Use these links to rapidly review the document
TABLE OF CONTENTS

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549



FORM 10-Q

(Mark One)    

ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2012

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                        to                       

Commission file number 1-13045



IRON MOUNTAIN INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or other Jurisdiction of
Incorporation or Organization)
  23-2588479
(I.R.S. Employer
Identification No.)

745 Atlantic Avenue, Boston, MA 02111
(Address of Principal Executive Offices, Including Zip Code)

(617) 535-4766
(Registrant's Telephone Number, Including Area Code)



        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a small reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

        Number of shares of the registrant's Common Stock outstanding as of October 23, 2012: 172,515,017

   


Table of Contents


IRON MOUNTAIN INCORPORATED

Index

 
  Page  

PART I—FINANCIAL INFORMATION

       

Item 1—Unaudited Consolidated Financial Statements

       

Consolidated Balance Sheets at December 31, 2011 and September 30, 2012 (Unaudited)

   
3
 

Consolidated Statements of Operations for the Three Months Ended September 30, 2011 and 2012 (Unaudited)

   
4
 

Consolidated Statements of Operations for the Nine Months Ended September 30, 2011 and 2012 (Unaudited)

   
5
 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2011 and 2012 (Unaudited)

   
6
 

Consolidated Statements of Equity for the Nine Months Ended September 30, 2011 and 2012 (Unaudited)

   
7
 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2012 (Unaudited)

   
8
 

Notes to Consolidated Financial Statements (Unaudited)

   
9
 

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

   
50
 

Item 4—Controls and Procedures

   
76
 

PART II—OTHER INFORMATION

       

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

   
77
 

Item 6—Exhibits

   
77
 

Signatures

   
79
 

2


Table of Contents

Part I. Financial Information

Item 1.    Unaudited Consolidated Financial Statements

        


IRON MOUNTAIN INCORPORATED

CONSOLIDATED BALANCE SHEETS

(In Thousands, except Share and Per Share Data)

(Unaudited)

 
  December 31,
2011
  September 30,
2012
 

ASSETS

             

Current Assets:

             

Cash and cash equivalents

  $ 179,845   $ 334,583  

Restricted cash

    35,110     36,612  

Accounts receivable (less allowances of $23,277 and $25,267 as of December 31, 2011 and September 30, 2012, respectively)

    543,467     576,500  

Deferred income taxes

    43,235     4,393  

Prepaid expenses and other

    105,537     113,896  

Assets of discontinued operations

    7,256      
           

Total Current Assets

    914,450     1,065,984  

Property, Plant and Equipment:

             

Property, plant and equipment

    4,232,594     4,358,067  

Less—Accumulated depreciation

    (1,825,511 )   (1,947,943 )
           

Property, Plant and Equipment, net

    2,407,083     2,410,124  

Other Assets, net:

             

Goodwill

    2,254,268     2,336,099  

Customer relationships and acquisition costs

    410,149     443,418  

Deferred financing costs

    35,798     45,424  

Other

    19,510     26,526  
           

Total Other Assets, net

    2,719,725     2,851,467  
           

Total Assets

  $ 6,041,258   $ 6,327,575  
           

LIABILITIES AND EQUITY

             

Current Liabilities:

             

Current portion of long-term debt

  $ 73,320   $ 71,380  

Accounts payable

    156,381     124,762  

Accrued expenses

    418,831     379,710  

Deferred revenue

    197,181     196,763  

Liabilities of discontinued operations

    3,317      
           

Total Current Liabilities

    849,030     772,615  

Long-term Debt, net of current portion

    3,280,268     3,668,047  

Other Long-term Liabilities

    53,169     55,043  

Deferred Rent

    97,177     97,891  

Deferred Income Taxes

    507,358     434,854  

Commitments and Contingencies (see Note 8)

             

Equity:

             

Iron Mountain Incorporated Stockholders' Equity:

             

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

         

Common stock (par value $0.01; authorized 400,000,000 shares; issued and outstanding 172,140,966 shares and 172,133,147 shares as of December 31, 2011 and September 30, 2012, respectively)

    1,721     1,721  

Additional paid-in capital

    343,603     354,079  

Retained earnings

    902,567     913,139  

Accumulated other comprehensive items, net

    (2,203 )   18,270  
           

Total Iron Mountain Incorporated Stockholders' Equity

    1,245,688     1,287,209  
           

Noncontrolling Interests

    8,568     11,916  
           

Total Equity

    1,254,256     1,299,125  
           

Total Liabilities and Equity

  $ 6,041,258   $ 6,327,575  
           

   

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

3


Table of Contents


IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, except Per Share Data)

(Unaudited)

 
  Three Months Ended
September 30,
 
 
  2011   2012  

Revenues:

             

Storage rental

  $ 427,321   $ 434,665  

Service

    340,985     313,460  
           

Total Revenues

    768,306     748,125  

Operating Expenses:

             

Cost of sales (excluding depreciation and amortization)

    306,361     310,344  

Selling, general and administrative

    209,003     204,498  

Depreciation and amortization

    76,904     80,944  

Intangible impairments

    42,500      

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

    (1,661 )   (1,627 )
           

Total Operating Expenses

    633,107     594,159  

Operating Income (Loss)

    135,199     153,966  

Interest Expense, Net (includes Interest Income of $614 and $596 for the three months ended September 30, 2011 and 2012, respectively)

    50,047     61,381  

Other Expense (Income), Net

    16,631     7,746  
           

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

    68,521     84,839  

Provision (Benefit) for Income Taxes

    18,127     31,120  
           

Income (Loss) from Continuing Operations

    50,394     53,719  

Income (Loss) from Discontinued Operations, Net of Tax

    (19,380 )   32  

Gain (Loss) on Sale of Discontinued Operations, Net of Tax

    6,911      
           

Net Income (Loss)

    37,925     53,751  

Less: Net Income (Loss) Attributable to Noncontrolling Interests

    587     942  
           

Net Income (Loss) Attributable to Iron Mountain Incorporated

  $ 37,338   $ 52,809  
           

Earnings (Losses) per Share—Basic:

             

Income (Loss) from Continuing Operations

  $ 0.26   $ 0.31  
           

Total Income (Loss) from Discontinued Operations

  $ (0.06 ) $  
           

Net Income (Loss) Attributable to Iron Mountain Incorporated

  $ 0.19   $ 0.31  
           

Earnings (Losses) per Share—Diluted:

             

Income (Loss) from Continuing Operations

  $ 0.26   $ 0.31  
           

Total Income (Loss) from Discontinued Operations

  $ (0.06 ) $  
           

Net Income (Loss) Attributable to Iron Mountain Incorporated

  $ 0.19   $ 0.31  
           

Weighted Average Common Shares Outstanding—Basic

    195,610     171,776  
           

Weighted Average Common Shares Outstanding—Diluted

    196,717     173,047  
           

Dividends Declared per Common Share

  $ 0.2500   $ 0.2700  
           

   

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

4


Table of Contents


IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, except Per Share Data)

(Unaudited)

 
  Nine Months Ended
September 30,
 
 
  2011   2012  

Revenues:

             

Storage rental

  $ 1,262,172   $ 1,293,442  

Service

    1,010,694     953,346  
           

Total Revenues

    2,272,866     2,246,788  

Operating Expenses:

             

Cost of sales (excluding depreciation and amortization)

    929,893     938,702  

Selling, general and administrative

    645,147     618,673  

Depreciation and amortization

    235,935     236,462  

Intangible impairments

    42,500      

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

    (2,345 )   (1,515 )
           

Total Operating Expenses

    1,851,130     1,792,322  

Operating Income (Loss)

    421,736     454,466  

Interest Expense, Net (includes Interest Income of $1,658 and $1,951 for the nine months ended September 30, 2011 and 2012, respectively)

    147,269     178,381  

Other Expense (Income), Net

    10,294     14,508  
           

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes

    264,173     261,577  

Provision (Benefit) for Income Taxes

    65,143     105,344  
           

Income (Loss) from Continuing Operations

    199,030     156,233  

Income (Loss) from Discontinued Operations, Net of Tax

    (33,699 )   (5,700 )

Gain (Loss) on Sale of Discontinued Operations, Net of Tax

    200,260     (1,885 )
           

Net Income (Loss)

    365,591     148,648  

Less: Net Income (Loss) Attributable to Noncontrolling Interests

    2,109     2,434  
           

Net Income (Loss) Attributable to Iron Mountain Incorporated

  $ 363,482   $ 146,214  
           

Earnings (Losses) per Share—Basic:

             

Income (Loss) from Continuing Operations

  $ 1.00   $ 0.91  
           

Total Income (Loss) from Discontinued Operations

  $ 0.84   $ (0.04 )
           

Net Income (Loss) Attributable to Iron Mountain Incorporated

  $ 1.83   $ 0.85  
           

Earnings (Losses) per Share—Diluted:

             

Income (Loss) from Continuing Operations

  $ 0.99   $ 0.91  
           

Total Income (Loss) from Discontinued Operations

  $ 0.83   $ (0.04 )
           

Net Income (Loss) Attributable to Iron Mountain Incorporated

  $ 1.81   $ 0.85  
           

Weighted Average Common Shares Outstanding—Basic

    199,164     171,464  
           

Weighted Average Common Shares Outstanding—Diluted

    200,427     172,500  
           

Dividends Declared per Common Share

  $ 0.6875   $ 0.7900  
           

   

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

5


Table of Contents


IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)

(Unaudited)

 
  Three Months Ended
September 30,
 
 
  2011   2012  

Net Income (Loss)

  $ 37,925   $ 53,751  

Other Comprehensive Income (Loss):

             

Foreign Currency Translation Adjustments

    (66,288 )   20,095  
           

Total Other Comprehensive (Loss) Income

    (66,288 )   20,095  
           

Comprehensive (Loss) Income

    (28,363 )   73,846  

Comprehensive (Loss) Income Attributable to Noncontrolling Interests

    (452 )   1,482  
           

Comprehensive (Loss) Income Attributable to Iron Mountain Incorporated

  $ (27,911 ) $ 72,364  
           

 

 
  Nine Months Ended
September 30,
 
 
  2011   2012  

Net Income (Loss)

  $ 365,591   $ 148,648  

Other Comprehensive Income (Loss):

             

Foreign Currency Translation Adjustments

    (24,814 )   21,197  
           

Total Other Comprehensive (Loss) Income

    (24,814 )   21,197  
           

Comprehensive Income (Loss)

    340,777     169,845  

Comprehensive Income (Loss) Attributable to Noncontrolling Interests

    1,225     3,158  
           

Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated

  $ 339,552   $ 166,687  
           

   

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

6


Table of Contents


IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF EQUITY

(In Thousands, except Share Data)

(Unaudited)

 
   
  Iron Mountain Incorporated Stockholders' Equity    
 
 
   
  Common Stock    
   
  Accumulated
Other
Comprehensive
Items, Net
   
 
 
   
  Additional
Paid-in Capital
  Retained
Earnings
  Noncontrolling
Interests
 
 
  Total   Shares   Amounts  

Balance, December 31, 2010

  $ 1,952,865     200,064,066   $ 2,001   $ 1,228,655   $ 685,310   $ 29,482   $ 7,417  

Issuance of shares under employee stock purchase plan and option plans and stock-based compensation, including tax benefit of $578

    94,486     3,753,404     37     94,449              

Stock repurchases

    (548,455 )   (17,201,540 )   (172 )   (548,283 )            

Parent cash dividends declared

    (135,102 )               (135,102 )        

Currency translation adjustment

    (24,814 )                   (23,930 )   (884 )

Net income (loss)

    365,591                 363,482         2,109  

Noncontrolling interests equity contributions

    217                         217  

Noncontrolling interests dividends

    (1,484 )                       (1,484 )
                               

Balance, September 30, 2011

  $ 1,703,304     186,615,930   $ 1,866   $ 774,821   $ 913,690   $ 5,552   $ 7,375  
                               

