains 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 March 31,
	2017			2018
Foreign exchange (losses) gains	$	(1,072	)	$	(5,635	)

As of March 31, 2018, cumulative net losses of $2,447, net of tax, are recorded in accumulated other comprehensive items, net associated with this net investment hedge.

In March 2018, we entered into interest rate swap agreements to limit our exposure to changes in interest rates on a portion of our floating rate indebtedness. As of March 31, 2018, we have $350,000 in notional value of interest rate swap agreements outstanding, which expire in March 2022. Under the interest rate swap agreements, we receive variable rate interest payments associated with the notional amount of each interest rate swap, based upon one-month LIBOR, in exchange for the payment of fixed interest rate payments (at the fixed rate interest specified in the interest rate swap agreements). We have designated these interest rate swaps as cash flow hedges. Unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The fair value of the interest rate swaps are estimated using industry standard valuation models using market-based observable inputs, including interest rate curves (Level 2, as described in Note 2.i.). At March 31, 2018, we had a derivative liability of $185, which was recorded as a component of Other Long-Term Liabilities on our Condensed Consolidated Balance Sheet, which represents the fair value of our interest rate swap agreements.

We have recorded the change in fair value of the interest rate swap agreements to accumulated other comprehensive income. At March 31, 2018, we have recorded an unrealized loss of $185 within accumulated other comprehensive items, net associated with these agreements.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED 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.

a. Acquisition of IO Data Centers

On January 10, 2018, we completed the acquisition of the United States operations of IODC, a leading data center colocation space and solutions provider based in Phoenix, Arizona, including the land and buildings associated with four data centers in Phoenix and Scottsdale, Arizona; Edison, New Jersey; and Columbus, Ohio (the “IODC Transaction”). At the closing of the IODC Transaction, we paid approximately $1,347,000. In addition to the amount paid at the closing of the IODC Transaction, there is the potential of $35,000 in additional payments associated with the execution of future customer contracts. We have accounted for the IODC Transaction as an acquisition of a business in accordance with the guidance in ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.

The unaudited consolidated pro forma financial information (the "Pro Forma Financial Information") below summarizes the combined results of us and IODC on a pro forma basis as if the IODC Transaction had occurred on January 1, 2017. The Pro Forma Financial Information is presented for informational purposes and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2017. The Pro Forma Financial Information, for all periods presented, includes our current estimates of purchase accounting adjustments (including amortization expenses from acquired intangible assets and depreciation of acquired property, plant and equipment). Through March 31, 2018, we and IODC have collectively incurred $28,064 of operating expenditures to complete the IODC Transaction (including advisory and professional fees). These operating expenditures have been reflected within the results of operations in the Pro Forma Financial Information as if they were incurred on January 1, 2017.



	Three Months Ended March 31,
	2017		2018
Total Revenues	$	973,757	$	1,045,929
Income from Continuing Operations	$	17,431	$	55,181
Per Share Income from Continuing Operations - Basic	$	0.06	$	0.19
Per Share Income from Continuing Operations - Diluted	$	0.06	$	0.19

In addition to our acquisition of IODC, we completed certain other acquisitions during 2017 and 2018. The Pro Forma Financial Information does not reflect these acquisitions due to the insignificant impact of these acquisitions on our consolidated results of operations.

b. Other Noteworthy Acquisitions

On March 8, 2018, in order to expand our data center operations into Europe and Asia, we acquired the operations of two data centers in London and Singapore from Credit Suisse International and Credit Suisse AG (together, "Credit Suisse") for the total of (i) 34,600 British pounds sterling and (ii) 81,000 Singapore dollars (or collectively, approximately $111,400, based upon the exchange rates between the United States dollar and the British pound sterling and Singapore dollar on the closing date of the Credit Suisse transaction) (the “Credit Suisse Transaction”). As part of the Credit Suisse Transaction, Credit Suisse entered into a long-term lease with us to maintain existing data center operations.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(4) Acquisitions (Continued)

In November 2017, we entered into an agreement to acquire (i) the storage and information management assets and operations of Santa Fe Group A/S ("Santa Fe") in China (the “Santa Fe China Transaction”) for approximately 14,000 Euros and (ii) certain real estate property located in Beijing, China owned by Santa Fe (the “Beijing Property”) for approximately 9,000 Euros, representing a total purchase price of approximately 23,000 Euros, subject to customary purchase price adjustments. We closed on the Santa Fe China Transaction on December 29, 2017. The purchase price for the Santa Fe China Transaction was not paid until January 2018 and, therefore, we accrued for the purchase price of the Santa Fe China Transaction (which was approximately $16,800, based upon the exchange rate between the Euro and the United States dollar on the closing date of the Santa Fe China Transaction) in our Consolidated Balance Sheet as of December 31, 2017 (the “Accrued Purchase Price”). The Accrued Purchase Price is presented as a component of the current portion of long-term debt in our Consolidated Balance Sheet as of December 31, 2017. We paid the purchase price of the Santa Fe China Transaction on January 3, 2018. We expect to close on the acquisition of the Beijing Property during the first half of 2018. The completion of the acquisition of the Beijing Property is subject to closing conditions; accordingly, we can provide no assurances that we will be able to complete the acquisition of the Beijing Property, that it will not be delayed or that the terms will remain the same.

