IRM 2015.3.31-10Q
Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
(Mark One)
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Quarterly Period Ended March 31, 2015
 
OR
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Transition Period from                        to                       
 
Commission file number 1-13045
 
IRON MOUNTAIN INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or other Jurisdiction of
Incorporation or Organization)
23-2588479
(I.R.S. Employer
Identification No.)
One Federal Street, Boston, Massachusetts 02110
(Address of Principal Executive Offices, Including Zip Code)

(617) 535-4766
(Registrant's Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
Number of shares of the registrant's Common Stock outstanding at April 24, 2015: 210,555,361



Table of Contents

IRON MOUNTAIN INCORPORATED
Index

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

Table of Contents

Part I. Financial Information
Item 1.    Unaudited Consolidated Financial Statements
IRON MOUNTAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In Thousands, except Share and Per Share Data)
(Unaudited)
 
December 31, 2014
 
March 31, 2015
ASSETS
 

 
 

Current Assets:
 

 
 

Cash and cash equivalents
$
125,933

 
$
119,605

Restricted cash
33,860

 
20,000

Accounts receivable (less allowances of $32,141 and $36,538 as of December 31, 2014 and March 31, 2015, respectively)
604,265

 
590,026

Deferred income taxes
14,192

 
21,052

Prepaid expenses and other
139,469

 
136,790

Total Current Assets
917,719

 
887,473

Property, Plant and Equipment:
 

 
 

Property, plant and equipment
4,668,705

 
4,597,207

Less—Accumulated depreciation
(2,117,978
)
 
(2,120,405
)
Property, Plant and Equipment, net
2,550,727

 
2,476,802

Other Assets, net:
 

 
 

Goodwill
2,423,783

 
2,358,561

Customer relationships and acquisition costs
607,837

 
580,441

Deferred financing costs
47,077

 
45,061

Other
23,199

 
23,116

Total Other Assets, net
3,101,896

 
3,007,179

Total Assets
$
6,570,342

 
$
6,371,454

LIABILITIES AND EQUITY
 

 
 

Current Liabilities:
 

 
 

Current portion of long-term debt
$
52,095

 
$
54,483

Accounts payable
203,014

 
184,406

Accrued expenses
404,485

 
296,247

Deferred revenue
197,142

 
185,195

Total Current Liabilities
856,736

 
720,331

Long-term Debt, net of current portion
4,611,436

 
4,667,359

Other Long-term Liabilities
73,506

 
72,363

Deferred Rent
104,051

 
99,021

Deferred Income Taxes
54,658

 
55,878

Commitments and Contingencies (see Note 7)


 


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 209,818,812 shares and 210,527,237 shares as of December 31, 2014 and March 31, 2015, respectively)
2,098

 
2,105

Additional paid-in capital
1,588,841

 
1,590,828

Earnings in excess of distributions (Distributions in excess of earnings)
(659,553
)
 
(718,996
)
Accumulated other comprehensive items, net
(75,031
)
 
(131,082
)
Total Iron Mountain Incorporated Stockholders' Equity
856,355

 
742,855

Noncontrolling Interests
13,600

 
13,647

Total Equity
869,955

 
756,502

Total Liabilities and Equity
$
6,570,342

 
$
6,371,454

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

3

Table of Contents

IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)
 
Three Months Ended
March 31,
 
2014
 
2015
Revenues:
 

 
 

Storage rental
$
458,889

 
$
458,872

Service
311,237

 
290,414

Total Revenues
770,126

 
749,286

Operating Expenses:
 

 
 

Cost of sales (excluding depreciation and amortization)
335,145

 
321,654

Selling, general and administrative
214,780

 
196,414

Depreciation and amortization
86,433

 
85,951

Loss on disposal/write-down of property, plant and equipment (excluding real estate), net
1,152

 
333

Total Operating Expenses
637,510

 
604,352

Operating Income
132,616

 
144,934

Interest Expense, Net (includes Interest Income of $1,526 and $814 for the three months ended March 31, 2014 and 2015, respectively)
62,312

 
64,898

Other Expense, Net
5,317

 
22,349

Income from Continuing Operations Before Provision for Income Taxes and Gain on Sale of Real Estate
64,987

 
57,687

Provision for Income Taxes
29,734

 
15,948

Gain on Sale of Real Estate, Net of Tax
(7,468
)
 

Income from Continuing Operations
42,721

 
41,739

Loss from Discontinued Operations, Net of Tax
(612
)
 

Net Income
42,109

 
41,739

Less: Net Income Attributable to Noncontrolling Interests
442

 
643

Net Income Attributable to Iron Mountain Incorporated
$
41,667

 
$
41,096

Earnings (Losses) per Share—Basic:
 

 
 

Income from Continuing Operations
$
0.22

 
$
0.20

Total Loss from Discontinued Operations
$

 
$

Net Income Attributable to Iron Mountain Incorporated
$
0.22

 
$
0.20

Earnings (Losses) per Share—Diluted:
 

 
 

Income from Continuing Operations
$
0.22

 
$
0.20

Total Loss from Discontinued Operations
$

 
$

Net Income Attributable to Iron Mountain Incorporated
$
0.22

 
$
0.19

Weighted Average Common Shares Outstanding—Basic
191,879

 
210,237

Weighted Average Common Shares Outstanding—Diluted
193,069

 
212,249

Dividends Declared per Common Share
$
0.2700

 
$
0.4747

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

4

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IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
(Unaudited)
 
Three Months Ended
March 31,
 
2014
 
2015
Net Income
$
42,109

 
$
41,739

Other Comprehensive Income (Loss):
 

 
 

Foreign Currency Translation Adjustments
1,788

 
(56,175
)
Market Value Adjustments for Securities

 
23

Total Other Comprehensive Income (Loss)
1,788

 
(56,152
)
Comprehensive Income (Loss)
43,897

 
(14,413
)
Comprehensive Income (Loss) Attributable to Noncontrolling Interests
553

 
542

Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated
$
43,344

 
$
(14,955
)


















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


5

Table of Contents

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

 
 
 
Iron Mountain Incorporated Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
Earnings in
in Excess of
Distributions
(Distributions
in Excess
of Earnings)
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
Other
Comprehensive
Items, Net
 
 
 
 
 
Common Stock
 
Additional
Paid-in Capital
 
 
 
Noncontrolling
Interests
 
Total
 
Shares
 
Amounts
 
 
 
Balance, December 31, 2013
$
1,051,734

 
191,426,920

 
$
1,914

 
$
980,164

 
$
67,820

 
$
(8,660
)
 
$
10,496

Issuance of shares under employee stock purchase plan and option plans and stock-based compensation, including tax charge of $185
4,821

 
494,009

 
5

 
4,816

 

 

 

Parent cash dividends declared
(52,290
)
 

 

 

 
(52,290
)
 

 

Currency translation adjustment
1,788

 

 

 

 

 
1,677

 
111

Net income (loss)
42,109

 

 

 

 
41,667

 

 
442

Noncontrolling interests dividends
(196
)
 

 

 

 

 

 
(196
)
Purchase of noncontrolling interests
(2,895
)
 

 

 
(395
)
 

 

 
(2,500
)
Balance, March 31, 2014
$
1,045,071

 
191,920,929

 
$
1,919

 
$
984,585

 
$
57,197

 
$
(6,983
)
 
$
8,353

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

 
209,818,812

 
$
2,098

 
$
1,588,841

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

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

 
708,425

 
7

 
1,987

 

 

 

Parent cash dividends declared
(100,539
)
 

 

 

 
(100,539
)
 

 

Currency translation adjustment
(56,175
)
 

 

 

 

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

 

 

 

 

 
23

 

Net income (loss)
41,739

 

 

 

 
41,096

 

 
643

Noncontrolling interests dividends
(495
)
 

 

 

 

 

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

 
210,527,237

 
$
2,105

 
$
1,590,828

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









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

6

Table of Contents

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


 
Three Months Ended
March 31,
 
2014
 
2015
Cash Flows from Operating Activities:
 

 
 

Net Income (loss)
$
42,109

 
$
41,739

Loss (income) from discontinued operations
612

 

Adjustments to reconcile net income to cash flows from operating activities:
 

 
 

Depreciation
74,713

 
74,791

Amortization (includes deferred financing costs and bond discount of $1,906 and $2,092, for the three months ended March 31, 2014 and 2015, respectively)
13,626

 
13,252

Stock-based compensation expense
7,141

 
6,856

Benefit for deferred income taxes
(22,317
)
 
(3,273
)
(Gain) Loss on disposal/write-down of property, plant and equipment, net (including real estate)
(8,307
)
 
333

Foreign currency transactions and other, net
693

 
7,241

Changes in Assets and Liabilities (exclusive of acquisitions):
 

 
 

Accounts receivable
(9,209
)
 
3,437

Prepaid expenses and other
31,441

 
1,964

Accounts payable
(7,068
)
 
(17,995
)
Accrued expenses and deferred revenue
(77,216
)
 
(121,462
)
Other assets and long-term liabilities
9,423

 
(1,371
)
Cash Flows from Operating Activities
55,641

 
5,512

Cash Flows from Investing Activities:
 

 
 

Capital expenditures
(107,856
)
 
(74,776
)
Cash paid for acquisitions, net of cash acquired
(30,781
)
 
(6,431
)
Decrease (increase) in restricted cash

 
13,860

Additions to customer relationship and acquisition costs
(8,158
)
 
(9,243
)
Proceeds from sales of property and equipment and other, net (including real estate)
17,892

 
410

Cash Flows from Investing Activities
(128,903
)
 
(76,180
)
Cash Flows from Financing Activities:
 

 
 

Repayment of revolving credit and term loan facilities and other debt
(2,454,691
)
 
(2,282,261
)
Proceeds from revolving credit and term loan facilities and other debt
2,876,047

 
2,450,403

Early retirement of senior subordinated notes
(247,275
)
 

Debt (repayment to) financing and equity (distribution to) contribution from noncontrolling interests, net
(2,317
)
 
(388
)
Parent cash dividends
(52,735
)
 
(102,539
)
Proceeds from exercise of stock options and employee stock purchase plan
2,417

 
4,364

Excess tax (deficiency) benefit from stock-based compensation
(185
)
 
231

Payment of debt financing and stock issuance costs
(422
)
 
(947
)
Cash Flows from Financing Activities
120,839

 
68,863

Effect of Exchange Rates on Cash and Cash Equivalents
1,803

 
(4,523
)
Increase (Decrease) in Cash and Cash Equivalents
49,380

 
(6,328
)
Cash and Cash Equivalents, Beginning of Period
120,526

 
125,933

Cash and Cash Equivalents, End of Period
$
169,906

 
$
119,605

Supplemental Information:
 

 
 

Cash Paid for Interest
$
86,232

 
$
90,339

Cash Paid for Income Taxes
$
9,958

 
$
10,560

Non-Cash Investing and Financing Activities:
 

 
 

Capital Leases
$
(2,183
)
 
$
4,589

Accrued Capital Expenditures
$
36,110

 
$
44,335

Dividends Payable
$
54,698

 
$
4,183



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

7

Table of Contents

IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(1) General
The interim consolidated financial statements are presented herein and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair presentation. Interim results are not necessarily indicative of results for a full year. Iron Mountain Incorporated, a Delaware corporation ("IMI"), and its subsidiaries ("we" or "us") store records, primarily paper documents and data backup media, and provide information management services in various locations throughout North America, Europe, Latin America and Asia Pacific. We have a diversified customer base consisting of commercial, legal, banking, healthcare, accounting, insurance, entertainment and government organizations.
The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to those rules and regulations, but we believe that the disclosures included herein are adequate to make the information presented not misleading. The Consolidated Financial Statements and Notes thereto, which are included herein, should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended December 31, 2014 included in our Annual Report on Form 10-K filed with the SEC on February 27, 2015.
We have been organized and operating as a real estate investment trust ("REIT") for federal income tax purposes effective for our taxable year beginning January 1, 2014.
(2) Summary of Significant Accounting Policies
a.    Principles of Consolidation
The accompanying financial statements reflect our financial position, results of operations, comprehensive income (loss), equity and cash flows on a consolidated basis. All intercompany transactions and account balances have been eliminated.
b.    Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash on hand and cash invested in highly liquid short-term securities, which have remaining maturities at the date of purchase of less than 90 days. Cash and cash equivalents are carried at cost, which approximates fair value.
We have restricted cash associated with a collateral trust agreement with our insurance carrier related to our workers' compensation self-insurance program. The restricted cash subject to this agreement was $33,860 and $20,000 as of December 31, 2014 and March 31, 2015, respectively, and is included in current assets on our Consolidated Balance Sheets. Restricted cash consists primarily of United States Treasuries.
c.    Foreign Currency
Local currencies are the functional currencies for our operations outside the United States, with the exception of certain foreign holding companies and our financing centers in Switzerland, whose functional currency is the United States dollar. In those instances where the local currency is the functional currency, assets and liabilities are translated at period-end exchange rates, and revenues and expenses are translated at average exchange rates for the applicable period. Resulting translation adjustments are reflected in the accumulated other comprehensive items, net component of Iron Mountain Incorporated Stockholders' Equity and Noncontrolling Interests in the accompanying Consolidated Balance Sheets. The gain or loss on foreign currency transactions, calculated as the difference between the historical exchange rate and the exchange rate at the applicable measurement date, including those related to (1) our previously outstanding 71/4% GBP Senior Subordinated Notes due 2014 (the "71/4% Notes"), (2) our 63/4% Euro Senior Subordinated Notes due 2018 (the "63/4% Notes"), (3) borrowings in certain foreign currencies under our revolving credit facility 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, in the accompanying Consolidated Statements of Operations. The total gain or loss on foreign currency transactions amounted to a net loss of $6,438 and $22,266 for the three months ended March 31, 2014 and 2015, respectively.

