10-Q
Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
(Mark One)
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Quarterly Period Ended March 31, 2016
 
OR
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Transition Period from                        to                       
 
Commission file number 1-13045
 
IRON MOUNTAIN INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or other Jurisdiction of
Incorporation or Organization)
23-2588479
(I.R.S. Employer
Identification No.)
One Federal Street, Boston, Massachusetts 02110
(Address of Principal Executive Offices, Including Zip Code)

(617) 535-4766
(Registrant's Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
Number of shares of the registrant's Common Stock outstanding at April 22, 2016: 211,952,148

Table of Contents

IRON MOUNTAIN INCORPORATED
Index

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2
Table of Contents

Part I. Financial Information
Item 1.    Unaudited Consolidated Financial Statements
IRON MOUNTAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In Thousands, except Share and Per Share Data)
(Unaudited)
 
December 31, 2015
 
March 31, 2016
ASSETS
 

 
 

Current Assets:
 

 
 

Cash and cash equivalents
$
128,381

 
$
117,945

Accounts receivable (less allowances of $31,447 and $28,683 as of December 31, 2015 and March 31, 2016, respectively)
564,401

 
574,717

Deferred income taxes
22,179

 
22,261

Prepaid expenses and other
142,951

 
116,973

Total Current Assets
857,912

 
831,896

Property, Plant and Equipment:
 

 
 

Property, plant and equipment
4,744,236

 
4,865,424

Less—Accumulated depreciation
(2,247,078
)
 
(2,326,120
)
Property, Plant and Equipment, net
2,497,158

 
2,539,304

Other Assets, net:
 

 
 

Goodwill
2,360,978

 
2,400,719

Customer relationships and customer inducements
603,314

 
618,339

Other
31,225

 
32,051

Total Other Assets, net
2,995,517

 
3,051,109

Total Assets
$
6,350,587

 
$
6,422,309

LIABILITIES AND EQUITY
 

 
 

Current Liabilities:
 

 
 

Current portion of long-term debt
$
88,068

 
$
89,974

Accounts payable
219,590

 
180,259

Accrued expenses
351,061

 
297,169

Deferred revenue
183,112

 
181,091

Total Current Liabilities
841,831

 
748,493

Long-term Debt, net of current portion
4,757,610

 
4,931,296

Other Long-term Liabilities
71,844

 
74,356

Deferred Rent
95,693

 
96,079

Deferred Income Taxes
55,002

 
50,941

Commitments and Contingencies (see Note 8)


 


Equity:
 

 
 

Iron Mountain Incorporated Stockholders' Equity:
 

 
 

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

 
—

Common stock (par value $0.01; authorized 400,000,000 shares; issued and outstanding 211,340,296 shares and 211,892,754 shares as of December 31, 2015 and March 31, 2016, respectively)
2,113

 
2,119

Additional paid-in capital
1,623,863

 
1,628,971

(Distributions in excess of earnings) Earnings in excess of distributions
(942,218
)
 
(982,532
)
Accumulated other comprehensive items, net
(174,917
)
 
(152,160
)
Total Iron Mountain Incorporated Stockholders' Equity
508,841

 
496,398

Noncontrolling Interests
19,766

 
24,746

Total Equity
528,607

 
521,144

Total Liabilities and Equity
$
6,350,587

 
$
6,422,309

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

3
Table of Contents

IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)
 
Three Months Ended
March 31,
 
2015
 
2016
Revenues:
 

 
 

Storage rental
$
458,872

 
$
461,211

Service
290,414

 
289,479

Total Revenues
749,286

 
750,690

Operating Expenses:
 

 
 

Cost of sales (excluding depreciation and amortization)
321,654

 
326,105

Selling, general and administrative
196,414

 
207,766

Depreciation and amortization
85,951

 
87,204

Loss (Gain) on disposal/write-down of property, plant and equipment (excluding real estate), net
333

 
(451
)
Total Operating Expenses
604,352

 
620,624

Operating Income (Loss)
144,934

 
130,066

Interest Expense, Net (includes Interest Income of $814 and $1,287 for the three months ended March 31, 2015 and 2016, respectively)
64,898

 
67,062

Other Expense (Income), Net
22,349

 
(11,937
)
Income (Loss) Before Provision (Benefit) for Income Taxes
57,687

 
74,941

Provision (Benefit) for Income Taxes
15,948

 
11,900

Net Income (Loss)
41,739

 
63,041

Less: Net Income (Loss) Attributable to Noncontrolling Interests
643

 
267

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
41,096

 
$
62,774

Earnings (Losses) per Share—Basic:
 

 
 

Net Income (Loss)
$
0.20

 
$
0.30

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
0.20

 
$
0.30

Earnings (Losses) per Share—Diluted:
 

 
 

Net Income (Loss)
$
0.20

 
$
0.30

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
0.19

 
$
0.30

Weighted Average Common Shares Outstanding—Basic
210,237

 
211,526

Weighted Average Common Shares Outstanding—Diluted
212,249

 
212,471

Dividends Declared per Common Share
$
0.4747

 
$
0.4853

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

4
Table of Contents

IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
(Unaudited)
 
Three Months Ended
March 31,
 
2015
 
2016
Net Income (Loss)
$
41,739

 
$
63,041

Other Comprehensive (Loss) Income:
 

 
 

Foreign Currency Translation Adjustments
(56,175
)
 
23,978

Market Value Adjustments for Securities
23

 
(734
)
Total Other Comprehensive (Loss) Income
(56,152
)
 
23,244

Comprehensive (Loss) Income
(14,413
)
 
86,285

Comprehensive Income (Loss) Attributable to Noncontrolling Interests
542

 
754

Comprehensive (Loss) Income Attributable to Iron Mountain Incorporated
$
(14,955
)
 
$
85,531














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

5
Table of Contents

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

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

 
209,818,812

 
$
2,098

 
$
1,588,841

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

Issuance of shares under employee stock purchase plan and option plans and stock-based compensation, including tax benefit of $231
1,994

 
708,425

 
7

 
1,987

 
—

 
—

 
—

Parent cash dividends declared
(100,539
)
 
—

 
—

 
—

 
(100,539
)
 
—

 
—

Currency translation adjustment
(56,175
)
 
—

 
—

 
—

 
—

 
(56,074
)
 
(101
)
Market value adjustments for securities
23

 
—

 
—

 
—

 
—

 
23

 
—

Net income (loss)
41,739

 
—

 
—

 
—

 
41,096

 
—

 
643

Noncontrolling interests dividends
(495
)
 
—

 
—

 
—

 
—

 
—

 
(495
)
Balance, March 31, 2015
$
756,502

 
210,527,237

 
$
2,105

 
$
1,590,828

 
$
(718,996
)
 
$
(131,082
)
 
$
13,647

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

 
211,340,296

 
$
2,113

 
$
1,623,863

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

Issuance of shares under employee stock purchase plan and option plans and stock-based compensation, including tax deficiency of $348
5,114

 
552,458

 
6

 
5,108

 
—

 
—

 
—

Parent cash dividends declared
(103,088
)
 
—

 
—

 
—

 
(103,088
)
 
—

 
—

Currency translation adjustment
23,978

 
—

 
—

 
—

 
—

 
23,491

 
487

Market value adjustments for securities
(734
)
 
—

 
—

 
—

 
—

 
(734
)
 
—

Net income (loss)
63,041

 
—

 
—

 
—

 
62,774

 
—

 
267

Noncontrolling interests equity contributions
1,299

 
—

 
—

 
—

 
—

 
—

 
1,299

Noncontrolling interests dividends
(579
)
 
—

 
—

 
—

 
—

 
—

 
(579
)
Purchase of noncontrolling interests
3,506

 
—

 
—

 
—

 
—

 
—

 
3,506

Balance, March 31, 2016
$
521,144

 
211,892,754

 
$
2,119

 
$
1,628,971

 
$
(982,532
)
 
$
(152,160
)
 
$
24,746




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

6
Table of Contents

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


 
Three Months Ended
March 31,
 
2015
 
2016
Cash Flows from Operating Activities:
 

 
 

Net income (loss)
$
41,739

 
$
63,041

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

 
 

Depreciation
74,791

 
75,390

Amortization (includes deferred financing costs and bond discount of $2,092 and $2,749, for the three months ended March 31, 2015 and 2016, respectively)
13,252