 

 
   
  Iron Mountain Incorporated Stockholders' Equity    
 
 
   
  Common Stock    
   
  Accumulated
Other
Comprehensive
Items, Net
   
 
 
   
  Additional
Paid-in Capital
  Retained
Earnings
  Noncontrolling
Interests
 
 
  Total   Shares   Amounts  

Balance, December 31, 2011

  $ 1,254,256     172,140,966   $ 1,721   $ 343,603   $ 902,567   $ (2,203 ) $ 8,568  

Issuance of shares under employee stock purchase plan and option plans and stock-based compensation, including tax benefit of $309

    45,164     1,095,330     11     45,153              

Stock repurchases

    (34,688 )   (1,103,149 )   (11 )   (34,677 )            

Parent cash dividends declared

    (135,642 )               (135,642 )        

Currency translation adjustment

    21,197                     20,473     724  

Net income (loss)

    148,648                 146,214         2,434  

Noncontrolling interests equity contributions

    336                         336  

Noncontrolling interests dividends

    (1,146 )                       (1,146 )

Parent purchase of noncontrolling interests

    1,000                         1,000  
                               

Balance, September 30, 2012

  $ 1,299,125     172,133,147   $ 1,721   $ 354,079   $ 913,139   $ 18,270   $ 11,916  
                               

   

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

7


Table of Contents


IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 
  Nine Months Ended
September 30,
 
 
  2011   2012  

Cash Flows from Operating Activities:

             

Net income (loss)

  $ 365,591   $ 148,648  

Loss (Income) from discontinued operations

    33,699     5,700  

(Gain) Loss on sale of discontinued operations

    (200,260 )   1,885  

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

             

Depreciation

    214,973     210,248  

Amortization (includes deferred financing costs and bond discount of $4,520 and $5,121, for the nine months ended September 30, 2011 and 2012, respectively)

    25,482     31,335  

Intangible impairments

    42,500      

Stock-based compensation expense

    12,442     20,799  

Provision (Benefit) for deferred income taxes

    14,095     (43,254 )

Loss on early extinguishment of debt, net

    993     10,628  

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

    (2,345 )   (1,515 )

Foreign currency transactions and other, net

    11,294     9,163  

Changes in Assets and Liabilities (exclusive of acquisitions):

             

Accounts receivable

    (18,336 )   (22,379 )

Prepaid expenses and other

    (3,784 )   (18,473 )

Accounts payable

    1,710     (12,618 )

Accrued expenses and deferred revenue

    (42,269 )   (29,321 )

Other assets and long-term liabilities

    (4,635 )   807  
           

Cash Flows from Operating Activities-Continuing Operations

    451,150     311,653  

Cash Flows from Operating Activities-Discontinued Operations

    (40,192 )   (10,916 )
           

Cash Flows from Operating Activities

    410,958     300,737  

Cash Flows from Investing Activities:

             

Capital expenditures

    (148,099 )   (165,462 )

Cash paid for acquisitions, net of cash acquired

    (75,172 )   (106,221 )

Investment in restricted cash

    (4 )   (1,502 )

Additions to customer relationship and acquisition costs

    (16,869 )   (13,377 )

Investment in joint ventures

    (335 )   (2,330 )

Proceeds from sales of property and equipment and other, net

    4,144     1,731  
           

Cash Flows from Investing Activities-Continuing Operations

    (236,335 )   (287,161 )

Cash Flows from Investing Activities-Discontinued Operations

    371,103     (6,136 )
           

Cash Flows from Investing Activities

    134,768     (293,297 )

Cash Flows from Financing Activities:

             

Repayment of revolving credit and term loan facilities and other debt

    (1,940,741 )   (2,803,476 )

Proceeds from revolving credit and term loan facilities and other debt

    2,057,835     2,637,534  

Early retirement of senior subordinated notes

    (231,255 )   (525,834 )

Net proceeds from sales of senior subordinated notes

    394,000     985,000  

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

    531     416  

Stock repurchases

    (548,455 )   (38,052 )

Parent cash dividends

    (125,739 )   (132,307 )

Proceeds from exercise of stock options and employee stock purchase plan

    81,887     22,328  

Excess tax benefits from stock-based compensation

    578     309  

Payment of debt financing costs

    (8,860 )   (2,179 )
           

Cash Flows from Financing Activities-Continuing Operations

    (320,219 )   143,739  

Cash Flows from Financing Activities-Discontinued Operations

    (415 )   (39 )
           

Cash Flows from Financing Activities

    (320,634 )   143,700  

Effect of Exchange Rates on Cash and Cash Equivalents

    (2,906 )   3,598  
           

Increase (Decrease) in Cash and Cash Equivalents

    222,186     154,738  

Cash and Cash Equivalents, Beginning of Period

    258,693     179,845  
           

Cash and Cash Equivalents, End of Period

  $ 480,879   $ 334,583  
           

Supplemental Information:

             

Cash Paid for Interest

  $ 162,426   $ 175,478  
           

Cash Paid for Income Taxes

  $ 124,680   $ 151,906  
           

Non-Cash Investing and Financing Activities:

             

Capital Leases

  $ 25,062   $ 31,715  
           

Accrued Capital Expenditures

  $ 20,141   $ 18,081  
           

Dividends Payable

  $ 46,877   $ 46,515  
           

Unsettled Purchases of Parent Common Stock

  $ 10,852   $  
           

   

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

8


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(1) General

        The interim consolidated financial statements are presented herein and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair presentation. Interim results are not necessarily indicative of results for a full year. Iron Mountain Incorporated ("IMI") is a global, full-service provider of information management and related services for all media in various locations throughout North America, Europe, Latin America and Asia Pacific. We have a diversified customer base comprised of commercial, legal, banking, health care, accounting, insurance, entertainment and government organizations.

        The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to those rules and regulations, but we believe that the disclosures included herein are adequate to make the information presented not misleading. The consolidated financial statements and notes included herein should be read in conjunction with the annual consolidated financial statements and notes for the year ended December 31, 2011 included in our Annual Report on Form 10-K filed on February 28, 2012.

        On June 2, 2011, we completed the sale (the "Digital Sale") of our online backup and recovery, digital archiving and eDiscovery solutions businesses of our digital business (the "Digital Business") to Autonomy Corporation plc, a corporation formed under the laws of England and Wales ("Autonomy"), pursuant to a purchase and sale agreement dated as of May 15, 2011 among IMI, certain subsidiaries of IMI and Autonomy (the "Digital Sale Agreement"). Additionally, on October 3, 2011, we sold our records management business in New Zealand (the "New Zealand Business"). Also, on April 27, 2012, we sold our records management business in Italy (the "Italian Business"). The financial position, operating results and cash flows of the Digital Business, the New Zealand Business and the Italian Business, including the gain on the sale of the Digital Business and the New Zealand Business and the loss on the sale of the Italian Business, for all periods presented, have been reported as discontinued operations for financial reporting purposes. See Note 10 for a further discussion of these events.

(2) Summary of Significant Accounting Policies

        The accompanying financial statements reflect our financial position, results of operations, comprehensive income (loss), equity and cash flows on a consolidated basis. All intercompany account balances have been eliminated.

        Cash and cash equivalents include cash on hand and cash invested in short-term securities, which have remaining maturities at the date of purchase of less than 90 days. Cash and cash equivalents are carried at cost, which approximates fair value.

9


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

        We have restricted cash associated with a collateral trust agreement with our insurance carrier related to our worker's compensation self-insurance program. The restricted cash subject to this agreement was $35,110 and $36,612 as of December 31, 2011 and September 30, 2012, respectively, and is included in current assets on our consolidated balance sheets. Restricted cash consists primarily of U.S. Treasuries.

        Local currencies are considered the functional currencies for our operations outside the U.S., with the exception of certain foreign holding companies and our financing center in Switzerland, whose functional currencies are the U.S. dollar. In those instances where the local currency is the functional currency, assets and liabilities are translated at period-end exchange rates, and revenues and expenses are translated at average exchange rates for the applicable period. Resulting translation adjustments are reflected in the accumulated other comprehensive items, net component of Iron Mountain Incorporated Stockholders' Equity and Noncontrolling Interests. The gain or loss on foreign currency transactions, calculated as the difference between the historical exchange rate and the exchange rate at the applicable measurement date, including those related to (1) our 71/4% GBP Senior Subordinated Notes due 2014, (2) our 63/4% Euro Senior Subordinated Notes due 2018, (3) the borrowings in certain foreign currencies under our revolving credit agreement and (4) certain foreign currency denominated intercompany obligations of our foreign subsidiaries to us and between our foreign subsidiaries, which are not considered permanently invested, are included in other expense (income), net, on our consolidated statements of operations. The total gain or loss on foreign currency transactions amounted to a net loss of $15,624 and $14,381 for the three and nine months ended September 30, 2011, respectively. The total gain or loss on foreign currency transactions amounted to a net gain of $1,131 and a net loss of $8,055 for the three and nine months ended September 30, 2012, respectively.

        Goodwill and intangible assets with indefinite lives are not amortized but are reviewed annually for impairment or more frequently if impairment indicators arise. Other than goodwill, we currently have no intangible assets that have indefinite lives and which are not amortized. Separable intangible assets that are not deemed to have indefinite lives are amortized over their useful lives. We annually assess whether a change in the life over which our intangible assets are amortized is necessary or more frequently if events or circumstances warrant.

        We have selected October 1 as our annual goodwill impairment review date. We performed our most recent annual goodwill impairment review as of October 1, 2011 and noted no impairment of goodwill. However, as a result of an interim triggering event as discussed below, we recorded a provisional goodwill impairment charge in the third quarter of 2011 associated with our Western European operations that was finalized in the fourth quarter of 2011. As of December 31, 2011 and September 30, 2012, no factors were identified that would alter our October 1, 2011 goodwill assessment. In making this assessment, we relied on a number of factors including operating results, business plans, anticipated future cash flows, transactions and marketplace data. There are inherent uncertainties related to these factors and our judgment in applying them to the analysis of goodwill

10


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

impairment. When changes occur in the composition of one or more reporting units, the goodwill is reassigned to the reporting units affected based on their relative fair values.

        In September 2011, as a result of certain changes we made in the manner in which our European operations are managed, we reorganized our reporting structure and reassigned goodwill among the revised reporting units. Previously, we tested goodwill impairment at the European level on a combined basis. As a result of the management and reporting changes, we concluded that we have three reporting units for our European operations: (1) United Kingdom, Ireland and Norway ("UKI"); (2) Belgium, France, Germany, Luxembourg, Netherlands and Spain ("Western Europe"); and (3) the remaining countries in Europe ("Central Europe"). Due to these changes, we will perform future goodwill impairment analyses on the new reporting unit basis. As a result of the restructuring of our reporting units, we concluded that we had an interim triggering event, and, therefore, we performed an interim goodwill impairment test for UKI, Western Europe and Central Europe in the third quarter of 2011, as of August 31, 2011. As required by GAAP, prior to our goodwill impairment analysis, we performed an impairment assessment on the long-lived assets within our UKI, Western Europe and Central Europe reporting units and noted no impairment, except for the Italian Business, which was included in our Western Europe reporting unit, and which is now included in discontinued operations as discussed in Note 10. Based on our analysis, we concluded that the goodwill of our UKI and Central Europe reporting units was not impaired. Our UKI and Central Europe reporting units had fair values that exceeded their carrying values by 15.1% and 4.9%, respectively, as of August 31, 2011. Central Europe is still in the investment stage, and, accordingly, its fair value does not exceed its carrying value by a significant margin at this point in time. A deterioration of the UKI or Central Europe businesses or their failure to achieve the forecasted results could lead to impairments in future periods. Our Western Europe reporting unit's fair value was less than its carrying value, and, as a result, we recorded a goodwill impairment charge of $46,500 included as a component of intangible impairments from continuing operations in our consolidated statements of operations for the year ended December 31, 2011 (of which $42,500 was recorded and included in the third quarter of 2011). See Note 10 for the portion of the charge allocated to the Italian Business based on a relative fair value basis.