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

d.    Goodwill and Other Intangible Assets
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, or more frequently if events or circumstances warrant, assess whether a change in the lives over which our intangible assets are amortized is necessary.
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, 2014 and concluded there was no impairment of goodwill at such date. As of December 31, 2014 and March 31, 2015, no factors were identified that would alter our October 1, 2014 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 impairment. When changes occur in the composition of one or more reporting units, the goodwill is reassigned to the reporting units affected based on their relative fair values.
Our reporting units at which level we performed our goodwill impairment analysis as of October 1, 2014 were as follows: (1) North American Records and Information Management; (2) technology escrow services that protect and manage source code (“Intellectual Property Management”); (3) the storage, assembly and detailed reporting of customer marketing literature and delivery to sales offices, trade shows and prospective customers’ sites based on current and prospective customer orders (“Fulfillment Services”); (4) North American Data Management; (5) Emerging Businesses (which primarily relates to our data center business in the United States and which is a component of our Corporate and Other Business segment); (6) the United Kingdom, Ireland, Norway, Austria, Belgium, France, Germany, Netherlands, Spain and Switzerland (“New Western Europe”); (7) the remaining countries in Europe in which we operate, excluding Russia, Ukraine and Denmark (“Emerging Markets - Eastern Europe” (formerly referred to as the "New Emerging Markets" reporting unit)); (8) Latin America; (9) Australia and Singapore; (10) China and Hong Kong (“Greater China”); (11) India; and (12) Russia, Ukraine and Denmark.

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

The carrying value of goodwill, net for each of our reporting units as of December 31, 2014 was as follows:
 
Carrying Value
as of
December 31, 2014
North American Records and Information Management(1)
$
1,397,484

Intellectual Property Management(1)
38,491

Fulfillment Services(1)
3,247

North American Data Management(2)
375,957

Emerging Businesses(3)

New Western Europe(4)
354,049

Emerging Markets - Eastern Europe(5)
87,408

Latin America(5)
107,240

Australia and Singapore(5)
55,779

Greater China(5)
3,500

India(5)

Russia, Ukraine and Denmark(5)
628

Total
$
2,423,783

_______________________________________________________________________________
(1)
This reporting unit is included in the North American Records and Information Management Business segment.
(2)
This reporting unit is included in the North American Data Management Business segment.
(3)
This reporting unit is included in the Corporate and Other Business segment.
(4)
This reporting unit is included in the Western European Business segment.
(5)
This reporting unit is included in the Other International Business segment.
Beginning January 1, 2015, as a result of the changes in our reportable operating segments associated with our reorganization (see Note 6 for a description of our reportable operating segments), we reassessed the composition of our reporting units. Our North American Records and Information Management Business segment now consists of two reporting units: (1) North American Records and Information Management (which includes Intellectual Property Management and Fulfillment Services) and (2) North American Secure Shredding. Our Western European Business segment now consists of two reporting units: (1) the United Kingdom, Ireland and Norway (“UKI”) and (2) Austria, Belgium, France, Germany, Netherlands, Spain and Switzerland (“Continental Western Europe”). We have reassigned goodwill associated with the reporting units impacted by the reorganization among the new reporting units on a relative fair value basis. The fair value of each of our new reporting units was determined based on the application of a combined weighted average approach of preliminary fair value multiples of revenue and earnings and discounted cash flow techniques. These fair values represent our best estimate and preliminary assessment of goodwill allocations to each of the new reporting units on a relative fair value basis.

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

The carrying value of goodwill, net for each of our reporting units as of March 31, 2015 is as follows:
 
Carrying Value
as of
March 31, 2015
North American Records and Information Management(1)(2)
$
1,384,736

North American Secure Shredding(1)(2)
40,788

North American Data Management(3)
372,482

Emerging Businesses(4)

UKI(1)(5)
258,695

Continental Western Europe(1)(5)
71,379

Emerging Markets - Eastern Europe(6)
81,458

Latin America(6)
92,993

Australia and Singapore(6)
51,957

Greater China(6)
3,518

India(6)

Russia, Ukraine and Denmark(6)
555

Total
$
2,358,561

_______________________________________________________________________________
(1)
We will finalize our preliminary estimates of fair value for these new reporting units once we finalize multi-year cash flow forecasts of such reporting units and conclude on the fair value of each new reporting unit based on the combined weighting of both fair value multiples and discounted cash flow techniques. To the extent final fair values of our new reporting units differ from our preliminary estimates, we will reassign goodwill amongst the new reporting units in a future period in which the final information is available to complete the fair values and the corresponding allocation of goodwill amongst the new reporting units.
(2)
This reporting unit is included in the North American Records and Information Management Business segment.
(3)
This reporting unit is included in the North American Data Management Business segment.
(4)
This reporting unit is included in the Corporate and Other Business segment.
(5)
This reporting unit is included in the Western European Business segment.
(6)
This reporting unit is included in the Other International Business segment.

As a result of the change in the composition of our reporting units noted above, we concluded that we had an interim triggering event, and, therefore, during the first quarter of 2015, we performed an interim goodwill impairment test, as of January 1, 2015, for the North American Records and Information Management, North American Secure Shredding, UKI and Continental Western Europe reporting units. We concluded that the goodwill for each of our new reporting units was not impaired as of such date. While we continue to refine our preliminary estimates of fair value of certain of our new reporting units for purposes of reallocating goodwill, we do not believe that any such changes to preliminary fair value estimates will result in a change in our conclusion that there is no goodwill impairment as of January 1, 2015.

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

The changes in the carrying value of goodwill attributable to each reportable operating segment for the three months ended March 31, 2015 are as follows:
 
North American
Records and Information
Management
Business
 
North American
Data
Management
Business
 
Western
European Business
 
Other International Business
 
Total
Consolidated
Gross Balance as of December 31, 2014
$
1,645,209

 
$
429,982

 
$
412,322

 
$
254,706

 
$
2,742,219

Non-deductible goodwill acquired during the year

 

 
1,546

 

 
1,546

Fair value and other adjustments(1)
185

 

 
57

 
(395
)
 
(153
)
Currency effects
(14,575
)
 
(3,648
)
 
(26,385
)
 
(23,684
)
 
(68,292
)
Gross Balance as of March 31, 2015
$
1,630,819

 
$
426,334

 
$
387,540

 
$
230,627

 
$
2,675,320

Accumulated Amortization Balance as of December 31, 2014
$
205,987

 
$
54,025

 
$
58,273

 
$
151

 
$
318,436

Currency effects
(692
)
 
(173
)
 
(807
)
 
(5
)
 
(1,677
)
Accumulated Amortization Balance as of March 31, 2015
$
205,295

 
$
53,852

 
$
57,466

 
$
146

 
$
316,759

Net Balance as of December 31, 2014
$
1,439,222

 
$
375,957

 
$
354,049

 
$
254,555

 
$
2,423,783

Net Balance as of March 31, 2015
$
1,425,524

 
$
372,482

 
$
330,074

 
$
230,481

 
$
2,358,561

Accumulated Goodwill Impairment Balance as of December 31, 2014
$
85,909

 
$

 
$
46,500

 
$

 
$
132,409

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

 
$

 
$
46,500

 
$

 
$
132,409

_______________________________________________________________________________
(1)
Total fair value and other adjustments primarily include $531 in net adjustments to deferred income taxes and $(4,619) related to customer relationships and acquisition costs and other assumed liabilities, as well as $3,935 of cash paid related to certain 2014 acquisitions.

The components of our amortizable intangible assets as of December 31, 2014 and March 31, 2015 are as follows:
 
December 31, 2014
 
March 31, 2015
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Customer Relationships and Acquisition Costs
$
904,866

 
$
(297,029
)
 
$
607,837

 
$
880,221

 
$
(299,780
)
 
$
580,441

Core Technology(1)
3,568

 
(3,540
)
 
28

 
3,349

 
(3,315
)
 
34

Trademarks and Non-Compete Agreements(1)
7,062

 
(5,068
)
 
1,994

 
6,469

 
(4,874
)
 
1,595

Deferred Financing Costs
63,033

 
(15,956
)
 
47,077

 
62,892

 
(17,831
)
 
45,061

Total
$
978,529

 
$
(321,593
)
 
$
656,936

 
$
952,931

 
$
(325,800
)
 
$
627,131

_______________________________________________________________________________
(1)
Included in Other Assets, net in the accompanying Consolidated Balance Sheets.
Amortization expense associated with amortizable intangible assets (including deferred financing costs) was $13,626 and $13,252 for the three months ended March 31, 2014 and 2015, respectively.

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)

e.    Stock-Based Compensation
We record stock-based compensation expense, utilizing the straight-line method, for the cost of stock options, restricted stock, restricted stock units ("RSUs"), performance units ("PUs") and shares of stock issued under our employee stock purchase plan ("ESPP") (together, "Employee Stock-Based Awards").
Stock-based compensation expense for Employee Stock-Based Awards included in the accompanying Consolidated Statements of Operations for the three months ended March 31, 2014 and 2015 was $7,141 ($5,134 after tax or $0.03 per basic and diluted share) and $6,856 ($4,946 after tax or $0.02 per basic and diluted share), respectively.
Stock-based compensation expense for Employee Stock-Based Awards included in the accompanying Consolidated Statements of Operations related to continuing operations is as follows:
 
Three Months
Ended
March 31,
 
 
2014
 
2015
 
Cost of sales (excluding depreciation and amortization)
$
190

 
$
45

 
Selling, general and administrative expenses
6,951

 
6,811

 
Total stock-based compensation
$
7,141

 
$
6,856

 
The benefits associated with the tax deductions in excess of recognized compensation cost are required to be reported as financing activities in the accompanying Consolidated Statements of Cash Flows. This requirement reduces reported operating cash flows and increases reported financing cash flows. As a result, net financing cash flows from continuing operations included $(185) and $231 for the three months ended March 31, 2014 and 2015, respectively, from the (deficiency) benefit of tax deductions compared to recognized compensation cost. The tax benefit of any resulting excess tax deduction increases the Additional Paid-in Capital ("APIC") pool. Any resulting tax deficiency is deducted from the APIC pool.
Stock Options
Under our various stock option plans, options are generally granted with exercise prices equal to the market price of the stock on the date of grant; however, in certain limited instances, options are granted at prices greater than the market price of the stock on the date of grant. Certain of the options we issue become exercisable ratably over a period of ten years from the date of grant and have a contractual life of 12 years from the date of grant, unless the holder's employment is terminated sooner. As of March 31, 2015, ten-year vesting options represented 7.2% of total outstanding options. Certain of the options we issue become exercisable ratably over a period of three years from the date of grant and have a contractual life of ten years from the date of grant, unless the holder's employment is terminated sooner. As of March 31, 2015, three-year vesting options represented 45.7% 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 one year from the date of grant. The remainder of our options became exercisable ratably over a period of five years from date of grant and generally have a contractual life of ten years from the date of grant, unless the holder's employment is terminated sooner.
The weighted average fair value of options granted for the three months ended March 31, 2014 and 2015 was $5.60 and $4.99 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:
 
 
Three Months Ended
March 31,
Weighted Average Assumptions
 
2014
 
2015
Expected volatility
 
33.9
%
 
28.6
%
Risk-free interest rate
 
2.06
%
 
1.71
%
Expected dividend yield
 
4
%
 
5
%
Expected life
 
6.8 years

 
5.5 years

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)

Expected volatility is calculated utilizing daily historical volatility over a period that equates to the expected life of the option. The risk-free interest rate was based on the United States Treasury interest rates whose term is consistent with the expected life 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.
A summary of option activity for the three months ended March 31, 2015 is as follows:
 
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term (Years)
 
Average
Intrinsic
Value
Outstanding at December 31, 2014
3,678,246

 
$
23.37

 
 
 
 

Granted
674,620

 
43.86

 
 
 
 

Exercised
(233,791
)
 
20.93

 
 
 
 

Forfeited
(19,119
)
 
23.97

 
 
 
 

Expired
(11,045
)
 
22.15

 
 
 
 

Outstanding at March 31, 2015
4,088,911

 
$
26.89

 
5.86
 
$
44,191

Options exercisable at March 31, 2015
2,725,000

 
$
22.74

 
4.42
 
$
37,445

Options expected to vest
1,265,183

 
$
34.97

 
8.71
 
$
6,435

The following table provides the aggregate intrinsic value of stock options exercised for the three months ended March 31, 2014 and 2015:
 
Three Months Ended
March 31,
 
 
2014
 
2015
 
Aggregate intrinsic value of stock options exercised
$
977

 
$
4,167

 
Restricted Stock and Restricted Stock Units
Under our various equity compensation plans, we may also grant restricted stock or RSUs. Our restricted stock and RSUs generally have a vesting period of between three and five years from the date of grant. All RSUs accrue dividend equivalents associated with the underlying stock as we declare dividends. Dividends will generally be paid to holders of RSUs in cash upon the vesting date of the associated RSU and will be forfeited if the RSU does not vest. We accrued approximately $434 and $670 of cash dividends on RSUs for the three months ended March 31, 2014 and 2015, respectively. We paid approximately $831 and $1,729 of cash dividends on RSUs for the three months ended March 31, 2014 and 2015, 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).