 
14,563

Stock-based compensation expense
6,856

 
6,885

(Benefit) Provision for deferred income taxes
(3,273
)
 
(6,012
)
Loss (Gain) on disposal/write-down of property, plant and equipment, net (including real estate)
333

 
(451
)
Foreign currency transactions and other, net
7,241

 
(8,534
)
Changes in Assets and Liabilities (exclusive of acquisitions):
 

 
 

Accounts receivable
3,437

 
(8,151
)
Prepaid expenses and other
1,964

 
30,297

Accounts payable
(17,995
)
 
(30,934
)
Accrued expenses and deferred revenue
(121,462
)
 
(55,494
)
Other assets and long-term liabilities
(1,371
)
 
518

Cash Flows from Operating Activities
5,512

 
81,118

Cash Flows from Investing Activities:
 

 
 

Capital expenditures
(74,776
)
 
(80,852
)
Cash paid for acquisitions, net of cash acquired
(6,431
)
 
(19,340
)
Decrease in restricted cash
13,860

 
—

Acquisition of customer relationships
(4,862
)
 
(6,132
)
Customer inducements
(4,381
)
 
(1,126
)
Proceeds from sales of property and equipment and other, net (including real estate)
410

 
169

Cash Flows from Investing Activities
(76,180
)
 
(107,281
)
Cash Flows from Financing Activities:
 

 
 

Repayment of revolving credit and term loan facilities and other debt
(2,282,261
)
 
(2,384,215
)
Proceeds from revolving credit and term loan facilities and other debt
2,450,403

 
2,509,845

Debt financing and equity contribution from noncontrolling interests
—

 
1,299

Debt repayment and equity distribution to noncontrolling interests
(388
)
 
(414
)
Parent cash dividends
(102,539
)
 
(104,931
)
Net proceeds (payments) associated with employee stock-based awards
4,364

 
(1,975
)
Excess tax benefit (deficiency) from stock-based compensation
231

 
(348
)
Payment of debt financing and stock issuance costs
(947
)
 
—

Cash Flows from Financing Activities
68,863

 
19,261

Effect of Exchange Rates on Cash and Cash Equivalents
(4,523
)
 
(3,534
)
(Decrease) Increase in Cash and Cash Equivalents
(6,328
)
 
(10,436
)
Cash and Cash Equivalents, Beginning of Period
125,933

 
128,381

Cash and Cash Equivalents, End of Period
$
119,605

 
$
117,945

Supplemental Information:
 

 
 

Cash Paid for Interest
$
90,339

 
$
83,942

Cash Paid (Refund Received) for Income Taxes, net
$
10,560

 
$
(3,211
)
Non-Cash Investing and Financing Activities:
 

 
 

Capital Leases
$
4,589

 
$
18,005

Accrued Capital Expenditures
$
44,335

 
$
42,205

Dividends Payable
$
4,183

 
$
3,736



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

7
Table of Contents

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(1) General
The interim consolidated financial statements are presented herein and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair presentation. Interim results are not necessarily indicative of results for a full year. Iron Mountain Incorporated, a Delaware corporation ("IMI"), and its subsidiaries ("we" or "us") store records, primarily physical records and data backup media, and provide information management services in various locations throughout North America, Europe, Latin America, Asia Pacific and Africa. We have a diversified customer base consisting of commercial, legal, banking, healthcare, accounting, insurance, entertainment and government organizations.
The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to those rules and regulations, but we believe that the disclosures included herein are adequate to make the information presented not misleading. The Consolidated Financial Statements and Notes thereto, which are included herein, should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended December 31, 2015 included in our Annual Report on Form 10-K filed with the SEC on February 26, 2016 (our "Annual Report").
We have been organized and operating as a real estate investment trust for federal income tax purposes ("REIT") effective for our taxable year beginning January 1, 2014.
(2) Summary of Significant Accounting Policies
This Note 2 to Notes to Consolidated Financial Statements provides information and disclosure regarding certain of our significant accounting policies and should be read in conjunction with Note 2 to Notes to Consolidated Financial Statements included in our Annual Report, which may provide additional information with regard to the accounting policies set forth herein and other of our significant accounting policies.
a. Foreign Currency
Local currencies are the functional currencies for our operations outside the United States, with the exception of certain foreign holding companies and our financing centers in Switzerland, whose functional currency is the United States dollar. In those instances where the local currency is the functional currency, assets and liabilities are translated at period-end exchange rates, and revenues and expenses are translated at average exchange rates for the applicable period. Resulting translation adjustments are reflected in the accumulated other comprehensive items, net component of Iron Mountain Incorporated Stockholders' Equity and Noncontrolling Interests in the accompanying Consolidated Balance Sheets. The gain or loss on foreign currency transactions, calculated as the difference between the historical exchange rate and the exchange rate at the applicable measurement date, including those related to (1) our previously outstanding 63/4% Euro Senior Subordinated Notes due 2018 (the "63/4% Notes"), (2) borrowings in certain foreign currencies under our revolving credit facility and (3) certain foreign currency denominated intercompany obligations of our foreign subsidiaries to us and between our foreign subsidiaries, which are not considered permanently invested, are included in other expense (income), net, in the accompanying Consolidated Statements of Operations.
Total loss (gain) on foreign currency transactions for the three months ended March 31, 2015 and 2016 is as follows:
 
Three Months Ended
March 31,
 
 
2015
 
2016
 
Total loss (gain) on foreign currency transactions
$
22,266

 
$
(12,542
)
 

8
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

b.    Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangible assets
We have selected October 1 as our annual goodwill impairment review date. We performed our most recent annual goodwill impairment review as of October 1, 2015 and concluded there was no impairment of goodwill at such date. As of December 31, 2015 and March 31, 2016, no factors were identified that would alter our October 1, 2015 goodwill analysis. In making this assessment, we relied on a number of factors including operating results, business plans, anticipated future cash flows, transactions and marketplace data. There are inherent uncertainties related to these factors and our judgment in applying them to the analysis of goodwill impairment. When changes occur in the composition of one or more reporting units, the goodwill is reassigned to the reporting units affected based on their relative fair values.
Refer to our Annual Report for information regarding the composition of our reporting units as of December 31, 2015. The carrying value of goodwill, net for each of our reporting units as of December 31, 2015 was as follows:
 
Carrying Value
as of
December 31, 2015
North American Records and Information Management(1)
$
1,342,723

North American Secure Shredding(1)
73,021

North American Data Management(2)
369,907

Adjacent Businesses - Data Centers(3)
—

Adjacent Businesses - Consumer Storage(3)
4,636

Adjacent Businesses - Fine Arts(3)
21,550

UKI(4)
260,202

Continental Western Europe(4)
63,442

Emerging Markets - Europe(5)
87,378

Latin America(5)
78,537

Australia(5)
47,786

Southeast Asia(5)
5,683

India(5)
6,113

Total
$
2,360,978

_______________________________________________________________________________
(1)
This reporting unit is included in the North American Records and Information Management Business segment.
(2)
This reporting unit is included in the North American Data Management Business segment.
(3)
This reporting unit is included in the Corporate and Other Business segment.
(4)
This reporting unit is included in the Western European Business segment.
(5)
This reporting unit is included in the Other International Business segment.
 

9
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

The carrying value of goodwill, net for each of our reporting units as of March 31, 2016 is as follows:
 
Carrying Value
as of
March 31, 2016
North American Records and Information Management
$
1,351,471

North American Secure Shredding
73,502

North American Data Management
372,264

Adjacent Businesses - Data Centers
—

Adjacent Businesses - Consumer Storage
4,636

Adjacent Businesses - Fine Arts
22,696

UKI
254,688

Continental Western Europe
67,777

Emerging Markets - Europe(1)
94,451

Latin America
84,178

Australia
50,328

Southeast Asia
5,705

Africa and India(2)
19,023

Total
$
2,400,719

_______________________________________________________________________________
(1)
Included in this reporting unit at March 31, 2016 is the goodwill associated with our March 2016 acquisition of Archyvu Sistemos as more fully described in Note 4.
(2)
Included in this reporting unit at March 31, 2016 is the goodwill associated with our March 2016 acquisition of Docufile Holdings Proprietary Limited as more fully described in Note 4.


