Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________________________________________________________________
FORM 10-K
____________________________________________________________________________
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2018
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                  to
Commission File Number 1-13045
____________________________________________________________________________
IRON MOUNTAIN INCORPORATED
(Exact name of Registrant as Specified in Its Charter)
Delaware
(State or other jurisdiction of incorporation)
 One Federal Street, Boston, Massachusetts
(Address of principal executive offices)
23-2588479
(I.R.S. Employer Identification No.)
 02110
(Zip Code)
617-535-4766
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Exchange on Which Registered
Common Stock, $.01 par value per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý
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, every Interactive Data File required to be submitted 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 such files). Yes ý    No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth 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
As of June 30, 2018, the aggregate market value of the Common Stock of the registrant held by non-affiliates of the registrant was approximately $9.9 billion based on the closing price on the New York Stock Exchange on such date.
Number of shares of the registrant's Common Stock at February 8, 2019: 286,365,695
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required in Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K (the "Annual Report") is incorporated by reference from our definitive Proxy Statement for our 2019 Annual Meeting of Stockholders (our "Proxy Statement") to be filed with the Securities and Exchange Commission (the "SEC") within 120 days after the close of the fiscal year ended December 31, 2018.

Table of Contents

IRON MOUNTAIN INCORPORATED
2018 FORM 10-K ANNUAL REPORT
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References in this Annual Report to "the Company," "IMI," "Iron Mountain," "we," "us" or "our" include Iron Mountain Incorporated, a Delaware corporation, and its predecessor, as applicable, and its consolidated subsidiaries, unless the context indicates otherwise.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements in this Annual Report that constitute "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements concern our operations, economic performance, financial condition, goals, beliefs, future growth strategies, investment objectives, plans and current expectations, such as our (1) commitment to future dividend payments, (2) expected growth of records stored with us from existing customers, (3) expected 2019 consolidated internal storage rental revenue growth rate, consolidated internal total revenue growth rate and capital expenditures, (4) expectation that profits will increase in our Emerging Markets (as defined below), (5) expectation that our growth portfolio will become a large part of our business over time, (6) statements made in relation (i) to our acquisition of Recall Holdings Limited ("Recall") pursuant to the Scheme Implementation Deed, as amended, with Recall (the "Recall Transaction") and (ii) our acquisition of IO Data Centers, LLC ("IODC"), including the total acquisition expenditures related to Recall and IODC and the cost to integrate Recall into our existing operations, (7) statements regarding our expectation to reduce our leverage ratio, (8) our ability to close pending acquisitions, (9) expectations regarding the impact of United States tax reform legislation and related administrative guidance on our consolidated results of operations and (10) expectations regarding the impact of ASU 2016-02 (as defined below) on our consolidated financial statements. These forward-looking statements are subject to various known and unknown risks, uncertainties and other factors. When we use words such as "believes," "expects," "anticipates," "estimates" or similar expressions, we are making forward-looking statements. Although we believe that our forward-looking statements are based on reasonable assumptions, our expected results may not be achieved, and actual results may differ materially from our expectations. In addition, important factors that could cause actual results to differ from expectations include, among others:
•
our ability to remain qualified for taxation as a real estate investment trust for United States federal income tax purposes ("REIT");
•
the adoption of alternative technologies and shifts by our customers to storage of data through non-paper based technologies;
•
changes in customer preferences and demand for our storage and information management services;
•
the cost to comply with current and future laws, regulations and customer demands relating to data security and privacy issues, as well as fire and safety standards;
•
the impact of litigation or disputes that may arise in connection with incidents in which we fail to protect our customers' information or our internal records or information technology ("IT") systems and the impact of such incidents on our reputation and ability to compete;
•
changes in the price for our storage and information management services relative to the cost of providing such storage and information management services;
•
changes in the political and economic environments in the countries in which our international subsidiaries operate and changes in the global political climate;
•
our ability or inability to manage growth, expand internationally, complete acquisitions on satisfactory terms, to close pending acquisitions and to integrate acquired companies efficiently;
•
changes in the amount of our growth and maintenance capital expenditures and our ability to invest according to plan;
•
our ability to comply with our existing debt obligations and restrictions in our debt instruments or to obtain additional financing to meet our working capital needs;
•
the impact of service interruptions or equipment damage and the cost of power on our data center operations;
•
changes in the cost of our debt;
•
the impact of alternative, more attractive investments on dividends;
•
the cost or potential liabilities associated with real estate necessary for our business;
•
the performance of business partners upon whom we depend for technical assistance or management expertise outside the United States; and
•
other trends in competitive or economic conditions affecting our financial condition or results of operations not presently contemplated.
Other risks may adversely impact us, as described more fully under "Item 1A. Risk Factors" of this Annual Report.

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You should not rely upon forward-looking statements except as statements of our present intentions and of our present expectations, which may or may not occur. You should read these cautionary statements as being applicable to all forward-looking statements wherever they appear. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or otherwise. Readers are also urged to carefully review and consider the various disclosures we have made in this document, as well as our other periodic reports filed with the SEC.

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PART I
Item 1. Business.

Business Overview

We help organizations around the world protect their information, reduce storage rental costs, comply with regulations, facilitate corporate disaster recovery, and better use their information and IT infrastructure for business advantages, regardless of its format, location or life cycle stage. We do this by storing physical records and data backup media, offering information management solutions, and providing enterprise-class colocation and wholesale data center space. We offer comprehensive records and information management services and data management services, along with the expertise and experience to address complex storage and information management challenges such as rising storage rental costs, legal and regulatory compliance, and disaster recovery requirements. We provide secure and reliable data center facilities to protect digital information and ensure the continued operation of our customers’ IT infrastructure, with flexible deployment options, including both colocation and wholesale space.

Founded in an underground facility near Hudson, New York in 1951, Iron Mountain Incorporated, a Delaware corporation, has approximately 225,000 customers in a variety of industries in approximately 50 countries around the world, as of December 31, 2018. We currently serve customers across an array of market verticals - commercial, legal, financial, healthcare, insurance, life sciences, energy, business services, entertainment and government organizations, including approximately 95% of the Fortune 1000. As of December 31, 2018, we employed more than 26,000 people. We are listed on the New York Stock Exchange (the "NYSE") and are a constituent of the Standard & Poor's 500 Index and the MSCI REIT index. As of December 31, 2018, we were number 619 on the Fortune 1000.

We have been organized and have operated as a REIT beginning with our taxable year ended December 31, 2014.

Business Strategy

Overview

Our company has been a market leader in the physical ecosystem around information storage and retrieval, as most businesses have relied on paper documents or computer tapes to store their valuable information. Over time, customers are increasing their digital information, with the new information storage ecosystem being a hybrid of physical and digital mediums. We offer a suite of "mission-critical" storage and related services to help customers with this transformation, and utilize the strategy outlined below to grow our business.

•
Driving Growth and Margins in Records and Information Management in Developed Markets - We are focused on increasing revenues in developed markets such as the United States, Canada, western Europe, Australia and New Zealand, primarily through more targeted sales and marketing efforts to support sales to new customers that do not currently outsource some or all of their storage and information management needs to us, as well as gaining incremental volumes from existing customers and successful revenue management. We expect to continue to pursue attractive acquisitions, designed to optimize the utilization of our existing assets, expand our presence and better serve our customers, as well as invest in acquisitions of customer relationships and storage and information management services businesses. In our developed markets, we expect continuous improvement initiatives will continue to generate margin expansion opportunities.
•
Expansion of Records and Information Management in Emerging Markets - Part of our strategy is to establish and enhance leadership positions in high-growth emerging markets such as central and eastern Europe, Latin America, Africa and Asia (excluding Australia and New Zealand, ("Emerging Markets")), primarily through acquisitions. In our existing Emerging Markets locations, we expect profits will grow as the local businesses achieve scale, and we will look to reinvest a portion of the cash flows generated to support the growth of these businesses.
•
Investing in Faster-Growing Businesses - We continue to identify, acquire, incubate and scale complementary Adjacent Businesses ("ABs") to support our long-term growth objectives and drive solid returns on invested capital. The opportunities complementary to our business include entertainment, fine art and consumer storage and related services.

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•
Continued Expansion of Data Center Business - We have made significant progress through acquisitions and organic growth in scaling our data center business, which began as an AB but has now grown to such a size that we no longer consider it an AB. As of December 31, 2018, 91.4% of our capacity is leased, with total potential capacity of 324.9 megawatts.

Our strategy is underpinned by our persistent focus on customer experience, as we continue to seek innovative solutions to help our customers navigate the journey from physical storage to a digital ecosystem.

Business Segments

The amount of revenues derived from our business segments and other relevant data, including financial information about geographic areas and product and service lines, for the years ended December 31, 2016, 2017 and 2018, are set forth in Note 9 to Notes to Consolidated Financial Statements included in this Annual Report.

•
North American Records and Information Management Business: Our North American Records and Information Management Business segment includes three distinct offerings. First, we provide records and information management storage and related services, including the storage of physical records, including media such as microfilm and microfiche, film, X-rays and blueprints, including healthcare information services, vital records services, service and courier operations, and the collection, handling and disposal of sensitive documents for customers (“Records Management”) throughout the United States and Canada.
Second, this segment includes certain services related to Records Management, including secure shredding operations, which typically include the scheduled pick-up of loose office records that customers accumulate in specially designed secure containers we provide. Secure shredding, which involves the shredding of sensitive documents for customers that, in many cases, store their records with us, is a natural extension of our hard copy records management operations and completes the lifecycle of a record. Complementary to our shredding operations is the sale of the resultant waste paper to third-party recyclers. Through a combination of plant-based shredding operations and mobile shredding units consisting of custom built trucks, we are able to offer secure shredding services to our customers throughout the United States and Canada.
The third offering, Information Governance and Digital Solutions ("IGDS"), develops, implements and supports comprehensive storage and information management solutions for the complete lifecycle of our customers' information, including the management of physical records, document conversion and digital storage in the United States and Canada.
•
North American Data Management Business: Our North American Data Management Business segment provides storage and rotation of backup computer media as part of corporate disaster recovery plans, including service and courier operations (“Data Protection & Recovery”); server and computer backup services; and related services offerings, including our Iron Mountain Iron Cloud solution, (collectively, "Data Management").
•
Western European Business: Our Western European Business segment provides Records Management, Data Management and IGDS throughout Austria, Belgium, France, Germany, Ireland, the Netherlands, Spain, Switzerland and the United Kingdom.
•
Other International Business: Our Other International Business segment provides Records Management, Data Management and IGDS throughout the remaining European countries in which we operate, as well as the countries in which we operate in Latin America, Asia, the Middle East and Africa.
•
Global Data Center Business: Our Global Data Center Business segment provides enterprise-class data center facilities to protect mission-critical assets and ensure the continued operation of our customers’ IT infrastructure, with secure and reliable colocation and wholesale options. As of December 31, 2018, we had data center operations in eight markets in the United States: Denver, Colorado; Kansas City, Missouri; Boston, Massachusetts; Boyers, Pennsylvania; Manassas, Virginia; Edison, New Jersey; Columbus, Ohio; and Phoenix and Scottsdale, Arizona and three international markets: Amsterdam, London, and Singapore.

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•
Corporate and Other Business: Our Corporate and Other Business segment primarily consists of the storage, safeguarding and electronic or physical delivery of physical media of all types and digital content repository systems to house, distribute, and archive key media assets, primarily for entertainment and media industry clients (“Entertainment Services”), throughout the United States, Canada, France, China - Hong Kong S.A.R., the Netherlands and the United Kingdom, and our fine art storage businesses and consumer storage businesses in the United States, Canada, Europe and China - Hong Kong S.A.R. These businesses represent the primary offerings of our Adjacent Businesses operating segment. Additionally, our Corporate and Other Business segment includes costs related to executive and staff functions, including finance, human resources and IT, which benefit the enterprise as a whole. Our Corporate and Other Business segment also includes stock-based employee compensation expense associated with all stock options, restricted stock units, performance units and shares of stock issued under our employee stock purchase plan.

Business Attributes

Our business has the following attributes:

•
Large, Diversified, Global Business - Our mission-critical storage offerings and related services generated more than $4.2 billion in annual revenue in 2018. Our business has a highly diverse customer base of approximately 225,000 customers - with no single customer accounting for more than 1% of revenue - and operates in approximately 50 countries globally.
•
Recurring, Durable Revenue Stream - We generate a majority of our revenues from fixed periodic, usually monthly storage rental fees, via contracts that generally range from one-five years in length. Historically, we have seen strong customer retention (of approximately 98%) and solid physical records retention; more than 50% of physical records that entered our facilities 15 years ago, are still with us today.
•
Significant Owner and Operator of Real Estate - We operate approximately 90 million square feet of real estate in over 1,400 facilities worldwide. Our owned real estate footprint spans nearly 30 million square feet and is concentrated in major metropolitan statistical areas in North America, Western Europe and Latin America.
•
Limited Revenue Cyclicality - Historically, economic downturns have not significantly affected our storage rental business. Due to the stability in our total global physical records volumes, the success of our revenue management, and the growth of our data center business, we believe we can continue to grow storage rental revenue over time.

•
Shifting Revenue Mix - Our growth portfolio, which consists of our business in Emerging Markets, our data center business, and our Adjacent Businesses, comprised 19% of our total revenue in 2018, and grew 7% year over year, on an internal basis. We expect our growth portfolio to comprise an increasingly larger percentage of our overall business in the coming years.