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 restricted stock and RSU activity for the three months ended March 31, 2015 is as follows:
 
Restricted
Stock and RSUs
 
Weighted-
Average
Grant-Date
Fair Value
Non-vested at December 31, 2014
1,405,569

 
$
28.78

Granted
462,323

 
38.82

Vested
(426,901
)
 
30.49

Forfeited
(29,265
)
 
30.43

Non-vested at March 31, 2015
1,411,726

 
$
31.52

No restricted stock vested during each of the three months ended March 31, 2014 and 2015. The total fair value of RSUs vested during the three months ended March 31, 2014 and 2015 was $13,844 and $15,584, respectively.
Performance Units
Under our various equity compensation plans, we may also make awards of PUs. For the majority of PUs, the number of PUs earned is determined based on our performance against predefined targets of revenue or revenue growth and return on invested capital ("ROIC"). The number of PUs earned may range from 0% to 150% (for PUs granted prior to 2014) and 0% to 200% (for PUs granted in 2014 and 2015) of the initial award. The number of PUs earned is determined based on our actual performance as compared to the targets at the end of either the one-year performance period (for PUs granted prior to 2014) or the three-year performance period (for PUs granted in 2014 and 2015). Certain PUs granted in 2013, 2014 and 2015 will be earned based on a market condition associated with the total return on our common stock in relation to a subset of the S&P 500 rather than the revenue growth and ROIC targets noted above. The number of PUs earned based on this market condition may range from 0% to 200% of the initial award. All of our PUs will be settled in shares of our common stock and are subject to cliff vesting three years from the date of the original PU grant. For those PUs subject to a one-year performance period, employees who subsequently terminate their employment after the end of the one-year performance period and on or after attaining age 55 and completing 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 (but delivery of the shares remains deferred). As a result, PUs subject to a one-year performance period are generally expensed over the shorter of (1) the vesting period, (2) achievement of the Retirement Criteria, which may occur as early as January 1 of the year following the year of grant or (3) a maximum of three years. For those PUs subject to a three-year performance period, employees who terminate their employment during the performance period and on or after meeting the Retirement Criteria are eligible for pro rated vesting, subject to the actual achievement against the predefined targets as discussed above, based on the number of full years of service completed following the grant date (but delivery of the shares remains deferred). As a result, PUs subject to a three-year performance period are generally expensed over the three-year performance period. Outstanding PUs accrue dividend equivalents associated with the underlying stock as we declare dividends. Dividends will generally be paid to holders of PUs in cash upon the settlement date of the associated PU and will be forfeited if the PU does not vest. We accrued approximately $150 and $211 of cash dividends on PUs for the three months ended March 31, 2014 and 2015, respectively. We paid approximately $221 and $1,015 of cash dividends on PUs for the three months ended March 31, 2014 and 2015, respectively.

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)

During the three months ended March 31, 2015, we issued 131,996 PUs. Our PUs are earned based on our performance against revenue or revenue growth and ROIC targets during their applicable performance period; therefore, we forecast the likelihood of achieving the predefined revenue, revenue growth and ROIC targets in order to calculate the expected PUs to be earned. We record a compensation charge based on either the forecasted PUs to be earned (during the applicable performance period) or the actual PUs earned (at the one-year anniversary date for PUs granted prior to 2014, and at the three-year anniversary date for PUs granted in 2014 and 2015) over the vesting period for each of the awards. For PUs earned based on a market condition, we utilized a Monte Carlo simulation to fair value these awards at the date of grant, and such fair value is expensed over the three-year performance period. The total fair value of earned PUs that vested during the three months ended March 31, 2014 and 2015 was $4,030 and $2,063, respectively. As of March 31, 2015, we expected 60% and 100% achievement of the predefined revenue, revenue growth and ROIC targets associated with the awards of PUs made in 2014 and 2015, respectively.
A summary of PU activity for the three months ended March 31, 2015 is as follows:
 
Original
PU Awards
 
PU Adjustment(1)
 
Total
PU Awards
 
Weighted-
Average
Grant-Date
Fair Value
Non-vested at December 31, 2014
461,666

 
(82,609
)
 
379,057

 
$
30.80

Granted
131,996

 

 
131,996

 
40.58

Vested
(78,311
)
 
(4,769
)
 
(83,080
)
 
29.47

Forfeited
(19,038
)
 

 
(19,038
)
 
30.96

Non-vested at March 31, 2015
496,313

 
(87,378
)
 
408,935

 
$
34.22

_______________________________________________________________________________

(1)
Represents an increase or decrease in the number of original PUs awarded based on either (a) the final performance criteria achievement at the end of the defined performance period of such PUs or (b) a change in estimated awards based on the forecasted performance against the predefined targets.
Employee Stock Purchase Plan
We offer an ESPP in which participation is available to substantially all United States and Canadian employees who meet certain service eligibility requirements. The 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 have historically had two six-month offering periods per year, the first of which generally runs from June 1 through November 30 and the second of which generally runs from December 1 through 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 purchase price at the end of the offering. Participating employees may withdraw from an offering before the purchase date and obtain a refund of the amounts withheld as payroll deductions. At the end of the offering period, outstanding options under the ESPP 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 expense for the ESPP shares purchased. In the three months ended March 31, 2014 and 2015, there were no offering periods which ended under the ESPP, and no shares were issued. As of March 31, 2015, we have 960,638 shares available under the ESPP.
_______________________________________________________________________________
As of March 31, 2015, unrecognized compensation cost related to the unvested portion of our Employee Stock-Based Awards was $53,880 and is expected to be recognized over a weighted-average period of 2.3 years.
We generally issue shares of our common stock for the exercises of stock options, restricted stock, RSUs, PUs and shares of our common stock under our ESPP from unissued reserved shares.

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)

f.    Income (Loss) Per Share—Basic and Diluted
Basic income (loss) per common share is calculated by dividing income (loss) by the weighted average number of common shares outstanding. The calculation of diluted income (loss) per share is consistent with that of basic income (loss) per share but gives effect to all potential common shares (that is, securities such as 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
March 31,
 
 
2014
 
2015
 
Income (loss) from continuing operations
$
42,721

 
$
41,739

 
Total (loss) income from discontinued operations
$
(612
)
 
$

 
Net income (loss) attributable to Iron Mountain Incorporated
$
41,667

 
$
41,096

 
 
 
 
 
 
Weighted-average shares—basic
191,879,000

 
210,237,000

 
Effect of dilutive potential stock options
682,801

 
1,223,330

 
Effect of dilutive potential restricted stock, RSUs and PUs
507,219

 
788,758

 
Weighted-average shares—diluted
193,069,020

 
212,249,088

 
 
 
 
 
 
Earnings (losses) per share—basic:
 

 
 

 
Income (loss) from continuing operations
$
0.22

 
$
0.20

 
Total (loss) income from discontinued operations
$

 
$

 
Net income (loss) attributable to Iron Mountain Incorporated—basic
$
0.22

 
$
0.20

 
 
 
 
 
 
Earnings (losses) per share—diluted:
 

 
 

 
Income (loss) from continuing operations
$
0.22

 
$
0.20

 
Total (loss) income from discontinued operations
$

 
$

 
Net income (loss) attributable to Iron Mountain Incorporated—diluted
$
0.22

 
$
0.19

 
 
 
 
 
 
Antidilutive stock options, RSUs and PUs, excluded from the calculation
1,380,962

 
358,233

 

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)

g.    Revenues
Our revenues consist of storage rental revenues as well as service revenues and are reflected net of sales and value added taxes. Storage rental revenues, which are considered a key driver of financial performance for the storage and information management services industry, consist primarily of recurring periodic rental charges related to the storage of materials or data (generally on a per unit basis). Service revenues include charges for related service activities, which include: (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 the related sale of recycled paper, the price of which can fluctuate from period to period; (4) other services, including the scanning, imaging and document conversion services of active and inactive records, or Document Management Solutions ("DMS"), which relate to physical and digital records, and project revenues; (5) customer termination and permanent withdrawal fees; (6) data restoration projects; (7) special project work; (8) Fulfillment Services; (9) consulting services; and (10) Intellectual Property Management and other technology services and product sales (including specially designed storage containers and related supplies).
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 period the applicable storage rental or service is provided or performed. Revenues from the sales of products, which are included as a component of service revenues, are recognized when products are shipped and title has passed to the customer. Revenues from the sales of products have historically not been significant.
h.    Allowance for Doubtful Accounts and Credit Memo Reserves
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 charge-off uncollectible balances as circumstances warrant, generally, no later than one year past due.

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)

i.    Income Taxes
As noted previously, we have been organized and operating as a REIT for federal income tax purposes effective for our taxable year beginning January 1, 2014. As a REIT, we are generally permitted to deduct from our federal taxable income the dividends we pay to our stockholders. The income represented by such dividends is not subject to federal taxation at the entity level but is taxed, if at all, at the stockholder level. The income of our domestic taxable REIT subsidiaries (“TRSs”), which hold our domestic operations that may not be REIT‑compliant as currently operated and structured, is subject, as applicable, to federal and state corporate income tax. In addition, we and our subsidiaries continue to be subject to foreign income taxes in jurisdictions in which they hold assets or conduct operations, regardless of whether held or conducted through subsidiaries disregarded for federal tax purposes or TRSs. We will also be subject to a separate corporate income tax on any gains recognized during a specified period (generally ten years) following the REIT conversion that are attributable to “built‑in” gains with respect to the assets that we owned on January 1, 2014; this built‑in gains tax will also be imposed on our depreciation recapture recognized into income in 2014 and subsequent taxable years as a result of accounting method changes commenced in our pre‑REIT period. If we fail to remain qualified for taxation as a REIT, we will be subject to federal income tax at regular corporate tax rates. Even if we remain qualified for taxation as a REIT, we may be subject to some federal, state, local and foreign taxes on our income and property in addition to taxes owed with respect to our TRS operations. In particular, while state income tax regimes often parallel the federal income tax regime for REITs, many states do not completely follow federal rules and some do not follow them at all.
We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period they occur. Our effective tax rate is subject to variability in the future due to, among other items: (1) changes in the mix of income between our qualified REIT subsidiaries and our TRSs; (2) tax law changes; (3) volatility in foreign exchange gains (losses); (4) the timing of the establishment and reversal of tax reserves; and (5) our ability to utilize net operating losses that we generate. We are subject to income taxes in the United States and numerous foreign jurisdictions. We are subject to examination by various tax authorities in jurisdictions in which we have business operations or a taxable presence. 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 bases of assets and liabilities and for loss and credit carryforwards. Valuation allowances are provided when recovery of deferred tax assets does not meet the more likely than not standard as defined in GAAP.
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 an increase of $966 and $942 for gross interest and penalties for the three months ended March 31, 2014 and 2015, respectively. We had $5,884 and $6,167 accrued for the payment of interest and penalties as of December 31, 2014 and March 31, 2015, respectively.
Our effective tax rate for the three months ended March 31, 2014 and 2015 was 45.8% and 27.6%, respectively. The primary reconciling items between the federal statutory rate of 35% and our overall effective tax rate in the three months ended March 31, 2014 were differences in the rates of tax at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates and state income taxes (net of federal tax benefit). During the three months ended March 31, 2014, there were foreign currency losses recorded in jurisdictions with tax rates lower than the federal statutory rate of 35% associated with our marking-to-market of intercompany loans, which increased our first quarter 2014 effective tax rate by 1.1%. In addition, the controlled foreign corporation look-through rule, which provided for the exception of certain foreign earnings from United States federal taxation as Subpart F income, expired on December 31, 2013 and as a result, our first quarter 2014 effective tax rate increased by 1.3%. The primary reconciling item between the federal statutory tax rate of 35% and our overall effective tax rate in the three months ended March 31, 2015 was due to 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.