        Our reporting units at which level we performed our goodwill impairment analysis as of October 1, 2011 were as follows: North America; UKI; Western Europe; Central Europe; Latin America; Australia; and Joint Ventures (which includes India, our various joint ventures in Southeast Asia and Russia (referred to as "Joint Ventures")). As of December 31, 2011, the carrying value of goodwill, net amounted to $1,748,879, $306,150, $46,439, $63,781, $27,322 and $61,697 for North America, UKI, Western Europe, Central Europe, Latin America and Australia, respectively. Our Joint Ventures reporting unit has no goodwill as of December 31, 2011 and September 30, 2012. Our North America, Latin America and Australia reporting units had estimated fair values as of October 1, 2011 that exceeded their carrying values by greater than 40%. As of September 30, 2012, the carrying value of goodwill, net amounted to $1,762,399, $315,472, $45,787, $82,330, $67,386 and $62,725 for North America, UKI, Western Europe, Central Europe, Latin America and Australia, respectively.

        Reporting unit valuations have been calculated using an income approach based on the present value of future cash flows of each reporting unit or a combined approach based on the present value of future cash flows and market and transaction multiples of revenues and earnings. The income approach

11


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

incorporates many assumptions including future growth rates, discount factors, expected capital expenditures and income tax cash flows. Changes in economic and operating conditions impacting these assumptions could result in goodwill impairments in future periods.

        The changes in the carrying value of goodwill attributable to each reportable operating segment for the nine months ended September 30, 2012 is as follows:

 
  North
American
Business
  International
Business
  Total
Consolidated
 

Gross Balance as of December 31, 2011

  $ 2,010,241   $ 564,044   $ 2,574,285  

Deductible goodwill acquired during the year

    5,118         5,118  

Non-deductible goodwill acquired during the year

        58,613     58,613  

Currency effects

    8,839     10,009     18,848  
               

Gross Balance as of September 30, 2012

  $ 2,024,198   $ 632,666   $ 2,656,864  
               

Accumulated Amortization Balance as of December 31, 2011

  $ 261,362   $ 58,655   $ 320,017  

Currency effects

    437     311     748  
               

Accumulated Amortization Balance as of September 30, 2012

  $ 261,799   $ 58,966   $ 320,765  
               

Net Balance as of December 31, 2011

  $ 1,748,879   $ 505,389   $ 2,254,268  
               

Net Balance as of September 30, 2012

  $ 1,762,399   $ 573,700   $ 2,336,099  
               

Accumulated Goodwill Impairment Balance as of December 31, 2011

  $ 85,909   $ 46,500   $ 132,409  
               

Accumulated Goodwill Impairment Balance as of September 30, 2012

  $ 85,909   $ 46,500   $ 132,409  
               

        The components of our amortizable intangible assets as of September 30, 2012 are as follows:

 
  Gross Carrying
Amount
  Accumulated
Amortization
  Net Carrying
Amount
 

Customer Relationships and Acquisition Costs

  $ 661,039   $ (217,621 ) $ 443,418  

Core Technology(1)

    3,682     (2,832 )   850  

Trademarks and Non-Compete Agreements(1)

    5,926     (2,744 )   3,182  

Deferred Financing Costs

    63,538     (18,114 )   45,424  
               

Total

  $ 734,185   $ (241,311 ) $ 492,874  
               

(1)
Included in other assets, net in the accompanying consolidated balance sheet.

12


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

        Amortization expense associated with amortizable intangible assets (including deferred financing costs) was $8,752 and $25,482 for the three and nine months ended September 30, 2011, respectively. Amortization expense associated with amortizable intangible assets (including deferred financing costs) was $12,128 and $31,335 for the three and nine months ended September 30, 2012, respectively.

        We record stock-based compensation expense, utilizing the straight-line method, for the cost of stock options, restricted stock, restricted stock units, performance units and shares of stock issued under the employee stock purchase plan (together, "Employee Stock-Based Awards").

        Stock-based compensation expense for Employee Stock-Based Awards included in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2011 was $4,403, ($2,479 after tax or $0.01 per basic and diluted share) and $12,702, including $260 in discontinued operations, ($5,213 after tax or $0.03 per basic and diluted share), respectively. Stock-based compensation expense for Employee Stock-Based Awards for the three and nine months ended September 30, 2012 was $4,682 ($3,836 after tax or $0.02 per basic and diluted share) and $20,799 ($15,744 after tax or $0.09 per basic and diluted share), respectively.

        Stock-based compensation expense for Employee Stock-Based Awards included in the accompanying consolidated statements of operations related to continuing operations is as follows:

 
  Three Months
Ended
September 30,
  Nine Months
Ended
September 30,
 
 
  2011   2012   2011   2012  

Cost of sales (excluding depreciation and amortization)

  $ 240   $ 329   $ 560   $ 846  

Selling, general and administrative expenses

    4,163     4,353     11,882     19,953  
                   

Total stock-based compensation

  $ 4,403   $ 4,682   $ 12,442   $ 20,799  
                   

        The benefits associated with the tax deductions in excess of recognized compensation cost are required to be reported as a financing cash flow. This requirement reduces reported operating cash flows and increases reported financing cash flows. As a result, net financing cash flows from continuing operations included $578 and $309 for the nine months ended September 30, 2011 and 2012, respectively, from the benefits of tax deductions in excess of recognized compensation cost. The tax benefit of any resulting excess tax deduction increases the Additional Paid-in Capital ("APIC") pool. Any resulting tax deficiency is deducted from the APIC pool.

Stock Options

        Under our various stock option plans, options were granted with exercise prices equal to the market price of the stock on the date of grant. The majority of our options become exercisable ratably over a period of five years and generally have a contractual life of ten years, unless the holder's employment is sooner terminated. Certain of the options we issue become exercisable ratably over a

13


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

period of ten years and have a contractual life of 12 years, unless the holder's employment is sooner terminated. As of September 30, 2012, ten-year vesting options represent 8.2% of total outstanding options. Beginning in 2011, certain of the options we issue become exercisable ratably over a period of three years and have a contractual life of ten years, unless the holder's employment is sooner terminated. As of September 30, 2012, three-year vesting options represent 12.8% of total outstanding options. Our non-employee directors are considered employees for purposes of our stock option plans and stock option reporting. Options granted to our non-employee directors generally become exercisable after one year.

        The weighted average fair value of options granted for the nine months ended September 30, 2011 and 2012 was $7.43 and $7.00 per share, respectively. These values were estimated on the date of grant using the Black-Scholes option pricing model. The following table summarizes the weighted average assumptions used for grants in the respective period:

 
  Nine Months Ended
September 30,
 
Weighted Average Assumptions
  2011   2012  

Expected volatility

    33.4 %   33.8 %

Risk-free interest rate

    2.46 %   1.24 %

Expected dividend yield

    3 %   3 %

Expected life

    6.3 years     6.3 years  

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

14


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

        A summary of option activity for the nine months ended September 30, 2012 is as follows:

 
  Options   Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Term
  Aggregate
Intrinsic
value
 

Outstanding at December 31, 2011

    7,118,458   $ 25.73              

Granted

    21,472     28.86              

Exercised

    (899,781 )   23.62              

Forfeited

    (196,688 )   25.69              

Expired

    (34,538 )   32.57              
                         

Outstanding at September 30, 2012

    6,008,923   $ 26.02     6.02   $ 49,391  
                   

Options exercisable at September 30, 2012

    3,891,146   $ 25.93     5.24   $ 32,472  
                   

Options expected to vest

    1,973,781   $ 26.20     7.46   $ 15,749  
                   

        The following table provides the aggregate intrinsic value of stock options exercised for the three and nine months ended September 30, 2011 and 2012:

 
  Three Months
Ended
September 30,
  Nine Months
Ended
September 30,
 
 
  2011   2012   2011   2012  

Aggregate intrinsic value of stock options exercised

  $ 7,869   $ 4,440   $ 36,778   $ 7,812  

Restricted Stock and Restricted Stock Units

        Under our various stock option plans, we may also issue grants of restricted stock or restricted stock units ("RSUs"). Our restricted stock and RSUs generally have a three to five year vesting period. As a result of an amendment to our RSUs approved by our Compensation Committee of our Board of Directors in October 2012, all RSUs now accrue dividend equivalents associated with the underlying stock as we declare dividends. Dividends will generally be paid to holders of RSUs in cash upon the vesting date of the associated RSU and will be forfeited if the RSU does not vest. We accrued approximately $8 and $42 of cash dividends on RSUs during the three and nine months ended September 30, 2012, respectively. The fair value of restricted stock and RSUs is the excess of the market price of our common stock at the date of grant over the purchase price (which is typically zero).

15


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

        A summary of restricted stock and RSUs activity for the nine months ended September 30, 2012 is as follows:

 
  Restricted
Stock and RSUs
  Weighted-
Average
Grant-Date
Fair Value
 

Non-vested at December 31, 2011

    610,951   $ 27.45  

Granted

    812,104     28.14  

Vested

    (217,282 )   27.44  

Forfeited

    (32,101 )   27.25  
             

Non-vested at September 30, 2012

    1,173,672   $ 27.93  
           

        The total fair value of restricted stock vested during the three and nine months ended September 30, 2011 was $0 and $13, respectively. The total fair value of restricted stock vested during the three and nine months ended September 30, 2012 was $0 and $1, respectively. The total fair value of RSUs vested during the three and nine months ended September 30, 2011 was $225 and $687, respectively. The total fair value of RSUs vested during the nine months ended September 30, 2012 was $5,962.

Performance Units

        Under our various stock option plans, we may also issue grants of performance units ("PUs"). The number of PUs earned is determined based on our performance against predefined targets, which for grants of PUs made in 2011 and 2012 were calendar year revenue growth and return on invested capital ("ROIC"). The range of payout is zero to 150% of the number of granted PUs. The number of PUs earned is determined based on actual performance at the end of the one-year performance period, and the award will be settled in shares of our common stock, subject to cliff vesting, three years from the date of the original PU grant. Additionally, employees who are employed through the one-year anniversary of the date of grant and who reach both 55 years of age and 10 years of qualifying service (the "retirement criteria") shall immediately and completely vest in any PUs earned based on the actual achievement against the predefined targets as discussed above. As a result, PUs will be expensed over the shorter of (1) the vesting period, (2) achievement of the retirement criteria, which such achievement may occur as early as one year after the date of grant, or (3) a maximum of three years. As a result of an amendment to our PUs approved by our Compensation Committee of our Board of Directors in October 2012, all PUs now accrue dividend equivalents associated with the underlying stock as we declare dividends. Dividends will generally be paid to holders of PUs in cash upon the vesting date of the associated PU and will be forfeited if the PU does not vest.

        During the nine months ended September 30, 2012, we issued 221,781 PUs. During the one-year performance period, we will forecast the likelihood of achieving the predefined annual revenue growth and ROIC targets in order to calculate the expected PUs to be earned. We will record a compensation charge based on either the forecasted PUs to be earned (during the one-year performance period) or the actual PUs earned (at the one-year anniversary date) over the vesting period for each individual

16


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

grant as described above. The total fair value of earned PUs that vested during the nine months ended September 30, 2012 was $3,505. As of September 30, 2012, we expected 106.2% achievement of the predefined revenue and ROIC targets associated with the grants made in 2012.