Significant Acquisitions

With the rapid acceleration of growth in digital data and use of cloud storage, highly regulated companies and public sector organizations are selecting third-party providers such as us to host their data center infrastructure. We have been providing customers with colocation and wholesale data center space and solutions for more than 15 years, and have significantly expanded our data center business in the last few years with acquisitions, the most significant one being that of IO Data Centers, LLC (“IODC”).

On January 10, 2018, we completed the acquisition of the United States operations of IODC, a leading data center colocation space and solutions provider based in Phoenix, Arizona, for approximately $1.34 billion (the "IODC Transaction"). See Note 6 to Notes to Consolidated Financial Statements included in this Annual Report. The purchase included the land and buildings associated with four state-of-the-art data centers in Phoenix and Scottsdale, Arizona, Edison, New Jersey, and Columbus, Ohio. This acquisition marked a transformative step toward addressing our customers’ data center needs by dramatically expanding our platform and capabilities. With the build-out of our existing footprint and the additional capacity from IODC and other recent acquisitions, our data center portfolio as of December 31, 2018 totals more than 100 megawatts of existing capacity, with an additional 11 megawatts of capacity currently under construction and planned and future expansion potential of another 211 megawatts.


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We have completed many acquisitions over the years to achieve scale, expand geographically and broaden our offerings. While most of these acquisitions have been smaller in size given the fragmented nature of the records management industry, our acquisition of Recall in 2016 was another significant transaction. On May 2, 2016 we purchased Recall, a multi-national records and information management company, for approximately $2.2 billion, comprised of $331.8 million in cash and approximately 50.2 million shares of our common stock.

Competition

We compete with storage and information management services managed and operated internally by organizations and thousands of storage and information management services providers around the world. We believe that competition for records and information customers is based on price, reputation and reliability, quality and security of storage, quality of service and scope and scale of technology, and we believe we generally compete effectively in these areas.
We also compete with numerous data center developers, owners and operators, many of whom own properties similar to ours in some of the same metropolitan areas where our facilities are located. We believe that competition for data center customers is based on availability of power, security considerations, location, connectivity and rental rates, and we generally believe we compete effectively in each of these areas. Additionally, we believe our strong brand, global footprint and excellent commercial relationships enable us to compete successfully.

Employees

As of December 31, 2018, we employed more than 9,000 employees in the United States and more than 17,200 employees outside of the United States. As of December 31, 2018, approximately 500 employees in California, Georgia and New Jersey and three provinces in Canada were represented by unions in North America and approximately 1,400 employees were represented by unions in Latin America (in Argentina, Brazil, Chile and Mexico).

All union and non-union employees are generally eligible to participate in our benefit programs, which include medical, dental, life, short and long-term disability, retirement/401(k) and accidental death and dismemberment plans. Certain unionized employees in California receive these types of benefits through their unions and are not eligible to participate in our benefit programs. In addition to base compensation and other usual benefits, a significant portion of full-time employees participate in some form of incentive-based compensation program that provides payments based on revenues, profits or attainment of specified objectives for the unit in which they work. All union employees are currently under renewed labor agreements or operating under an extension agreement.

Insurance and Contractual Limitations on Liability

For strategic risk transfer purposes, we maintain a comprehensive insurance program with insurers that we believe to be reputable and that have adequate capitalization in amounts that we believe to be appropriate. Property insurance is purchased on a comprehensive basis, including flood and earthquake (including excess coverage), subject to certain policy conditions, sublimits and deductibles. Property is insured based upon the replacement cost of real and personal property, including leasehold improvements, business income loss and extra expense. Other types of insurance that we carry, which are also subject to certain policy conditions, sublimits and deductibles, include medical, workers' compensation, general liability, umbrella, automobile, professional, warehouse legal liability and directors' and officers' liability policies.


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Our customer contracts typically contain provisions limiting our liability for damages regarding the loss or destruction of, or damage to, records, and other information and valuable items stored with us. Our liability for physical storage is often limited to a nominal fixed amount per item or unit of storage, such as per cubic foot, and our liability for data center, IGDS, destruction services and other services unrelated to records stored with us is often limited to a percentage of annual revenue under the contract; however, some of our contracts with large volume accounts and some of the contracts assumed in our acquisitions contain no such limits or higher limits. We can provide no assurance that our limitation of liability provisions will be enforceable in all instances or, if enforceable, that they would otherwise protect us from liability. In addition to provisions limiting our liability, our customer contracts generally include a schedule setting forth the majority of the customer-specific terms, including storage rental and service pricing and service delivery terms. Our customers may dispute the interpretation of various provisions in their contracts. In the past, we have had relatively few disputes with our customers regarding the terms of their customer contracts, and most disputes to date have not been material, but we can provide no assurance that we will not have material disputes in the future. Moreover, as a larger percentage of our growth is driven by acquisitions and customer contracts assumed in acquisitions make up a commensurately larger percentage of our customer contracts, our exposure to contracts with higher or no limitations of liability and disputes with customers over the interpretation of their contracts may increase. Although we maintain a comprehensive insurance program, we can provide no assurance that we will be able to maintain insurance policies on acceptable terms in order to cover losses to us in connection with customer contract disputes.

Environmental Matters

Some of our current and formerly owned or leased properties were previously used by entities other than us for industrial or other purposes, or were affected by waste generated from nearby properties, that involved the use, storage, generation and/or disposal of hazardous substances and wastes, including petroleum products. In some instances, this prior use involved the operation of underground storage tanks or the presence of asbestos-containing materials. Where we are aware of environmental conditions that require remediation, we undertake appropriate activity, in accordance with all legal requirements. Although we have from time to time conducted limited environmental investigations and remedial activities at some of our former and current facilities, we have not undertaken an environmental review of all of our properties, including those we have acquired. We therefore may be potentially liable for environmental cost and may be unable to sell, rent, mortgage or use contaminated real estate owned or leased by us. Under various federal, state and local environmental laws, we may be liable for environmental compliance and remediation costs to address contamination, if any, located at owned and leased properties as well as damages arising from such contamination, whether or not we know of, or were responsible for, the contamination, or the contamination occurred while we owned or leased the property. Environmental conditions for which we might be liable may also exist at properties that we may acquire in the future. In addition, future regulatory action and environmental laws may impose costs for environmental compliance that do not exist today.
We transfer a portion of our risk of financial loss due to currently undetected environmental matters by purchasing an environmental impairment liability insurance policy, which covers all owned and leased locations. Coverage is provided for both liability and remediation costs.

Corporate Social Responsibility

We are committed to transparent reporting on sustainability and corporate responsibility efforts in accordance with the guidelines of the Global Reporting Initiative. Our corporate responsibility report highlights our progress against key measures of success for our efforts in the community, our environment, and for our people. We are a member of the FTSE4 Good Index, MSCI World ESG Index, MSCI ACWI ESG Index and MSCI USA IMI ESG Index, each of which include companies that meet globally recognized corporate responsibility standards. A copy of our corporate responsibility report is available on the "About Us" section of our website, www.ironmountain.com, under the heading "Corporate Social Responsibility."

Internet Website

Our Internet address is www.ironmountain.com. Under the "Investors" section on our website, we make available, free of charge, our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") as soon as reasonably practicable after such forms are filed with or furnished to the SEC. We are not including the information contained on or available through our website as a part of, or incorporating such information by reference into, this Annual Report. Copies of our corporate governance guidelines, code of ethics and the charters of our audit, compensation, finance, nominating and governance, and risk and safety committees are available on the "Investors" section of our website, www.ironmountain.com, under the heading "Corporate Governance."


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Item 1A. Risk Factors.

We face many risks. If any of the events or circumstances described below actually occur, we and our businesses, financial condition or results of operations could suffer, and the trading price of our debt or equity securities could decline. Our current and potential investors should consider the following risks and the information contained under the heading "Cautionary Note Regarding Forward-Looking Statements" before deciding to invest in our securities.

Business Risks

Our customers may shift from paper and tape storage to alternative technologies that require less physical space.

We derive most of our revenues from rental fees for the storage of physical records and computer backup tapes and from storage related services. Alternative storage technologies exist, many of which require significantly less space than traditional physical records and tape storage, and as alternative technologies are adopted, storage volume and/or requirements for storage related services may decline. For example, we experienced slight volume declines in our North American Records and Information Management Business and North American Data Management Business segments in 2018 and we expect these trends to continue over the near term. We can provide no assurance that our customers will continue to store most or a portion of their records as paper documents or as tapes, or that the paper documents or tapes they do store with us will require our storage related services at the same levels as they have in the past. A significant shift by our customers to storage of data through non-paper or non-tape-based technologies, whether now existing or developed in the future, could adversely affect our businesses.

Failure to execute our strategic growth plan may adversely impact our financial condition and results of operations.

As part of our strategic growth plan, we expect to continue to invest in our existing businesses, including records and information management storage and services businesses in Emerging Markets, data centers and ABs, and in new businesses, business strategies, products, services, technologies and geographies, and we may selectively divest certain businesses. These initiatives may involve significant risks and uncertainties, including:

•
our inability to identify suitable companies to acquire or invest in;
•
our inability to complete acquisitions or investments on satisfactory terms;
•
our inability to structure investments or acquisitions in a manner that complies with our debt covenants and is consistent with our leverage ratio goals;
•
our inability to successfully expand our infrastructure and sales force to support growth;
•
failure to achieve satisfactory returns on acquired companies, particularly in markets where we do not currently operate;
•
incurring additional debt necessary to acquire suitable companies if we are unable to pay the purchase price out of working capital, common stock or other equity securities;
•
distraction of management from current operations;
•
increasing our leverage;
•
insufficient revenues to offset expenses and liabilities associated with new investments; and
•
our inability to attract, develop and retain skilled employees to lead and support new initiatives.

Our data center expansion in particular requires significant capital commitments. We have paid an aggregate cash purchase price of over $1.7 billion for data center businesses in 2017 and 2018. Our data center expansion and other new ventures are inherently risky and we can provide no assurance that such strategies and offerings will be successful in achieving the desired returns within a reasonable timeframe, if at all, and that they will not adversely affect our business, reputation, financial condition, and operating results. We also face competition from other companies in our efforts to grow our data center, international and adjacent businesses, some of which possess substantial financial and other resources. As a result, we may be unable to acquire, or may pay a premium purchase price for, data centers, international and adjacent businesses that support our strategic growth plan.


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As stored records and tapes become less active our service revenue growth and profitability from related services may decline.

Our records management and data management service revenue growth is being negatively impacted by declining activity rates as stored records and tapes are becoming less active and more archival. The amount of information available to customers digitally or in their own information systems has been steadily increasing in recent years, and we believe this trend continues to accelerate. As a result, our customers are less likely than they have been in the past to retrieve records and rotate tapes, thereby reducing their activity levels. At the same time, many of our costs related to records and tape related services remain fixed. In addition, our reputation for providing secure information storage is critical to our success, and actions to manage cost structure, such as outsourcing certain transportation, security or other functions, could negatively impact our reputation and adversely affect our business. Ultimately, if we are unable to appropriately align our cost structure with decreased levels of service activity, our operating results could be adversely affected.

Our future growth depends in part upon our ability to continue to effectively manage and execute on revenue management.

Over the past years, our internal revenue growth has been positively impacted by our ability to effectively introduce, expand and monitor revenue management initially in our developed markets, and subsequently in our emerging markets. If we are not able to continue and effectively manage pricing, our results of operations could be adversely affected and we may not be able to execute on our strategic growth plan.

Changes in customer behavior with respect to document destruction could adversely affect our business, financial condition and results of operations.

Over the past year, we have experienced increased destruction rates (as a percentage of inventory). While increased destruction rates have a positive impact on our service revenues in the year of destruction, it negatively impacts our longer term storage revenues. If destruction rates do not decrease to historical levels or continue to increase, our financial condition and results of operations would be adversely affected.

Governmental and customer focus on data security could increase our costs of operations. We may not be able to fully offset these costs through increases in our rates. Incidents in which we fail to protect our customers' information against security breaches could result in monetary damages against us and could otherwise damage our reputation, harm our businesses and adversely impact our results of operations. In addition, if we fail to protect our own information, including information about our employees, we could experience significant costs and expenses as well as damage to our reputation.

In reaction to publicized incidents in which electronically stored information has been lost, illegally accessed or stolen, all states in the United States have adopted breach of data security statutes or regulations that require notification to consumers and regulators if the security of their personal information is breached, and, over the past few years, many states expanded the scope of their data breach notifications laws and shortened notification timelines. Some states in the United States have adopted regulations requiring every company that maintains or stores personal information to adopt a comprehensive written information security program. In addition, certain United States federal laws and regulations affecting financial institutions, health care providers and plans and others impose requirements regarding the privacy and security of information maintained by those institutions as well as notification to persons whose personal information is accessed by an unauthorized third party. Some of these laws and regulations provide for civil fines in certain circumstances and require the adoption and maintenance of privacy and information security programs; our failure to comply with any such programs may adversely affect our business. Continued governmental focus on data security may lead to additional legislative action in the United States. For example, the United States Congress has considered, and will likely consider again, legislation that would not only expand the federal data breach notification requirement beyond the financial and healthcare fields but also grant consumers privacy rights similar to those conferred under Regulation (EU) 2016/679 (commonly referred to as "GDPR") in Europe (as discussed further below).