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)

As a REIT, we are entitled to a deduction for dividends paid, resulting in a substantial reduction of federal income tax expense. As a REIT, substantially all of our income tax expense will be incurred based on the earnings generated by our foreign subsidiaries and our domestic TRSs.
j.    Concentrations of Credit Risk
Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents (including money market funds and time deposits), restricted cash (primarily United States Treasuries) and accounts receivable. The only significant concentrations of liquid investments as of both December 31, 2014 and March 31, 2015 relate to cash and cash equivalents and restricted cash held on deposit with three global banks and two "Triple A" rated money market funds, and three global banks and one "Triple A" rated money market fund, respectively, all of 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 in any one financial institution to a maximum of $75,000. As of December 31, 2014 and March 31, 2015, our cash and cash equivalents and restricted cash balance was $159,793 and $139,605, respectively, including money market funds and time deposits amounting to $53,032 and $33,909, respectively. The money market funds are invested substantially in United States Treasuries.
k.    Fair Value Measurements
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.
Our financial assets or liabilities that are carried at fair value are required to be measured using inputs from the three levels of the fair value hierarchy. A financial asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The three levels of the fair value hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3—Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

20

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

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2014 and March 31, 2015, respectively:
 
 
 
 
Fair Value Measurements at
December 31, 2014 Using
Description
 
Total Carrying
Value at
December 31,
2014
 
Quoted prices
in active
markets
(Level 1)
 
 
 
Significant other
observable
inputs
(Level 2)
 
 
 
Significant
unobservable
inputs
(Level 3)
Money Market Funds(1)
 
$
36,828

 
$

 
 
 
$
36,828

 
 
 
$

Time Deposits(1)
 
16,204

 

 
 
 
16,204

 
 
 

Trading Securities
 
13,172

 
12,428

 
(2)
 
744

 
(1)
 

Derivative Liabilities(3)
 
2,411

 

 
 
 
2,411

 
 
 

 
 
 
 
Fair Value Measurements at
March 31, 2015 Using
Description
 
Total Carrying
Value at
March 31,
2015
 
Quoted prices
in active
markets
(Level 1)
 
 
 
Significant other
observable
inputs
(Level 2)
 
 
 
Significant
unobservable
inputs
(Level 3)
Money Market Funds(1)
 
$
20,000

 
$

 
 
 
$
20,000

 
 
 
$

Time Deposits(1)
 
13,909

 

 
 
 
13,909

 
 
 

Trading Securities
 
10,743

 
9,892

 
(2)
 
851

 
(1)
 

Derivative Liabilities(3)
 
7,756

 

 
 
 
7,756

 
 
 

_______________________________________________________________________________

(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)
Derivative liabilities relate to short-term (six months or less) foreign currency contracts that we have entered into to hedge certain of our intercompany exposures, as more fully disclosed at Note 3. We calculate the value of such forward contracts by adjusting the spot rate utilized at the balance sheet date for translation purposes by an estimate of the forward points observed in active markets.
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 months ended March 31, 2014 and 2015.
l.    Use of Estimates
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 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.

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

m.    Accumulated Other Comprehensive Items, Net
The changes in accumulated other comprehensive items, net for the three months ended March 31, 2014 and 2015, respectively, are as follows:
 
Foreign
Currency
Translation
Adjustments
 
Market Value
Adjustments for
Securities
 
Total
Balance as of December 31, 2013
$
(9,586
)
 
$
926

 
$
(8,660
)
Other comprehensive income (loss):
 

 
 
 
 

Foreign currency translation adjustments
1,677

 

 
1,677

Total other comprehensive income (loss)
1,677

 

 
1,677

Balance as of March 31, 2014
$
(7,909
)
 
$
926

 
$
(6,983
)
 
Foreign
Currency
Translation
Adjustments
 
Market Value
Adjustments for
Securities
 
Total
Balance as of December 31, 2014
$
(76,010
)
 
$
979

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

 
 

 
 

Foreign currency translation adjustments
(56,074
)
 

 
(56,074
)
Market value adjustments for securities

 
23

 
23

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

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

 
$
(131,082
)
n.    Other Expense, Net
Other expense, net consists of the following:
 
Three Months Ended
March 31,
 
2014
 
2015
Foreign currency transaction losses, net
$
6,438

 
$
22,266

Other, net
(1,121
)
 
83

 
$
5,317

 
$
22,349

o.    Property, Plant and Equipment and Long-Lived Assets
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. During the three months ended March 31, 2014 and 2015, we capitalized $4,897 and $6,040 of costs, respectively, associated with the development of internal use computer software projects. 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. Capitalization ends when the asset is ready for its intended use. Depreciation begins when the software is placed in service. Computer software costs that are capitalized are periodically evaluated for impairment.

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)

We review long-lived assets and all amortizable intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to their carrying amount. The operations are generally distinguished by the business segment and geographic region in which they operate. If the operation is determined to be unable to recover the carrying amount of its assets, the long-lived assets are written down, on a pro rata basis, to fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets.
As a result of our conversion to a REIT and in accordance with SEC rules applicable to REITs, we no longer report (gain) loss on the sale of real estate as a component of operating income, but we report it as a component of income (loss) from continuing operations. We report the (gain) loss on sale of property, plant and equipment (excluding real estate), along with any impairment, write-downs or involuntary conversions related to real estate, as a component of operating income. Previously reported amounts have been reclassified to conform to this presentation.
Consolidated loss on disposal/write-down of property, plant and equipment (excluding real estate), net was $333 for the three months ended March 31, 2015 and consisted primarily of the write-off of certain property associated with our North American Records and Information Management Business segment. Consolidated loss on disposal/write-down of property, plant and equipment (excluding real estate), net was $1,152 for the three months ended March 31, 2014 and consisted primarily of losses associated with the write-off of certain software associated with our North American Records and Information Management Business segment.
Consolidated gain on sale of real estate was $7,468, net of tax of $1,991, for the three months ended March 31, 2014 associated with the sale of two buildings in the United Kingdom.
p.    New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 provides additional guidance for management to reassess revenue recognition as it relates to: (1) transfer of control, (2) variable consideration, (3) allocation of transaction price based on relative standalone selling price, (3) licenses, (4) time value of money and (5) contract costs. Further disclosures will be required to provide a better understanding of revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts. ASU 2014-09 is effective for us on January 1, 2017, with no early adoption permitted. In April 2015, the FASB tentatively decided to defer the effective date of ASU 2014-09 for one year to January 1, 2018, with early adoption permitted as of January 1, 2017. We are currently evaluating the impact ASU 2014-09 will have on our consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles of current United States auditing standards. Specifically, the amendments (1) provide a definition of the term “substantial doubt”, (2) require an evaluation every reporting period, including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is still present, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU 2014‑15 is effective for us on January 1, 2017, with early adoption permitted. We do not believe that this pronouncement will have an impact on our consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015‑02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015‑02”). ASU 2015‑02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015‑02 is effective for us on January 1, 2016, with early adoption permitted. We do not believe that this pronouncement will have an impact on our consolidated financial statements.


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)

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”).  The amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03.  ASU 2015‑03 is effective for us on January 1, 2016, with early adoption permitted.  We do not believe that this pronouncement will have a material impact on our consolidated financial statements.
(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 United States 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, 2014 and March 31, 2015, 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 Euros, British pounds sterling and Australian dollars. As of March 31, 2015, we had outstanding forward contracts to purchase 206,000 Euros and sell $229,845 United States dollars to hedge our intercompany exposures with our European operations. 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 expense (income), net in the Consolidated Statements of Operations as a realized foreign exchange gain or loss. At the end of each month, we mark the outstanding forward contracts to market and record an unrealized foreign exchange gain or loss for the mark-to-market valuation. We have not designated forward contracts as hedges. During the three months ended March 31, 2014 and 2015, there was $7,199 and $16,820 in net cash payments, respectively, included in cash from operating activities from continuing operations related to settlements associated with foreign currency forward contracts.

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

Our policy is to record the fair value of each derivative instrument on a gross basis. The following table provides the fair value of our derivative instruments as of December 31, 2014 and March 31, 2015 and their gains and losses for the three months ended March 31, 2014 and 2015:
 
 
Liability Derivatives
 
 
December 31, 2014
 
March 31, 2015
Derivatives Not Designated as
Hedging Instruments
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
Foreign exchange contracts
 
Accrued expenses
 
$
2,411

 
Accrued expenses
 
$
7,756

Total
 
 
 
$
2,411

 
 
 
$
7,756

 
 
 
 
 
Amount of (Gain)
Loss
Recognized in
Income
on Derivatives
 
 
 
 
 
Three Months Ended March 31,
Derivatives Not Designated as
Hedging Instruments
 
Location of (Gain) Loss
Recognized in Income
on Derivative
 
2014
 
2015
Foreign exchange contracts
 
Other expense (income), net
 
$
2,922

 
$
28,533

Total
 
 
 
 
$
2,922

 
$
28,533

We have designated a portion of the 63/4% Notes as a hedge of net investment of certain of our Euro denominated subsidiaries. For the three months ended March 31, 2014 and 2015, we designated on average 64,208 and 36,000 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 the following foreign exchange gains (losses), net of tax, related to the change in fair value of such debt due to the currency translation adjustments, which is a component of accumulated other comprehensive items, net:
 
 
Three Months Ended March 31,
 
 
2014
 
2015
Foreign exchange gains (losses)
 
$
145

 
$
4,930

Tax expense (benefit) on foreign exchange gains (losses)
 
57

 

Foreign exchange gains (losses), net of tax
 
$
88

 
$
4,930

As of March 31, 2015, cumulative net gains of $18,742, net of tax are recorded in accumulated other comprehensive items, net associated with this net investment hedge.

25

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

(4) Debt
Long-term debt comprised the following:
 
December 31, 2014
 
March 31, 2015
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Revolving Credit Facility(1)
$
883,428

 
$
883,428

 
$
823,881

 
$
823,881

Term Loan(1)
249,375

 
249,375

 
248,750

 
248,750

63/4% Euro Senior Subordinated Notes due 2018 (the "63/4% Notes")(2)(3)
308,616

 
309,634

 
273,760

 
274,369

73/4% Senior Subordinated Notes due 2019 (the "73/4% Notes")(2)(3)
400,000

 
429,000

 
400,000

 
425,750

83/8% Senior Subordinated Notes due 2021 (the "83/8% Notes")(2)(3)
106,030

 
110,500

 
106,038

 
109,836

61/8% CAD Senior Notes due 2021 (the "CAD Notes")(2)(4)
172,420

 
175,437

 
157,470

 
162,194

61/8% GBP Senior Notes due 2022 (the "GBP Notes")(2)(5)
622,960

 
639,282

 
592,160

 
620,998

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

 
625,500

 
600,000

 
631,500

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

 
1,005,000

 
1,000,000

 
1,005,000

Accounts Receivable Securitization Program(6)(7)

 

 
220,800

 
220,800

Real Estate Mortgages, Capital Leases and Other(7)
320,702

 
320,702

 
298,983

 
298,983

Total Long-term Debt
4,663,531

 
 

 
4,721,842

 
 

Less Current Portion
(52,095
)
 
 

 
(54,483
)
 
 

Long-term Debt, Net of Current Portion
$
4,611,436

 
 

 
$
4,667,359

 
 

______________________________________________________________________________
(1)
The capital stock or other equity interests of most of our United States subsidiaries, and up to 66% of the capital stock or other equity interests of our first-tier foreign subsidiaries, are pledged to secure these debt instruments, together with all intercompany obligations (including promissory notes) of subsidiaries owed to us or to one of our United States subsidiary guarantors. In addition, Iron Mountain Canada Operations ULC ("Canada Company") has pledged 66% of the capital stock of its subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by it, to secure the Canadian dollar subfacility under the Revolving Credit Facility (defined below). The fair value (Level 3 of fair value hierarchy described at Note 2.k.) of these debt instruments approximates the carrying value (as borrowings under these debt instruments are based on current variable market interest rates (plus a margin that is subject to change based on our consolidated leverage ratio)), as of both December 31, 2014 and March 31, 2015.