        A summary of PU activity for the nine months ended September 30, 2012 is as follows:

 
  PUs
Original
Awards
  PUs
Adjustment(1)
  Total
PUs
Awards
  Weighted-
Average
Grant-Date
Fair Value
 

Non-vested at December 31, 2011

    112,749         112,749   $ 26.94  

Granted

    221,781     12,012     233,793     26.11  

Vested

    (124,914 )   (5,013 )   (129,927 )   26.98  

Forfeited

    (3,381 )       (3,381 )   25.98  
                     

Non-vested at September 30, 2012

    206,235     6,999     213,234   $ 26.02  
                   

(1)
Represents the additional number of PUs based on either (a) the final performance criteria achievement at the end of the one-year performance period or (b) a change in estimated awards based on the forecasted performance against the predefined targets.

Employee Stock Purchase Plan

        We offer an employee stock purchase plan (the "ESPP") in which participation is available to substantially all U.S. and Canadian employees who meet certain service eligibility requirements. The ESPP provides a way for our eligible employees to become stockholders on favorable terms. The ESPP provides for the purchase of our common stock by eligible employees through successive offering periods. We generally have two six-month offering periods per year, the first of which begins June 1 and ends November 30 and the second of which begins December 1 and ends May 31. During each offering period, participating employees accumulate after-tax payroll contributions, up to a maximum of 15% of their compensation, to pay the exercise price of their options. Participating employees may withdraw from an offering period before the purchase date and obtain a refund of the amounts withheld as payroll deductions. At the end of the offering period, outstanding options are exercised, and each employee's accumulated contributions are used to purchase our common stock. The price for shares purchased under the ESPP is 95% of the fair market price at the end of the offering period, without a look-back feature. As a result, we do not recognize compensation cost for the ESPP shares purchased. For the nine months ended September 30, 2011 and 2012, there were 82,267 shares and 88,672 shares, respectively, purchased under the ESPP. The number of shares available for purchase under the ESPP at September 30, 2012 was 311,089.



        As of September 30, 2012, unrecognized compensation cost related to the unvested portion of our Employee Stock-Based Awards was $45,174 and is expected to be recognized over a weighted-average period of 2.4 years.

17


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

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

        Basic income (loss) per common share is calculated by dividing income (loss) by the weighted average number of common shares outstanding. The calculation of diluted income (loss) per share is consistent with that of basic income (loss) per share but gives effect to all potential common shares (that is, securities such as options, warrants or convertible securities) that were outstanding during the period, unless the effect is antidilutive.

        The following table presents the calculation of basic and diluted income (loss) per share:

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2011   2012   2011   2012  

Income (Loss) from continuing operations

  $ 50,394   $ 53,719   $ 199,030   $ 156,233  
                   

Total income (loss) from discontinued operations (see Note 10)

  $ (12,469 ) $ 32   $ 166,561   $ (7,585 )
                   

Net income (loss) attributable to Iron Mountain Incorporated

  $ 37,338   $ 52,809   $ 363,482   $ 146,214  
                   

Weighted-average shares—basic

    195,610,000     171,776,000     199,164,000     171,464,000  

Effect of dilutive potential stock options

    993,683     950,922     1,175,735     808,365  

Effect of dilutive potential restricted stock, RSUs and PUs

    112,969     320,537     87,149     227,899  
                   

Weighted-average shares—diluted

    196,716,652     173,047,459     200,426,884     172,500,264  
                   

Earnings (Losses) per share—basic:

                         

Income (Loss) from continuing operations

  $ 0.26   $ 0.31   $ 1.00   $ 0.91  
                   

Total income (loss) from discontinued operations (see Note 10)

  $ (0.06 ) $   $ 0.84   $ (0.04 )
                   

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

  $ 0.19   $ 0.31   $ 1.83   $ 0.85  
                   

Earnings (Losses) per share—diluted:

                         

Income (Loss) from continuing operations

  $ 0.26   $ 0.31   $ 0.99   $ 0.91  
                   

Total income (loss) from discontinued operations (see Note 10)

  $ (0.06 ) $   $ 0.83   $ (0.04 )
                   

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

  $ 0.19   $ 0.31   $ 1.81   $ 0.85  
                   

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

    1,810,859     821,862     4,212,799     1,584,179  
                   

18


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

        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 our financial performance for the information management services industry, consist primarily of recurring periodic charges related to the storage of materials or data (generally on a per unit basis). Service revenues are comprised of charges for related core service activities and a wide array of complementary products and services. Included in core service revenues are: (1) the handling of records, including the addition of new records, temporary removal of records from storage, refiling of removed records and the destruction of records; (2) courier operations, consisting primarily of the pickup and delivery of records upon customer request; (3) secure shredding of sensitive documents; and (4) other recurring services, including Document Management Solutions ("DMS"), which relate to physical and digital records, and recurring project revenues. Our complementary services revenues include special project work, customer termination and permanent withdrawal fees, data restoration projects, fulfillment services, consulting services, technology services and product sales (including specially designed storage containers and related supplies). Our secure shredding revenues include the sale of recycled paper (included in complementary services revenues), the price of which can fluctuate from period to period, adding to the volatility and reducing the predictability of that revenue stream.

        We recognize revenue when the following criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable and collectability of the resulting receivable is reasonably assured. Storage rental and service revenues are recognized in the month the respective storage rental or service is provided, and customers are generally billed on a monthly basis on contractually agreed-upon terms. Amounts related to future storage rental or prepaid service contracts for customers where storage rental fees or services are billed in advance are accounted for as deferred revenue and recognized ratably over the applicable storage rental or service period or when the service is performed. Revenue from the sales of products, which is included as a component of service revenues, is recognized when products are shipped to the customer and title has passed to the customer. Revenues from the sales of products have historically not been significant.

        We maintain an allowance for doubtful accounts and credit memos for estimated losses resulting from the potential inability of our customers to make required payments and potential disputes regarding billing and service issues. When calculating the allowance, we consider our past loss experience, current and prior trends in our aged receivables and credit memo activity, current economic conditions and specific circumstances of individual receivable balances. If the financial condition of our customers were to significantly change, resulting in a significant improvement or impairment of their ability to make payments, an adjustment of the allowance may be required. We consider accounts receivable to be delinquent after such time as reasonable means of collection have been exhausted. We charge-off uncollectible balances as circumstances warrant, generally, no later than one year past due.

19


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

        Our effective tax rates for the three and nine months ended September 30, 2011 were 26.5% and 24.7%, respectively. Our effective tax rates for the three and nine months ended September 30, 2012 were 36.7% and 40.3%, respectively. The primary reconciling item between the federal statutory rate of 35% and our overall effective tax rate for the three and nine months ended September 30, 2011 was a positive impact provided by the recognition of certain previously unrecognized tax benefits due to expirations of statute of limitation periods and settlements with tax authorities in various jurisdictions of $31,935 and $36,150, respectively. This benefit was partially offset by a goodwill impairment charge included in income from continuing operations as a component of intangible impairments in our consolidated statements of operations, a majority of which was non-deductible for tax purposes. Additionally, to a lesser extent, state income taxes (net of federal tax benefit) and differences in the rates of tax at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates, are reconciling items that impact our effective tax rate. The primary reconciling items between the federal statutory rate of 35% and our overall effective tax rate for the three and nine months ended September 30, 2012 were state income taxes (net of federal tax benefit) and differences in the rates of tax at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates. During the three and nine months ended September 30, 2012, foreign currency gains were recorded in lower tax jurisdictions associated with our marking-to-market of intercompany loan positions while foreign currency losses were recorded in higher tax jurisdictions associated with our marking-to-market of debt and derivative instruments, which lowered our 2012 effective tax rate by 5.6% and 1.2%, respectively.

        We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period they occur. Our effective tax rate is subject to variability in the future due to, among other items: (1) changes in the mix of income from foreign jurisdictions; (2) tax law changes; (3) volatility in foreign exchange gains (losses); (4) the timing of the establishment and reversal of tax reserves; (5) our ability to utilize foreign tax credits that we generate; and (6) our proposed conversion to a real estate investment trust ("REIT"). We are subject to income taxes in the U.S. and numerous foreign jurisdictions. We are subject to examination by various tax authorities in jurisdictions in which we have significant business operations. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in changes in our estimates.

        Accounting for income taxes requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax and financial reporting basis of assets and liabilities and for loss and credit carryforwards. Valuation allowances are provided when recovery of deferred tax assets is not considered more likely than not.

        We have elected to recognize interest and penalties associated with uncertain tax positions as a component of the provision (benefit) for income taxes in the accompanying consolidated statements of operations. We recorded a reduction of $6,497 and $7,753 for gross interest and penalties for the three

20


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

and nine months ended September 30, 2011, respectively. We recorded an increase of $922 and $920 for gross interest and penalties for the three and nine months ended September 30, 2012, respectively. We had $2,819 and $3,237 accrued for the payment of interest and penalties as of December 31, 2011 and September 30, 2012, respectively.

        We have not recorded deferred taxes on book over tax outside basis differences related to certain foreign subsidiaries because such basis differences are not expected to reverse in the foreseeable future and we intend to reinvest indefinitely outside the U.S. These basis differences arose primarily through the undistributed book earnings of our foreign subsidiaries. The basis differences could be reversed through a sale of the subsidiaries, each of which would result in an increase in our provision for income taxes. It is not practicable to calculate the amount of unrecognized deferred tax liability on the book over tax outside basis difference because of the complexities of the hypothetical calculation. As of September 30, 2012, we had approximately $86,000 of undistributed earnings within our foreign subsidiaries which approximates the book over tax outside basis difference. We may record deferred taxes on book over tax outside basis differences related to certain foreign subsidiaries in the future depending upon a number of factors, decisions and events in connection with our proposed REIT conversion, including favorable indications from the U.S. Internal Revenue Service with regard to our REIT private letter ruling requests, finalization of countries to be included in the conversion plan, shareholder approval of certain modifications to our charter and final Board of Director approval of our conversion to a REIT.

        As of September 30, 2012, we have reclassified approximately $36,000 of long-term deferred income tax liabilities to current deferred income taxes (included within accrued expenses within current liabilities) and prepaid and other assets (included within current assets) within our consolidated balance sheet related to the depreciation recapture associated with our recharacterization of racking as real estate rather than personal property in conjunction with our potential REIT conversion.

        Financial instruments that potentially subject us to market risk consist principally of cash and cash equivalents (including money market funds and time deposits), restricted cash (primarily U.S. Treasuries) and accounts receivable. The only significant concentrations of liquid investments as of both December 31, 2011 and September 30, 2012 relate to cash and cash equivalents and restricted cash held on deposit with five global banks and one "Triple A" rated money market fund and six global banks and eight "Triple A" rated money market funds, respectively, which we consider to be large, highly-rated investment-grade institutions. As per our risk management investment policy, we limit exposure to concentration of credit risk by limiting the amount invested in any one mutual fund to a maximum of $50,000 or any one financial institution to a maximum of $75,000. As of December 31, 2011 and September 30, 2012, our cash and cash equivalents and restricted cash balance was $214,955 and $371,195, respectively, including money market funds and time deposits amounting to $181,823 and $352,315, respectively. A substantial portion of the money market funds is invested in U.S. Treasuries.

21


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

        Entities are permitted under GAAP to elect to measure many financial instruments and certain other items at either fair value or cost. We did not elect the fair value measurement option for any of our financial assets or liabilities.