Also, an increasing number of countries have introduced and/or increased enforcement of comprehensive data protection and privacy laws, or are expected to do so. In Europe, GDPR, on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, went into effect in May 2018. GDPR enhances the security and privacy obligations of entities, such as us, that process data of residents of members of the European Economic Area and substantially increases penalties for violations.


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The continued emphasis on information security and compliance as well as increasing concerns about government surveillance may lead customers to request that we take additional measures to enhance security, store electronic data locally, and assume higher liability under our contracts. We have experienced incidents in which customers' backup tapes or other records have been lost, and we have been informed by customers that some of the incidents involved the loss of personal information, resulting in monetary costs to those customers for which we have provided reimbursement. As a result of legislative initiatives and client demands, we may have to modify our operations with the goal of further improving data security. Any such modifications may result in increased expenses and operating complexity, and we may be unable to increase the rates we charge for our services sufficiently to offset any increased expenses.

In addition to increases in the costs of operations or potential liability that may result from a heightened focus on data security or losses of information, our reputation may be damaged by any compromise of security, accidental loss or theft of our own records, or information that we maintain with respect to our employees, as well as customer data in our possession. We believe that establishing and maintaining a good reputation is critical to attracting and retaining customers. If our reputation is damaged, we may become less competitive, which could negatively impact our businesses, financial condition or results of operations.

Attacks on our internal IT systems could damage our reputation, harm our business and adversely impact our results of operations.

Our reputation for providing secure information storage to customers is critical to the success of our business. We have previously faced attempts by unauthorized users to gain access to our IT systems and expect to continue to face such attempts. Although we seek to prevent, detect and investigate these security incidents and have taken steps to prevent such security breaches, our IT and network infrastructure may be vulnerable to attacks by hackers or breaches due to employee error or other disruptions. Moreover, our ability to integrate businesses we acquire may challenge our ability to prevent such security breaches. We have outsourced, and expect to continue to outsource, certain accounting, payroll, IT, human resource, facility management and back office support services to third parties, which may subject our IT and other sensitive information to additional risk. A successful breach of the security of our IT systems could lead to theft or misuse of our customers' proprietary or confidential information and result in third party claims against us and reputational harm. If our reputation is damaged, we may become less competitive, which could negatively impact our businesses, financial condition or results of operations.

Changing fire and safety standards may result in significant expense.

As of December 31, 2018 we operated over 1,400 facilities worldwide, including over 600 in the United States. Many of these facilities were built and outfitted by third parties and added to our real estate portfolio as part of acquisitions. Some of these facilities contain fire suppression and safety features that are different from our current specifications and current standards for new facilities, although we believe all of our facilities were constructed, in all material respects, in compliance with applicable laws and regulations in effect at the time of their construction or outfitting. In some instances local authorities may take the position that our fire suppression and safety features in a particular facility are insufficient and require additional measures that may involve considerable expense to us. In addition, where we determine that the fire suppression and safety features of a facility require improvement, we will develop and implement a plan to remediate the issue, although implementation may require an extended period to complete. A significant aspect of the integration of businesses we have acquired or may acquire is the process of making investments in the acquired facilities to conform such facilities to our standards of operations. This process is complex and time-consuming. If additional fire safety and suppression measures beyond our current operating plan were required at a large number of our facilities, the expense required for compliance could negatively impact our business, financial condition or results of operations.


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Changes to environmental laws and standards may increase the cost to operate some of our businesses. Furthermore, if we fail to meet our commitment to transition to more renewable and sustainable sources of energy, it may negatively impact our ability to attract and retain customers and investors who focus on this commitment. This could impact our results of operations and the trading of our stock.

Changes in environmental laws in any of the jurisdictions in which we operate could increase compliance costs or impose limitations on our operations. For example, our emergency generators at our data centers are subject to regulations and permit requirements governing air pollutants, and the heating, ventilation and air conditioning and fire suppression systems at some of our data centers and data management locations may include ozone-depleting substances that are subject to regulation. While environmental regulations do not normally impose material costs upon operations at our facilities, unexpected events, equipment malfunctions, human error and changes in law or regulations, among other factors, could result in unexpected costs, which could be material.

Furthermore, we have made a commitment to transition to more renewable and sustainable sources of energy. If we are not successful in this transition, it may negatively impact our ability to attract and retain customers and investors who focus on this commitment. This could negatively impact our results of operations and the trading of our stock.

Failure to manage our growth may impact our results of operations.

If we succeed in expanding our existing businesses, or in moving into new areas of business, that expansion may place increased demands on our management, operating systems, internal controls and financial and physical resources. If not managed effectively, these increased demands may adversely affect the services we provide to customers. In addition, our personnel, systems, procedures and controls may be inadequate to support future operations, particularly with respect to operations in countries outside of the United States or in new lines of business. Consequently, in order to manage growth effectively, we may be required to increase expenditures to increase our physical resources, expand, train and manage our employee base, improve management, financial and information systems and controls, or make other capital expenditures. Our results of operations and financial condition could be harmed if we encounter difficulties in effectively managing the budgeting, forecasting and other process control issues presented by future growth.

Our customer contracts may not always limit our liability and may sometimes contain terms that could lead to disputes in contract interpretation.

Our customer contracts typically contain provisions limiting our liability regarding the loss or destruction of, or damage to, records, information, or other items stored with us. Our liability for physical storage is often limited to a nominal fixed amount per item or unit of storage (such as per cubic foot) and our liability for IGDS, data center, destruction and other services unrelated to records, information and other items stored with us is often limited to a percentage of annual revenue under the contract; however, some of our contracts with large customers and some of the contracts assumed in our acquisitions contain no such limits or contain higher limits. We can provide no assurance that our limitation of liability provisions will be enforceable in all instances or, if enforceable, that they would otherwise protect us from liability. In addition to provisions limiting our liability, our customer contracts generally include a schedule setting forth the majority of the customer-specific terms, including storage rental and related service pricing and service delivery terms. Our customers may dispute the interpretation of various provisions in their contracts. In the past, we have had relatively few disputes with our customers regarding the terms of their customer contracts, and most disputes to date have not been material, but we can provide no assurance that we will not have material disputes in the future. Moreover, as a large percentage of our growth is driven by acquisitions and customer contracts assumed in acquisitions make up a commensurately larger percentage of our customer contracts, and as we expand our operations in storage of fine arts and other valuable items and respond to customer demands for higher limitation of liability as a result of regulatory changes, our exposure to contracts with higher or no limitations of liability and disputes with customers over the interpretation of their contracts may increase. Although we maintain a comprehensive insurance program, we can provide no assurance that we will be able to maintain insurance policies on acceptable terms in order to cover losses to us in connection with customer contract disputes.


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International operations may pose unique risks.

As of December 31, 2018, we operated in approximately 50 countries outside the United States. Our international operations account for a significant portion of our overall operations, and as part of our growth strategy, we expect its share to increase as we continue to acquire or invest in businesses in select foreign markets, including countries where we do not currently operate. International operations are subject to numerous risks, including:

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the impact of foreign government regulations and United States regulations that apply to us in foreign countries where we operate; in particular, we are subject to United States and foreign anticorruption laws, such as the Foreign Corrupt Practices Act and the United Kingdom Bribery Act, and, although we have implemented internal controls, policies and procedures and training to deter prohibited practices, our employees, partners, contractors or agents may violate or circumvent such policies and the law;
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the volatility of certain foreign economies in which we operate;
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political uncertainties and changes in the global political climate which may impose restrictions on global operations;
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unforeseen liabilities, particularly within acquired businesses;
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costs and difficulties associated with managing international operations of varying sizes and scale;
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the risk that business partners upon whom we depend for technical assistance or management and acquisition expertise in some markets outside of the United States will not perform as expected;
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difficulties attracting and retaining local management and key employees to operate our business in certain countries;
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cultural differences and differences in business practices and operating standards; and
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foreign currency fluctuations.

In particular, our net income, cash flows, debt balances or leverage can be significantly affected by fluctuations in currencies.

We have operations in numerous foreign countries and, as a result, are subject to foreign exchange translation risk, which could have an adverse effect on our financial results.

We conduct business operations in numerous foreign countries through our foreign subsidiaries or affiliates, which primarily transact in their respective local currencies. Those local currencies are translated into United States dollars at the applicable exchange rates for inclusion in our consolidated financial statements. The results of operations of, and certain of our debt balances (including intercompany debt balances) associated with, our international businesses are exposed to foreign exchange rate fluctuations, and as we have expanded our international operations, our exposure to exchange rate fluctuations has increased. Upon translation, operating results may differ materially from expectations, and significant shifts in foreign currencies can impact our short-term results, as well as our long-term forecasts and targets. In addition, because we intend to distribute 100% of our REIT taxable income to our stockholders, and any exchange rate fluctuations may negatively impact our REIT taxable income, our distribution amounts (including the classification of our distributions as nonqualified ordinary dividends, qualified ordinary dividends or return of capital, as described more fully in "Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" included in this Annual Report) may fluctuate as a result of exchange rate fluctuations.


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Significant costs or disruptions at our data centers could adversely affect our business, financial condition and results of operations.

During the prior two years, we have substantially expanded our data center business through acquisitions and organically and we expect to continue to grow our data center business in both ways going forward. For example, we paid an aggregate cash purchase price of over $1.7 billion for data center businesses we acquired in 2017 and 2018 and incurred other costs associated with the development of real estate to support this business. Our data center business depends on providing customers with highly reliable facilities, power infrastructure and operations solutions, and we will need to retain and hire qualified personnel to manage our data center business. Service interruptions or significant equipment damage could result in difficulty maintaining service level commitment obligations that we owe to certain of our customers. Service interruptions or equipment damage may occur at one or more of our data centers as a result of numerous factors, including:

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human error;
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equipment failure;
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physical, electronic and cyber security breaches;
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fire, hurricane, flood, earthquake and other natural disasters;
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extreme temperatures;
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power loss or telecommunications failure;
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war, terrorism and any related conflicts or similar events worldwide; and
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sabotage and vandalism.

In addition, climate change may increase the likelihood that our data centers are affected by some of these factors.

While these risks could impact our overall business, they could have a more significant impact on our data center business, where we have service level commitment obligations to certain of our customers. As a result, service interruptions or significant equipment damage at our data centers could result in difficulty maintaining service level commitments to these customers and potential claims related to such failures. Because our data centers are critical to many of our customers’ businesses, service interruptions or significant equipment damage at our data centers could also result in lost profits or other indirect or consequential damages to our customers.

Our data center business is susceptible to regional costs of power, power shortages, planned or unplanned power outages and limitations on the availability of adequate power resources. We rely on third parties to provide power to our data centers. We are therefore subject to an inherent risk that such third parties may fail to deliver such power in adequate quantities or on a consistent basis. If the power delivered to our data centers is insufficient or interrupted, we would be required to provide power through the operation of our on-site generators, generally at a significantly higher operating cost. Additionally, global fluctuations in the price of power can increase the cost of energy, and we may be limited in our ability to, or may not always choose to, pass these increased costs on to our customers. We also rely on third party telecommunications carriers to provide internet connectivity to our customers. These carriers may elect not to offer or to restrict their services within our data centers or may elect to discontinue such services. Furthermore, carriers may face business difficulties, which could affect their ability to provide telecommunications services or the quality of such services. If connectivity is interrupted or terminated, our financial condition and results of operations may be adversely affected. Events such as these may also impact our reputation as a data center provider which could adversely affect our results of operations.

We may be required to commit significant operational and financial resources in connection with the organic growth of our data center business, generally 12 to 18 months in advance of securing customer contracts, and we may not have sufficient customer demand to support these data centers when they are built. There can be no assurance we will have sufficient customer demand to support these data centers or data centers we have acquired or that we will not be adversely affected by the risks noted above, which could make it difficult for us to realize expected returns on our investments, if any.


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Failure to comply with certain regulatory and contractual requirements under our United States Government contracts could adversely affect our revenues, operating results and financial position and reputation.

Having the United States Government as a customer subjects us to certain regulatory and contractual requirements. Failure to comply with these requirements could subject us to investigations, price reductions, up to treble damages, and civil penalties. Noncompliance with certain regulatory and contractual requirements could also result in us being suspended or barred from future United States Government contracting. We may also face private derivative securities claims as a result of adverse government actions. Any of these outcomes could have a material adverse effect on our revenues, operating results, financial position and reputation.

Failure to successfully integrate acquired businesses could negatively impact our balance sheet and results of operations.

Strategic acquisitions are an important element of our growth strategy and the success of any acquisition we make depends in part on our ability to integrate the acquired business and realize anticipated synergies. The process of integrating acquired businesses, particularly in new markets, may involve unforeseen difficulties and may require a disproportionate amount of our management's attention and our financial and other resources.

For example, the success of our significant acquisitions depends, in large part, on our ability to realize the anticipated benefits, including cost savings from combining the acquired businesses with ours. To realize these anticipated benefits, we must be able to successfully integrate our business and the acquired businesses, and this integration is complex and time-consuming. We may encounter challenges in the integration process including the following:

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challenges and difficulties associated with managing our larger, more complex, company;
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conforming standards, controls, procedures and policies, business cultures and compensation and benefits structures between the two businesses;
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consolidating corporate and administrative infrastructures;
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coordinating geographically dispersed organizations;
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potential unknown liabilities and unforeseen expenses or delays associated with an acquisition; and
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our ability to deliver on our strategy going forward.