10
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

The changes in the carrying value of goodwill attributable to each reportable operating segment for the three months ended March 31, 2016 are as follows:
 
North American
Records and Information
Management
Business
 
North American
Data
Management
Business
 
Western
European Business
 
Other International Business
 
Corporate and Other Business
 
Total
Consolidated
Gross Balance as of December 31, 2015
$
1,620,425

 
$
423,606

 
$
381,149

 
$
225,626

 
$
26,186

 
$
2,676,992

Deductible goodwill acquired during the year
—

 
—

 
—

 
—

 
—

 
—

Non-deductible goodwill acquired during the year
—

 
—

 
—

 
15,729

 
—

 
15,729

Fair value and other adjustments(1)
(175
)
 
—

 
—

 
(133
)
 
1,146

 
838

Currency effects
9,868

 
2,473

 
(1,277
)
 
12,593

 
—

 
23,657

Gross Balance as of March 31, 2016
$
1,630,118

 
$
426,079

 
$
379,872

 
$
253,815

 
$
27,332

 
$
2,717,216

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

 
$
53,699

 
$
57,505

 
$
129

 
$
—

 
$
316,014

Currency effects
464

 
116

 
(98
)
 
1

 
—

 
483

Accumulated Amortization Balance as of March 31, 2016
$
205,145

 
$
53,815

 
$
57,407

 
$
130

 
$
—

 
$
316,497

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

 
$
369,907

 
$
323,644

 
$
225,497

 
$
26,186

 
$
2,360,978

Net Balance as of March 31, 2016
$
1,424,973

 
$
372,264

 
$
322,465

 
$
253,685

 
$
27,332

 
$
2,400,719

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

 
$
—

 
$
46,500

 
$
—

 
$
—

 
$
132,409

Accumulated Goodwill Impairment Balance as of March 31, 2016
$
85,909

 
$
—

 
$
46,500

 
$
—

 
$
—

 
$
132,409

_______________________________________________________________________________
(1)
Total fair value and other adjustments primarily include net adjustments of $1,020 related to property, plant and equipment and customer relationships and acquisition costs, partially offset by $182 of cash received related to certain acquisitions completed in 2015.


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

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

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

 
$
(333,860
)
 
$
603,314

 
$
969,963

 
$
(351,624
)
 
$
618,339

Core Technology(1)
3,370

 
(3,370
)
 
—

 
3,442

 
(3,442
)
 
—

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

 
(4,955
)
 
2,786

 
8,122

 
(5,367
)
 
2,755

Total
$
948,285

 
$
(342,185
)
 
$
606,100

 
$
981,527

 
$
(360,433
)
 
$
621,094

_______________________________________________________________________________
(1)
Included in Other, a component of Other Assets, net in the accompanying Consolidated Balance Sheets.
Amortization expense associated with finite-lived intangible assets and deferred financing costs for the three months ended March 31, 2015 and 2016 is as follows:
 
Three Months Ended
March 31,
 
2015
 
2016
Amortization expense associated with finite-lived intangible assets and deferred financing costs
$
13,252

 
$
14,563


12
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

c.    Stock-Based Compensation
We record stock-based compensation expense, utilizing the straight-line method, for the cost of stock options, restricted stock units ("RSUs"), performance units ("PUs") and shares of stock issued under our employee stock purchase plan ("ESPP") (together, "Employee Stock-Based Awards").
Stock-based compensation expense for Employee Stock-Based Awards included in the accompanying Consolidated Statements of Operations for the three months ended March 31, 2015 and 2016 was $6,856 ($4,946 after tax or $0.02 per basic and diluted share) and $6,885 ($4,914 after tax or $0.02 per basic and diluted share), respectively.
Stock-based compensation expense for Employee Stock-Based Awards included in the accompanying Consolidated Statements of Operations is as follows:
 
Three Months Ended
March 31,
 
2015
 
2016
Cost of sales (excluding depreciation and amortization)
$
45

 
$
27

Selling, general and administrative expenses
6,811

 
6,858

Total stock-based compensation
$
6,856

 
$
6,885

The benefits associated with the tax deductions in excess of recognized compensation cost are required to be reported as financing activities in the accompanying Consolidated Statements of Cash Flows. This requirement impacts reported operating cash flows and reported financing cash flows. As a result, net financing cash flows included $231 and $(348) for the three months ended March 31, 2015 and 2016, respectively, from the benefit (deficiency) of tax deductions compared to recognized compensation cost. The tax benefit of any resulting excess tax deduction increases the Additional Paid-in Capital ("APIC") pool. Any resulting tax deficiency is deducted from the APIC pool.
Stock Options
A summary of our options outstanding by vesting terms is as follows:
 
March 31, 2016
 
Options Outstanding
 
% of Options Outstanding
Three-year vesting period (ten year contractual life)
3,269,375

 
67.0
%
Five-year vesting period (ten year contractual life)
1,339,548

 
27.4
%
Ten-year vesting period (12 year contractual life)
271,138

 
5.6
%
 
4,880,061

 
 

13
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

The weighted average fair value of options granted for the three months ended March 31, 2015 and 2016 was $4.99 and $2.49 per share, respectively. These values were estimated on the date of grant using the Black-Scholes option pricing model. The weighted average assumptions used for grants in the respective period are as follows:
 
 
Three Months Ended
March 31,
Weighted Average Assumptions
 
2015
 
2016
Expected volatility
 
28.6
%
 
27.2
%
Risk-free interest rate
 
1.71
%
 
1.32
%
Expected dividend yield
 
5
%
 
7
%
Expected life
 
5.5 years

 
5.6 years

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

 
$
27.79

 
 
 
 

Granted
1,408,788

 
33.88

 
 
 
 

Exercised
(199,258
)
 
22.51

 
 
 
 

Forfeited
(10,526
)
 
34.16

 
 
 
 

Expired
(7,757
)
 
26.88

 
 
 
 

Outstanding at March 31, 2016
4,880,061

 
$
29.75

 
6.74
 
$
29,299

Options exercisable at March 31, 2016
2,693,160

 
$
25.27

 
4.58
 
$
25,520

Options expected to vest
2,009,861

 
$
35.28

 
9.39
 
$
3,498

The aggregate intrinsic value of stock options exercised for the three months ended March 31, 2015 and 2016 is as follows:
 
Three Months Ended
March 31,
 
2015
 
2016
Aggregate intrinsic value of stock options exercised
$
4,167

 
$
1,433

Restricted Stock Units
Under our various equity compensation plans, we may also grant RSUs. Our RSUs generally have a vesting period of between three and five years from the date of grant. However, RSUs granted to our non-employee directors in 2015 and thereafter vest immediately upon grant.
All RSUs accrue dividend equivalents associated with the underlying stock as we declare dividends. Dividends will generally be paid to holders of RSUs in cash upon the vesting date of the associated RSU and will be forfeited if the RSU does not vest. The fair value of RSUs is the excess of the market price of our common stock at the date of grant over the purchase price (which is typically zero).

14
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

Cash dividends accrued and paid on RSUs for the three months ended March 31, 2015 and 2016 are as follows:
 
Three Months Ended
March 31,
 
2015
 
2016
Cash dividends accrued on RSUs
$
670

 
$
631

Cash dividends paid on RSUs
1,729

 
1,635

The fair value of RSUs vested during the three months ended March 31, 2015 and 2016 is as follows:
 
Three Months Ended
March 31,
 
2015
 
2016
Fair value of RSUs vested
$
15,584

 
$
14,978

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

 
$
33.68

Granted
550,285

 
30.71

Vested
(447,641
)
 
33.46

Forfeited
(20,230
)
 
35.33

Non-vested at March 31, 2016
1,300,011

 
$
32.47

Performance Units
Under our various equity compensation plans, we may also make awards of PUs. For the majority of outstanding PUs, the number of PUs earned is determined based on our performance against predefined targets of revenue or revenue growth and return on invested capital ("ROIC"). The number of PUs earned may range from 0% to 200% of the initial award. The number of PUs earned is determined based on our actual performance as compared to the targets at the end of a three-year performance period. Certain PUs that we grant will be earned based on a market condition associated with the total return on our common stock in relation to a subset of the Standard & Poor's 500 Index rather than the revenue growth and ROIC targets noted above. The number of PUs earned based on this market condition may range from 0% to 200% of the initial award.
All of our PUs will be settled in shares of our common stock and are subject to cliff vesting three years from the date of the original PU grant. 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 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.