(2)
The fair values (Level 1 of fair value hierarchy described at Note 2.k.) of these debt instruments are based on quoted market prices for these notes on December 31, 2014 and March 31, 2015, respectively.

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

(4)
Canada Company is the direct obligor on the CAD Notes, which are fully and unconditionally guaranteed, on a senior basis, by IMI and the Guarantors. These guarantees are joint and several obligations of IMI and the Guarantors. See Note 5 to Notes to Consolidated Financial Statements.


26

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


(5)
IME is the direct obligor on the GBP Notes, which are fully and unconditionally guaranteed, on a senior basis, by IMI and the Guarantors. These guarantees are joint and several obligations of IMI and the Guarantors. See Note 5 to Notes to Consolidated Financial Statements.

(6)
The Special Purpose Subsidiaries are the obligors under this program.

(7)
We believe the fair value (Level 3 of fair value hierarchy described at Note 2.k.) of this debt approximates its carrying
value.
On August 7, 2013, we amended our existing credit agreement. The revolving credit facilities (the "Revolving Credit Facility") under our credit agreement, as amended (the "Credit Agreement"), allow IMI and certain of its United States and foreign subsidiaries to borrow in United States dollars and (subject to sublimits) a variety of other currencies (including Canadian dollars, British pounds sterling, Euros, Brazilian reais and Australian dollars, among other currencies) in an aggregate outstanding amount not to exceed $1,500,000. Additionally, the Credit Agreement included an option to allow us to request additional commitments of up to $500,000, in the form of term loans or through increased commitments under the Revolving Credit Facility. On September 24, 2014, we exercised the option and borrowed an additional $250,000 in the form of a term loan under the Credit Agreement (the "Term Loan"). Commencing on December 31, 2014, the Term Loan began to amortize in quarterly installments in an amount equal to $625 per quarter, with the remaining balance due on June 27, 2016. The Term Loan may be prepaid without penalty or premium, in whole or in part, at any time. The Credit Agreement continues to include an option to allow us to request additional commitments of up to $250,000, in the form of term loans or through increased commitments under the Revolving Credit Facility.
The Credit Agreement terminates on June 27, 2016, at which point all obligations become due. IMI and the Guarantors guarantee all obligations under the Credit Agreement, and have pledged the capital stock or other equity interests of most of their United States subsidiaries, up to 66% of the capital stock or other equity interests of their first-tier foreign subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by them to secure the Credit Agreement. In addition, Canada Company has pledged 66% of the capital stock of its subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by it to secure the Canadian dollar subfacility under the Revolving Credit Facility. The interest rate on borrowings under the Credit Agreement varies depending on our choice of interest rate and currency options, plus an applicable margin, which varies based on our consolidated leverage ratio. Additionally, the Credit Agreement requires the payment of a commitment fee on the unused portion of the Revolving Credit Facility, which fee ranges from between 0.3% to 0.5% based on certain financial ratios and fees associated with outstanding letters of credit. As of March 31, 2015, we had $823,881 and $248,750 of outstanding borrowings under the Revolving Credit Facility and the Term Loan, respectively. Of the $823,881 of outstanding borrowings under the Revolving Credit Facility, $632,250 was denominated in United States dollars, 81,200 was denominated in Canadian dollars, 67,750 was denominated in Euros and 71,600 was denominated in Australian dollars. In addition, we also had various outstanding letters of credit totaling $12,219. The remaining amount available for borrowing under the Revolving Credit Facility as of March 31, 2015, based on IMI's leverage ratio, the last 12 months' earnings before interest, taxes, depreciation and amortization and rent expense ("EBITDAR"), other adjustments as defined in the Credit Agreement and current external debt, was $663,900 (which amount represents the maximum availability as of such date). The average interest rate in effect under the Credit Agreement was 2.8% as of March 31, 2015. The average interest rate in effect under the Revolving Credit Facility was 2.9% and ranged from 2.3% to 5.1% as of March 31, 2015 and the interest rate in effect under the Term Loan as of March 31, 2015 was 2.4%.

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


In March 2015, we entered into a $250,000 accounts receivable securitization program (the "Accounts Receivable Securitization Program") involving several of our wholly owned subsidiaries and certain financial institutions. Under the Accounts Receivable Securitization Program, certain of our subsidiaries sell substantially all of their United States accounts receivable balances to our wholly owned special purpose entities, Iron Mountain Receivables QRS, LLC and Iron Mountain Receivables TRS, LLC (the "Special Purpose Subsidiaries"). The Special Purpose Subsidiaries use the accounts receivable balances to collateralize loans obtained from certain financial institutions. Iron Mountain Information Management, LLC retains the responsibility of servicing the accounts receivable balances pledged as collateral in this transaction and IMI provides a performance guaranty. The Accounts Receivable Securitization Program terminates on March 6, 2018, at which point all obligations become due. The maximum availability allowed is limited by eligible accounts receivable, as defined under the terms of the Accounts Receivable Securitization Program.  As of March 31, 2015, the maximum availability allowed and amount outstanding under the Accounts Receivable Securitization Program was $220,800. The interest rate in effect under the Accounts Receivable Securitization Program was 1.1% as of March 31, 2015. Commitment fees at a rate of 40 basis points are charged on amounts made available but not borrowed under the Accounts Receivable Securitization Program.
The Credit Agreement, our indentures and other agreements governing our indebtedness contain certain restrictive financial and operating covenants, including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take certain other corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under the Credit Agreement, our indentures or other agreements governing our indebtedness. The Credit Agreement uses EBITDAR-based calculations as the primary measures of financial performance, including leverage and fixed charge coverage ratios. IMI's Credit Agreement net total lease adjusted leverage ratio was 5.4 and 5.5 as of December 31, 2014 and March 31, 2015, respectively, compared to a maximum allowable ratio of 6.5, and its net secured debt lease adjusted leverage ratio was 2.6 and 2.7 as of December 31, 2014 and March 31, 2015, respectively, compared to a maximum allowable ratio of 4.0. IMI's bond leverage ratio (which is not lease adjusted), per the indentures, was 5.7 and 5.6 as of December 31, 2014 and March 31, 2015, respectively, compared to a maximum allowable ratio of 6.5. IMI's Credit Agreement fixed charge coverage ratio was 2.5 and 2.4 as of December 31, 2014 and March 31, 2015, respectively, compared to a minimum allowable ratio of 1.5 under the Credit Agreement. Noncompliance with these leverage and fixed charge coverage ratios would have a material adverse effect on our financial condition and liquidity.
For the three months ended March 31, 2014 and 2015, we recorded commitment fees and letters of credit fees of $658 and $867, respectively, based on the unused balances under the Revolving Credit Facility and the Accounts Receivable Securitization Program.
(5) 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, 2014 and March 31, 2015 and for the three months ended March 31, 2014 and 2015 and are prepared on the same basis as the consolidated financial statements.
The Parent Notes, CAD Notes and GBP Notes are guaranteed by the subsidiaries referred to below as the Guarantors. These subsidiaries are 100% owned by IMI. The guarantees are full and unconditional, as well as joint and several.
Additionally, IMI and the Guarantors guarantee the CAD Notes, which were issued by Canada Company, and the GBP Notes, which were issued by IME. Canada Company and IME do not guarantee the Parent Notes. The subsidiaries that do not guarantee the Parent Notes, the CAD Notes and the GBP Notes, including IME and the Special Purpose Subsidiaries but excluding Canada Company, are referred to below as the Non-Guarantors.

28

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

In the normal course of business we periodically change the ownership structure of our subsidiaries to meet the requirements of our business. In the event of such changes, we recast the prior period financial information within this footnote to conform to the current period presentation in the period such changes occur. Generally, these changes do not alter the designation of the underlying subsidiaries as Guarantors or Non-Guarantors. However, they may change whether the underlying subsidiary is owned by the Parent, a Guarantor, Canada Company or a Non-Guarantor. If such a change occurs, the amount of investment in subsidiaries in the below consolidated balance sheets and equity in the earnings (losses) of subsidiaries, net of tax in the below consolidated statements of operations with respect to the relevant Parent, Guarantors, Canada Company, Non-Guarantors and Eliminations columns also would change.
In March 2015, we entered into the Accounts Receivable Securitization Program, which is described more fully in Note 4. The Special Purpose Subsidiaries, which were established in conjunction with the Accounts Receivable Securitization Program, are included in the Non-Guarantors column in the below consolidated balance sheet, consolidated statement of operations and consolidated statement of cash flows from that date forward. As a result of the Accounts Receivable Securitization Program, certain of our Guarantors sold substantially all of their United States accounts receivable balances to the Special Purpose Subsidiaries. As of March 31, 2015, this resulted in a decrease in accounts receivable, an increase in intercompany receivable and a decrease in long-term debt related to our Guarantors and a corresponding increase in accounts receivable, an increase in intercompany payable and an increase in long-term debt related to our Non-Guarantors. There was no material impact to the Guarantors and Non-Guarantors columns of the below consolidated statement of operations for the three months ended March 31, 2015. Additionally, the Accounts Receivable Securitization Program resulted in increased financing cash flow activity for our Non-Guarantor subsidiaries for the three months ended March 31, 2015, as the proceeds from borrowings under the Accounts Receivable Securitization Program were used to repay intercompany loans with certain of our Guarantor subsidiaries, which resulted in increased cash flows from investing activities for our Guarantor subsidiaries for the three months ended March 31, 2015.

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



CONSOLIDATED BALANCE SHEETS
 
December 31, 2014
 
Parent
 
Guarantors
 
Canada
Company
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Assets
 

 
 

 
 

 
 

 
 

 
 

Current Assets:
 

 
 

 
 

 
 

 
 

 
 

Cash and Cash Equivalents
$
2,399

 
$
4,713

 
$
4,979

 
$
113,842

 
$

 
$
125,933

Restricted Cash
33,860

 

 

 

 

 
33,860

Accounts Receivable

 
361,330

 
37,137

 
205,798

 

 
604,265

Intercompany Receivable

 
586,725

 

 

 
(586,725
)
 

Other Current Assets
153

 
88,709

 
2,925

 
61,908

 
(34
)
 
153,661

Total Current Assets
36,412

 
1,041,477

 
45,041

 
381,548

 
(586,759
)
 
917,719

Property, Plant and Equipment, Net
840

 
1,580,337

 
160,977

 
808,573

 

 
2,550,727

Other Assets, Net:
 

 
 

 
 

 
 

 
 

 
 

Long-term Notes Receivable from Affiliates and Intercompany Receivable
2,851,651

 
245

 
2,448

 

 
(2,854,344
)
 

Investment in Subsidiaries
917,170

 
656,877

 
30,751

 
93,355

 
(1,698,153
)
 

Goodwill

 
1,611,957

 
180,342

 
631,484

 

 
2,423,783

Other
31,108

 
375,082

 
26,672

 
245,251

 

 
678,113

Total Other Assets, Net
3,799,929

 
2,644,161

 
240,213

 
970,090

 
(4,552,497
)
 
3,101,896

Total Assets
$
3,837,181

 
$
5,265,975

 
$
446,231

 
$
2,160,211

 
$
(5,139,256
)
 
$
6,570,342

Liabilities and Equity
 

 
 

 
 

 
 

 
 

 
 

Intercompany Payable
$
505,083

 
$

 
$
3,564

 
$
78,078

 
$
(586,725
)
 
$

Current Portion of Long-term Debt

 
24,955

 

 
27,174

 
(34
)
 
52,095

Total Other Current Liabilities
60,097

 
470,122

 
35,142

 
239,280

 

 
804,641

Long-term Debt, Net of Current Portion
2,414,646

 
908,431

 
245,861

 
1,042,498

 

 
4,611,436

Long-term Notes Payable to Affiliates and Intercompany Payable
1,000

 
2,851,384

 

 
1,960

 
(2,854,344
)
 

Other Long-term Liabilities

 
115,789

 
37,558

 
78,868

 

 
232,215

Commitments and Contingencies (See Note 7)
 

 
 

 
 

 
 

 
 

 
 

Total Iron Mountain Incorporated Stockholders' Equity           
856,355

 
895,294

 
124,106

 
678,753

 
(1,698,153
)
 
856,355

Noncontrolling Interests

 

 

 
13,600

 

 
13,600

Total Equity
856,355

 
895,294

 
124,106

 
692,353

 
(1,698,153
)
 
869,955

Total Liabilities and Equity
$
3,837,181

 
$
5,265,975

 
$
446,231

 
$
2,160,211

 
$
(5,139,256
)
 
$
6,570,342


30

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

CONSOLIDATED BALANCE SHEETS (Continued)
 
March 31, 2015
 
Parent
 
Guarantors
 
Canada
Company
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Assets
 

 
 

 
 

 
 

 
 

 
 