        Our financial assets or liabilities are measured using inputs from the three levels of the fair value hierarchy. A financial asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

        The three levels of the fair value hierarchy are as follows:

        The following tables provide the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2011 and September 30, 2012, respectively:

 
   
  Fair Value Measurements at
December 31, 2011 Using
 
Description
  Total Carrying
Value at
December 31,
2011
  Quoted prices
in active
markets
(Level 1)
  Significant other
observable
inputs
(Level 2)
  Significant
unobservable
inputs
(Level 3)
 

Money Market Funds(1)

  $ 35,110   $   $ 35,110   $  

Time Deposits(1)

    146,713         146,713      

Trading Securities

    9,124     8,497 (2)   627 (1)    

Derivative Assets(3)

    2,803         2,803      

Derivative Liabilities(3)

    435         435      

22


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)


 
   
  Fair Value Measurements at
September 30, 2012 Using
 
Description
  Total Carrying
Value at
September 30,
2012
  Quoted prices
in active
markets
(Level 1)
  Significant other
observable
inputs
(Level 2)
  Significant
unobservable
inputs
(Level 3)
 

Money Market Funds(1)

  $ 192,214   $   $ 192,214   $  

Time Deposits(1)

    160,101         160,101      

Trading Securities

    10,419     10,063 (2)   356 (1)    

Derivative Assets(3)

    4         4      

Derivative Liabilities(3)

    5,779         5,779      

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

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

(3)
Our derivative assets and liabilities primarily relate to short-term (six months or less) foreign currency contracts that we have entered into to hedge our intercompany exposures denominated in British pounds sterling and Australian dollars. We calculate the fair value of such forward contracts by adjusting the spot rate utilized at the balance sheet date for translation purposes by an estimate of the forward points observed in active markets.

        Disclosures are required in the financial statements for items measured at fair value on a non-recurring basis. We did not have any material items that are measured at fair value on a non-recurring basis for the three and nine months ended September 30, 2012.

        In September 2011, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU No. 2011-08 allows, but does not require, entities to first assess qualitatively whether it is necessary to perform the two-step goodwill impairment test. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step impairment test is required; otherwise, no further testing is required. We adopted ASU No. 2011-08 as of January 1, 2012. The adoption of ASU No. 2011-08 did not have an impact on our consolidated financial position, results of operations or cash flows.

        The preparation of financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended. On an ongoing basis, we evaluate the estimates used. We base our estimates on historical experience, actuarial estimates, current conditions and various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis

23


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(2) Summary of Significant Accounting Policies (Continued)

for making judgments about the carrying values of assets and liabilities and are not readily apparent from other sources. Actual results may differ from these estimates.

        Accumulated other comprehensive items, net consists of foreign currency translation adjustments as of December, 31, 2011 and September 30, 2012, respectively.

        Other expense (income), net consists of the following:

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2011   2012   2011   2012  

Foreign currency transaction losses (gains), net

  $ 15,624   $ (1,131 ) $ 14,381   $ 8,055  

Debt extinguishment expense, net

        10,628     993     10,628  

Other, net

    1,007     (1,751 )   (5,080 )   (4,175 )
                   

  $ 16,631   $ 7,746   $ 10,294   $ 14,508  
                   

        We develop various software applications for internal use. Computer software costs associated with internal use software are expensed as incurred until certain capitalization criteria are met. Payroll and related costs for employees directly associated with, and devoting time to, the development of internal use computer software projects (to the extent time is spent directly on the project) are capitalized. Capitalization begins when the design stage of the application has been completed and it is probable that the project will be completed and used to perform the function intended. Depreciation begins when the software is placed in service. Computer software costs that are capitalized are periodically evaluated for impairment.

        Consolidated gain on disposal/write-down of property, plant and equipment, net was $1,515 for the nine months ended September 30, 2012 and consisted primarily of approximately $2,700 of gains associated with the sale of leased vehicles in North America, partially offset by approximately $700 of asset write-offs in North America and approximately $500 of asset write-offs associated with our Latin America operations. Consolidated gain on disposal/write-down of property, plant and equipment, net was $2,345 for the nine months ended September 30, 2011 and consisted primarily of: (1) a gain of approximately $3,200 associated with the disposal of a facility in North America; (2) a gain of approximately $1,900 associated with the sale of leased vehicles in North America; partially offset by (3) a loss of approximately $2,300 associated with certain third-party software licenses that were discontinued (including approximately $1,850 associated with our International Business segment and approximately $450 associated with our North American Business segment).

24


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(3) Derivative Instruments and Hedging Activities

        Every derivative instrument is required to be recorded in the balance sheet as either an asset or a liability measured at its fair value. Periodically, we acquire derivative instruments that are intended to hedge either cash flows or values that are subject to foreign exchange or other market price risk and not for trading purposes. We have formally documented our hedging relationships, including identification of the hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking each hedge transaction. Given the recurring nature of our revenues and the long-term nature of our asset base, we have the ability and the preference to use long-term, fixed interest rate debt to finance our business, thereby preserving our long-term returns on invested capital. We target approximately 75% of our debt portfolio to be fixed with respect to interest rates. Occasionally, we may use interest rate swaps as a tool to maintain our targeted level of fixed rate debt. In addition, we may use borrowings in foreign currencies, either obtained in the U.S. or by our foreign subsidiaries, to hedge foreign currency risk associated with our international investments. Sometimes we enter into currency swaps to temporarily hedge an overseas investment, such as a major acquisition, while we arrange permanent financing or to hedge our exposure due to foreign currency exchange movements related to our intercompany accounts with and between our foreign subsidiaries. As of December 31, 2011 and September 30, 2012, none of our derivative instruments contained credit-risk related contingent features.

        We have entered into a number of separate forward contracts to hedge our exposures in British pounds sterling and Australian dollars. As of September 30, 2012, we had (1) an outstanding forward contract to purchase $197,913 U.S. dollars and sell 125,000 British pounds sterling to hedge our intercompany exposures with our European operations and (2) an outstanding forward contract to purchase $75,900 U.S. dollars and sell 75,000 Australian dollars to hedge our intercompany exposures with our Australian subsidiary. At the maturity of the forward contracts, we may enter into new forward contracts to hedge movements in the underlying currencies. At the time of settlement, we either pay or receive the net settlement amount from the forward contract and recognize this amount in other (income) expense, net in the accompanying statement of operations as a realized foreign exchange gain or loss. At the end of each month, we mark the outstanding forward contracts to market and record an unrealized foreign exchange gain or loss for the mark-to-market valuation. We have not designated these forward contracts as hedges. During the three and nine months ended September 30, 2011, there were $68 in net cash receipts and $9,116 in net cash disbursements, respectively, included in cash from operating activities from continuing operations related to settlements associated with these foreign currency forward contracts. During the three and nine months ended September 30, 2012, there were $4 in net cash receipts and $3,783 in net cash disbursements, respectively, included in cash from operating activities from continuing operations related to settlements associated with these foreign currency forward contracts. The following table provides the fair value of our derivative instruments as

25


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(3) Derivative Instruments and Hedging Activities (Continued)

of December 31, 2011 and September 30, 2012 and their gains and losses for the three and nine months ended September 30, 2011 and 2012:

 
  Asset Derivatives  
 
  December 31, 2011   September 30, 2012  
Derivatives Not Designated as
Hedging Instruments
  Balance Sheet
Location
  Fair
Value
  Balance Sheet
Location
  Fair
Value
 

Foreign exchange contracts

  Prepaid expenses and other   $ 2,803   Prepaid expenses and other   $ 4  
                   

Total

      $ 2,803       $ 4  
                   

 

 
  Liability Derivatives  
 
  December 31, 2011   September 30, 2012  
Derivatives Not Designated as
Hedging Instruments
  Balance Sheet
Location
  Fair
Value
  Balance Sheet
Location
  Fair
Value
 

Foreign exchange contracts

  Accrued expenses   $ 435   Accrued expenses   $ 5,779  
                   

Total

      $ 435       $ 5,779  
                   

 

 
   
  Amount of (Gain)
Loss Recognized in
Income on Derivatives
 
 
   
  Three Months
Ended
September 30,
  Nine Months
Ended
September 30,
 
 
  Location of (Gain)
Loss Recognized in
Income on Derivative
 
Derivatives Not Designated as
Hedging Instruments
  2011   2012   2011   2012  

Foreign exchange contracts

  Other (income) expense, net   $ (5,971 ) $ 7,649   $ 299   $ 11,927  
                       

Total

      $ (5,971 ) $ 7,649   $ 299   $ 11,927  
                       

        We have designated a portion of our 63/4% Euro Senior Subordinated Notes due 2018 issued by IMI (the "63/4% Notes") as a hedge of net investment of certain of our Euro denominated subsidiaries. For the nine months ended September 30, 2011 and 2012, we designated on average 79,889 and 101,556 Euros, respectively, of the 63/4% Notes as a hedge of net investment of certain of our Euro denominated subsidiaries. As a result, we recorded foreign exchange gains of $11,271 ($7,057, net of tax) and $3,063 ($1,928, net of tax) for the three and nine months ended September 30, 2011, respectively, related to the change in fair value of such debt due to currency translation adjustments, which is a component of accumulated other comprehensive items, net included in stockholders' equity. We recorded foreign exchange losses of $2,303 ($1,401, net of tax) and $938 ($535, net of tax) for the three and nine months ended September 30, 2012, respectively, related to the change in fair value of such debt due to currency translation adjustments, which is a component of accumulated other comprehensive items, net included in stockholders' equity. As of September 30, 2012, cumulative net gains of $12,855, net of tax are recorded in accumulated other comprehensive items, net associated with this net investment hedge.

26


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(4) Acquisitions

        We account for acquisitions using the acquisition method of accounting, and, accordingly, the results of operations for each acquisition have been included in our consolidated results from their respective acquisition dates. Cash consideration for our various acquisitions was primarily provided through borrowings under our credit facilities and cash equivalents on-hand. The unaudited pro forma results of operations for the period ended September 30, 2012 are not presented due to the insignificant impact that the acquisitions completed in 2012 had on our consolidated results of operations.

        In April 2012, in order to enhance our existing operations in Brazil, we acquired the stock of Grupo Store, a records management and data protection business in Brazil with locations in Sao Paulo, Rio de Janeiro, Porto Alegre and Recife, for a purchase price of approximately $79,000 ($75,000, net of cash acquired). Included in the purchase price is approximately $8,000 being held in escrow to secure a working capital adjustment and the indemnification obligations of the former owners of the business ("Sellers") to IMI. The amounts held in escrow for purposes of the working capital adjustment will be distributed either to IMI or the Sellers based on the final agreed upon working capital amount. Unless paid to us in accordance with the terms of the agreement, all amounts remaining in escrow after the final working capital adjustment and any indemnification payments are paid out will be released to the Sellers in four annual installments, commencing on the two-year anniversary of the closing date.

        In May 2012, we acquired a controlling interest of our joint venture in Switzerland (Sispace AG), which provides storage rental and records management services, in a stock transaction for a cash purchase price of approximately $21,600. The carrying value of the 15% interest that we previously held and accounted for under the equity method of accounting amounted to approximately $1,700 as of the date of acquisition, and the fair value of such interest on the date of the acquisition of the controlling interest was approximately $2,700. This resulted in a gain being recorded to other income (expense), net of approximately $1,000 in the second quarter of 2012. The fair value of our previously held equity interest was derived by reducing the total estimated consideration for the controlling interest purchased by 30%, which represents management's estimate of the control premium paid, in order to derive the fair value of $2,700 for the 15% noncontrolling equity interest which we previously held. We determined the 30% control premium was appropriate after considering the size and location of the business acquired, the potential future profits expected to be generated by the Swiss entity and other publicly available market data.

27


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(4) Acquisitions (Continued)

        A summary of the cumulative consideration paid and the preliminary allocation of the purchase price paid for acquisitions in 2012 through September 30, 2012 is as follows:

Cash Paid (gross of cash acquired)

  $ 112,599  

Fair Value of Previously Held Equity Interests

    4,265  

Fair Value of Noncontrolling Interest

    1,000  
       

Total Consideration

    117,864  

Fair Value of Identifiable Assets Acquired:

       

Cash, Accounts Receivable, Prepaid Expense, Deferred Income Taxes and Other

    15,067  

Property, Plant and Equipment(1)

    7,275  

Customer Relationship Assets(2)

    50,380  

Other Assets

    5,533  

Liabilities Assumed and Deferred Income Taxes(3)

    (24,122 )
       

Total Fair Value of Identifiable Net Assets Acquired

    54,133  
       

Recorded Goodwill

  $ 63,731  
       

(1)
Consists primarily of racking, leasehold improvements and computer hardware and software.