15
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

Cash dividends accrued and paid on PUs for the three months ended March 31, 2015 and 2016 are as follows:
 
Three Months Ended
March 31,
 
2015
 
2016
Cash dividends accrued on PUs
$
211

 
$
262

Cash dividends paid on PUs
1,015

 
645

During the three months ended March 31, 2016, we issued 220,864 PUs. The majority of our PUs are earned based on our performance against revenue or revenue growth and ROIC targets during their applicable performance period; therefore, we forecast the likelihood of achieving the predefined revenue, revenue growth and ROIC targets in order to calculate the expected PUs to be earned. We record a compensation charge based on either the forecasted PUs to be earned (during the performance period) or the actual PUs earned (at the three-year anniversary of the grant date) over the vesting period for each of the awards. For PUs earned based on a market condition, we utilize a Monte Carlo simulation to fair value these awards at the date of grant, and such fair value is expensed over the three-year performance period. As of March 31, 2016, we expected 0%, 100% and 100% achievement of the predefined revenue, revenue growth and ROIC targets associated with the awards of PUs made in 2014, 2015 and 2016, respectively.
The fair value of earned PUs that vested during the three months ended March 31, 2015 and 2016 is as follows:
 
Three Months Ended
March 31,
 
2015
 
2016
Fair value of earned PUs that vested
$
2,063

 
$
4,081

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

 
(86,959
)
 
433,805

 
$
34.11

Granted
220,864

 
—

 
220,864

 
35.09

Vested
(112,581
)
 
—

 
(112,581
)
 
36.25

Forfeited/Performance or Market Conditions Not Achieved
(2,106
)
 
(34,079
)
 
(36,185
)
 
44.36

Non-vested at March 31, 2016
626,941

 
(121,038
)
 
505,903

 
$
33.33

_______________________________________________________________________________

(1)
Represents an increase or decrease in the number of original PUs awarded based on either (a) the final performance criteria or market condition achievement at the end of the performance period of such PUs or (b) a change in estimated awards based on the forecasted performance against the predefined targets.
Employee Stock Purchase Plan
We offer an ESPP in which participation is available to substantially all United States and Canadian employees who meet certain service eligibility requirements. The price for shares purchased under the ESPP is 95% of the fair market price at the end of the offering period, without a look-back feature. As a result, we do not recognize compensation expense for the ESPP shares purchased. As of March 31, 2016, we had 838,429 shares available under the ESPP.
_______________________________________________________________________________

16
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

As of March 31, 2016, unrecognized compensation cost related to the unvested portion of our Employee Stock-Based Awards was $56,121 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, RSUs, PUs and shares of our common stock under our ESPP from unissued reserved shares.
d.    Income (Loss) Per Share—Basic and Diluted
Basic income (loss) per common share is calculated by dividing income (loss) by the weighted average number of common shares outstanding. The calculation of diluted income (loss) per share is consistent with that of basic income (loss) per share but gives effect to all potential common shares (that is, securities such as options, warrants or convertible securities) that were outstanding during the period, unless the effect is antidilutive.
The calculation of basic and diluted income (loss) per share for the three months ended March 31, 2015 and 2016 is as follows:
 
Three Months Ended
March 31,
 
2015
 
2016
Net income (loss)
$
41,739

 
$
63,041

Net income (loss) attributable to Iron Mountain Incorporated
$
41,096

 
$
62,774

 
 
 
 
Weighted-average shares—basic
210,237,000

 
211,526,000

Effect of dilutive potential stock options
1,223,330

 
482,388

Effect of dilutive potential RSUs and PUs
788,758

 
463,053

Weighted-average shares—diluted
212,249,088

 
212,471,441

 
 
 
 
Earnings (losses) per share—basic:
 

 
 

Net income (loss)
$
0.20

 
$
0.30

Net income (loss) attributable to Iron Mountain Incorporated
$
0.20

 
$
0.30

 
 
 
 
Earnings (losses) per share—diluted:
 

 
 

Net income (loss)
$
0.20

 
$
0.30

Net income (loss) attributable to Iron Mountain Incorporated
$
0.19

 
$
0.30

 
 
 
 
Antidilutive stock options, RSUs and PUs, excluded from the calculation
358,233

 
2,821,795

e.    Income Taxes
We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period they occur. Our effective tax rate is subject to variability in the future due to, among other items: (1) changes in the mix of income between our qualified REIT subsidiaries and our domestic taxable REIT subsidiaries ("TRSs"), as well as between the jurisdictions in which we operate; (2) tax law changes; (3) volatility in foreign exchange gains and losses; (4) the timing of the establishment and reversal of tax reserves; and (5) our ability to utilize net operating losses that we generate.

17
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

Our effective tax rate for the three months ended March 31, 2015 and 2016 was 27.6% and 15.9% respectively. The primary reconciling item between the federal statutory tax rate of 35% and our overall effective tax rate in the three months ended March 31, 2015 was 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. The primary reconciling items between the federal statutory tax rate of 35% and our overall effective tax rate in the three months ended March 31, 2016 were the benefit derived from the dividends paid deduction 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.
f.    Concentrations of Credit Risk
Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents (including money market funds and time deposits) and accounts receivable. The only significant concentrations of liquid investments as of December 31, 2015 and March 31, 2016 relate to cash and cash equivalents. At December 31, 2015 and March 31, 2016, we had time deposits with four global banks. We consider the global banks to be large, highly-rated investment-grade institutions. As of December 31, 2015 and March 31, 2016, our cash and cash equivalents were $128,381 and $117,945, respectively, including time deposits amounting to $18,645 and $29,611, respectively.
g.    Fair Value Measurements
Our financial assets or liabilities that are carried at fair value are required to be measured using inputs from the three levels of the fair value hierarchy. A financial asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The three levels of the fair value hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3—Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

18
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

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

 
$
—

 
 
 
$
18,645

 
 
 
$
—

Trading Securities
 
10,371

 
9,514

 
(2)
 
857

 
(1)
 
—

Available-for-Sale Securities
 
624

 
624

 
(2)
 
—

 
 
 
—

 
 
 
 
Fair Value Measurements at
March 31, 2016 Using
Description
 
Total Carrying
Value at
March 31,
2016
 
Quoted prices
in active
markets
(Level 1)
 
 
 
Significant other
observable
inputs
(Level 2)
 
 
 
Significant
unobservable
inputs
(Level 3)
Time Deposits(1)
 
$
29,611

 
$
—

 
 
 
$
29,611

 
 
 
$
—

Trading Securities
 
9,242

 
8,760

 
(2)
 
482

 
(1)
 
—

_______________________________________________________________________________

(1)
Time deposits and certain trading securities are measured based on quoted prices for similar assets and/or subsequent transactions.

(2)
Available-for-sale securities and certain trading securities are measured at fair value using quoted market prices.
Disclosures are required in the financial statements for items measured at fair value on a non-recurring basis. We did not have any material items that are measured at fair value on a non-recurring basis at December 31, 2015 and March 31, 2016, except goodwill calculated based on Level 3 inputs, as more fully disclosed in Note 2.b, and the assets and liabilities associated with acquisitions, as more fully disclosed in Note 4.
The fair value of our long-term debt, which was determined based on either Level 1 inputs or Level 3 inputs, is disclosed in Note 5. Long-term debt is measured at cost in our Consolidated Balance Sheets as of December 31, 2015 and March 31, 2016.