Current Assets:
 

 
 

 
 

 
 

 
 

 
 

Cash and Cash Equivalents
$

 
$
7,395

 
$
7,120

 
$
105,090

 
$

 
$
119,605

Restricted Cash
20,000

 

 

 

 

 
20,000

Accounts Receivable

 
14,842

 
33,975

 
541,209

 

 
590,026

Intercompany Receivable

 
857,050

 

 

 
(857,050
)
 

Other Current Assets
573

 
93,214

 
3,043

 
61,041

 
(29
)
 
157,842

Total Current Assets
20,573

 
972,501

 
44,138

 
707,340

 
(857,079
)
 
887,473

Property, Plant and Equipment, Net
795

 
1,580,203

 
147,886

 
747,918

 

 
2,476,802

Other Assets, Net:
 

 
 

 
 

 
 

 
 

 
 

Long-term Notes Receivable from Affiliates and Intercompany Receivable
2,919,207

 
1,000

 
2,234

 

 
(2,922,441
)
 

Investment in Subsidiaries
867,150

 
607,661

 
28,066

 
91,633

 
(1,594,510
)
 

Goodwill

 
1,612,151

 
165,582

 
580,828

 

 
2,358,561

Other
30,145

 
375,615

 
24,370

 
218,488

 

 
648,618

Total Other Assets, Net
3,816,502

 
2,596,427

 
220,252

 
890,949

 
(4,516,951
)
 
3,007,179

Total Assets
$
3,837,870

 
$
5,149,131

 
$
412,276

 
$
2,346,207

 
$
(5,374,030
)
 
$
6,371,454

Liabilities and Equity
 

 
 

 
 

 
 

 
 

 
 

Intercompany Payable
$
658,287

 
$

 
$
3,292

 
$
195,471

 
$
(857,050
)
 
$

Current Portion of Long-term Debt

 
23,254

 

 
31,258

 
(29
)
 
54,483

Total Other Current Liabilities
55,930

 
394,054

 
26,613

 
189,251

 

 
665,848

Long-term Debt, Net of Current Portion
2,379,798

 
846,299

 
227,442

 
1,213,820

 

 
4,667,359

Long-term Notes Payable to Affiliates and Intercompany Payable
1,000

 
2,921,441

 

 

 
(2,922,441
)
 

Other Long-term Liabilities

 
118,005

 
35,230

 
74,027

 

 
227,262

Commitments and Contingencies (See Note 7)
 

 
 

 
 

 
 

 
 

 
 

Total Iron Mountain Incorporated Stockholders' Equity           
742,855

 
846,078

 
119,699

 
628,733

 
(1,594,510
)
 
742,855

Noncontrolling Interests

 

 

 
13,647

 

 
13,647

Total Equity
742,855

 
846,078

 
119,699

 
642,380

 
(1,594,510
)
 
756,502

Total Liabilities and Equity
$
3,837,870

 
$
5,149,131

 
$
412,276

 
$
2,346,207

 
$
(5,374,030
)
 
$
6,371,454


31

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

CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended March 31, 2014
 
Parent
 
Guarantors
 
Canada
Company
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Revenues:
 

 
 

 
 

 
 

 
 

 
 

Storage Rental
$

 
$
300,329

 
$
30,411

 
$
128,149

 
$

 
$
458,889

Service

 
186,430

 
16,150

 
108,657

 

 
311,237

Intercompany Service

 

 

 
17,358

 
(17,358
)
 

Total Revenues

 
486,759

 
46,561

 
254,164

 
(17,358
)
 
770,126

Operating Expenses:
 

 
 

 
 

 
 

 
 

 
 

Cost of Sales (Excluding Depreciation and Amortization)

 
202,920

 
6,242

 
125,983

 

 
335,145

Intercompany Service Cost of Sales

 

 
17,358

 

 
(17,358
)
 

Selling, General and Administrative
28

 
146,578

 
3,753

 
64,421

 

 
214,780

Depreciation and Amortization
77

 
52,640

 
2,999

 
30,717

 

 
86,433

Loss (Gain) on Disposal/Write-down of Property, Plant and Equipment (Excluding Real Estate), net

 
929

 
1

 
222

 

 
1,152

Total Operating Expenses
105

 
403,067

 
30,353

 
221,343

 
(17,358
)
 
637,510

Operating (Loss) Income
(105
)
 
83,692

 
16,208

 
32,821

 

 
132,616

Interest Expense (Income), Net
48,165

 
(4,852
)
 
9,547

 
9,452

 

 
62,312

Other (Income) Expense, Net
(1,280
)
 
1,507

 
(20
)
 
5,110

 

 
5,317

(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes and (Gain) Loss on Sale of Real Estate
(46,990
)
 
87,037

 
6,681

 
18,259

 

 
64,987

Provision (Benefit) for Income Taxes

 
23,803

 
2,538

 
3,393

 

 
29,734

(Gain) Loss on Sale of Real Estate, Net of Tax

 
(197
)
 

 
(7,271
)
 

 
(7,468
)
Equity in the (Earnings) Losses of Subsidiaries, Net of Tax
(88,657
)
 
(24,826
)
 
(1,954
)
 
(4,143
)
 
119,580

 

Income (Loss) from Continuing Operations
41,667

 
88,257

 
6,097

 
26,280

 
(119,580
)
 
42,721

(Loss) Income from Discontinued Operations, Net of Tax

 
(625
)
 

 
13

 

 
(612
)
Net Income (Loss)
41,667

 
87,632

 
6,097

 
26,293

 
(119,580
)
 
42,109

Less: Net Income (Loss) Attributable to Noncontrolling Interest

 

 

 
442

 

 
442

Net Income (Loss) Attributable to Iron Mountain Incorporated
$
41,667

 
$
87,632

 
$
6,097

 
$
25,851

 
$
(119,580
)
 
$
41,667

Net Income (Loss)
$
41,667

 
$
87,632

 
$
6,097

 
$
26,293

 
$
(119,580
)
 
$
42,109

Other Comprehensive Income (Loss):
 

 
 

 
 

 
 

 
 

 
 

Foreign Currency Translation Adjustments
88

 
741

 
(2,618
)
 
3,577

 

 
1,788

Equity in Other Comprehensive Income (Loss) of Subsidiaries
1,589

 
(71
)
 
(1,160
)
 
(2,618
)
 
2,260

 

Total Other Comprehensive Income (Loss)
1,677

 
670

 
(3,778
)
 
959

 
2,260

 
1,788

Comprehensive Income (Loss)
43,344

 
88,302

 
2,319

 
27,252

 
(117,320
)
 
43,897

Comprehensive Income (Loss) Attributable to Noncontrolling Interests

 

 

 
553

 

 
553

Comprehensive Income (Loss) Attributable to Iron Mountain Incorporated
$
43,344

 
$
88,302

 
$
2,319

 
$
26,699

 
$
(117,320
)
 
$
43,344


32

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

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
 
Three Months Ended March 31, 2015
 
Parent
 
Guarantors
 
Canada
Company
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Revenues:
 

 
 

 
 

 
 

 
 

 
 

Storage Rental
$

 
$
304,592

 
$
30,868

 
$
123,412

 
$

 
$
458,872

Service

 
180,865

 
16,557

 
92,992

 

 
290,414

Intercompany Service

 
352

 

 
16,419

 
(16,771
)
 

Total Revenues

 
485,809

 
47,425

 
232,823

 
(16,771
)
 
749,286

Operating Expenses:
 

 
 

 
 

 
 

 
 

 
 

Cost of Sales (Excluding Depreciation and Amortization)

 
196,661

 
7,165

 
117,828

 

 
321,654

Intercompany Service Cost of Sales

 

 
16,419

 
352

 
(16,771
)
 

Selling, General and Administrative
73

 
132,192

 
4,167

 
59,982

 

 
196,414

Depreciation and Amortization
46

 
55,403

 
3,052

 
27,450

 

 
85,951

Loss (Gain) on Disposal/Write-down of Property, Plant and Equipment (Excluding Real Estate), net

 
322

 

 
11

 

 
333

Total Operating Expenses
119

 
384,578

 
30,803

 
205,623

 
(16,771
)
 
604,352

Operating (Loss) Income
(119
)
 
101,231

 
16,622

 
27,200

 

 
144,934

Interest Expense (Income), Net
39,170

 
(6,677
)
 
8,203

 
24,202

 

 
64,898

Other (Income) Expense, Net
(2,038
)
 
1,383

 
(127
)
 
23,131

 

 
22,349

(Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes and (Gain) Loss on Sale of Real Estate
(37,251
)

106,525


8,546


(20,133
)



57,687

Provision (Benefit) for Income Taxes

 
9,702

 
3,063

 
3,183

 

 
15,948

Equity in the (Earnings) Losses of Subsidiaries, Net of Tax
(78,347
)
 
18,740

 
(1,059
)
 
(5,483
)
 
66,149

 

Net Income (Loss)
41,096

 
78,083

 
6,542

 
(17,833
)
 
(66,149
)
 
41,739

Less: Net Income (Loss) Attributable to Noncontrolling Interests

 

 

 
643

 

 
643

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

 
$
78,083

 
$
6,542

 
$
(18,476
)
 
$
(66,149
)
 
$
41,096

Net Income (Loss)
$
41,096

 
$
78,083

 
$
6,542

 
$
(17,833
)
 
$
(66,149
)
 
$
41,739

Other Comprehensive Income (Loss):
 

 
 

 
 

 
 

 
 

 
 

Foreign Currency Translation Adjustments
4,930

 

 
(7,940
)
 
(53,165
)
 

 
(56,175
)
Market Value Adjustments for Securities

 
23

 

 

 

 
23

Equity in Other Comprehensive (Loss) Income of Subsidiaries
(60,981
)
 
(60,896
)
 
(3,007
)
 
(7,940
)
 
132,824

 

Total Other Comprehensive (Loss) Income
(56,051
)
 
(60,873
)
 
(10,947
)
 
(61,105
)
 
132,824

 
(56,152
)
Comprehensive (Loss) Income
(14,955
)
 
17,210

 
(4,405
)
 
(78,938
)
 
66,675

 
(14,413
)
Comprehensive Income (Loss) Attributable to Noncontrolling Interests

 

 

 
542

 

 
542

Comprehensive (Loss) Income Attributable to Iron Mountain Incorporated
$
(14,955
)
 
$
17,210

 
$
(4,405
)
 
$
(79,480
)
 
$
66,675

 
$
(14,955
)
 

33

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

CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Three Months Ended March 31, 2014
 
Parent
 
Guarantors
 
Canada
Company
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Cash Flows from Operating Activities:
 

 
 

 
 

 
 

 
 

 
 

Cash Flows from Operating Activities—Continuing Operations
$
(68,972
)
 
$
79,555

 
$
10,421

 
$
34,637

 
$

 
$
55,641

Cash Flows from Investing Activities:
 

 
 

 
 

 
 

 
 

 
 

Capital expenditures

 
(71,520
)
 
(2,865
)
 
(33,471
)
 

 
(107,856
)
Cash paid for acquisitions, net of cash acquired

 
916

 

 
(31,697
)
 

 
(30,781
)
Intercompany loans to subsidiaries
377,202

 
61,895

 

 

 
(439,097
)
 

Investment in subsidiaries
(11,695
)
 
(11,695
)
 

 

 
23,390

 

Additions to customer relationship and acquisition costs

 
(7,341
)
 
(280
)
 
(537
)
 

 
(8,158
)
Proceeds from sales of property and equipment and other, net (including real estate)

 
1,441

 
64

 
16,387

 

 
17,892

Cash Flows from Investing Activities—Continuing Operations
365,507

 
(26,304
)
 
(3,081
)
 
(49,318
)
 
(415,707
)
 
(128,903
)
Cash Flows from Financing Activities:
 

 
 

 
 

 
 

 
 

 
 

Repayment of revolving credit and term loan facilities and other debt

 
(2,171,941
)
 
(252,107
)
 
(30,643
)
 

 
(2,454,691
)
Proceeds from revolving credit and term loan facilities and other debt

 
2,480,901

 
242,480

 
152,666

 

 
2,876,047

Early retirement of senior subordinated notes
(247,275
)
 

 

 

 

 
(247,275
)
Debt (repayment to) financing and equity contribution from (distribution to) noncontrolling interests, net

 

 

 
(2,317
)
 

 
(2,317
)
Intercompany loans from parent

 
(376,788
)
 
8,640

 
(70,949
)
 
439,097

 

Equity contribution from parent

 
11,695

 

 
11,695

 
(23,390
)
 

Parent cash dividends
(52,735
)
 

 

 

 

 
(52,735
)
Proceeds from exercise of stock options and employee stock purchase plan
2,417

 

 

 

 