A summary of the cumulative consideration paid and the preliminary allocation of the purchase price paid for all of our 2018 acquisitions through March 31, 2018 is as follows:



	IODC Transaction				Other Fiscal Year 2018 Acquisitions (excluding IODC)			Total
Cash Paid (gross of cash acquired)(1)	$	1,347,046			$	112,947		$	1,459,993
Purchase price holdbacks	—				149			149
Total Consideration	1,347,046				113,096			1,460,142
Fair Value of Identifiable Assets Acquired:
Cash	34,227				—			34,227
Accounts Receivable and Prepaid Expenses	7,070				558			7,628
Property, Plant and Equipment(2)	863,027				111,267			974,294
Customer Relationship Intangible Assets	—				1,593			1,593
Data Center In-Place Leases	128,513				9,492			138,005
Data Center Tenant Relationships	102,850				—			102,850
Data Center Above-Market Leases	16,439				—			16,439
Accounts Payable, Accrued Expenses and Other Liabilities	(23,198		)		—			(23,198		)
Deferred Income Taxes	—				(9,814		)	(9,814		)
Data Center Below-Market Leases	(11,421		)		—			(11,421		)
Total Fair Value of Identifiable Net Assets Acquired	1,117,507			1,117,507	113,096			1,230,603
Goodwill Initially Recorded(3)	$	229,539			$	—		$	229,539

_______________________________________________________________________________

(1)

Included in cash paid for acquisitions in the Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2018 is net cash acquired of $34,227 and contingent and other payments, net of $3,208 related to acquisitions made in previous years. The cash paid for the Accrued Purchase Price for the Santa Fe China Transaction is included in cash flows from financing activities (as a component of repayment of revolving credit, term loan and bridge facilities and other debt) in the Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2018.


(2)	Consists primarily of building, building improvements, leasehold improvements, racking structures and warehouse equipment. These assets are depreciated using the straight-line method with the useful lives as noted in Note 2.f. to Notes to Consolidated Financial Statements included in our Annual Report.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(4) Acquisitions (Continued)

(3) The goodwill associated with acquisitions is primarily attributable to the assembled workforce, expanded market opportunities and costs and other operating synergies anticipated upon the integration of the operations of us and the acquired businesses.

Allocations of the purchase price for acquisitions made in 2017 and 2018 were based on estimates of the fair value of the net assets acquired and are subject to adjustment upon the finalization of the purchase price allocations. The accounting for business combinations (including the accounting for the acquisition of assets) requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets, in determining the assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management's best estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. The estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete the valuations within the measurement periods, which are up to one year from the respective acquisition dates. The preliminary purchase price allocations that are not finalized as of March 31, 2018 primarily relate to the final assessment of the fair values of intangible assets (primarily customer relationship intangible assets and data center lease-based intangible assets), property, plant and equipment (primarily building, building improvements and racking structures), operating leases, contingencies and income taxes (primarily deferred income taxes), primarily associated with the Bonded Transaction, the Santa Fe Transaction, the Fortrust Transaction (each as defined in Note 6 to Notes to Consolidated Financial Statements included in our Annual Report), the IODC Transaction and the Credit Suisse Transaction, as well as other acquisitions which closed in 2018.

As the valuation of certain assets and liabilities for purposes of purchase price allocations are preliminary in nature, they are subject to adjustment as additional information is obtained about the facts and circumstances regarding these assets and liabilities that existed at the acquisition date. Any adjustments to our estimates of purchase price allocation will be made in the periods in which the adjustments are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. Adjustments recorded during the three months ended March 31, 2018 were not material to our results from operations.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(5) Debt

Long-term debt is as follows:



	December 31, 2017									March 31, 2018
	Debt (inclusive of discount)		Unamortized Deferred Financing Costs			Carrying Amount		Fair Value		Debt (inclusive of discount)		Unamortized Deferred Financing Costs			Carrying Amount		Fair Value
Revolving Credit Facility	$	466,593	$	(14,407	)	$	452,186	$	466,593	$	800,158	$	(13,688	)	$	786,470	$	800,158
Term Loan A	243,750		—			243,750		243,750		240,625		—			240,625		240,625
Term Loan B	—		—			—		—		698,250		(8,698		)	689,552		700,000
Australian Dollar Term Loan (the "AUD Term Loan")	187,504		(3,382		)	184,122		189,049		259,431		(3,761		)