19
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

h.    Accumulated Other Comprehensive Items, Net
The changes in accumulated other comprehensive items, net for the three months ended March 31, 2015 and 2016, respectively, are as follows:
 
Foreign
Currency
Translation
Adjustments
 
Market Value
Adjustments for
Securities
 
Total
Balance as of December 31, 2014
$
(76,010
)
 
$
979

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


Foreign currency translation adjustments
(56,074
)
 
—

 
(56,074
)
Market value adjustment for securities
—

 
23

 
23

Total other comprehensive (loss) income
(56,074
)
 
23

 
(56,051
)
Balance as of March 31, 2015
$
(132,084
)
 
$
1,002

 
$
(131,082
)
 
Foreign
Currency
Translation
Adjustments
 
Market Value
Adjustments for
Securities
 
Total
Balance as of December 31, 2015
$
(175,651
)
 
$
734

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


 


 


Foreign currency translation adjustments
23,491

 
—

 
23,491

Market value adjustments for securities
—

 
(734
)
 
(734
)
Total other comprehensive income (loss)
23,491

 
(734
)
 
22,757

Balance as of March 31, 2016
$
(152,160
)
 
$
—

 
$
(152,160
)
i.    Other Expense (Income), Net
Other expense (income), net is as follows:
 
Three Months Ended
March 31,
 
2015
 
2016
Foreign currency transaction losses (gains), net
$
22,266

 
$
(12,542
)
Other, net
83

 
605

 
$
22,349

 
$
(11,937
)

20
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

j.    Property, Plant and Equipment and Long-Lived Assets
During the three months ended March 31, 2015 and 2016, we capitalized $6,040 and $3,403 of costs, respectively, associated with the development of internal use computer software projects.
Consolidated loss on disposal/write-down of property, plant and equipment (excluding real estate), net for the three months ended March 31, 2015 was $333, which was primarily associated with the write-off of certain property associated with 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, 2016 was $451, which was primarily associated with the retirement of leased vehicles accounted for as capital lease assets within our North American Records and Information Management Business segment.
k.    New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 provides additional guidance for management to reassess revenue recognition as it relates to: (1) transfer of control, (2) variable consideration, (3) allocation of transaction price based on relative standalone selling price, (4) licenses, (5) time value of money and (6) contract costs. Further disclosures will be required to provide a better understanding of revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date ("ASU 2015-14"). ASU 2015-14 defers the effective date of ASU 2014-09 for one year, making it effective for us on January 1, 2018, with early adoption permitted as of January 1, 2017. We are currently evaluating the impact ASU 2014-09 will have on our consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles of current United States auditing standards. Specifically, the amendments (1) provide a definition of the term “substantial doubt”, (2) require an evaluation every reporting period, including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is still present, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU 2014-15 is effective for us on January 1, 2017, with early adoption permitted. We do not believe that the adoption of ASU 2014-15 will have an impact on our consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015‑02”). ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. We adopted ASU 2015-02 on January 1, 2016. The adoption of ASU 2015-02 did not impact our consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes ("ASU 2015-17"). ASU No. 2015-17 eliminates the requirement for reporting entities to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, reporting entities will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments in ASU 2015-17 may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. ASU 2015-17 is effective for us on January 1, 2017, with early adoption permitted. We are currently evaluating the impact ASU 2015-17 will have on our consolidated financial statements.

21
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(2) Summary of Significant Accounting Policies (Continued)

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The pronouncement also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for us on January 1, 2018. We do not believe that the adoption of ASU 2016-01 will have a material impact on our consolidated financial statements.

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

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

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation-Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under ASU 2016-09, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the statement of operations and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. Additionally, under ASU 2016-09, excess tax benefits should be classified along with other income tax cash flows as an operating activity. ASU 2016-09 will be effective for us on January 1, 2017, with early adoption permitted. We are currently evaluating the impact ASU 2016-09 will have on our consolidated financial statements.
(3) Derivative Instruments and Hedging Activities
Historically, we have entered into separate forward contracts to hedge our exposures in Euros, British pounds sterling and Australian dollars. As of December 31, 2015 and March 31, 2016, however, we had no forward contracts outstanding.
Net cash payments included in cash from operating activities related to settlements associated with foreign currency forward contracts for the three months ended March 31, 2015 and 2016 are as follows:
 
Three Months Ended
March 31,
 
2015
 
2016
Net cash payments
$
16,820

 
$
—


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

Losses for our derivative instruments for the three months ended March 31, 2015 and 2016 are as follows:
 
 
 
 
 
 
 
Amount of Loss Recognized in
Income
on Derivatives
 
 
 
 
 
Three Months Ended March 31,
Derivatives Not Designated as
Hedging Instruments
 
Location of Loss
Recognized in Income
on Derivative
 
2015
 
2016
Foreign exchange contracts
 
Other expense (income), net
 
$
28,533

 
$
—

Total
 
 
 
 
$
28,533

 
$
—


We have designated a portion of our previously outstanding 63/4% Notes and Euro denominated borrowings by IMI under our Revolving Credit Facility (discussed more fully in Note 5) as a hedge of net investment of certain of our Euro denominated subsidiaries. For the three months ended March 31, 2015 and 2016, we designated, on average, 36,000 and 30,218 Euros, respectively, of the previously outstanding 63/4% Notes and Euro denominated borrowings by IMI under our Revolving Credit Facility as a hedge of net investment of certain of our Euro denominated subsidiaries. As a result, we recorded the following foreign exchange gains (losses), net of tax, related to the change in fair value of such debt due to currency translation adjustments, which is a component of accumulated other comprehensive items, net:
 
 
Three Months Ended
March 31,
 
 
2015
 
2016
Foreign exchange gains (losses)
 
$
4,930

 
$
(1,342
)
Less: Tax expense (benefit) on foreign exchange gains (losses)
 
—

 
—

Foreign exchange gains (losses), net of tax
 
$
4,930

 
$
(1,342
)
As of March 31, 2016, cumulative net gains of $15,754, net of tax are recorded in accumulated other comprehensive items, net associated with this net investment hedge.

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

We account for acquisitions using the acquisition method of accounting, and, accordingly, the assets and liabilities acquired were recorded at their estimated fair values and the results of operations for each acquisition have been included in our consolidated results from their respective acquisition dates. Cash consideration for our various acquisitions was primarily provided through borrowings under our credit facilities and cash equivalents on-hand. The unaudited pro forma results of operations (including revenue and earnings) for the current and prior periods are not presented due to the insignificant impact of the 2015 and 2016 acquisitions on our consolidated results of operations.

In March 2016, we acquired a controlling interest in Docufile Holdings Proprietary Limited ("Docufile"), a storage and records management company with operations in South Africa, for approximately $15,000. The acquisition of Docufile represents our entrance into Africa.

In March 2016, in order to expand our presence in the Baltic region, we acquired the stock of Archyvu Sistemos, a storage and records management company with operations in Lithuania, Latvia and Estonia, for approximately $5,100.

A summary of the cumulative consideration paid and the preliminary allocation of the purchase price paid for these acquisitions is as follows:
Cash Paid (gross of cash acquired)(1)
$
20,089

 
Fair value of Noncontrolling Interests
3,506

 
Total Consideration
23,595

 
Fair Value of Identifiable Assets Acquired:
 
 
Cash, Accounts Receivable, Prepaid Expenses, Deferred Income Taxes and Other
3,239

 
Property, Plant and Equipment(2)
5,630

 
Customer Relationship Intangible Assets(3)
9,234

 
Liabilities Assumed and Deferred Income Taxes(4)
(10,237
)
 
Total Fair Value of Identifiable Net Assets Acquired
7,866

 
Goodwill Initially Recorded
$
15,729

 
_______________________________________________________________________________

(1)
Included in cash paid for acquisitions in the Consolidated Statement of Cash Flows for the three months ended March 31, 2016 is net cash acquired of $567 and other payments received of $182 related to acquisitions made in previous years.

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

(3)
The weighted average lives of customer relationship intangible assets associated with acquisitions in 2016 was 10 years.

(4)
Consists primarily of debt assumed, accrued expenses and deferred income taxes.
  
Allocations of the purchase price paid for certain acquisitions made in 2016 were based on estimates of the fair value of net assets acquired and are subject to adjustment as additional information becomes available to us. We are not aware of any information that would indicate that the final purchase price allocations for these 2016 acquisitions will differ meaningfully from preliminary estimates. The purchase price allocations of these 2016 acquisitions are subject to finalization of the assessment of the fair value of intangible assets (primarily customer relationship intangible assets), property, plant and equipment (primarily building and racking structures), operating leases, contingencies and income taxes (primarily deferred income taxes).