 
2,417

Excess tax (deficiency) benefits from stock-based compensation
(185
)
 

 

 

 

 
(185
)
Payment of debt financing costs and stock issuance costs              

 

 
(12
)
 
(410
)
 

 
(422
)
Cash Flows from Financing Activities—Continuing Operations
(297,778
)
 
(56,133
)
 
(999
)
 
60,042

 
415,707

 
120,839

Effect of exchange rates on cash and cash equivalents

 

 
136

 
1,667

 

 
1,803

(Decrease) Increase in cash and cash equivalents
(1,243
)
 
(2,882
)
 
6,477

 
47,028

 

 
49,380

Cash and cash equivalents, beginning of period
1,243

 
10,366

 
1,094

 
107,823

 

 
120,526

Cash and cash equivalents, end of period
$

 
$
7,484

 
$
7,571

 
$
154,851

 
$

 
$
169,906


34

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

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 
Three Months Ended March 31, 2015
 
Parent
 
Guarantors
 
Canada
Company
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Cash Flows from Operating Activities:
 

 
 

 
 

 
 

 
 

 
 

Cash Flows from Operating Activities—Continuing Operations
$
(45,978
)
 
$
44,864

 
$
3,636

 
$
2,990

 
$

 
$
5,512

Cash Flows from Investing Activities:
 

 
 

 
 

 
 

 
 

 
 

Capital expenditures

 
(46,452
)
 
(3,774
)
 
(24,550
)
 

 
(74,776
)
Cash paid for acquisitions, net of cash acquired

 
(684
)
 
106

 
(5,853
)
 

 
(6,431
)
Intercompany loans to subsidiaries
132,692

 
79,946

 

 

 
(212,638
)
 

Investment in subsidiaries
(5,000
)
 
(5,000
)
 

 

 
10,000

 

Increase in restricted cash
13,860

 

 

 

 

 
13,860

Additions to customer relationship and acquisition costs

 
(7,990
)
 
(668
)
 
(585
)
 

 
(9,243
)
Proceeds from sales of property and equipment and other, net (including real estate)

 
160

 
6

 
244

 

 
410

Cash Flows from Investing Activities—Continuing Operations
141,552

 
19,980

 
(4,330
)
 
(30,744
)
 
(202,638
)
 
(76,180
)
Cash Flows from Financing Activities:
 

 
 

 
 

 
 

 
 

 
 

Repayment of revolving credit and term loan facilities and other debt

 
(1,894,836
)
 
(159,145
)
 
(228,280
)
 

 
(2,282,261
)
Proceeds from revolving credit and term loan facilities and other debt

 
1,823,900

 
161,962

 
464,541

 

 
2,450,403

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

 

 

 
(388
)
 

 
(388
)
Intercompany loans from parent

 
4,638

 
79

 
(217,355
)
 
212,638

 

Equity contribution from parent

 
5,000

 

 
5,000

 
(10,000
)
 

Parent cash dividends
(102,539
)
 

 

 

 

 
(102,539
)
Proceeds from exercise of stock options and employee stock purchase plan
4,364

 

 

 

 

 
4,364

Excess tax benefits (deficiency) from stock-based compensation
231

 

 

 

 

 
231

Payment of debt financing costs and stock issuance costs              
(29
)
 
(864
)
 

 
(54
)
 

 
(947
)
Cash Flows from Financing Activities—Continuing Operations
(97,973
)
 
(62,162
)
 
2,896

 
23,464

 
202,638

 
68,863

Effect of exchange rates on cash and cash equivalents

 

 
(61
)
 
(4,462
)
 

 
(4,523
)
(Decrease) Increase in cash and cash equivalents
(2,399
)
 
2,682

 
2,141

 
(8,752
)
 

 
(6,328
)
Cash and cash equivalents, beginning of period
2,399

 
4,713

 
4,979

 
113,842

 

 
125,933

Cash and cash equivalents, end of period
$

 
$
7,395

 
$
7,120

 
$
105,090

 
$

 
$
119,605


35

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

(6) Segment Information
As a result of a realignment in senior management reporting structure during the first quarter of 2015, we modified our internal financial reporting to better align internal reporting with how we manage our business. These modifications resulted in the separation of our former International Business segment into two unique reportable operating segments, which we refer to as (1) Western European Business segment and (2) Other International Business segment. Additionally, during the first quarter of 2015, we reassessed the nature of certain costs which were previously being allocated to the North American Records and Information Management Business and North American Data Management Business segments. As a result of this reassessment, we determined that certain product management functions, which were previously being performed to solely benefit our North American operating segments, are now being performed in a manner that benefits the enterprise as a whole. Accordingly, the costs associated with these product management functions are now included within the Corporate and Other Business segment. Previously reported segment information has been restated to conform to the current period presentation.
Our five reportable operating segments are described as follows:
North American Records and Information Management Business—storage and information management services throughout the United States and Canada, including the storage of paper documents, as well as other media such as microfilm and microfiche, master audio and videotapes, film, X‑rays and blueprints, including healthcare information services, vital records services, service and courier operations, and the collection, handling and disposal of sensitive documents for corporate customers (“Records Management”); information destruction services (“Destruction”); DMS; Fulfillment Services; and Intellectual Property Management.
North American Data Management Business—storage and rotation of backup computer media as part of corporate disaster recovery plans throughout the United States and Canada, including service and courier operations (“Data Protection & Recovery”); server and computer backup services; digital content repository systems to house, distribute, and archive key media assets; and storage, safeguarding and electronic or physical delivery of physical media of all types, primarily for entertainment and media industry clients.
Western European Business—Records Management, Data Protection & Recovery and DMS throughout the United Kingdom, Ireland, Norway, Austria, Belgium, France, Germany, Netherlands, Spain and Switzerland. Until December 2014, our Western European Business segment offered Destruction in the United Kingdom and Ireland.
Other International Business—storage and information management services throughout the remaining European countries in which we operate, Latin America and Asia Pacific, including Records Management, Data Protection & Recovery and DMS. Our European operations included within the Other International Business segment provide Records Management, Data Protection & Recovery and DMS. Our Latin America operations provide Records Management, Data Protection & Recovery, Destruction and DMS throughout Argentina, Brazil, Chile, Colombia, Mexico and Peru. Our Asia Pacific operations provide Records Management, Data Protection & Recovery and DMS throughout Australia, with Records Management and Data Protection & Recovery also provided in certain cities in India, Singapore, Hong Kong‑SAR and China. Until December 2014, our Other International Business segment offered Destruction in Australia.
Corporate and Other Business—consists of our data center business in the United States, the primary product offering of our Emerging Businesses segment, as well as costs related to executive and staff functions, including finance, human resources and information technology, which benefit the enterprise as a whole. These costs are primarily related to the general management of these functions on a corporate level and the design and development of programs, policies and procedures that are then implemented in the individual segments, with each segment bearing its own cost of implementation. Our Corporate and Other Business segment also includes stock‑based employee compensation expense associated with all Employee Stock‑Based Awards.

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


An analysis of our business segment information and reconciliation to the accompanying Consolidated Financial Statements is as follows:
 
 
North American
Records and
Information
Management
Business
 
North American
Data
Management
Business
 
Western European Business
 
Other International Business
 
Corporate
and Other
Business
 
Total
Consolidated
Three Months Ended March 31, 2014
 
 

 
 

 
 
 
 

 
 

 
 

Total Revenues
 
$
446,132

 
$
96,724

 
$
117,131

 
$
107,299

 
$
2,840

 
$
770,126

Depreciation and Amortization
 
45,506

 
5,030

 
14,340

 
14,419

 
7,138

 
86,433

Depreciation
 
40,821

 
4,965

 
12,014

 
9,775

 
7,138

 
74,713

Amortization
 
4,685

 
65

 
2,326

 
4,644

 

 
11,720

Adjusted OIBDA
 
169,209

 
54,668

 
34,563

 
24,200

 
(54,116
)
 
228,524

Total Assets (1)
 
3,632,489

 
666,188

 
1,131,454

 
994,657

 
281,829

 
6,706,617

Expenditures for Segment Assets
 
49,266

 
5,507

 
10,787

 
54,154

 
27,081

 
146,795

Capital Expenditures
 
42,561

 
5,507

 
9,974

 
22,733

 
27,081

 
107,856

Cash Paid for Acquisitions, Net of Cash Acquired
 
(916
)
 

 
296

 
31,401

 

 
30,781

Additions to Customer Relationship and Acquisition Costs
 
7,621

 

 
517

 
20

 

 
8,158

Three Months Ended March 31, 2015
 
 

 
 

 
 
 
 

 
 

 
 

Total Revenues
 
442,687

 
97,235

 
100,812

 
103,991

 
4,561

 
749,286

Depreciation and Amortization
 
45,303

 
5,344

 
11,439

 
14,265

 
9,600

 
85,951

Depreciation
 
40,336

 
5,284

 
9,986

 
9,632

 
9,553

 
74,791

Amortization
 
4,967

 
60

 
1,453

 
4,633

 
47

 
11,160

Adjusted OIBDA
 
181,480

 
51,288

 
29,453

 
20,835

 
(51,838
)
 
231,218

Total Assets (1)
 
3,623,905

 
648,507

 
896,380

 
911,481

 
291,181

 
6,371,454

Expenditures for Segment Assets
 
42,375

 
4,949

 
7,588

 
22,548

 
12,990

 
90,450

Capital Expenditures
 
33,180

 
4,907

 
4,410

 
19,289

 
12,990

 
74,776

Cash Paid for Acquisitions, Net of Cash Acquired
 
600

 
(21
)
 
2,819

 
3,033

 

 
6,431

Additions to Customer Relationship and Acquisition Costs
 
8,595

 
63

 
359

 
226

 

 
9,243

_______________________________________________________________________________

(1)
Excludes all intercompany receivables or payables and investment in subsidiary balances.
The accounting policies of the reportable segments are the same as those described in Note 2. Adjusted OIBDA for each segment is defined as operating income before depreciation, amortization, intangible impairments, (gain) loss on disposal/write-down of property, plant and equipment, net (excluding real estate) and REIT Costs (defined below) directly attributable to the segment. Internally, we use Adjusted OIBDA as the basis for evaluating the performance of, and allocating resources to, our operating segments.

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


A reconciliation of Adjusted OIBDA to income (loss) from continuing operations before provision (benefit) for income taxes and (gain) loss on sale of real estate on a consolidated basis is as follows:
 
Three Months Ended
March 31,
 
 
2014
 
2015
 
Adjusted OIBDA
$
228,524

 
$
231,218

 
Less: Depreciation and Amortization
86,433

 
85,951

 
Loss on Disposal/Write-Down of Property, Plant and Equipment (Excluding Real Estate), Net
1,152

 
333

 
REIT Costs(1)
8,323

 

 
Interest Expense, Net
62,312

 
64,898

 
Other Expense, Net
5,317

 
22,349

 
Income from Continuing Operations before Provision for Income Taxes and Gain on Sale of Real Estate
$
64,987

 
$
57,687

 
_______________________________________________________________________________

(1)
Includes costs associated with our conversion to a REIT, excluding REIT compliance costs beginning January 1, 2014 which we expect to recur in future periods ("REIT Costs").
(7) Commitments and Contingencies
a.    Litigation—General
We are involved in litigation from time to time in the ordinary course of business. A portion of the defense and/or settlement costs associated with such litigation is covered by various commercial liability insurance policies purchased by us and, in limited cases, indemnification from third parties. Our policy is to establish reserves for loss contingencies when the losses are both probable and reasonably estimable. We record legal costs associated with loss contingencies as expenses in the period in which they are incurred. The matters described below represent our significant loss contingencies. We have evaluated each matter and, if both probable and estimable, accrued an amount that represents our estimate of any probable loss associated with such matter. In addition, we have estimated a reasonably possible range for all loss contingencies including those described below. We believe it is reasonably possible that we could incur aggregate losses in addition to amounts currently accrued for all matters up to an additional $4,000 over the next several years, of which certain amounts would be covered by insurance or indemnity arrangements.
b.    Italy Fire
On November 4, 2011, we experienced a fire at a facility we leased in Aprilia, Italy. The facility primarily stored archival and inactive business records for local area businesses. Despite quick response by local fire authorities, damage to the building was extensive, and the building and its contents were a total loss. Although our warehouse legal liability insurer has reserved its rights to contest coverage related to certain types of potential claims, we believe we carry adequate insurance. We have been sued by four customers, of which three of those matters have been settled. We have also received correspondence from other customers, under various theories of liabilities. We deny any liability with respect to the fire and we have referred these claims to our warehouse legal liability insurer for an appropriate response. We do not expect that this event will have a material impact on our consolidated financial condition, results of operations or cash flows. We sold our Italian operations on April 27, 2012, and we indemnified the buyers related to certain obligations and contingencies associated with the fire.