(2)
The weighted average life of customer relationship assets associated with acquisitions to date in 2012 was 14 years.

(3)
Consists primarily of accounts payable, accrued expenses and deferred income taxes.

        Allocations of the purchase price for acquisitions completed in 2012 were based on estimates of the fair value of net assets acquired and are subject to adjustment. We are not aware of any information that would indicate that the final purchase price allocations will differ meaningfully from preliminary estimates. The purchase price allocations of the 2012 acquisitions are subject to finalization of the assessment of the fair value of intangible assets (primarily customer relationship assets), property, plant and equipment (primarily racking), leases, contingencies and income taxes (primarily deferred income taxes).

28


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(5) Debt

        Long-term debt consists of the following:

 
  December 31, 2011   September 30, 2012  
 
  Carrying
Amount
  Fair
Value
  Carrying
Amount
  Fair
Value
 

Revolving Credit Facility(1)

  $ 96,000   $ 96,000   $   $  

Term Loan Facility(1)

    487,500     487,500     468,750     468,750  

71/4% GBP Senior Subordinated Notes due 2014 (the "71/4% Notes")(2)(3)

    233,115     233,115     242,475     243,384  

65/8% Senior Subordinated Notes due 2016 (the "65/8% Notes")(2)(3)

    318,025     320,400          

71/2% CAD Senior Subordinated Notes due 2017 (the "Subsidiary Notes")(2)(4)

    171,273     174,698     177,914     184,141  

83/4% Senior Subordinated Notes due 2018 (the "83/4% Notes")(2)(3)

    200,000     209,000          

8% Senior Subordinated Notes due 2018 (the "8% Notes")(2)(3)

    49,806     47,607     49,827     55,979  

63/4% Euro Senior Subordinated Notes due 2018 (the "63/4% Notes")(2)(3)

    328,750     312,352     326,238     331,132  

73/4% Senior Subordinated Notes due 2019 (the "73/4% Notes")(2)(3)

    400,000     422,750     400,000     450,000  

8% Senior Subordinated Notes due 2020 (the "8% Notes due 2020")(2)(3)

    300,000     313,313     300,000     319,118  

83/8% Senior Subordinated Notes due 2021 (the "83/8% Notes")(2)(3)

    548,346     586,438     548,475     609,813  

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

            1,000,000     1,002,500  

Real Estate Mortgages, Capital Leases and Other(5)

    220,773     220,773     225,748     225,748  
                       

Total Long-term Debt

    3,353,588           3,739,427        

Less Current Portion

    (73,320 )         (71,380 )      
                       

Long-term Debt, Net of Current Portion

  $ 3,280,268         $ 3,668,047        
                       

(1)
The capital stock or other equity interests of most of our U.S. subsidiaries, and up to 66% of the capital stock or other equity interests of our first-tier foreign subsidiaries, are pledged to secure these debt instruments, together with all intercompany obligations of subsidiaries owed to us or to one of our U.S. subsidiary guarantors or Iron Mountain Canada Corporation ("Canada Company") and all promissory notes held by us or one of our U.S. subsidiary guarantors or Canada Company. The fair value of this long-term debt approximates the carrying value (as borrowings under these debt instruments are based on current variable market interest rates, which are subject to change based on our consolidated leverage ratio, as of December 31, 2011 and September 30, 2012, respectively).

29


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(5) Debt (Continued)

(2)
The fair values of these debt instruments are based on quoted market prices for these notes on December 31, 2011 and September 30, 2012, respectively.

(3)
Collectively, the "Parent Notes." IMI is the direct obligor on the Parent Notes, which are fully and unconditionally guaranteed, on a senior subordinated basis, by substantially all of its direct and indirect wholly owned U.S. subsidiaries (the "Guarantors"). These guarantees are joint and several obligations of the Guarantors. Canada Company and the remainder of our subsidiaries do not guarantee the Parent Notes.

(4)
Canada Company is the direct obligor on the Subsidiary Notes, which are fully and unconditionally guaranteed, on a senior subordinated basis, by IMI and the Guarantors. These guarantees are joint and several obligations of IMI and the Guarantors.

(5)
We believe the fair value of this debt approximates its carrying value.

        On June 27, 2011, we entered into a credit agreement that consists of (1) revolving credit facilities under which we can borrow, subject to certain limitations as defined in the credit agreement, up to an aggregate amount of $725,000 (including Canadian dollars, British pounds sterling and Euros, among other currencies) (the "Revolving Credit Facility") and (2) a $500,000 term loan facility (the "Term Loan Facility," and collectively with the Revolving Credit Facility, the "Credit Agreement"). We have the right to increase the aggregate amount available to be borrowed under the Credit Agreement up to a maximum of $1,800,000. The Revolving Credit Facility is supported by a group of 19 banks. IMI, Iron Mountain Information Management, Inc. ("IMIM"), Canada Company, Iron Mountain Europe (Group) Limited ("IME"), Iron Mountain Australia Pty Ltd., Iron Mountain Switzerland Gmbh and any other subsidiary of IMIM designated by IMIM (the "Other Subsidiaries") may, with the consent of the administrative agent, as defined in the Credit Agreement, borrow under certain of the following tranches of the Revolving Credit Facility: (1) tranche one in the amount of $400,000 is available to IMI and IMIM in U.S. dollars, British pounds sterling and Euros; (2) tranche two in the amount of $150,000 is available to IMI or IMIM in either U.S. dollars or Canadian dollars and available to Canada Company in Canadian dollars; and (3) tranche three in the amount of $175,000 is available to IMI or IMIM and the Other Subsidiaries in U.S. dollars, Canadian dollars, British pounds sterling, Euros and Australian dollars, among others. The Revolving Credit Facility terminates on June 27, 2016, at which point all revolving credit loans under such facility become due. With respect to the Term Loan Facility, loan payments are required through maturity on June 27, 2016 in equal quarterly installments of the aggregate annual amounts based upon the following percentage of the original principal amount in the table below (except that each of the first three quarterly installments in the fifth year shall be

30


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(5) Debt (Continued)

10% of the original principal amount and the final quarterly installment in the fifth year shall be 35% of the original principal):

Year Ending
  Percentage  

June 30, 2012

    5 %

June 30, 2013

    5 %

June 30, 2014

    10 %

June 30, 2015

    15 %

June 27, 2016

    65 %

        The Term Loan Facility may be prepaid without penalty or premium, in whole or in part, at any time. IMI and IMIM guarantee the obligations of each of the subsidiary borrowers. The capital stock or other equity interests of most of the U.S. subsidiaries, and up to 66% of the capital stock or other equity interests of our first-tier foreign subsidiaries, are pledged to secure the Credit Agreement, together with all intercompany obligations of foreign subsidiaries owed to us or to one of our U.S. subsidiary guarantors. The interest rate on borrowings under the Credit Agreement varies depending on our choice of interest rate and currency options, plus an applicable margin, which varies based on certain financial ratios. Additionally, the Credit Agreement requires the payment of a commitment fee on the unused portion of the Revolving Credit Facility, which fee ranges from between 0.3% to 0.5% based on certain financial ratios. There are also fees associated with any outstanding letters of credit. As of September 30, 2012, we had no outstanding borrowings under the Revolving Credit Facility and we had various outstanding letters of credit totaling $2,939. The remaining availability under the Revolving Credit Facility on September 30, 2012, based on IMI's leverage ratio, which is calculated based on the last 12 months' earnings before interest, taxes, depreciation and amortization ("EBITDA") and other adjustments as defined in the Credit Agreement and current external debt, was $722,061. The interest rate in effect under the Term Loan Facility was 2.3% as of September 30, 2012. For the three and nine months ended September 30, 2011, we recorded commitment fees and letters of credit fees of $650 and $1,516, respectively, and for the three and nine months ended September 30, 2012, we recorded commitment fees and letters of credit fees of $562 and $1,611, respectively, based on the unused balances under our revolving credit facilities and outstanding letters of credit.

        In August 2012, we completed an underwritten public offering of $1.0 billion in aggregate principal amount of our 53/4% Notes, which were issued at 100% of par. Our net proceeds of $985,000, after paying the underwriters' discounts and commissions, were used to redeem all of our outstanding 65/8% Notes and 83/4% Notes and to repay existing indebtedness under our Revolving Credit Facility, and the balance will be used for general corporate purposes, including funding a portion of the costs we expect to incur in connection with our proposed conversion to a REIT.

        In August 2012, we redeemed (1) the $320,000 aggregate principal amount outstanding of our 65/8% Notes at 100% of par, plus accrued and unpaid interest, and (2) the $200,000 aggregate principal amount outstanding of our 83/4% Notes at 102.9% of par, plus accrued and unpaid interest. We recorded a charge to other expense (income), net of $10,628 in the third quarter of 2012 related to the early extinguishment of the 65/8% Notes and 83/4% Notes. This charge consists of the call premium, original issue discounts and deferred financing costs related to the 65/8% Notes and 83/4% Notes.

31


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(5) Debt (Continued)

        The Credit Agreement, our indentures and other agreements governing our indebtedness contain certain restrictive financial and operating covenants, including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take certain other corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under the Credit Agreement, our indentures or other agreements governing our indebtedness. The Credit Agreement, as well as our indentures, use EBITDA-based calculations as primary measures of financial performance, including leverage and fixed charge coverage ratios. IMI's revolving credit and term leverage ratio was 3.4 and 3.6 as of December 31, 2011 and September 30, 2012, respectively, compared to a maximum allowable ratio of 5.5. Similarly, our bond leverage ratio, per the indentures, was 3.9 and 4.5 as of December 31, 2011 and September 30, 2012, respectively, compared to a maximum allowable ratio of 6.5. IMI's revolving credit and term loan fixed charge coverage ratio was 1.5 and 1.4 as of December 31, 2011 and September 30, 2012, respectively, compared to a minimum allowable ratio of 1.2. Noncompliance with these leverage and fixed charge coverage ratios would have a material adverse effect on our financial condition and liquidity.

(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors

        The following data summarizes the consolidating results of IMI on the equity method of accounting as of December 31, 2011 and September 30, 2012 and for the three and nine months ended September 30, 2011 and 2012.

        The Parent Notes and the Subsidiary Notes are guaranteed by the subsidiaries referred to below as the "Guarantors." These subsidiaries are wholly owned by the Parent. The guarantees are full and unconditional, as well as joint and several.

32


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)

        Additionally, IMI guarantees the Subsidiary Notes, which were issued by Canada Company. Canada Company does not guarantee the Parent Notes. The other subsidiaries that do not guarantee the Parent Notes or the Subsidiary Notes are referred to below as the "Non-Guarantors."