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

Pending Recall Acquisition

On June 8, 2015, we entered into a binding Scheme Implementation Deed, as amended (the “Recall Agreement”), with Recall Holdings Limited (“Recall”) to acquire Recall (the “Recall Transaction”) by way of a recommended court approved Scheme of Arrangement (the “Scheme”). On April 21, 2016, the Scheme was approved by the Federal Court of Australia and registered with the Australian Securities and Investments Commission. Under the terms of the Recall Agreement, Recall shareholders are entitled to receive the Australian dollar equivalent of US$0.50 in cash for each outstanding share of Recall common stock (the “Cash Supplement”) as well as either (1) 0.1722 shares of our common stock for each Recall share or (2) 8.50 Australian dollars less the Australian dollar equivalent of US$0.50 in cash for each Recall share (the “Cash Election”). The Cash Election is subject to a proration mechanism that will cap the total amount of cash paid to Recall shareholders electing the Cash Election at 225,000 Australian dollars (the “Cash Election Cap”). Amounts paid to Recall shareholders that represent the Cash Supplement are excluded from the calculation of the Cash Election Cap. The deadline for making a Cash Election has passed, and a sufficient number of Recall shareholders have elected the Cash Election such that we will pay the Cash Election Cap. Therefore, upon closing of the Recall Transaction, we expect to issue approximately 50,700,000 shares of our common stock and, based on the exchange rate between the United States dollar and the Australian dollar as of April 27, 2016, pay approximately US$336,000 to Recall shareholders in connection with the Recall Transaction which, based on the closing price of our common stock as of April 27, 2016, would result in a total purchase price to Recall shareholders of approximately
US$2,163,000. Closing of the Recall Transaction (which is commonly referred to as the "Implementation of the Scheme" in Australia) was subject to customary closing conditions, all of which were satisfied or waived as of the date of filing of this Quarterly Report on Form 10-Q. Accordingly, we expect to close the Recall Transaction on May 2, 2016.
Regulatory Approvals
In connection with the Scheme, we sought regulatory approval of the Recall Transaction from the Australian Competition and Consumer Commission (the “ACCC”), the United States Department of Justice (the “DOJ”), the Canada Competition Bureau (the “CCB”), and the United Kingdom Competition and Markets Authority (the “CMA”). 
In March 2016, (i) the DOJ announced its approval of the Recall Transaction, on the basis that we will make certain divestments following the closing of the Recall Transaction; (ii) the ACCC announced that it will not oppose the Scheme, after accepting an undertaking from us pursuant to section 87B of the Australian Competition and Consumer Act 2010 (Cth) (the “ACCC Undertaking”); and (iii) the CCB announced that it has approved the Recall Transaction on the basis of the registration of a Consent Agreement with us pursuant to sections 92 and 105 of the Competition Act (R.S.C., 1985, c. C-34) (the “CCB Consent Agreement”).

On January 14, 2016, the CMA referred the Recall Transaction for further investigation and report by a group of CMA panel members. The investigation and report would, among other things, determine whether the Recall Transaction may be expected to result in a substantial lessening of competition within the relevant United Kingdom markets (the “CMA Review”). The statutory deadline for completion of the CMA Review is June 29, 2016, with the provisional findings due in late April 2016. On March 30, 2016, the CMA announced its conditional consent for the Recall Transaction prior to the CMA’s issuance of its final decision following the CMA Review (the "CMA Consent").


25
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(4) Acquisitions (Continued)

Divestments & Management Pending Sale

a.
United States

The DOJ’s approval of the Recall Transaction is subject to the following divestments being made by the combined company following the closing of the Recall Transaction:

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

•
Recall’s records and information management facility in Seattle, Washington and certain of Recall’s records and information management facilities in Atlanta, Georgia, including in each case associated tangible and intangible assets (the “Seattle/Atlanta Divestments”).

The Initial United States Divestments and the Seattle/Atlanta Divestments (or collectively, the “United States Divestments”) will each be affected by way of a sale of the tangible and intangible assets associated with the relevant facilities, which include warehouse space as well as customer contracts.

On March 31, 2016, we and Access CIG, LLC, a privately held provider of information management services throughout the United States ("Access CIG"), entered into an asset purchase agreement, pursuant to which Access CIG has agreed to acquire the Initial United States Divestments for approximately $80,000, subject to adjustments (the "Initial United States Sale").  The Initial United States Sale is subject to customary closing conditions, and is expected to be completed shortly after the closing of the Recall Transaction; though we can provide no assurances that the closing conditions will be satisfied and that the Initial United States Sale will close. In addition, we are in discussions with potential buyers for the Seattle/Atlanta Divestments.

We and Recall have agreed to place the assets and employees subject to the United States Divestments in a hold separate arrangement from the closing of the Recall Transaction until the United States Divestments are completed.

b.
Australia

Pursuant to the ACCC Undertaking, we will divest the majority of our Australian operations as they exist prior to the closing of the Recall Transaction by way of a share sale, which effectively involves the sale of our Australian business other than our data management business throughout Australia and our records and information management business in the Northern Territory of Australia, except in relation to customers who have holdings in other Australian states or territories (the “Australia Divestment Business” and, with respect to the portion of our Australia business that is not subject to divestment, the “Australia Retained Business”). Pursuant to the ACCC Undertaking, we may only sell the Australia Divestment Business to a person who is independent of the combined company and has been approved by the ACCC (the “Approved Purchaser”).

The ACCC Undertaking provides that we will sell the Australia Divestment Business within a set period of time following the closing of the Recall Transaction. If the sale of the Australia Divestment Business is not completed within that period, we must appoint an independent sale agent approved by the ACCC to affect the sale of the Australia Divestment Business. There is no minimum price at which the independent sale agent must sell the Australia Divestment Business.


26
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(4) Acquisitions (Continued)

From the closing of the Recall Transaction, and until the Australia Divestment Business is sold to the Approved Purchaser, we will be required to preserve the Australia Divestment Business as a separate and independently viable going concern. In addition, from the closing of the Recall Transaction, and until the Australia Divestment Business is sold to the Approved Purchaser, the Australia Divestment Business will be managed by an independent manager selected by us and approved by the ACCC.

c.
Canada

The CCB Consent Agreement will require the combined company to divest the following assets following the closing of the Recall Transaction:
 
•
Recall’s record and information management facilities, including associated tangible and intangible assets and employees, in Edmonton, Alberta and Montreal (Laval), Quebec and certain of Recall’s record and information management facilities, including all associated tangible and intangible assets and employees, in Calgary, Alberta and Toronto, Ontario, (the “Recall Canadian Divestments”); and
 
•
One of our records and information management facilities in Vancouver (Burnaby), British Columbia and two of our records and information management facilities in Ottawa, Ontario, including associated tangible and intangible assets and employees (the “Iron Mountain Canadian Divestments”).
 
The Recall Canadian Divestments and the Iron Mountain Canadian Divestments (or collectively, the “Canadian Divestments”) will be affected by way of a sale of only the tangible and intangible assets associated with the relevant facilities, which include warehouse space as well as customer contracts. Under the CCB Consent Agreement, the assets subject of the Canadian Divestments will be acquired by a single buyer to be approved by the Commissioner of Competition (the “Commissioner”).

Pursuant to the terms of the CCB Consent Agreement, in order to preserve the business of the Canadian Divestments, pending completion of the Canadian Divestments, the combined company must maintain the economic viability and marketability of the business of the Canadian Divestments, and we will be required to hold the Recall Canadian Divestments separate from those of the combined company’s other operations. In addition, the business of the Recall Canadian Divestments will be managed by an independent manager selected by us and approved by the Commissioner.

d.
United Kingdom

The CMA has not yet indicated whether, and if so what, remedies might be appropriate should the outcome of the CMA Review be a decision that the Recall Transaction may be expected to result in a substantial lessening of competition within any of the relevant United Kingdom markets. Under the Enterprise Act 2002 (UK), the CMA has the power to order divestments in the United Kingdom by the combined company as an appropriate remedy. Those divestments may include the sale by the combined company of single facilities, the shares of subsidiaries that operate relevant assets or business units, or entire business units, including all associated assets and employees. The scope of any remedies ordered will depend on the geographic scope of any overlaps between our and Recall’s operations where the CMA considers there will be insufficient competition from third parties.
 
The final outcome of the CMA Review will not impact our and Recall’s ability to complete the closing of the Recall Transaction, but may impact the combined company’s ongoing operations in the United Kingdom following the closing of the Recall Transaction.
 
Pursuant to the CMA Consent, we and Recall have agreed to place the entire Recall business located in the United Kingdom in a hold separate arrangement from or prior to the closing of the Recall Transaction until the conclusion of the CMA Review (currently anticipated for June 29, 2016) and any subsequent period that might be required for the final implementation of any remedies that may be ordered by the CMA (the “Hold Separate Period”).

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

 Pursuant to the CMA Consent, during the Hold Separate Period, we and Recall have agreed to preserve Recall’s entire United Kingdom business as a separate and independent viable going concern, and to keep Recall’s entire United Kingdom business operationally and financially separate from our business as it existed prior to the closing of the Recall Transaction.