Further, our acquisitions subject us to liabilities (including tax liabilities) that may exist at an acquired company, some of which may be unknown. Although we and our advisors conduct due diligence on the operations of businesses we acquire, there can be no guarantee that we are aware of all liabilities of an acquired company. These liabilities, and any additional risks and uncertainties related to an acquired company not known to us or that we may deem immaterial or unlikely to occur at the time of the acquisition, could negatively impact our future business, financial condition and results of operations.

We can give no assurance that we will ultimately be able to effectively integrate and manage the operations of any acquired business or realize anticipated synergies. The failure to successfully integrate the cultures, operating systems, procedures and information technologies of an acquired business could have a material adverse effect on our financial condition and results of operations.

We may be unable to continue our international expansion.

An important part of our growth strategy involves expanding operations in international markets, including in markets where we currently do not operate, and we expect to continue this expansion. Europe, Latin America, Asia and Australia have historically been our primary areas of focus for international expansion of our records and information management services business, with expansion of our records and information management services business into Africa and the Middle East and expansion of our data center and adjacent business operations becoming more of a focus recently. We have entered into joint ventures or have acquired all or a majority of the equity in storage and information management services and data center businesses operating in these areas and may enter into joint ventures and/or acquire other storage and information management services, data center or adjacent businesses in the future, including in new countries or markets where we currently do not operate. A changing global political climate may impose restrictions on our ability to expand internationally. This growth strategy involves risks. We may be unable to pursue this strategy in the future at the desired pace or at all.


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We may be subject to certain costs and potential liabilities associated with the real estate required for our business.

Because our business is heavily dependent on real estate, we face special risks attributable to the real estate we own or lease. Such risks include:

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acquisition and occupancy costs that make it difficult to meet anticipated margins and difficulty locating suitable facilities due to a relatively small number of available buildings having the desired characteristics in some real estate markets;
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uninsured losses or damage to our storage facilities due to an inability to obtain full coverage on a cost-effective basis for some casualties, such as fires, hurricanes and earthquakes, or any coverage for certain losses, such as losses from riots or terrorist activities;
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inability to use our real estate holdings effectively and costs associated with vacating or consolidating facilities if the demand for physical storage were to diminish; and
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liability under environmental laws for the costs of investigation and cleanup of contaminated real estate owned or leased by us, whether or not (i) we know of, or were responsible for, the contamination, or (ii) the contamination occurred while we owned or leased the property.

Some of our current and formerly owned or leased properties were previously used by entities other than us for industrial or other purposes, or were affected by waste generated from nearby properties, that involved the use, storage, generation and/or disposal of hazardous substances and wastes, including petroleum products. In some instances this prior use involved the operation of underground storage tanks or the presence of asbestos-containing materials. Where we are aware of environmental conditions that require remediation, we undertake appropriate activity, in accordance with all legal requirements. Although we have from time to time conducted limited environmental investigations and remedial activities at some of our former and current facilities, we have not undertaken an environmental review of all of our properties, including those we have acquired. We therefore may be potentially liable for environmental costs like those discussed above and may be unable to sell, rent, mortgage or use contaminated real estate owned or leased by us. Environmental conditions for which we might be liable may also exist at properties that we may acquire in the future. In addition, future regulatory action and environmental laws may impose costs for environmental compliance that do not exist today.

Unexpected events could disrupt our operations and adversely affect our reputation and results of operations.

Unexpected events, including fires or explosions at our facilities, natural disasters such as hurricanes and earthquakes, war or terrorist activities, unplanned power outages, supply disruptions and failure of equipment or systems, could adversely affect our reputation and results of operations. Our customers rely on us to securely store and timely retrieve their critical information, and these events could result in customer service disruption, physical damage to one or more key operating facilities and the information stored in those facilities, the temporary closure of one or more key operating facilities or the temporary disruption of information systems, each of which could negatively impact our reputation and results of operations. During the past several years we have seen an increase in severe weather events and we expect this trend to continue due to climate change. Some of our key facilities worldwide are vulnerable to severe weather events.

Damage to our reputation could adversely affect our business, financial condition and results of operations.

Our reputation for providing highly secure information storage to customers is critical to the success of our business. Our reputation or brand, and specifically, the trust our customers place in us, could be negatively impacted in the event of perceived or actual failures by us to store information securely. For example, events such as fires, natural disasters, attacks on our IT systems or security breaches involving us could negatively impact our reputation, particularly if such incidents result in adverse publicity, governmental investigations or litigation. Damage to our reputation could make us less competitive, which could negatively impact our business, financial condition and results of operations.


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Our shared service center initiative may not create the operational efficiencies that we expect, and may create risks relating to the processing of transactions and recording of financial information, which could have an adverse effect on our financial condition and results of operations.

We have undertaken a shared service center initiative pursuant to which we are centralizing certain finance, human resources and IT functions. We have and will continue to align the design and operation of our financial control environment as part of our shared service center initiative. As part of this initiative, we are outsourcing, and will continue to outsource, certain accounting, payroll, IT, facility management, and human resource functions to third party service providers. The parties that we utilize for these services may not be able to handle the volume of activity or perform the quality of service necessary to support our operations. The failure of these parties to fulfill their obligations could disrupt our operations. In addition, the move to a shared service environment, including our reliance on third party providers, may create risks relating to the processing of transactions and recording of financial information. We could experience a lapse in the operation of internal controls due to turnover, lack of legacy knowledge, inappropriate training and use of third party providers, which could result in significant deficiencies or material weaknesses in our internal control over financial reporting and have an adverse effect on our financial condition and results of operations.

Fluctuations in commodity prices may affect our operating revenues and results of operations.

Our operating revenues and results of operations are impacted by significant changes in commodity prices. In particular, our secure shredding operations generate revenue from the sale of shredded paper to recyclers. As a result, significant declines in the cost of paper may negatively impact our revenues and results of operations, and increases in other commodity prices, including steel, may negatively impact our results of operations.

We may be subject to claims that our technology violates the intellectual property ("IP") rights of a third party.

Third parties may have legal rights (including ownership of patents, trade secrets, trademarks and copyrights) to ideas, materials, processes, names or original works that are the same or similar to those we use. Third parties have in the past, and may in the future, bring claims, or threaten to bring claims, against us that allege that their IP rights are being infringed or violated by our use of IP. Litigation or threatened litigation could be costly and distract our senior management from operating our business. Further, if we cannot establish our right or obtain the right to use the IP on reasonable terms, we may be required to develop alternative IP at our expense to mitigate potential harm.

We face competition for customers.

We compete with multiple businesses in all geographic areas where we operate; our current or potential customers may choose to use those competitors instead of us. We also compete, in some of our business lines, with our current and potential customers' internal storage and information management services capabilities and their cloud-based alternatives. These organizations may not begin or continue to use us for their future storage and information management service needs.

We have guaranteed certain obligations of Recall to Brambles relating to Brambles' prior demerger transaction.

On December 18, 2013, Brambles Limited, an Australian corporation ("Brambles"), implemented a demerger transaction by way of a distribution of shares of Recall to Brambles’ shareholders (the “Demerger”). Prior to and in connection with the Demerger, Brambles spun off certain of its United States and Canadian subsidiaries, directly or indirectly, to Recall. Such spin-offs were intended to be tax-free or tax-deferred under United States and Canadian tax laws, respectively, and Brambles obtained rulings from the United States Internal Revenue Service (the "IRS") (with respect to the United States spin-off) and the Canada Revenue Agency (with respect to the Canadian spin-off), as well as opinions of its tax advisors, to such effect. However, the tax-free status of the spin-off of such United States subsidiaries could be adversely affected under certain circumstances if a 50% or greater interest in such United States subsidiaries were acquired as part of a plan or series of related transactions that included such spin-off. Similarly, the tax-deferred status of the spin-off of the Canadian subsidiaries could be adversely affected under certain circumstances if control of such subsidiaries were acquired as part of a series of transactions or events that included such spin-off.


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In connection with the Demerger, Recall agreed to indemnify Brambles and certain of its affiliates for taxes to the extent that actions by Recall (e.g., an acquisition of Recall shares) resulted in the United States spin-off or the Canadian spin-off described above failing to qualify as tax-free or tax-deferred for United States or Canadian tax purposes, respectively. In addition, Recall agreed, among other things, that it would not, within two years of the 2013 spin-offs, enter into a proposed acquisition transaction, merger or consolidation (with respect to the United States spin-off) or take any action that could reasonably be expected to jeopardize, directly or indirectly, any of the conclusions reached in the Canadian tax ruling or opinion, without obtaining either a supplemental tax ruling from the relevant taxing authority, the consent of Brambles or an opinion of a tax advisor, acceptable to Brambles in its reasonable discretion, that such transaction should not result in the spin- offs failing to be tax-free under United States federal income tax law or Canadian tax law, respectively. Recall has obtained such tax opinions, based on, among other things, representations and warranties made by Recall and us. Such opinions do not affect Recall’s obligation to indemnify Brambles for an adverse impact on the tax-free status of such prior spin-offs.

We have guaranteed the foregoing indemnification obligations of Recall. Consistent with the foregoing tax opinions, we believe that the Recall Transaction is not part of a plan or series of related transactions, or part of a series of transactions or events, that included the United States spin-off or the Canadian spin-off, respectively. However, if the IRS or the Canadian Revenue Agency were to prevail in asserting a contrary view, we would be liable for the resulting taxes, which could be material.

Risks Related to Our Indebtedness

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our various debt instruments.

We have a significant amount of indebtedness. As of December 31, 2018, our total long-term debt was approximately $8.2 billion. Our substantial indebtedness could have important consequences to our current and potential investors. These risks include:

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inability to satisfy our obligations with respect to our various debt instruments;
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inability to make borrowings to fund future working capital, capital expenditures and strategic opportunities, including acquisitions, further organic development of our data center business and expansions into adjacent businesses, and other general corporate requirements, including possible required repurchases, redemptions or prepayments of our various indebtedness;
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limits on our distributions to stockholders; in this regard if these limits prevented us from satisfying our REIT distribution requirements, we could fail to remain qualified for taxation as a REIT or, if these limits do not jeopardize our qualification for taxation as a REIT but do nevertheless prevent us from distributing 100% of our REIT taxable income, we will be subject to federal corporate income tax, and potentially a nondeductible excise tax, on the retained amounts;
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limits on future borrowings under our existing or future credit arrangements, which could affect our ability to pay our indebtedness or to fund our other liquidity needs;
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inability to generate sufficient funds to cover required interest payments;
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restrictions on our ability to refinance our indebtedness on commercially reasonable terms;
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limits on our flexibility in planning for, or reacting to, changes in our business and the information management services industry; and
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inability to adjust to adverse economic conditions that could place us at a disadvantage to our competitors with less debt and who, therefore, may be able to take advantage of opportunities that our indebtedness prevents us from pursuing.


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Restrictive debt covenants may limit our ability to pursue our growth strategy.

Our indentures and our Credit Agreement (as defined in Note 4 to Notes to Consolidated Financial Statements included in this Annual Report) contain covenants restricting or limiting our ability to, among other things:

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incur additional indebtedness;
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pay dividends or make other restricted payments;
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make asset dispositions;
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create or permit liens;
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sell, transfer or exchange assets;
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guarantee certain indebtedness;
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make acquisitions and other investments; and
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enter into partnerships and joint ventures.

These restrictions and our long-term commitment to reduce our leverage ratio may adversely affect our ability to pursue our acquisition and other growth strategies.

We may not have the ability to raise the funds necessary to finance the repurchase of outstanding senior or senior subordinated notes upon a change of control event as required by our indentures.

Upon the occurrence of a "change of control," as defined in our indentures we will be required to offer to repurchase all of our outstanding senior and senior subordinated notes. However, it is possible that we will not have sufficient funds at the time of a change of control to make the required repurchase of any outstanding notes or that restrictions in our Credit Agreement will not allow such repurchases. Certain important corporate events, however, such as leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a "change of control" under our indentures.

Iron Mountain is a holding company, and, therefore, our ability to make payments on our various debt obligations depends in large part on the operations of our subsidiaries.

Iron Mountain is a holding company; substantially all of our assets consist of the stock of our subsidiaries, and substantially all of our operations are conducted by our direct and indirect consolidated subsidiaries. As a result, our ability to make payments on our various debt obligations will be dependent upon the receipt of sufficient funds from our subsidiaries, whose ability to distribute funds may be limited by local capital requirements, joint venture structures and other applicable restrictions. However, our various debt obligations are guaranteed, on a joint and several and full and unconditional basis, by our direct and indirect 100% owned United States subsidiaries, which represent the substantial majority of our United States operations.

Risks Related to Our Taxation as a REIT

If we fail to remain qualified for taxation as a REIT, we will be subject to tax at corporate income tax rates and will not be able to deduct distributions to stockholders when computing our taxable income.

We have elected to be taxed as a REIT since our 2014 taxable year; however, we can provide no assurance that we will remain qualified for taxation as a REIT. If we fail to remain qualified for taxation as a REIT, we will be taxed at corporate income tax rates unless certain relief provisions apply.