 
  December 31, 2011  
 
  Parent   Guarantors   Canada
Company
  Non-
Guarantors
  Eliminations   Consolidated  

Assets

                                     

Current Assets:

                                     

Cash and Cash Equivalents

  $ 3,428   $ 10,750   $ 68,907   $ 96,760   $   $ 179,845  

Restricted Cash

    35,110                     35,110  

Accounts Receivable

        334,658     40,115     168,694         543,467  

Intercompany Receivable

    905,451         4,639         (910,090 )    

Other Current Assets

    2,016     103,899     3,323     40,538     (1,004 )   148,772  

Assets of Discontinued Operations

                7,256         7,256  
                           

Total Current Assets

    946,005     449,307     116,984     313,248     (911,094 )   914,450  

Property, Plant and Equipment, Net

    1,490     1,480,785     200,755     724,053         2,407,083  

Other Assets, Net:

                                     

Long-term Notes Receivable from Affiliates and Intercompany Receivable

    928,182     1,000     2,961     15,010     (947,153 )    

Investment in Subsidiaries

    1,828,712     1,563,690             (3,392,402 )    

Goodwill

        1,529,359     196,989     527,920         2,254,268  

Other

    27,226     240,557     9,804     187,870         465,457  
                           

Total Other Assets, Net

    2,784,120     3,334,606     209,754     730,800     (4,339,555 )   2,719,725  
                           

Total Assets

  $ 3,731,615   $ 5,264,698   $ 527,493   $ 1,768,101   $ (5,250,649 ) $ 6,041,258  
                           

Liabilities and Equity

                                     

Intercompany Payable

  $   $ 856,808   $   $ 53,282   $ (910,090 ) $  

Current Portion of Long-term Debt

    658     46,967     2,658     23,037         73,320  

Liabilities of Discontinued Operations

                3,317         3,317  

Total Other Current Liabilities

    100,921     453,648     31,407     187,421     (1,004 )   772,393  

Long-term Debt, Net of Current Portion

    2,378,040     630,118     185,953     86,157         3,280,268  

Long-term Notes Payable to Affiliates and Intercompany Payable

    1,000     946,153             (947,153 )    

Other Long-term Liabilities

    5,308     528,897     31,418     92,081         657,704  

Commitments and Contingencies (See Note 8)

                                     

Total Iron Mountain Incorporated Stockholders' Equity

    1,245,688     1,802,107     276,057     1,314,238     (3,392,402 )   1,245,688  

Noncontrolling Interests

                8,568         8,568  
                           

Total Equity

    1,245,688     1,802,107     276,057     1,322,806     (3,392,402 )   1,254,256  
                           

Total Liabilities and Equity

  $ 3,731,615   $ 5,264,698   $ 527,493   $ 1,768,101   $ (5,250,649 ) $ 6,041,258  
                           

33


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)


 
  September 30, 2012  
 
  Parent   Guarantors   Canada
Company
  Non-
Guarantors
  Eliminations   Consolidated  

Assets

                                     

Current Assets:

                                     

Cash and Cash Equivalents

  $ 40,000   $ 106,994   $ 85,456   $ 102,133   $   $ 334,583  

Restricted Cash

    36,612                     36,612  

Accounts Receivable

        353,928     46,605     175,967         576,500  

Intercompany Receivable

    1,094,814         6,687         (1,101,501 )    

Other Current Assets

    52     71,462     5,082     41,693         118,289  
                           

Total Current Assets

    1,171,478     532,384     143,830     319,793     (1,101,501 )   1,065,984  

Property, Plant and Equipment, Net

    1,353     1,451,563     206,764     750,444         2,410,124  

Other Assets, Net:

                                     

Long-term Notes Receivable from Affiliates and Intercompany Receivable

    1,124,875     1,000     4,557         (1,130,432 )    

Investment in Subsidiaries

    1,927,238     1,663,062             (3,590,300 )    

Goodwill

        1,534,476     204,627     596,996         2,336,099  

Other

    40,373     243,079     10,673     221,357     (114 )   515,368  
                           

Total Other Assets, Net

    3,092,486     3,441,617     219,857     818,353     (4,720,846 )   2,851,467  
                           

Total Assets

  $ 4,265,317   $ 5,425,564   $ 570,451   $ 1,888,590   $ (5,822,347 ) $ 6,327,575  
                           

Liabilities and Equity

                                     

Intercompany Payable

  $   $ 985,439   $   $ 116,062   $ (1,101,501 ) $  

Current Portion of Long-term Debt

        52,354     2,761     16,265         71,380  

Total Other Current Liabilities

    106,644     405,428     25,690     163,473         701,235  

Long-term Debt, Net of Current Portion

    2,867,014     518,575     193,947     88,511         3,668,047  

Long-term Notes Payable to Affiliates and Intercompany Payable

    1,000     1,124,424         5,008     (1,130,432 )    

Other Long-term Liabilities

    3,450     437,865     35,422     111,165     (114 )   587,788  

Commitments and Contingencies (See Note 8)

                                     

Total Iron Mountain Incorporated Stockholders' Equity

    1,287,209     1,901,479     312,631     1,376,190     (3,590,300 )   1,287,209  

Noncontrolling Interests

                11,916         11,916  
                           

Total Equity

    1,287,209     1,901,479     312,631     1,388,106     (3,590,300 )   1,299,125  
                           

Total Liabilities and Equity

  $ 4,265,317   $ 5,425,564   $ 570,451   $ 1,888,590   $ (5,822,347 ) $ 6,327,575  
                           

34


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)

 
  Three Months Ended September 30, 2011  
 
  Parent   Guarantors   Canada
Company
  Non-
Guarantors
  Eliminations   Consolidated  

Revenues:

                                     

Storage Rental

  $   $ 290,156   $ 30,368   $ 106,797   $   $ 427,321  

Service

        218,291     29,849     92,845         340,985  
                           

Total Revenues

        508,447     60,217     199,642         768,306  

Operating Expenses:

                                     

Cost of Sales (Excluding Depreciation and Amortization)

        188,831     21,594     95,936         306,361  

Selling, General and Administrative

    12     144,057     8,054     56,880         209,003  

Depreciation and Amortization

    36     48,478     4,496     23,894         76,904  

Intangible Impairments

                42,500         42,500  

Loss (Gain) on Disposal/Write-down of Property, Plant and Equipment, Net

        112     (164 )   (1,609 )       (1,661 )
                           

Total Operating Expenses

    48     381,478     33,980     217,601         633,107  
                           

Operating (Loss) Income

    (48 )   126,969     26,237     (17,959 )       135,199  

Interest Expense (Income), Net

    40,374     (19,535 )   11,620     17,588         50,047  

Other (Income) Expense, Net

    (21,661 )   (2,794 )   3     41,083         16,631  
                           

(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes

    (18,761 )   149,298     14,614     (76,630 )       68,521  

Provision (Benefit) for Income Taxes

        17,962     1,466     (1,301 )       18,127  

Equity in the (Earnings) Losses of Subsidiaries, Net of Tax

    (56,099 )   85,608             (29,509 )    
                           

Income (Loss) from Continuing Operations

    37,338     45,728     13,148     (75,329 )   29,509     50,394  

(Loss) Income from Discontinued Operations, Net of Tax

        (622 )       (18,758 )         (19,380 )

Gain (Loss) on Sale of Discontinued Operations, Net of Tax

        6,911                 6,911  
                           

Net Income (Loss)

    37,338     52,017     13,148     (94,087 )   29,509     37,925  

Less: Net Income (Loss) Attributable to Noncontrolling Interest

                587         587  
                           

Net Income (Loss) Attributable to Iron Mountain Incorporated

  $ 37,338   $ 52,017   $ 13,148   $ (94,674 ) $ 29,509   $ 37,338  
                           

Net Income (Loss)

  $ 37,338   $ 52,017   $ 13,148   $ (94,087 ) $ 29,509   $ 37,925  

Other Comprehensive Income (Loss):

                                     

Foreign Currency Translation Adjustments

    7,057     1,856     (20,807 )   (54,394 )       (66,288 )

Equity in Other Comprehensive (Loss) Income of Subsidiaries

    (72,306 )   (74,162 )           146,468      
                           

Total Other Comprehensive (Loss) Income

    (65,249 )   (72,306 )   (20,807 )   (54,394 )   146,468     (66,288 )
                           

Comprehensive (Loss) Income

    (27,911 )   (20,289 )   (7,659 )   (148,481 )   175,977     (28,363 )

Comprehensive (Loss) Income Attributable to Noncontrolling Interests

                (452 )       (452 )
                           

Comprehensive (Loss) Income Attributable to Iron Mountain Incorporated

  $ (27,911 ) $ (20,289 ) $ (7,659 ) $ (148,029 ) $ 175,977   $ (27,911 )
                           

35


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)


 
  Three Months Ended September 30, 2012  
 
  Parent   Guarantors   Canada
Company
  Non-
Guarantors
  Eliminations   Consolidated  

Revenues:

                                     

Storage Rental

  $   $ 289,152   $ 31,514   $ 113,999   $   $ 434,665  

Service

        192,799     28,257     92,404         313,460  
                           

Total Revenues

        481,951     59,771     206,403         748,125  

Operating Expenses:

                                     

Cost of Sales (Excluding Depreciation and Amortization)

        183,973     23,369     103,002         310,344  

Selling, General and Administrative

    51     143,023     8,337     53,087         204,498  

Depreciation and Amortization

    81     48,496     4,673     27,694         80,944  

(Gain) Loss on Disposal/Write-down of Property, Plant and Equipment, Net

        (1,259 )   (13 )   (355 )       (1,627 )
                           

Total Operating Expenses

    132     374,233     36,366     183,428         594,159  
                           

Operating (Loss) Income

    (132 )   107,718     23,405     22,975         153,966  

Interest Expense (Income), Net

    50,534     (5,442 )   11,425     4,864         61,381  

Other Expense (Income), Net

    26,405     (1,610 )   (17 )   (17,032 )       7,746  
                           

(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes

    (77,071 )   114,770     11,997     35,143         84,839  

Provision (Benefit) for Income Taxes

        25,355     1,969     3,796         31,120  

Equity in the (Earnings) Losses of Subsidiaries, Net of Tax

    (129,880 )   (39,288 )           169,168      
                           

Income (Loss) from Continuing Operations

    52,809     128,703     10,028     31,347     (169,168 )   53,719  

Income (Loss) from Discontinued Operations, Net of Tax

        557         (525 )       32  

Gain (Loss) on Sale of Discontinued Operations, Net of Tax

                         
                           

Net Income (Loss)

    52,809     129,260     10,028     30,822     (169,168 )   53,751  

Less: Net Income (Loss) Attributable to Noncontrolling Interests

                942         942  
                           

Net Income (Loss) Attributable to Iron Mountain Incorporated

  $ 52,809   $ 129,260   $ 10,028   $ 29,880   $ (169,168 ) $ 52,809  
                           

Net Income (Loss)

  $ 52,809   $ 129,260   $ 10,028   $ 30,822   $ (169,168 ) $ 53,751  

Other Comprehensive Income (Loss):

                                     

Foreign Currency Translation Adjustments

    (1,402 )   (1,235 )   9,907     12,825         20,095  

Equity in Other Comprehensive Income (Loss) of Subsidiaries

    20,957     22,192             (43,149 )    
                           

Total Other Comprehensive Income (Loss)

    19,555     20,957     9,907     12,825     (43,149 )   20,095  
                           

Comprehensive Income (Loss)

    72,364     150,217     19,935     43,647     (212,317 )   73,846  

Comprehensive Income (Loss) Attributable to Noncontrolling Interests

                1,482         1,482  
                           

Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated

  $ 72,364   $ 150,217   $ 19,935   $ 42,165   $ (212,317 ) $ 72,364  
                           

36


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)

 
  Nine Months Ended September 30, 2011  
 
  Parent   Guarantors   Canada
Company
  Non-
Guarantors
  Eliminations   Consolidated  

Revenues:

                                     

Storage Rental

  $   $ 850,401   $ 91,738   $ 320,033   $   $ 1,262,172  

Service

        637,891     88,295     284,508         1,010,694  
                           

Total Revenues

        1,488,292     180,033     604,541         2,272,866  

Operating Expenses:

                                     

Cost of Sales (Excluding Depreciation and Amortization)

        568,989     68,596     292,308         929,893  

Selling, General and Administrative

    175     434,189     28,682     182,101         645,147  

Depreciation and Amortization

    112     145,855     14,298     75,670         235,935  

Intangible Impairments

                42,500         42,500  

(Gain) Loss on Disposal/Write-down of Property, Plant and Equipment, Net

        (482 )   (362 )   (1,501 )       (2,345 )
                           