Held for Sale & Discontinued Operations

As of March 31, 2016, the assets and liabilities that comprised the Australian Divestment Business and the Iron Mountain Canadian Divestments (collectively, the “Iron Mountain Divestments”) did not meet the criteria for classification as held for sale. Based on the most current information available, we do not anticipate recognizing a significant gain or loss upon the closing of the sale of the Iron Mountain Divestments. Additionally, we do not anticipate that the Iron Mountain Divestments will meet the criteria to be reported as discontinued operations. We will determine whether the United States Divestments, the Recall Canadian Divestments, as well as any potential divestments that may be required in the United Kingdom based upon the outcome of the CMA Review (the “Recall & UK Divestments”) should be classified as discontinued operations based on whether or not the Recall & UK Divestments meet the criteria to be classified as held for sale as of the closing date of the Recall Transaction (or within a short period of time thereafter).

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


Long-term debt is as follows:
 
December 31, 2015
 
Debt (inclusive of discount and premium)
 
Unamortized Deferred Financing Costs
 
Carrying Amount
 
Fair
Value
Revolving Credit Facility(1)
$
784,438

 
$
(9,410
)
 
$
775,028

 
$
784,438

Term Loan(1)
243,750

 
—

 
243,750

 
243,750

6% Senior Notes due 2020 (the "6% Notes due 2020")(2)(3)(4)
1,000,000

 
(16,124
)
 
983,876

 
1,052,500

61/8% CAD Senior Notes due 2021 (the "CAD Notes")(2)(5)
144,190

 
(1,924
)
 
142,266

 
147,074

61/8% GBP Senior Notes due 2022 (the "GBP Notes")(2)(4)(6)
592,140

 
(8,757
)
 
583,383

 
606,944

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

 
(8,420
)
 
591,580

 
618,000

53/4% Senior Subordinated Notes due 2024 (the "53/4% Notes")(2)(3)
1,000,000

 
(11,902
)
 
988,098

 
961,200

Real Estate Mortgages, Capital Leases and Other(7)
333,559

 
(1,070
)
 
332,489

 
333,559

Accounts Receivable Securitization Program(8)
205,900

 
(692
)
 
205,208

 
205,900

Total Long-term Debt
4,903,977

 
(58,299
)
 
4,845,678

 
 

Less Current Portion
(88,068
)
 
—

 
(88,068
)
 
 

Long-term Debt, Net of Current Portion
$
4,815,909

 
$
(58,299
)
 
$
4,757,610

 
 

 
March 31, 2016
 
Debt (inclusive of discount and premium)
 
Unamortized Deferred Financing Costs
 
Carrying Amount
 
Fair
Value
Revolving Credit Facility(1)
$
929,134

 
$
(8,753
)
 
$
920,381

 
$
929,134

Term Loan(1)
240,625


—


240,625

 
240,625

6% Notes due 2020(2)(3)(4)
1,000,000


(15,276
)

984,724

 
1,055,000

CAD Notes(2)(5)
154,230


(1,968
)

152,262

 
158,086

GBP Notes(2)(4)(6)
574,760


(8,183
)

566,577

 
582,462

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


(8,146
)

591,854

 
633,000

53/4% Notes(2)(3)
1,000,000


(11,559
)

988,441

 
1,028,700

Real Estate Mortgages, Capital Leases and Other(7)
356,038


(1,017
)

355,021

 
356,038

Accounts Receivable Securitization Program(8)
222,000


(615
)

221,385

 
222,000

Total Long-term Debt
5,076,787

 
(55,517
)
 
5,021,270

 
 

Less Current Portion
(89,974
)

—


(89,974
)
 
 

Long-term Debt, Net of Current Portion
$
4,986,813

 
$
(55,517
)
 
$
4,931,296

 
 

______________________________________________________________________________





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


(1)
The capital stock or other equity interests of most of our United States subsidiaries, and up to 66% of the capital stock or other equity interests of our first-tier foreign subsidiaries, are pledged to secure these debt instruments, together with all intercompany obligations (including promissory notes) of subsidiaries owed to us or to one of our United States subsidiary guarantors. In addition, Iron Mountain Canada Operations ULC ("Canada Company") has pledged 66% of the capital stock of its subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by it, to secure the Canadian dollar subfacility under the Revolving Credit Facility (defined below). The fair value (Level 3 of fair value hierarchy described at Note 2.g.) of these debt instruments approximates the carrying value (as borrowings under these debt instruments are based on current variable market interest rates (plus a margin that is subject to change based on our consolidated leverage ratio)), as of December 31, 2015 and March 31, 2016, respectively.

(2)
The fair values (Level 1 of fair value hierarchy described at Note 2.g.) of these debt instruments are based on quoted market prices for these notes on December 31, 2015 and March 31, 2016, respectively.

(3)
Collectively, the "Parent Notes." IMI is the direct obligor on the Parent Notes, which are fully and unconditionally guaranteed, on a senior or senior subordinated basis, as the case may be, by its direct and indirect 100% owned United States subsidiaries that represent the substantial majority of our United States operations (the "Guarantors"). These guarantees are joint and several obligations of the Guarantors. Canada Company, Iron Mountain Europe PLC ("IME"), the Special Purpose Subsidiaries (as defined below) and the remainder of our subsidiaries do not guarantee the Parent Notes. See Note 6.

(4)
The 6% Notes due 2020 and the GBP Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or under the securities laws of any other jurisdiction. Unless they are registered, the 6% Notes due 2020 and the GBP Notes may be offered only in transactions that are exempt from registration under the Securities Act or the securities laws of any other jurisdiction.
 
(5)
Canada Company is the direct obligor on the CAD Notes, which are fully and unconditionally guaranteed, on a senior basis, by IMI and the Guarantors. These guarantees are joint and several obligations of IMI and the Guarantors. See Note 6.

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

(7)
We believe the fair value (Level 3 of fair value hierarchy described at Note 2.g.) of this debt approximates its carrying value.

(8)
The Special Purpose Subsidiaries are the obligors under this program. We believe the fair value (Level 3 of fair value hierarchy described at Note 2.g.) of this debt approximates its carrying value.

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


a. Credit Agreement
On July 2, 2015, we entered into a new credit agreement (the "Credit Agreement") to refinance our then existing credit agreement which consisted of a revolving credit facility (the "Former Revolving Credit Facility") and a term loan and was scheduled to terminate on June 27, 2016. The Credit Agreement consists of a revolving credit facility (the "Revolving Credit Facility") and a term loan (the "Term Loan").
The Revolving Credit Facility is supported by a group of 25 banks and enables IMI and certain of its United States and foreign subsidiaries to borrow in United States dollars and (subject to sublimits) a variety of other currencies (including Canadian dollars, British pounds sterling, Euros and Australian dollars, among other currencies) in an aggregate outstanding amount not to exceed $1,500,000. The Term Loan is to be paid in quarterly installments in an amount equal to $3,125 per quarter, with the remaining balance due on July 3, 2019. The Credit Agreement includes an option to allow us to request additional commitments of up to $500,000, in the form of term loans or through increased commitments under the Revolving Credit Facility, subject to the conditions as defined in the Credit Agreement. The Credit Agreement terminates on July 6, 2019, at which point all obligations become due, but may be extended by one year at our option, subject to the conditions set forth in the Credit Agreement. Borrowings under the Credit Agreement may be prepaid without penalty or premium, in whole or in part, at any time.
IMI and the Guarantors guarantee all obligations under the Credit Agreement. The interest rate on borrowings under the Credit Agreement varies depending on our choice of interest rate and currency options, plus an applicable margin, which varies based on our consolidated leverage ratio. Additionally, the Credit Agreement requires the payment of a commitment fee on the unused portion of the Revolving Credit Facility, which fee ranges from between 0.25% to 0.4% based on our consolidated leverage ratio and fees associated with outstanding letters of credit. As of March 31, 2016, we had $929,134 and $240,625 of outstanding borrowings under the Revolving Credit Facility and the Term Loan, respectively. Of the $929,134 of outstanding borrowings under the Revolving Credit Facility, $583,000 was denominated in United States dollars, 172,000 was denominated in Canadian dollars, 139,650 was denominated in Euros and 71,600 was denominated in Australian dollars. In addition, we also had various outstanding letters of credit totaling $38,331. The remaining amount available for borrowing under the Revolving Credit Facility as of March 31, 2016, based on IMI's leverage ratio, the last 12 months' earnings before interest, taxes, depreciation and amortization and rent expense ("EBITDAR"), other adjustments as defined in the Credit Agreement and current external debt, was $532,535 (which amount represents the maximum availability as of such date). The average interest rate in effect under the Credit Agreement was 2.7% as of March 31, 2016. The average interest rate in effect under the Revolving Credit Facility was 2.8% and ranged from 2.3% to 4.8% as of March 31, 2016 and the interest rate in effect under the Term Loan as of March 31, 2016 was 2.7%.
The Credit Agreement, our indentures and other agreements governing our indebtedness contain certain restrictive financial and operating covenants, including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take certain other corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under the Credit Agreement, our indentures or other agreements governing our indebtedness. The Credit Agreement uses EBITDAR-based calculations as the primary measures of financial performance, including leverage and fixed charge coverage ratios.
Our leverage and fixed charge coverage ratios under the Credit Agreement as of December 31, 2015 and March 31, 2016, respectively, and our leverage ratio under our indentures as of December 31, 2015 and March 31, 2016, respectively, are as follows:
 