Qualification for taxation as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended (the "Code"), which provisions may change from time to time, to our operations as well as various factual determinations concerning matters and circumstances not entirely within our control. There are limited judicial or administrative interpretations of applicable REIT provisions.

If, in any taxable year, we fail to remain qualified for taxation as a REIT and are not entitled to relief under the Code:

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we will not be allowed a deduction for distributions to stockholders in computing our taxable income;
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we will be subject to federal and state income tax on our taxable income at regular corporate income tax rates; and
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we would not be eligible to elect REIT status again until the fifth taxable year that begins after the first year for which we failed to qualify as a REIT.


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Any such corporate tax liability could be substantial and would reduce the amount of cash available for other purposes. If we fail to remain qualified for taxation as a REIT, we may need to borrow additional funds or liquidate some investments to pay any additional tax liability. Accordingly, funds available for investment and distributions to stockholders could be reduced.

As a REIT, failure to make required distributions would subject us to federal corporate income tax.

We expect to continue paying regular quarterly distributions; however, the amount, timing and form of our regular quarterly distributions will be determined, and will be subject to adjustment, by our board of directors. To remain qualified for taxation as a REIT, we are generally required to distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding net capital gain) each year, or in limited circumstances, the following year, to our stockholders. Generally, we expect to distribute all or substantially all of our REIT taxable income. If our cash available for distribution falls short of our estimates, we may be unable to maintain distributions that approximate our REIT taxable income and may fail to remain qualified for taxation as a REIT. In addition, our cash flows from operations may be insufficient to fund required distributions as a result of differences in timing between the actual receipt of income and the payment of expenses and the recognition of income and expenses for federal income tax purposes, or the effect of nondeductible expenditures, such as capital expenditures, payments of compensation for which Section 162(m) of the Code denies a deduction, the creation of reserves or required debt service or amortization payments.

To the extent that we satisfy the 90% distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax on our undistributed taxable income if the actual amount that we distribute to our stockholders for a calendar year is less than the minimum amount specified under the Code.

We may be required to borrow funds, sell assets or raise equity to satisfy REIT distribution requirements, to comply with asset ownership tests or to fund capital expenditures, future growth and expansion initiatives.

In order to meet the REIT distribution requirements and maintain our qualification and taxation as a REIT, or to fund capital expenditures, future growth and expansion initiatives, we may need to borrow funds, sell assets or raise equity, even if the then-prevailing market conditions are not favorable for these borrowings, sales or offerings. Any insufficiency of our cash flows to cover our REIT distribution requirements could adversely impact our ability to raise short- and long-term debt, to sell assets, or to offer equity securities in order to fund distributions required to maintain our qualification and taxation as a REIT. Furthermore, the REIT distribution requirements may increase the financing we need to fund capital expenditures, future growth and expansion initiatives, which would increase our indebtedness. An increase in our outstanding debt could lead to a downgrade of our credit rating, which could negatively impact our ability to access credit markets. Further, certain of our current debt instruments limit the amount of indebtedness we and our subsidiaries may incur. Additional financing, therefore, may be unavailable, more expensive or restricted by the terms of our outstanding indebtedness. For a discussion of risks related to our substantial level of indebtedness, see "Risks Relating to Our Indebtedness."

Whether we issue equity, at what price and the amount and other terms of any such issuances will depend on many factors, including alternative sources of capital, our then-existing leverage, our need for additional capital, market conditions and other factors beyond our control. If we raise additional funds through the issuance of equity securities or debt convertible into equity securities, the percentage of stock ownership by our existing stockholders may be reduced. In addition, new equity securities or convertible debt securities could have rights, preferences and privileges senior to those of our current stockholders, which could substantially decrease the value of our securities owned by them. Depending upon the market price of our common stock at the time of any potential issuances of equity securities, we may have to sell a significant number of shares in order to raise the capital we deem necessary to execute our long-term strategy, and our stockholders may experience dilution in the value of their shares as a result.

In addition, if we fail to comply with specified asset ownership tests applicable to REITs as measured at the end of any calendar quarter, we must correct such failure within 30 days after the end of the applicable calendar quarter or qualify for statutory relief provisions to avoid losing our qualification for taxation as a REIT. As a result, we may be required to liquidate assets or to forgo our pursuit of otherwise attractive investments. These actions may reduce our income and amounts available for distribution to our stockholders.


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Complying with REIT requirements may limit our flexibility or cause us to forgo otherwise attractive opportunities we would otherwise pursue to execute our growth strategy.

To remain qualified for taxation as a REIT, we must satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets and the amounts we distribute to our stockholders. Thus, compliance with these tests may require us to refrain from certain activities and may hinder our ability to make certain attractive investments, including the purchase of non-REIT qualifying operations or assets, the expansion of non-real estate activities, and investments in the businesses to be conducted by our taxable REIT subsidiaries ("TRSs"), and to that extent limit our opportunities and our flexibility to change our business strategy. This may restrict our ability to enter into joint ventures or acquire minority interests of companies. Furthermore, acquisition opportunities in domestic and international markets may be adversely affected if we need or require the target company to comply with some REIT requirements prior to closing.

We conduct a significant portion of our business activities, including our information management services businesses and several of our international operations, through domestic and foreign TRSs. Under the Code, no more than 25% of the value of the assets of a REIT may be represented by securities of one or more TRSs and other nonqualifying assets. In addition, no more than 20% of the value of the assets of a REIT may be represented by securities of one or more TRSs within the overall 25% nonqualifying assets limitation. These limitations may affect our ability to make additional investments in non-REIT qualifying operations or assets or in international operations through TRSs.

As a REIT, we are limited in our ability to fund distribution payments using cash generated through our TRSs.

Our ability to receive distributions from our TRSs is limited by the rules with which we must comply to maintain our qualification for taxation as a REIT. In particular, at least 75% of our gross income for each taxable year as a REIT must be derived from real estate, which principally includes gross income from providing customers with secure storage space or colocation or wholesale data center space. Consequently, no more than 25% of our gross income may consist of dividend income from our TRSs and other nonqualifying types of income. Thus, our ability to receive distributions from our TRSs may be limited, which may impact our ability to fund distributions to our stockholders using cash flows from our TRSs. Specifically, if our TRSs become highly profitable, we might become limited in our ability to receive net income from our TRSs in an amount required to fund distributions to our stockholders commensurate with that profitability.

In addition, a significant amount of our income and cash flows from our TRSs is generated from our international operations. In many cases, there are local withholding taxes and currency controls that may impact our ability or willingness to repatriate funds to the United States to help satisfy REIT distribution requirements.

Our extensive use of TRSs, including for certain of our international operations, may cause us to fail to remain qualified for taxation as a REIT.

Our operations include an extensive use of TRSs. The net income of our TRSs is not required to be distributed to us, and income that is not distributed to us generally is not subject to the REIT income distribution requirement. However, there may be limitations on our ability to accumulate earnings in our TRSs and the accumulation or reinvestment of significant earnings in our TRSs could result in adverse tax treatment. In particular, if the accumulation of cash in our TRSs causes (1) the fair market value of our securities in our TRSs to exceed 20% of the fair market value of our assets or (2) the fair market value of our securities in our TRSs and other nonqualifying assets to exceed 25% of the fair market value of our assets, then we will fail to remain qualified for taxation as a REIT. Further, a substantial portion of our operations are conducted overseas, and a material change in foreign currency rates could also affect the value of our foreign holdings in our TRSs, negatively impacting our ability to remain qualified for taxation as a REIT.

December 2017 amendments to the Code, which are described more fully in the Tax Reform section of "Critical Accounting Policies" within Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in this Annual Report (the “Tax Reform Legislation”), impose limitations on the ability of our TRSs to deduct certain items for income tax purposes, including limits on the use of net operating losses and limits on the deductibility of interest expense.


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Even if we remain qualified for taxation as a REIT, some of our business activities are subject to corporate level income tax and foreign taxes, which will continue to reduce our cash flows, and we will have potential deferred and contingent tax liabilities.

Even if we remain qualified for taxation as a REIT, we may be subject to some federal, state, local and foreign taxes on our income and assets, taxes on any undistributed income, and state, local or foreign income, franchise, property and transfer taxes. In addition, we could in certain circumstances be required to pay an excise or penalty tax, which could be significant in amount, in order to utilize one or more relief provisions under the Code to maintain our qualification for taxation as a REIT.

Our information management services businesses and several of our international operations are conducted through wholly owned TRSs because these activities could generate nonqualifying REIT income as currently structured and operated. The income of our domestic TRSs will continue to be subject to federal and state corporate income taxes. In addition, we and our subsidiaries continue to be subject to foreign income taxes in jurisdictions in which we have business operations or a taxable presence, regardless of whether assets are held or operations are conducted through subsidiaries disregarded for federal income tax purposes or TRSs. Any of these taxes would decrease our earnings and our available cash.

We will also be subject to a federal corporate level income tax at the highest regular corporate income tax rate (currently 21%) on gains we recognize within a specified period from a sale of a REIT asset where our basis in the asset is determined by reference to the basis of the asset in the hands of a C corporation (such as an asset that we hold in one of our qualified REIT subsidiaries ("QRSs") following the liquidation or other conversion of a former TRS). This 21% tax is generally applicable to any disposition of such an asset during the five-year period after the date we first owned the asset as a REIT asset to the extent of the built-in-gain based on the fair market value of such asset on the date we first held the asset as a REIT asset. In addition, depreciation recapture income that we expect to recognize as a result of certain accounting method changes that we have made will be fully subject to this 21% tax.

Complying with REIT requirements may limit our ability to hedge effectively and increase the cost of our hedging and may cause us to incur tax liabilities.

The REIT provisions of the Code limit our ability to hedge assets, liabilities, revenues and expenses. Generally, income from hedging transactions that we enter into to manage risk of interest rate changes with respect to borrowings made or to be made by us to acquire or carry real estate assets and income from certain currency hedging transactions related to our non- United States operations, as well as income from qualifying counteracting hedges, do not constitute "gross income" for purposes of the REIT gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as nonqualifying income for purposes of the REIT gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through our TRSs. This could increase the cost of our hedging activities because our TRSs would be subject to tax on income or gains resulting from hedges entered into by them and may expose us to greater risks associated with changes in interest rates or exchange rates than we would otherwise want to bear. In addition, hedging losses in any of our TRSs generally will not provide any tax benefit, except for being carried forward for possible use against future income or gain in the TRSs.

Distributions payable by REITs generally do not qualify for preferential tax rates.

Dividends payable by United States corporations to noncorporate stockholders, such as individuals, trusts and estates, are generally eligible for reduced United States federal income tax rates applicable to “qualified dividends.” Distributions paid by REITs generally are not treated as “qualified dividends” under the Code, and the reduced rates applicable to such dividends do not generally apply. However, for tax years beginning after 2017 and before 2026, REIT dividends paid to noncorporate stockholders are generally taxed at an effective tax rate lower than applicable ordinary income tax rates due to the availability of a deduction under the Code for specified forms of income from passthrough entities. More favorable rates will nevertheless continue to apply to regular corporate “qualified” dividends, which may cause some investors to perceive that an investment in a REIT is less attractive than an investment in a non-REIT entity that pays dividends, thereby reducing the demand and market price of our common stock.


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Table of Contents

The ownership and transfer restrictions contained in our certificate of incorporation may not protect our qualification for taxation as a REIT, could have unintended antitakeover effects and may prevent our stockholders from receiving a takeover premium.

In order for us to remain qualified for taxation as a REIT, no more than 50% of the value of outstanding shares of our capital stock may be owned, beneficially or constructively, by five or fewer individuals at any time during the last half of each taxable year other than the first year for which we elected to be taxed as a REIT. In addition, rents from "affiliated tenants" will not qualify as qualifying REIT income if we own 10% or more by vote or value of the customer, whether directly or after application of attribution rules under the Code. Subject to certain exceptions, our certificate of incorporation prohibits any stockholder from owning, beneficially or constructively, more than (i) 9.8% in value of the outstanding shares of all classes or series of our capital stock or (ii) 9.8% in value or number, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock. We refer to these restrictions collectively as the "ownership limits" and we included them in our certificate of incorporation to facilitate our compliance with REIT tax rules. The constructive ownership rules under the Code are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than 9.8% of our outstanding common stock (or the outstanding shares of any class or series of our capital stock) by an individual or entity could cause that individual or entity or another individual or entity to own constructively in excess of the relevant ownership limits. Any attempt to own or transfer shares of our common stock or of any of our other capital stock in violation of these restrictions may result in the shares being automatically transferred to a charitable trust or may be void. Even though our certificate of incorporation contains the ownership limits, there can be no assurance that these provisions will be effective to prevent our qualification for taxation as a REIT from being jeopardized, including under the affiliated tenant rule. Furthermore, there can be no assurance that we will be able to monitor and enforce the ownership limits. If the restrictions in our certificate of incorporation are not effective and as a result we fail to satisfy the REIT tax rules described above, then absent an applicable relief provision, we will fail to remain qualified for taxation as a REIT.

In addition, the ownership and transfer restrictions could delay, defer or prevent a transaction or a change in control that might involve a premium price for our stock or otherwise be in the best interest of our stockholders. As a result, the overall effect of the ownership and transfer restrictions may be to render more difficult or discourage any attempt to acquire us, even if such acquisition may be favorable to the interests of our stockholders.

Legislative or other actions affecting REITs could have a negative effect on us or our stockholders.