Total Operating Expenses

    287     1,148,551     111,214     591,078         1,851,130  
                           

Operating (Loss) Income

    (287 )   339,741     68,819     13,463         421,736  

Interest Expense (Income), Net

    126,424     (62,586 )   33,708     49,723         147,269  

Other Expense (Income), Net

    16,775     2,074     289     (8,844 )       10,294  
                           

(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes

    (143,486 )   400,253     34,822     (27,416 )       264,173  

Provision (Benefit) for Income Taxes

        49,152     13,882     2,109         65,143  

Equity in the (Earnings) Losses of Subsidiaries, Net of Tax

    (506,968 )   42,323             464,645      
                           

Income (Loss) from Continuing Operations

    363,482     308,778     20,940     (29,525 )   (464,645 )   199,030  

(Loss) Income from Discontinued Operations, Net of Tax

        (13,490 )       (20,209 )       (33,699 )

Gain (Loss) on Sale of Discontinued Operations, Net of Tax

        200,260                 200,260  
                           

Net Income (Loss)

    363,482     495,548     20,940     (49,734 )   (464,645 )   365,591  

Less: Net Income (Loss) Attributable to Noncontrolling Interest

                2,109         2,109  
                           

Net Income (Loss) Attributable to Iron Mountain Incorporated

  $ 363,482   $ 495,548   $ 20,940   $ (51,843 ) $ (464,645 ) $ 363,482  
                           

Net Income (Loss)

  $ 363,482   $ 495,548   $ 20,940   $ (49,734 ) $ (464,645 ) $ 365,591  

Other Comprehensive Income (Loss):

                                     

Foreign Currency Translation Adjustments

    1,928     2,142     (11,978 )   (16,906 )       (24,814 )

Equity in Other Comprehensive (Loss) Income of Subsidiaries             

    (25,858 )   (28,000 )           53,858      
                           

Total Other Comprehensive (Loss) Income

    (23,930 )   (25,858 )   (11,978 )   (16,906 )   53,858     (24,814 )
                           

Comprehensive Income (Loss)

    339,552     469,690     8,962     (66,640 )   (410,787 )   340,777  

Comprehensive Income (Loss) Attributable to Noncontrolling Interests

                1,225         1,225  
                           

Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated

  $ 339,552   $ 469,690   $ 8,962   $ (67,865 ) $ (410,787 ) $ 339,552  
                           

37


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)


 
  Nine Months Ended September 30, 2012  
 
  Parent   Guarantors   Canada
Company
  Non-
Guarantors
  Eliminations   Consolidated  

Revenues:

                                     

Storage Rental

  $   $ 865,622   $ 92,662   $ 335,158   $   $ 1,293,442  

Service

        592,793     86,091     274,462         953,346  
                           

Total Revenues

        1,458,415     178,753     609,620         2,246,788  

Operating Expenses:

                                     

Cost of Sales (Excluding Depreciation and Amortization)

        564,552     72,401     301,749         938,702  

Selling, General and Administrative

    117     425,645     26,374     166,537         618,673  

Depreciation and Amortization

    238     144,127     13,784     78,313         236,462  

(Gain) Loss on Disposal/Write-down of Property, Plant and Equipment, Net             

        (2,003 )   (36 )   524         (1,515 )
                           

Total Operating Expenses

    355     1,132,321     112,523     547,123         1,792,322  
                           

Operating (Loss) Income

    (355 )   326,094     66,230     62,497         454,466  

Interest Expense (Income), Net

    144,605     (14,163 )   34,179     13,760         178,381  

Other Expense (Income), Net

    25,424     (2,395 )   (36 )   (8,485 )       14,508  
                           

(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes

    (170,384 )   342,652     32,087     57,222         261,577  

Provision (Benefit) for Income Taxes

        86,255     9,463     9,626         105,344  

Equity in the (Earnings) Losses of Subsidiaries, Net of Tax

    (316,598 )   (64,746 )           381,344      
                           

Income (Loss) from Continuing Operations

    146,214     321,143     22,624     47,596     (381,344 )   156,233  

Income (Loss) from Discontinued Operations, Net of Tax

        644         (6,344 )       (5,700 )

Gain (Loss) on Sale of Discontinued Operations, Net of Tax

                (1,885 )       (1,885 )
                           

Net Income (Loss)

    146,214     321,787     22,624     39,367     (381,344 )   148,648  

Less: Net Income (Loss) Attributable to Noncontrolling Interests

                2,434         2,434  
                           

Net Income (Loss) Attributable to Iron Mountain Incorporated

  $ 146,214   $ 321,787   $ 22,624   $ 36,933   $ (381,344 ) $ 146,214  
                           

Net Income (Loss)

  $ 146,214   $ 321,787   $ 22,624   $ 39,367   $ (381,344 ) $ 148,648  

Other Comprehensive Income (Loss):

                                     

Foreign Currency Translation Adjustments

    (534 )   (619 )   11,199     11,151         21,197  

Equity in Other Comprehensive Income (Loss) of Subsidiaries

    21,007     21,626             (42,633 )    
                           

Total Other Comprehensive Income (Loss)

    20,473     21,007     11,199     11,151     (42,633 )   21,197  
                           

Comprehensive Income (Loss)

    166,687     342,794     33,823     50,518     (423,977 )   169,845  

Comprehensive Income (Loss) Attributable to Noncontrolling Interests

                3,158         3,158  
                           

Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated

  $ 166,687   $ 342,794   $ 33,823   $ 47,360   $ (423,977 ) $ 166,687  
                           

38


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)

 
  Nine Months Ended September 30, 2011  
 
  Parent   Guarantors   Canada
Company
  Non-
Guarantors
  Eliminations   Consolidated  

Cash Flows from Operating Activities:

                                     

Cash Flows from Operating Activities—Continuing Operations

  $ (130,955 ) $ 508,891   $ 21,816   $ 51,398   $   $ 451,150  

Cash Flows from Operating Activities—Discontinued Operations

        (39,417 )       (775 )       (40,192 )
                           

Cash Flows from Operating Activities

    (130,955 )   469,474     21,816     50,623         410,958  

Cash Flows from Investing Activities:

                                     

Capital expenditures

        (82,884 )   (7,814 )   (57,401 )       (148,099 )

Cash paid for acquisitions, net of cash acquired

        (5,378 )   (58 )   (69,736 )       (75,172 )

Intercompany loans to subsidiaries

    1,322,090     1,594             (1,323,684 )    

Investment in subsidiaries

    (1,228 )   (1,228 )           2,456      

Investment in restricted cash

    (4 )                   (4 )

Additions to customer relationship and acquisition costs

        (12,716 )   (406 )   (3,747 )       (16,869 )

Investment in joint ventures

                (335 )       (335 )

Proceeds from sales of property and equipment and other, net

        313     41     3,790         4,144  
                           

Cash Flows from Investing Activities—Continuing Operations

    1,320,858     (100,299 )   (8,237 )   (127,429 )   (1,321,228 )   (236,335 )

Cash Flows from Investing Activities—Discontinued Operations

        371,611         (508 )       371,103  
                           

Cash Flows from Investing Activities

    1,320,858     271,312     (8,237 )   (127,937 )   (1,321,228 )   134,768  

Cash Flows from Financing Activities:

                                     

Repayment of revolving credit and term loan facilities and other debt

    (396,200 )   (1,447,006 )   (37,679 )   (59,856 )       (1,940,741 )

Proceeds from revolving credit and term loan facilities and other debt

        1,918,500     85,932     53,403         2,057,835  

Early retirement of senior subordinated notes

    (231,255 )                   (231,255 )

Net proceeds from sales of senior subordinated notes

    394,000                     394,000  

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

                531         531  

Intercompany loans from parent

        (1,314,038 )   (95,905 )   86,259     1,323,684      

Equity contribution from parent

        1,228         1,228     (2,456 )    

Stock repurchases

    (548,455 )                   (548,455 )

Parent cash dividends

    (125,739 )                   (125,739 )

Proceeds from exercise of stock options and employee stock purchase plan

    81,887                     81,887  

Excess tax benefits from stock-based compensation

    578                     578  

Payment of debt financing costs

    (566 )   (8,294 )               (8,860 )
                           

Cash Flows from Financing Activities—Continuing Operations

    (825,750 )   (849,610 )   (47,652 )   81,565     1,321,228     (320,219 )

Cash Flows from Financing Activities—Discontinued Operations

                (415 )       (415 )
                           

Cash Flows from Financing Activities

    (825,750 )   (849,610 )   (47,652 )   81,150     1,321,228     (320,634 )

Effect of exchange rates on cash and cash equivalents

            1,516     (4,422 )       (2,906 )
                           

Increase (Decrease) in cash and cash equivalents

    364,153     (108,824 )   (32,557 )   (586 )       222,186  

Cash and cash equivalents, beginning of period

    13,909     121,584     37,652     85,548         258,693  
                           

Cash and cash equivalents, end of period

  $ 378,062   $ 12,760   $ 5,095   $ 84,962   $   $ 480,879  
                           

39


Table of Contents


IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(6) Selected Consolidated Financial Statements of Parent, Guarantors, Canada Company and Non-Guarantors (Continued)


 
  Nine Months Ended September 30, 2012  
 
  Parent   Guarantors   Canada
Company
  Non-
Guarantors
  Eliminations   Consolidated  

Cash Flows from Operating Activities:

                                     

Cash Flows from Operating Activities—Continuing Operations

  $ (139,356 ) $ 357,066   $ 26,966   $ 66,977   $   $ 311,653  

Cash Flows from Operating Activities—Discontinued Operations

        (8,814 )       (2,102 )       (10,916 )
                           

Cash Flows from Operating Activities

    (139,356 )   348,252     26,966     64,875         300,737  

Cash Flows from Investing Activities:

                                     

Capital expenditures

        (86,249 )   (9,014 )   (70,199 )       (165,462 )

Cash paid for acquisitions, net of cash acquired

        (9,218 )       (97,003 )       (106,221 )

Intercompany loans to subsidiaries

    (93,883 )   (100,085 )           193,968      

Investment in subsidiaries

    (36,372 )   (36,372 )           72,744      

Investment in restricted cash

    (1,502 )                   (1,502 )

Additions to customer relationship and acquisition costs

        (9,582 )   (1,566 )   (2,229 )       (13,377 )

Investment in joint ventures

    (2,330 )                   (2,330 )

Proceeds from sales of property and equipment and other, net

        1,905     5     (179 )       1,731  
                           

Cash Flows from Investing Activities—Continuing Operations

    (134,087 )   (239,601 )   (10,575 )   (169,610 )   266,712     (287,161 )

Cash Flows from Investing Activities—Discontinued Operations

        (1,982 )       (4,154 )       (6,136 )
                           

Cash Flows from Investing Activities

    (134,087 )   (241,583 )   (10,575 )   (173,764 )   266,712     (293,297 )

Cash Flows from Financing Activities:

                                     

Repayment of revolving credit and term loan facilities and other debt

        (2,735,792 )   (2,235 )   (65,449 )       (2,803,476 )

Proceeds from revolving credit and term loan facilities and other debt

        2,599,000         38,534         2,637,534  

Early retirement of senior subordinated notes

    (525,834 )                   (525,834 )

Net proceeds from sales of senior subordinated notes

    985,000                     985,000  

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

                416         416  

Intercompany loans from parent

        90,745     (503 )   103,726     (193,968 )    

Equity contribution from parent

        36,372         36,372     (72,744 )    

Stock repurchases

    (38,052 )                   (38,052 )

Parent cash dividends

    (132,307 )                   (132,307 )

Proceeds from exercise of stock options and employee stock purchase plan

    22,328                     22,328  

Excess tax benefits from stock-based compensation

    309                     309  

Payment of debt finacing costs

    (1,429 )   (750 )               (2,179 )
                           

Cash Flows from Financing Activities—Continuing Operations

    310,015     (10,425 )   (2,738 )   113,599     (266,712 )   143,739  

Cash Flows from Financing Activities—Discontinued Operations

    &nbs