December 31, 2015
 
March 31, 2016
 
Maximum/Minimum Allowable
Net total lease adjusted leverage ratio
5.6

 
5.7

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

 
2.8

 
Maximum allowable of 4.0
Bond leverage ratio (not lease adjusted)
5.5

 
5.6

 
Maximum allowable of 6.5
Fixed charge coverage ratio
2.4

 
2.5

 
Minimum allowable of 1.5

31
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(5) Debt (Continued)


As noted in the table above, our maximum allowable net total lease adjusted leverage ratio under the Credit Agreement is 6.5. The Credit Agreement also contains a provision which limits, in certain circumstances, our dividends in any four consecutive fiscal quarters to 95% of Funds From Operations (as defined in the Credit Agreement) for such four fiscal quarters or, if greater, the amount that we would be required to pay in order to continue to be qualified for taxation as a REIT or to avoid the imposition of income or excise taxes on IMI. This limitation only is applicable when our net total lease adjusted leverage ratio exceeds 6.0 as measured as of the end of the most recently completed fiscal quarter.
Noncompliance with these leverage and fixed charge coverage ratios would have a material adverse effect on our financial condition and liquidity.
Commitment fees and letters of credit fees, which are based on the unused balances under the Former Revolving Credit Facility, the Revolving Credit Facility and the Accounts Receivable Securitization Program (as defined below) for the three months ended March 31, 2015 and 2016 are as follows:
 
Three Months Ended
March 31,
 
2015
 
2016
Commitment fees and letters of credit fees
$
867

 
$
685

b. Accounts Receivable Securitization Program
In March 2015, we entered into a $250,000 accounts receivable securitization program (the "Accounts Receivable Securitization Program") involving several of our wholly owned subsidiaries and certain financial institutions. Under the Accounts Receivable Securitization Program, certain of our subsidiaries sell substantially all of their United States accounts receivable balances to our wholly owned special purpose entities, Iron Mountain Receivables QRS, LLC and Iron Mountain Receivables TRS, LLC (the "Special Purpose Subsidiaries"). The Special Purpose Subsidiaries use the accounts receivable balances to collateralize loans obtained from certain financial institutions. The Special Purpose Subsidiaries are consolidated subsidiaries of IMI. The Accounts Receivable Securitization Program is accounted for as a collateralized financing activity, rather than a sale of assets, and therefore: (i) accounts receivable balances pledged as collateral are presented as assets and borrowings are presented as liabilities on our Consolidated Balance Sheets, (ii) our Consolidated Statements of Operations reflect the associated charges for bad debt expense related to pledged accounts receivable (a component of selling, general and administrative expenses) and reductions to revenue due to billing and service related credit memos issued to customers and related reserves, as well as interest expense associated with the collateralized borrowings and (iii) receipts from customers related to the underlying accounts receivable are reflected as operating cash flows and borrowings and repayments under the collateralized loans are reflected as financing cash flows within our Consolidated Statements of Cash Flows. Iron Mountain Information Management, LLC retains the responsibility of servicing the accounts receivable balances pledged as collateral in this transaction and IMI provides a performance guaranty. The Accounts Receivable Securitization Program terminates on March 6, 2018, at which point all obligations become due. The maximum availability allowed is limited by eligible accounts receivable, as defined under the terms of the Accounts Receivable Securitization Program. As of March 31, 2016, the maximum availability allowed and amount outstanding under the Accounts Receivable Securitization Program was $222,000. The interest rate in effect under the Accounts Receivable Securitization Program was 1.3% as of March 31, 2016. Commitment fees at a rate of 40 basis points are charged on amounts made available but not borrowed under the Accounts Receivable Securitization Program.

32
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors

The following data summarizes the consolidating results of IMI on the equity method of accounting as of December 31, 2015 and March 31, 2016 and for the three months ended March 31, 2015 and 2016 and are prepared on the same basis as the consolidated financial statements.
The Parent Notes, CAD Notes and GBP Notes are guaranteed by the subsidiaries referred to below as the Guarantors. These subsidiaries are 100% owned by IMI. The guarantees are full and unconditional, as well as joint and several.
Additionally, IMI guarantees the CAD Notes, which were issued by Canada Company, and the GBP Notes, which were issued by IME. Canada Company and IME do not guarantee the Parent Notes. The subsidiaries that do not guarantee the Parent Notes, the CAD Notes and the GBP Notes, including IME and the Special Purpose Subsidiaries but excluding Canada Company, are referred to below as the Non-Guarantors.
In the normal course of business, we periodically change the ownership structure of our subsidiaries to meet the requirements of our business. In the event of such changes, we recast the prior period financial information within this footnote to conform to the current period presentation in the period such changes occur. Generally, these changes do not alter the designation of the underlying subsidiaries as Guarantors or Non-Guarantors. However, they may change whether the underlying subsidiary is owned by the Parent, a Guarantor, Canada Company or a Non-Guarantor. If such a change occurs, the amount of investment in subsidiaries in the below Consolidated Balance Sheets and equity in the earnings (losses) of subsidiaries, net of tax in the below Consolidated Statements of Operations and Comprehensive (Loss) Income with respect to the relevant Parent, Guarantors, Canada Company, Non-Guarantors and Eliminations columns also would change.

33
Table of Contents
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)


CONSOLIDATED BALANCE SHEETS
 
December 31, 2015
 
Parent
 
Guarantors
 
Canada
Company
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Assets
 

 
 

 
 

 
 

 
 

 
 

Current Assets:
 

 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
151

 
$
6,472

 
$
13,182

 
$
108,576

 
$
—

 
$
128,381

Accounts receivable
—

 
14,069

 
30,428

 
519,904

 
—

 
564,401

Intercompany receivable
—

 
1,038,141

 
—

 
—

 
(1,038,141
)
 
—

Other current assets
898

 
106,670

 
2,305

 
55,286

 
(29
)
 
165,130

Total Current Assets
1,049

 
1,165,352

 
45,915

 
683,766

 
(1,038,170
)
 
857,912

Property, Plant and Equipment, Net
661

 
1,600,886

 
137,100

 
758,511

 
—

 
2,497,158

Other Assets, Net:
 

 
 

 
 

 
 

 
 

 
 

Long-term notes receivable from affiliates and intercompany receivable
3,255,049

 
1,869

 
—

 
—

 
(3,256,918
)
 
—

Investment in subsidiaries
797,666

 
459,429

 
27,731

 
2,862

 
(1,287,688
)
 
—

Goodwill
—

 
1,618,593

 
152,975

 
589,410

 
—

 
2,360,978

Other
623

 
392,987

 
22,637

 
218,292

 
—

 
634,539

Total Other Assets, Net
4,053,338

 
2,472,878

 
203,343

 
810,564

 
(4,544,606
)
 
2,995,517

Total Assets
$
4,055,048

 
$
5,239,116

 
$
386,358

 
$
2,252,841

 
$
(5,582,776
)
 
$
6,350,587

Liabilities and Equity
 

 
 

 
 

 
 

 
 

 
 

Intercompany Payable
$
879,649

 
$
—

 
$
5,892

 
$
152,600

 
$
(1,038,141
)
 
$
—

Current Portion of Long-Term Debt
—