At any time, the federal or state income tax laws governing REITs, or the administrative interpretations of those laws, may be amended. Federal and state tax laws are constantly under review by persons involved in the legislative process, the IRS, the United States Department of the Treasury (the "Treasury") and state taxing authorities. Changes to the tax laws, regulations and administrative interpretations, which may have retroactive application, could adversely affect us. In addition, some of these changes could have a more significant impact on us as compared to other REITs due to the nature of our business and our substantial use of TRSs, particularly non-United States TRSs.

The Tax Reform Legislation made substantial changes to the Code, particularly as it relates to the taxation of both corporate income and international income. Among those changes are a significant permanent reduction in the generally applicable corporate income tax rate and the modification of tax policies, credits and deductions for businesses and individuals. This legislation also imposes additional limitations on the deduction of net operating losses, which may in the future cause us to make distributions that will be taxable to our stockholders to the extent of our current or accumulated earnings and profits in order to comply with the REIT distribution requirements. The effect of these and other changes made in this legislation is still uncertain in many respects, both in terms of their direct effect on the taxation of an investment in our securities and their indirect effect on the value of properties owned by us. Furthermore, many of the provisions of the new law will require additional guidance in order to assess their effect. It is also possible that there will be technical corrections legislation proposed with respect to the Tax Reform Legislation, the effect of which cannot be predicted and may be adverse to us or our stockholders. Our stockholders are encouraged to consult with their tax advisors about the potential effects that changes in law may have on them and their ownership of our securities.


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Table of Contents

Risks Related to our Common Stock

Sales or issuances of shares of our common stock may adversely affect the market price of our common stock.

Future sales or issuances of common stock or other equity related securities may adversely affect the market price of our common stock, including any shares of our common stock issued to finance capital expenditures, finance acquisitions or repay debt. In October 2017, we established an "at-the-market" stock offering program (the "At The Market (ATM) Equity Program") with a syndicate of 10 banks (the “Agents”), pursuant to which we may sell, from time to time, up to an aggregate sales price of $500.0 million of our common stock through the Agents. As of December 31, 2018, we have sold 1,754,539 shares of our common stock for gross proceeds of approximately $68.8 million under the At The Market (ATM) Equity Program. See Note 12 to Notes to Consolidated Financial Statements included in this Annual Report.

Our cash distributions are not guaranteed and may fluctuate.

A REIT generally is required to distribute at least 90% of its REIT taxable income to its stockholders. Furthermore, we are committed to growing our dividends, and have stated this publicly.

Our board of directors, in its sole discretion, will determine, on a quarterly basis, the amount of cash to be distributed to our stockholders based on a number of factors including, but not limited to, our results of operations, cash flow and capital requirements, economic conditions, tax considerations, borrowing capacity and other factors, including debt covenant restrictions that may impose limitations on cash payments, future acquisitions and divestitures, any stock repurchase program and general market demand for our space and related services. Consequently, our distribution levels may fluctuate and we may not be able to meet our public commitments with respect to dividend growth.
Item 1B. Unresolved Staff Comments.

None.

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Table of Contents

Item 2. Properties.
As of December 31, 2018, we conducted operations through 1,140 leased facilities and 312 owned facilities. Our facilities are divided among our reportable operating segments as follows: North American Records and Information Management Business (630), North American Data Management Business (54), Western European Business (207), Other International Business (483), Global Data Center Business (13) and Corporate and Other Business (65). These facilities contain a total of approximately 89.9 million square feet of space. A breakdown of owned and leased facilities by country (and by state within the United States) is listed below:
 
Leased
 
Owned
 
Total
Country/State
Number
 
Square Feet
 
Number
 
Square Feet
 
Number
 
Square Feet
North America
 

 
 

 
 

 
 

 
 

 
 

United States (Including Puerto Rico)
 

 
 

 
 

 
 

 
 

 
 

Alabama
3

 
312,473

 
1

 
12,621

 
4

 
325,094

Arizona
14

 
570,701

 
6

 
897,932

 
20

 
1,468,633

Arkansas
2

 
63,604

 
—

 
—

 
2

 
63,604

California
67

 
4,306,926

 
15

 
1,964,572

 
82

 
6,271,498

Colorado
10

 
518,969

 
6

 
517,700

 
16

 
1,036,669

Connecticut
5

 
226,714

 
6

 
665,013

 
11

 
891,727

Delaware
4

 
309,067

 
1

 
120,921

 
5

 
429,988

District of Columbia
2

 
40,912

 
—

 
—

 
2

 
40,912

Florida
35

 
2,390,714

 
5

 
263,930

 
40

 
2,654,644

Georgia
11

 
914,206

 
5

 
265,049

 
16

 
1,179,255

Idaho
1

 
60,021

 
—

 
—

 
1

 
60,021

Illinois
17

 
1,274,382

 
7

 
1,309,975

 
24

 
2,584,357

Indiana
5

 
213,010

 
1

 
131,506

 
6

 
344,516

Iowa
2

 
145,138

 
1

 
14,200

 
3

 
159,338

Kansas
3

 
288,919

 
—

 
—

 
3

 
288,919

Kentucky
3

 
116,000

 
4

 
418,760

 
7

 
534,760

Louisiana
8

 
233,850

 
2

 
214,625

 
10

 
448,475

Maine
—

 
—

 
1

 
95,000

 
1

 
95,000

Maryland
17

 
1,726,050

 
3

 
327,258

 
20

 
2,053,308

Massachusetts (including Corporate Headquarters)
8

 
545,039

 
8

 
1,173,503

 
16

 
1,718,542

Michigan
15

 
857,563

 
6

 
345,736

 
21

 
1,203,299

Minnesota
12

 
878,474

 
—

 
—

 
12

 
878,474

Mississippi
2

 
171,000

 
—

 
—

 
2

 
171,000

Missouri
11

 
1,270,738

 
4

 
373,120

 
15

 
1,643,858

Montana
3

 
35,990

 
—

 
—

 
3

 
35,990

Nebraska
1

 
34,560

 
3

 
316,970

 
4

 
351,530

Nevada
7

 
276,520

 
1

 
107,041

 
8

 
383,561

New Hampshire
—

 
—

 
1

 
146,467

 
1

 
146,467

New Jersey
31

 
2,379,177

 
11

 
2,285,095

 
42

 
4,664,272

New Mexico
1

 
37,000

 
2

 
109,473

 
3

 
146,473

New York
24

 
1,248,463

 
13

 
1,186,266

 
37

 
2,434,729

North Carolina
19

 
976,504

 
3

 
150,624

 
22

 
1,127,128

North Dakota
1

 
5,361

 
—

 
—

 
1

 
5,361

Ohio
12

 
763,405

 
8

 
686,378

 
20

 
1,449,783

Oklahoma
4

 
170,428

 
3

 
140,000

 
7

 
310,428

Oregon
12

 
407,680

 
1

 
55,621

 
13

 
463,301

Pennsylvania
21

 
1,679,360

 
10

 
2,771,483

 
31

 
4,450,843

Puerto Rico
6

 
255,089

 
1

 
54,352

 
7

 
309,441

Rhode Island
3

 
130,559

 
1

 
12,748

 
4

 
143,307

South Carolina
5

 
318,475

 
2

 
214,238

 
7

 
532,713

Tennessee
4

 
166,993

 
5

 
153,659

 
9

 
320,652

Texas
41

 
2,086,367

 
28

 
2,343,171

 
69

 
4,429,538

Utah
2

 
78,148

 
1

 
90,553

 
3

 
168,701

Vermont
2

 
55,200

 
—

 
—

 
2

 
55,200

Virginia
14

 
690,984

 
7

—

605,566

 
21

 
1,296,550

Washington
5

 
298,555

 
6

 
472,896

 
11

 
771,451

West Virginia
3

 
174,929

 
—

 
—

 
3

 
174,929

Wisconsin
6

 
316,857

 
1

 
10,655

 
7

 
327,512

 
484

 
30,021,074

 
190

 
21,024,677

 
674

 
51,045,751

Canada
54

 
3,211,871

 
16

 
1,783,258

 
70

 
4,995,129

 
538

 
33,232,945

 
206

 
22,807,935

 
744

 
56,040,880


22
Table of Contents

 
Leased
 
Owned
 
Total
Country/State
Number
 
Square Feet
 
Number
 
Square Feet
 
Number
 
Square Feet
International
 

 
 

 
 

 
 

 
 

 
 

Argentina
4

 
225,334

 
5

 
469,748

 
9

 
695,082

Australia
49

 
3,271,802

 
2

 
33,845

 
51

 
3,305,647

Austria
1

 
3,300

 
1

 
30,000

 
2

 
33,300

Belgium
4

 
202,106

 
1

 
104,391

 
5

 
306,497

Brazil
43

 
2,961,225

 
7

 
324,655

 
50

 
3,285,880

Chile
11

 
420,084

 
7

 
260,147

 
18

 
680,231

China Mainland (including China-Taiwan and China-Macau S.A.R.)
42

 
1,197,112

 
1

 
20,518

 
43

 
1,217,630

China - Hong Kong S.A.R.
9

 
796,630

 
—

 
—

 
9

 
796,630

Colombia
19

 
647,054

 
—

 
—

 
19

 
647,054

Croatia
—

 
—

 
1

 
36,447

 
1

 
36,447

Cyprus
1

 
27,986

 
2

 
43,648

 
3

 
71,634

Czech Republic
9

 
187,042

 
—

 
—

 
9

 
187,042

Denmark
3

 
161,361

 
—

 
—

 
3

 
161,361

England
54

 
2,777,858

 
26

 
1,615,623

 
80

 
4,393,481

Estonia
1

 
38,861

 
—

 
—

 
1

 
38,861

Finland
3

 
132,352

 
—

 
—

 
3

 
132,352

France
33

 
2,342,557

 
12

 
936,486

 
45

 
3,279,043

Germany
15

 
705,726

 
2

—

93,226

 
17

 
798,952

Greece
4

 
291,273

 
—

 
—

 
4

 
291,273

Hungary
7

 
350,898

 
—

 
—

 
7

 
350,898

India
93

 
2,819,427

 
—

 
—

 
93

 
2,819,427

Indonesia
2

 
80,988

 
1

 
37,674

 
3

 
118,662

Ireland
6

 
157,153

 
3

—

158,558

 
9

 
315,711

Latvia
1

 
24,768

 
—

 
—

 
1

 
24,768

Lithuania
2

 
60,543

 
—

 
—

 
2

 
60,543

Malaysia
8

 
437,335

 
—

 
—

 
8

 
437,335

Mexico
10

 
475,341

 
8

 
585,885

 
18

 
1,061,226

The Netherlands
9

 
670,006

 
3

 
102,199

 
12

 
772,205

New Zealand
6

 
413,959

 
—

 
—

 
6

 
413,959

Northern Ireland
2

 
55,310

 
—

 
—

 
2

 
55,310

Norway
5

 
199,219

 
—

 
—

 
5

 
199,219

Peru
3

 
60,652

 
10

 
433,770

 
13

 
494,422

Philippines
10

 
277,482

 
—

 
—

 
10

 
277,482

Poland
20

 
760,901

 
—

 
—

 
20

 
760,901

Romania
9

 
477,686

 
—

 
—

 
9

 
477,686

Scotland
4

 
155,211

 
3

 
136,378

 
7

 
291,589

Serbia
2

 
75,217

 
—

 
—

 
2

 
75,217

Singapore
4

 
239,060

 
3

 
345,056

 
7

 
584,116

Slovakia
3

 
133,567

 
—

 
—

 
3

 
133,567

South Africa
19

 
468,792

 
—

 
—

 
19

 
468,792

South Korea
13

 
420,916

 
—

 
—

 
13

 
420,916

Spain
31

 
691,795

 
6

 
203,000

 
37

 
894,795

Sweden
6

 
759,793

 
—

 
—

 
6

 
759,793

Switzerland
8

 
255,580

 
—

 
—

 
8

 
255,580

Thailand
1

 
91,191

 
2

 
105,487

 
3

 
196,678

Turkey
9

 
706,321

 
—

 
—

 
9

 
706,321

United Arab Emirates
4

 
50,233

 
—

 
—

 
4

 
50,233

 
602

 
27,759,007

 
106

 

6,076,741

 
708

 
33,835,748

Total
1,140

 
60,991,952

 
312

 
28,884,676

 
1,452

 
89,876,628


The leased facilities typically have initial lease terms of five to ten years with one or more renewal options. In addition, some of the leases contain either a purchase option or a right of first refusal upon the sale of the property. We believe that the space available in our facilities is adequate to meet our current needs, although future growth may require that we lease or purchase additional real property.

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Table of Contents

Our Total Building Utilization and Total Racking Utilization by region as of December 31, 2018 for our records and information management business and data management business are as follows:
 
 
Records and Information Management Business
 
Data Management Business(1)
Region
 
Building Utilization
 
Racking Utilization
 
Building Utilization
 
Racking Utilization
North America
 
85
%
 
90
%
 
75
%
 
83
%
Europe(2)
 
83
%
 
91
%
 
50
%
 
73
%
Latin America
 
86
%
 
90
%
 
74
%
 
82
%
Asia
 
89
%
 
96
%
 
77
%
 
81
%
Total
 
85
%
 
91
%
 
69
%
 
81
%
______________________________________________________________
(1) Total Building Utilization and Total Racking Utilization for our data management business as of December 31, 2018 excludes certain data management operations of Recall, as Recall's unit of measurement for computer media was not consistent with ours.
(2) Includes the records and information management businesses and data management businesses in South Africa and United Arab Emirates.

See Note 10 to Notes to Consolidated Financial Statements included in this Annual Report for information regarding our minimum annual lease commitments as a lessee.

See Schedule III—Schedule of Real Estate and Accumulated Depreciation in this Annual Report for information regarding the cost, accumulated depreciation and encumbrances associated with our owned real estate.
_______________________________________________________________________________

The following table sets forth a summary of the lease expirations for leases in place related to our data center business, for which we are the lessor, as of December 31, 2018. The information set forth in the table assumes that tenants exercise no renewal options and all early termination rights.
Year
 
Number of Leases Expiring
 
Total Megawatts Expiring
 
Percentage of Total Megawatts Expiring
 
Annualized Total Contract Rent Expiring (In thousands)
 
Percentage of Total Contract Value Annualized Rent
2019
 
609
 
18.5
 
18.8
%
 
$
62,363

 
26.1
%
2020
 
292
 
14.5
 
14.8
%
 
42,380

 
17.7
%
2021
 
224
 
20.5
 
20.9
%
 
50,205

 
21.0
%
2022
 
78
 
3.3
 
3.4
%
 
9,231

 
3.8
%
2023
 
61
 
7.6
 
7.7
%
 
16,222

 
6.8
%
2024
 
22
 
5.6
 
5.7
%
 
12,196

 
5.1
%
2025
 
10
 
4.4
 
4.4
%
 
11,345

 
4.7
%
Thereafter
 
15
 
23.9
 
24.3
%
 
35,340

 
14.8
%
Total
 
1,311
 
98.3
 
100.0
%
 
$
239,282

 
100.0
%
Item 3. Legal Proceedings.

We are involved in litigation from time to time in the ordinary course of business. A portion of the defense and/or settlement costs associated with such litigation is covered by various commercial liability insurance policies purchased by us and, in limited cases, indemnification from third parties. In the opinion of management, no material legal proceedings are pending to which we, or any of our properties, are subject.
Item 4. Mine Safety Disclosures.

None.

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Table of Contents

PART II
Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is traded on the NYSE under the symbol "IRM". The closing price of our common stock on the NYSE on February 8, 2019 was $36.51. As of February 8, 2019, there were 9,276 holders of record of our common stock. Prior to August 2018, our shares of common stock also traded on the Australian Securities Exchange (“ASX”) in the form of CHESS Depositary Interests (“CDIs”), each CDI representing a beneficial interest in one share of our common stock. At our request, our CDIs were suspended from quotation on August 13, 2018 and on August 17, 2018 our CDIs were removed from the official list of ASX. See Note 12 to Notes to Consolidated Financial Statements included in this Annual Report for additional information on dividends declared on our common stock.

At The Market (ATM) Equity Program

In October 2017, we entered into a distribution agreement (the “Distribution Agreement”) with a syndicate of 10 banks (the “Agents”) pursuant to which we may sell, from time to time, up to an aggregate sales price of $500.0 million of our common stock through the Agents (the “At The Market (ATM) Equity Program”). Sales of our common stock made pursuant to the Distribution Agreement may be made in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), including sales made directly on the NYSE, or sales made to or through a market maker other than on an exchange, or as otherwise agreed between the applicable Agent and us. We intend to use the net proceeds from sales of our common stock pursuant to the At The Market (ATM) Equity Program for general corporate purposes, which may include acquisitions and investments, including acquisitions and investments in our data center business, and repaying amounts outstanding from time to time under the Revolving Credit Facility (as defined in Note 4 to Notes to Consolidated Financial Statements included in this Annual Report).

During the year ended December 31, 2017 under the At The Market (ATM) Equity Program, we sold an aggregate of 1,481,053 shares of common stock for gross proceeds of approximately $60.0 million, generating net proceeds of $59.1 million after deducting commissions of $0.9 million.

During the quarter ended December 31, 2018, there were no shares of common stock sold under the At The Market (ATM) Equity Program. During the year ended December 31, 2018, under the At The Market (ATM) Equity Program, we sold an aggregate of 273,486 shares of common stock for gross proceeds of approximately $8.8 million, generating net proceeds of $8.7 million, after deducting commissions of $0.1 million. As of December 31, 2018, the remaining aggregate sale price of shares of our common stock available for distribution under the At The Market (ATM) Equity Program was approximately $431.2 million.

Equity Offering

On December 12, 2017, we entered into an underwriting agreement (the “Underwriting Agreement”) with a syndicate of 16 banks (the “Underwriters”), related to the public offering by us of 14,500,000 shares (the “Firm Shares”) of our common stock (the “Equity Offering”). The offering price to the public for the Equity Offering was $37.00 per share, and we agreed to pay the Underwriters an underwriting commission of $1.38195 per share. The net proceeds to us from the Equity Offering, after deducting underwriters' commissions, was $516.5 million.

Pursuant to the Underwriting Agreement, we granted the Underwriters a 30-day option to purchase from us up to an additional 2,175,000 shares of common stock (the “Option Shares”) at the public offering price, less the underwriting commission and less an amount per share equal to any dividends or distributions declared by us and payable on the Firm Shares but not payable on the Option Shares (the “Over-Allotment Option”). On January 10, 2018, the Underwriters exercised the Over-Allotment Option in its entirety. The net proceeds to us from the exercise of the Over-Allotment Option, after deducting underwriters' commissions and the per share value of the dividend we declared on our common stock on October 24, 2017 (for which the record date was December 15, 2017) which was paid on January 2, 2018, was approximately $76.2 million. The net proceeds of the Equity Offering and the Over-Allotment Option, together with the net proceeds from the issuance of the 51/4% Notes (as defined in Note 4 to Notes to Consolidated Financial Statements included in this Annual Report), were used to finance the purchase price of the IODC Transaction, which closed on January 10, 2018, and to pay related fees and expenses.
Unregistered Sales of Equity Securities and Use of Proceeds

We did not sell any unregistered equity securities during the three months ended December 31, 2018, nor did we repurchase any shares of our common stock during the three months ended December 31, 2018.

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Table of Contents

Item 6. Selected Financial Data.
The following selected consolidated statements of operations, balance sheet and other data have been derived from our audited consolidated financial statements. The selected consolidated financial and operating information set forth below should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and the Notes thereto included elsewhere in this Annual Report.
 
Year Ended December 31,
 
2014
 
2015
 
2016(1)
 
2017
 
2018(2)(3)
 
(In thousands)
Consolidated Statements of Operations Data:
 

 
 

 
 

 
 

 
 

Revenues:
 

 
 

 
 

 
 

 
 

Storage rental
$
1,860,243

 
$
1,837,897

 
$
2,142,905

 
$
2,377,557

 
$
2,622,455

Service
1,257,450

 
1,170,079

 
1,368,548

 
1,468,021

 
1,603,306

Total Revenues
3,117,693

 
3,007,976

 
3,511,453

 
3,845,578

 
4,225,761

Operating Expenses:
 

 
 

 
 

 
 

 
 

Cost of sales (excluding depreciation and amortization)
1,344,636

 
1,290,025

 
1,567,777

 
1,685,318

 
1,801,582

Selling, general and administrative
869,572

 
844,960

 
988,332

 
984,965

 
1,038,975

Depreciation and amortization
353,143

 
345,464

 
452,326

 
522,376

 
639,514

Intangible impairments
—

 
—

 
—

 
3,011

 
—

Loss (gain) on disposal/write-down of property, plant and equipment (excluding real estate), net
1,065

 
3,000

 
1,412

 
799

 
(9,818
)
Total Operating Expenses
2,568,416

 
2,483,449

 
3,009,847

 
3,196,469

 
3,470,253

Operating Income
549,277

 
524,527

 
501,606

 
649,109

 
755,508

Interest Expense, Net
260,717

 
263,871

 
310,662

 
353,575

 
409,289

Other Expense (Income), Net
65,187

 
98,590

 
44,300

 
79,429

 
(11,692
)
Income from Continuing Operations Before Provision (Benefit) for Income Taxes and Gain on Sale of Real Estate
223,373

 
162,066

 
146,644

 
216,105

 
357,911

(Benefit) Provision for Income Taxes
(97,275
)
 
37,713

 
44,944

 
25,947

 
36,263

Gain on Sale of Real Estate, Net of Tax
(8,307
)
 
(850
)
 
(2,180
)
 
(1,565
)
 
(55,328
)
Income from Continuing Operations
328,955

 
125,203

 
103,880

 
191,723

 
376,976

(Loss) Income from Discontinued Operations, Net of Tax
(209
)
 
—

 
3,353

 
(6,291
)
 
(12,427
)
Net Income
328,746

 
125,203

 
107,233

 
185,432

 
364,549

Less: Net Income Attributable to Noncontrolling Interests
2,627

 
1,962

 
2,409

 
1,611

 
1,198

Net Income Attributable to Iron Mountain Incorporated
$
326,119

 
$
123,241

 
$
104,824

 
$
183,821

 
$
363,351

(footnotes follow)
 

 
 

 
 

 
 

 
 


26
Table of Contents

 
Year Ended December 31,
 
2014
 
2015
 
2016(1)
 
2017
 
2018(2)(3)
 
 
 
(In thousands, except per share data)
 
 
Earnings (Losses) per Share—Basic:
 

 
 

 
 

 
 

 
 

Income from Continuing Operations
$
1.68

 
$
0.59

 
$
0.41

 
$
0.71

 
$
1.31

Total Income (Loss) from Discontinued Operations
$
—

 
$
—

 
$
0.01

 
$
(0.02
)
 
$
(0.04
)
Net Income Attributable to Iron Mountain Incorporated
$
1.67

 
$
0.58

 
$
0.43

 
$
0.69

 
$
1.27

Earnings (Losses) per Share—Diluted:
 

 
 

 
 

 
 

 
 

Income from Continuing Operations
$
1.67

 
$
0.59

 
$
0.41

 
$
0.71

 
$
1.31

Total Income (Loss) from Discontinued Operations
$
—

 
$
—

 
$
0.01

 
$
(0.02
)
 
$
(0.04
)
Net Income Attributable to Iron Mountain Incorporated
$
1.66

 
$
0.58

 
$
0.42

 
$
0.69

 
$
1.27

Weighted Average Common Shares Outstanding—Basic
195,278

 
210,764

 
246,178

 
265,898

 
285,913

Weighted Average Common Shares Outstanding—Diluted
196,749

 
212,118

 
247,267

 
266,845

 
286,653

Dividends Declared per Common Share
$
5.3713

 
$
1.9100

 
$
2.0427

 
$
2.2706

 
$
2.3753

(footnotes follow)
 

 
 

 
 

 
 

 
 

 
Year Ended December 31,
 
2014
 
2015
 
2016(1)
 
2017
 
2018(2)(3)
 
(In thousands)
Other Data:
 

 
 

 
 

 
 

 
 

Adjusted EBITDA(4)
$
925,797

 
$
920,005

 
$
1,087,288

 
$
1,260,196

 
$
1,435,869

Adjusted EBITDA Margin(4)
29.7
%
 
30.6
%
 
31.0
%
 
32.8
%
 
34.0
%
(footnotes follow)
 

 
 

 
 

 
 

 
 

 
As of December 31,
 
2014
 
2015
 
2016(1)
 
2017
 
2018(2)(3)
 
(In thousands)
Consolidated Balance Sheet Data:
 

 
 

 
 

 
 

 
 

Cash and Cash Equivalents(5)
$
159,793

 
$
128,381

 
$
236,484

 
$
925,699

 
$
165,485

Total Assets
6,523,265

 
6,350,587

 
9,486,800

 
10,972,402

 
11,852,247

Total Long-Term Debt (including Current Portion of Long-Term Debt)
4,616,454

 
4,845,678

 
6,251,181

 
7,043,271

 
8,142,823

Redeemable Noncontrolling Interests
—

 
—

 
54,697

 
91,418

 
70,532

Total Equity
869,955

 
528,607

 
1,936,671

 
2,298,842

 
1,885,589

(footnotes follow)
 

 
 

 
 

 
 

 
 

_______________________________________________________________________________

(1)
The selected financial data above for 2016 includes the results of Recall from May 2, 2016.
(2)
The selected financial data above for 2018 includes the results of IODC from January 10, 2018.
(3)
On January 1, 2018, we adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). The selected financial data above for 2018 reflects the adoption of ASU 2014-09. At January 1, 2018, we recognized the cumulative effect of initially applying ASU 2014-09 as an adjustment to the opening balance of (distributions in excess of earnings) earnings in excess of distributions, resulting in a decrease of approximately $30.2 million to stockholders' equity.
(4)
For definitions of Adjusted EBITDA and Adjusted EBITDA Margin, a reconciliation of Adjusted EBITDA to income (loss) from continuing operations and a discussion of why we believe these non-GAAP measures provide relevant and useful information to our current and potential investors, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures" included in this Annual Report.
(5)
Includes restricted cash of $33.9 million, $22.2 million and $15.1 million as of December 31, 2014, 2017 and 2018, respectively.

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Table of Contents

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

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

This discussion contains "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995 and in other securities laws. See "Cautionary Note Regarding Forward-Looking Statements" on page iii of this Annual Report and "Item 1A. Risk Factors" beginning on page 6 of this Annual Report.
Overview

General

Our revenues consist of storage rental revenues as well as service revenues and are reflected net of sales and value added taxes. Storage rental revenues, which are considered a key driver of financial performance for the storage and information management services industry, consist primarily of recurring periodic rental charges related to the storage of materials or data (generally on a per unit basis) that are typically retained by customers for many years, technology escrow services that protect and manage source code, data backup and storage on our proprietary cloud and revenues associated with our data center operations. Service revenues include charges for related service activities, the most significant of which include: (1) the handling of records, including the addition of new records, temporary removal of records from storage, refiling of removed records and courier operations, consisting primarily of the pickup and delivery of records upon customer request; (2) destruction services, consisting primarily of secure shredding of sensitive documents and the related sale of recycled paper, the price of which can fluctuate from period to period, and customer termination and permanent removal fees; (3) other services, including the scanning, imaging and document conversion services of active and inactive records and project revenues; (4) consulting services; and (5) cloud-related data protection, preservation, restoration and recovery. Our service revenue growth has been negatively impacted by declining activity rates as stored records are becoming less active. While customers continue to store their records and tapes with us, they are less likely than they have been in the past to retrieve records for research and other purposes, thereby reducing service activity levels.

Cost of sales (excluding depreciation and amortization) consists primarily of wages and benefits for field personnel, facility occupancy costs (including rent and utilities), transportation expenses (including vehicle leases and fuel), other product cost of sales and other equipment costs and supplies. Of these, wages and benefits and facility occupancy costs are the most significant. Selling, general and administrative expenses consist primarily of wages and benefits for management, administrative, information technology, sales, account management and marketing personnel, as well as expenses related to communications and data processing, travel, professional fees, bad debts, training, office equipment and supplies. Trends in facility occupancy costs are impacted by the total number of facilities we occupy, the mix of properties we own versus properties we occupy under operating leases, fluctuations in per square foot occupancy costs, and the levels of utilization of these properties. Trends in total wages and benefits in dollars and as a percentage of total consolidated revenue are influenced by changes in headcount and compensation levels, achievement of incentive compensation targets, workforce productivity and variability in costs associated with medical insurance and workers' compensation.

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

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


28
Table of Contents

Our consolidated revenues and expenses are subject to the net effect of foreign currency translation related to our operations outside the United States. It is difficult to predict the future fluctuations of foreign currency exchange rates and how those fluctuations will impact our Consolidated Statements of Operations. As a result of the relative size of our international operations, these fluctuations may be material on individual balances. Our revenues and expenses from our international operations are generally denominated in the local currency of the country in which they are derived or incurred. Therefore, the impact of currency fluctuations on our operating income and operating margin is partially mitigated. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we compare the percentage change in the results from one period to another period in this report using constant currency presentation. The constant currency growth rates are calculated by translating the 2016 results at the 2017 average exchange rates and the 2017 results at the 2018 average exchange rates. Constant currency growth rates are a non-GAAP measure.

The following table is a comparison of underlying average exchange rates of the foreign currencies that had the most significant impact on our United States dollar-reported revenues and expenses:
 
Percentage of United States Dollar-Reported Revenue
 
Average Exchange
Rates for the
Year Ended
December 31,
 
 
 
 
 
Percentage
Strengthening /
(Weakening) of
Foreign Currency
 
2017
 
2018
 
2017
 
2018
Australian dollar
4.1
%
 
3.7
%
 
$
0.767

 
$
0.748

 
(2.5
)%
Brazilian real
3.6
%
 
2.9
%
 
$
0.313

 
$
0.276

 
(11.8
)%
British pound sterling
6.4
%
 
6.6
%
 
$
1.288

 
$
1.335

 
3.6
 %
Canadian dollar
6.3
%
 
5.9
%
 
$
0.771

 
$
0.772

 
0.1
 %
Euro
6.7
%
 
7.3
%
 
$
1.130

 
$
1.181

 
4.5
 %
 
Percentage of United States Dollar-Reported Revenue
 
Average Exchange
Rates for the
Year Ended
December 31,
 
 
 
 
 
Percentage
Strengthening /
(Weakening) of
Foreign Currency
 
2016
 
2017
 
2016
 
2017
Australian dollar
4.2
%
 
4.1
%
 
$
0.744

 
$
0.767

 
3.1
 %
Brazilian real
3.2
%
 
3.6
%
 
$
0.288

 
$
0.313

 
8.7
 %
British pound sterling
6.8
%
 
6.4
%
 
$
1.356

 
$
1.288

 
(5.0
)%
Canadian dollar
6.6
%
 
6.3
%
 
$
0.755

 
$
0.771

 
2.1
 %
Euro
6.1
%
 
6.7
%
 
$
1.107

 
$
1.130

 
2.1
 %

The percentage of United States dollar-reported revenues for all other foreign currencies was 11.2%, 12.8% and 12.6% for the years ended December 31, 2016, 2017 and 2018, respectively.

Acquisitions

a. Recall Acquisition

On May 2, 2016, we completed the Recall Transaction. The results of operations of Recall have been included in our consolidated results from May 2, 2016. At the closing of the Recall Transaction, we paid approximately $331.8 million in cash and issued approximately 50.2 million shares of our common stock which, based on the closing price of our common stock as of April 29, 2016 (the last day of trading on the NYSE prior to the closing of the Recall Transaction) of $36.53 per share, resulted in a total purchase price to Recall shareholders of approximately $2,166.9 million. See Note 6 to Notes to Consolidated Financial Statements included in this Annual Report for unaudited pro forma results of operations for us and Recall, as if the Recall Transaction was completed on January 1, 2015, for the year ended December 31, 2016.


29
Table of Contents

b. IODC Acquisition

On January 10, 2018, we completed the IODC Transaction and at the closing of the IODC Transaction, we paid approximately $1,347.0 million. In addition to the amount paid at the closing of the IODC Transaction, there was the potential of $35.0 million in additional payments associated with the execution of future customer contracts through the one-year anniversary of the IODC Transaction, of which approximately $31.0 million is accrued at December 31, 2018. This amount is reported as a third-party commissions asset as a component of Other within Other assets, net, on our Consolidated Balance Sheet at December 31, 2018. See Note 6 to Notes to Consolidated Financial Statements included in this Annual Report for unaudited pro forma results of operations for us and IODC, as if the IODC Transaction was completed on January 1, 2017, for the years ended December 31, 2017 and 2018.

Divestments

a. Recall Divestments

See Note 6 to Notes to Consolidated Financial Statements included in this Annual Report for information regarding divestments we agreed to make in connection with the receipt of regulatory approval of the Recall Transaction. See Note 13 to Notes to Consolidated Financial Statements included in this Annual Report for additional information regarding the presentation of the Divestments (as defined in Note 6 to Notes to Consolidated Financial Statements included in this Annual Report) in our Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2017 and 2018.

b. Iron Mountain - Russia and Ukraine Divestment

On May 30, 2017, Iron Mountain EES Holdings Ltd. ("IM EES"), a consolidated subsidiary of IMI, sold its records and information management operations in Russia and Ukraine to OSG Records Management (Europe) Limited (“OSG”) in a stock transaction (the “Russia and Ukraine Divestment”). As consideration for the Russia and Ukraine Divestment, IM EES received a 25% equity interest in OSG (the "OSG Investment").

We have concluded that the Russia and Ukraine Divestment does not meet the criteria to be reported as discontinued operations in our consolidated financial statements, as our decision to divest these businesses does not represent a strategic shift that will have a major effect on our operations and financial results. Accordingly, the revenues and expenses associated with these businesses are presented as a component of income (loss) from continuing operations in our Consolidated Statements of Operations for the years ended December 31, 2016 and 2017, respectively, and the cash flows associated with these businesses are presented as a component of cash flows from continuing operations in our Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2017, respectively, through the sale date. Our businesses in Russia and Ukraine represented approximately $17.5 million and $8.6 million of total revenues for the years ended December 31, 2016 and 2017, respectively. Our businesses in Russia and Ukraine represented approximately $0.3 million and $0.9 million of total (loss) income from continuing operations for the years ended December 31, 2016 and 2017, respectively. As a result of the Russia and Ukraine Divestment, we recorded a gain on sale of $38.9 million to Other expense (income), net, in the second quarter of 2017, representing the excess of the fair value of the consideration received over the carrying value of our businesses in Russia and Ukraine.


30
Table of Contents

c. IMFS Divestment

On September 28, 2018, Iron Mountain Fulfillment Services ("IMFS"), a consolidated subsidiary of IMI that operated our fulfillment services business in the United States, sold substantially all of its assets for total consideration of approximately $3.0 million (the "IMFS Divestment"). We have concluded that the IMFS Divestment does not meet the criteria to be reported as discontinued operations in our consolidated financial statements, as our decision to divest this business does not represent a strategic shift that will have a major effect on our operations and financial results. Accordingly, the revenues and expenses associated with this business are presented as a component of income (loss) from continuing operations in our Consolidated Statements of Operations for the years ended December 31, 2016, 2017 and 2018 and the cash flows associated with this business are presented as a component of cash flows from continuing operations in our Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2017 and 2018 through the sale date. The fair value of the consideration received as a result of the IMFS Divestment approximated the carrying value of IMFS and, therefore, during the third quarter of 2018, we recorded an insignificant loss in connection with the IMFS Divestment to Other expense (income), net. Our IMFS business represented approximately $23.8 million, $22.3 million and $20.2 million of total revenues for the years ended December 2016, 2017 and 2018, respectively. Our IMFS business represented approximately $2.7 million, $2.1 million and $1.6 million of total income from continuing operations for the years ended December 31, 2016, 2017 and 2018, respectively. Revenues for the year ended December 31, 2018 reflect the impact of the adoption of ASU 2014-09 whereas revenues for the years ended December 31, 2016 and 2017 do not.
 
Significant Acquisition Costs

We currently estimate total acquisition and integration expenditures associated with the Recall Transaction and acquisition expenditures associated with the IODC Transaction to be approximately $405.0 million, the substantial majority of which was incurred prior to the end of 2018. This amount consists of operating expenditures associated with (1) the Recall Transaction, including: (i) advisory and professional fees to complete the Recall Transaction; (ii) costs associated with the Divestments (as defined in Note 6 to Notes to Consolidated Financial Statements included in this Annual Report) required in connection with receipt of regulatory approvals (including transitional services); and (iii) costs to integrate Recall with our existing operations, including moving, severance, facility upgrade, REIT integration and system upgrade costs, as well as certain costs associated with our shared service center initiative for our finance, human resources and information technology functions; and (2) the advisory and professional fees to complete the IODC Transaction (collectively, "Significant Acquisition Costs"). From January 1, 2015 through December 31, 2018, we have incurred cumulative operating and capital expenditures associated with the Recall Transaction and the IODC Transaction of $388.1 million, including $314.5 million of Significant Acquisition Costs and $73.6 million of capital expenditures.

See Note 14 to Notes to Consolidated Financial Statements included in this Annual Report for more information on Significant Acquisition Costs, including costs recorded by segment as well as recorded between cost of sales and selling, general and administrative expenses.

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

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09. ASU 2014-09 provides guidance for management to reassess revenue recognition as it relates to: (1) transfer of control, (2) variable consideration, (3) allocation of transaction price based on relative standalone selling price, (4) licenses, (5) time value of money, and (6) contract costs. We adopted ASU 2014-09 as of January 1, 2018 using the modified retrospective method for all of our customer contracts, whereby the cumulative effect of applying ASU 2014-09 is recognized at the date of initial application. See Note 2.l. to Notes to Consolidated Financial Statements included in this Annual Report for information on the impact to opening balance of (distributions in excess of earnings) earnings in excess of distributions on the Consolidated Balance Sheet.

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

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Non-GAAP Measures

Adjusted EBITDA

Adjusted EBITDA is defined as income (loss) from continuing operations before interest expense, net, provision (benefit) for income taxes, depreciation and amortization, and also excludes certain items that we believe are not indicative of our core operating results, specifically: (1) (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net; (2) intangible impairments; (3) other expense (income), net; (4) gain on sale of real estate, net of tax; (5) Significant Acquisition Costs; and (6) REIT Costs (as defined below). Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by total revenues. We use multiples of current or projected Adjusted EBITDA in conjunction with our discounted cash flow models to determine our estimated overall enterprise valuation and to evaluate acquisition targets. We believe Adjusted EBITDA and Adjusted EBITDA Margin provide our current and potential investors with relevant and useful information regarding our ability to generate cash flow to support business investment. These measures are an integral part of the internal reporting system we use to assess and evaluate the operating performance of our business.

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

Reconciliation of Income (Loss) from Continuing Operations to Adjusted EBITDA (in thousands):
 
Year Ended December 31,
 
2014
 
2015
 
2016
 
2017
 
2018(3)
Income (Loss) from Continuing Operations
$
328,955

 
$
125,203

 
$
103,880

 
$
191,723

 
$
376,976

Add/(Deduct):
 
 
 
 
 
 
 
 
 
Gain on Sale of Real Estate, Net of Tax(1)
(8,307
)
 
(850
)
 
(2,180
)
 
(1,565
)
 
(55,328
)
(Benefit) Provision for Income Taxes
(97,275
)
 
37,713

 
44,944

 
25,947

 
36,263

Other Expense (Income), Net
65,187

 
98,590