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


Our policy related to business interruption insurance recoveries is to record gains within other (income) expense, net in our Consolidated Statements of Operations and proceeds received within cash flows from operating activities in our Consolidated Statements of Cash Flows. Such amounts are recorded in the period the cash is received. Our policy with respect to involuntary conversion of property, plant and equipment is to record any gain or loss within (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net within operating income in our Consolidated Statements of Operations and proceeds received within cash flows from investing activities within our Consolidated Statements of Cash Flows. Losses are recorded when incurred and gains are recorded in the period when the cash received exceeds the carrying value of the related property, plant and equipment. As a result of the sale of the Italian operations, statements of operation and cash flow impacts related to the fire will be reflected as discontinued operations.
c.    Argentina Fire
On February 5, 2014, we experienced a fire at a facility we own in Buenos Aires, Argentina. As a result of the quick response by local fire authorities, the fire was contained before the entire facility was destroyed and all employees were safely evacuated; however, a number of first responders lost their lives, or in some cases, were severely injured. The cause of the fire is currently being investigated. We believe we carry adequate insurance and do not expect that this event will have a material impact to our consolidated financial condition, results of operations or cash flows. Revenues from our operations at this facility represent less than 0.5% of our consolidated revenues.
(8) Stockholders' Equity Matters
On September 15, 2014, we announced the declaration by our board of directors of a special distribution of $700,000 (the "Special Distribution"), payable to stockholders of record as of September 30, 2014 (the "Record Date"). The Special Distribution represented the remaining amount of our undistributed earnings and profits attributable to all taxable periods ending on or prior to December 31, 2013, which in accordance with tax rules applicable to REIT conversions, we were required to pay to our stockholders on or before December 31, 2014 in connection with our conversion to a REIT. The Special Distribution also included certain items of taxable income that we recognized in 2014, such as depreciation recapture in respect of accounting method changes commenced in our pre-REIT period as well as foreign earnings and profits recognized as dividend income. The Special Distribution followed an initial special distribution of $700,000 paid to stockholders in November 2012.
The Special Distribution was paid on November 4, 2014 (the "Payment Date") to stockholders of record as of the Record Date in a combination of common stock and cash. Stockholders had the right to elect to be paid their pro rata portion of the Special Distribution in all common stock or all cash, with the total cash payment to stockholders limited to no more than $140,000, or 20% of the total Special Distribution, not including cash paid in lieu of fractional shares. Based on stockholder elections, we paid $140,000 of the Special Distribution in cash, not including cash paid in lieu of fractional shares, with the balance paid in the form of common stock. Our shares of common stock were valued for purposes of the Special Distribution based upon the average closing price on the three trading days following October 24, 2014, or $35.55 per share, and as such, we issued approximately 15,750,000 shares of common stock in the Special Distribution. These shares impact weighted average shares outstanding from the date of issuance, and thus will impact our earnings per share data prospectively from the Payment Date.
In February 2010, our board of directors adopted a dividend policy under which we have paid, and in the future intend to pay, quarterly cash dividends on our common stock. Declaration and payment of future quarterly dividends is at the discretion of our board of directors.
In November 2014, our board of directors declared a distribution of $0.255 per share (the “Catch‑Up Distribution”) payable on December 15, 2014 to stockholders of record on November 28, 2014. Our board of directors declared the Catch‑Up Distribution because our cash distributions paid from January 2014 through July 2014 were declared and paid before our board of directors had determined that we would elect REIT status effective January 1, 2014 and were lower than they otherwise would have been if the final determination to elect REIT status effective January 1, 2014 had been prior to such distributions.


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IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
(8) Stockholders' Equity Matters (Continued)

In fiscal year 2014 and in the first quarter of 2015, our board of directors declared the following dividends:
Declaration Date
 
Dividend
Per Share
 
Record Date
 
Total
Amount
 
Payment Date
March 14, 2014
 
$
0.2700

 
March 25, 2014
 
$
51,812

 
April 15, 2014
May 28, 2014
 
0.2700

 
June 25, 2014
 
52,033

 
July 15, 2014
September 15, 2014
 
0.4750

 
September 25, 2014
 
91,993

 
October 15, 2014
September 15, 2014 (1)
 
3.6144

 
September 30, 2014
 
700,000

 
November 4, 2014
November 17, 2014 (2)
 
0.2550

 
November 28, 2014
 
53,450

 
December 15, 2014
November 17, 2014
 
0.4750

 
December 5, 2014
 
99,617

 
December 22, 2014
February 19, 2015
 
0.4750

 
March 6, 2015
 
99,795

 
March 20, 2015
_______________________________________________________________________________

(1) Represents Special Distribution.

(2) Represents Catch-Up Distribution.
(9) Subsequent Event
On April 28, 2015, we reached an agreement in principle with Recall Holdings Limited (“Recall”) to acquire Recall by way of a recommended court approved Scheme of Arrangement for 0.1722 of a share of our common stock for each outstanding share of Recall common stock. In addition, Recall shareholders will be offered the option to elect to receive alternative consideration of 8.50 Australian dollars per Recall share in cash, subject to a proration mechanism that will cap the total amount of cash consideration to be paid to Recall shareholders at 225,000 Australian dollars. The proposed transaction is contingent on our and Recall conducting confirmatory due diligence and negotiating and executing mutually acceptable merger documentation, including entering into a Scheme Implementation Agreement, and other terms and conditions. The agreement in principle does not assure that a definitive agreement regarding the proposed transaction will be reached or that any transaction between us and Recall will actually occur. Conditions precedent to the closing of the proposed transaction will include, among other things, receipt of antitrust/competition and other requisite regulatory approvals, no material adverse event affecting either party, Recall shareholder approval, our shareholder approval, Australian Court approvals and other customary conditions for a transaction of this nature.


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IRON MOUNTAIN INCORPORATED
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2015 should be read in conjunction with our Consolidated Financial Statements and Notes thereto for the three months ended March 31, 2015, included herein, and for the year ended December 31, 2014, included in our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission ("SEC") on February 27, 2015 (our "Annual Report").
FORWARD-LOOKING STATEMENTS
We have made statements in this Quarterly Report on Form 10-Q ("Quarterly Report") that constitute "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements concern our operations, economic performance, financial condition, goals, beliefs, future growth strategies, investment objectives, plans and current expectations, such as our (1) commitment to future dividend payments, (2) expected growth in volume of records stored with us from existing customers, (3) expected 2015 consolidated internal revenue growth rate and capital expenditures, (4) expected target leverage ratio and (5) the entering into of the Scheme Implementation Agreement and the completion of the potential Scheme of Arrangement with Recall Holdings Limited ("Recall"). These forward-looking statements are subject to various known and unknown risks, uncertainties and other factors. When we use words such as "believes," "expects," "anticipates," "estimates" or similar expressions, we are making forward-looking statements. Although we believe that our forward-looking statements are based on reasonable assumptions, our expected results may not be achieved, and actual results may differ materially from our expectations. In addition, important factors that could cause actual results to differ from expectations include, among others:
our ability to remain qualified for taxation as a real estate investment trust ("REIT");
the adoption of alternative technologies and shifts by our customers to storage of data through non-paper based technologies;
changes in customer preferences and demand for our storage and information management services;
the cost to comply with current and future laws, regulations and customer demands relating to privacy issues;
the impact of litigation or disputes that may arise in connection with incidents in which we fail to protect our customers' information;
changes in the price for our storage and information management services relative to the cost of providing such storage and information management services;
changes in the political and economic environments in the countries in which our international subsidiaries operate;
our ability or inability to complete acquisitions on satisfactory terms and to integrate acquired companies efficiently;
changes in the amount of our capital expenditures;
changes in the cost of our debt;
the impact of alternative, more attractive investments on dividends;
the cost or potential liabilities associated with real estate necessary for our business;
the performance of business partners upon whom we depend for technical assistance or management expertise outside the United States; and
other trends in competitive or economic conditions affecting our financial condition or results of operations not presently contemplated.
In addition, with respect to the potential Recall transaction, our ability to enter into a Scheme Implementation Agreement and close the proposed transaction on the proposed terms and within the anticipated time period, or at all, is dependent on (a) our and Recall conducting confirmatory due diligence and negotiating and executing definitive documentation and (b) our and Recall's ability to satisfy certain closing conditions, including the receipt of governmental and shareholder approvals. Other risks may adversely impact us, as described more fully under "Item 1A. Risk Factors," included in our Annual Report.
You should not rely upon forward-looking statements except as statements of our present intentions and of our present expectations, which may or may not occur. You should read these cautionary statements as being applicable to all forward-looking statements wherever they appear. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures we have made in this document, as well as our other periodic reports filed with the SEC.

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Non-GAAP Measures
Adjusted OIBDA
Adjusted OIBDA is defined as operating income before depreciation, amortization, intangible impairments, (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net and REIT Costs (as defined below). Adjusted OIBDA Margin is calculated by dividing Adjusted OIBDA by total revenues. We use multiples of current or projected Adjusted OIBDA in conjunction with our discounted cash flow models to determine our overall enterprise valuation and to evaluate acquisition targets. We believe Adjusted OIBDA and Adjusted OIBDA Margin provide our current and potential investors with relevant and useful information regarding our ability to generate cash flow to support business investment. These measures are an integral part of the internal reporting system we use to assess and evaluate the operating performance of our business. Adjusted OIBDA does not include certain items that we believe are not indicative of our core operating results, specifically: (1) (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net; (2) (gain) loss on sale of real estate, net of tax; (3) intangible impairments; (4) REIT Costs; (5) other expense (income), net; (6) income (loss) from discontinued operations, net of tax; (7) gain (loss) on sale of discontinued operations, net of tax; and (8) net income (loss) attributable to noncontrolling interests.
Adjusted OIBDA also does not include interest expense, net and the provision (benefit) for income taxes. These expenses are associated with our capitalization and tax structures, which we do not consider when evaluating the operating profitability of our core operations. Finally, Adjusted OIBDA does not include depreciation and amortization expenses, in order to eliminate the impact of capital investments, which we evaluate by comparing capital expenditures to incremental revenue generated and as a percentage of total revenues. Adjusted OIBDA and Adjusted OIBDA Margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with accounting principles generally accepted in the United States of America ("GAAP"), such as operating or net income (loss) or cash flows from operating activities from continuing operations (as determined in accordance with GAAP).
Reconciliation of Operating Income to Adjusted OIBDA (in thousands):
 
Three Months Ended
March 31,
 
2014
 
2015
Operating Income
$
132,616

 
$
144,934

Add: Depreciation and Amortization
86,433

 
85,951

Loss on Disposal/Write-Down of Property, Plant and Equipment (Excluding Real Estate), Net
1,152

 
333

REIT Costs(1)
8,323

 

Adjusted OIBDA
$
228,524

 
$
231,218

_______________________________________________________________________________

(1)
Includes costs associated with our conversion to a REIT, excluding REIT compliance costs beginning January 1, 2014 which we expect to recur in future periods ("REIT Costs").
Adjusted EPS
Adjusted EPS is defined as reported earnings per share from continuing operations excluding: (1) (gain) loss on disposal/write-down of property, plant and equipment (excluding real estate), net; (2) (gain) loss on sale of real estate, net of tax; (3) intangible impairments; (4) REIT Costs; (5) other expense (income), net; and (6) the tax impact of reconciling items and discrete tax items. We do not believe these excluded items to be indicative of our ongoing operating results, and they are not considered when we are forecasting our future results. We believe Adjusted EPS is of value to our current and potential investors when comparing our results from past, present and future periods.

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Reconciliation of Reported EPS—Fully Diluted from Continuing Operations to Adjusted EPS—Fully Diluted from Continuing Operations:
 
Three Months
Ended
March 31,
 
2014
 
2015
Reported EPS—Fully Diluted from Continuing Operations
$
0.22

 
$
0.20

Add: Loss on Disposal/Write-Down of Property, Plant and Equipment (Excluding Real Estate), Net
0.01

 

Gain on Sale of Real Estate, Net of Tax
(0.04
)
 

Other Expense, Net
0.03

 
0.11

REIT Costs
0.04

 

Tax Impact of Reconciling Items and Discrete Tax Items(1)
0.09

 
0.01

Adjusted EPS—Fully Diluted from Continuing Operations
$
0.35

 
$
0.32

_______________________________________________________________________________

(1)
The Adjusted EPS for the three months ended March 31, 2014 has been restated to reflect an estimated annual effective tax rate of approximately 15.0%. The Adjusted EPS for the three months ended March 31, 2015 reflects an estimated annual effective tax rate of approximately 16.2%.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements 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 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. Our critical accounting policies include the following, which are listed in no particular order:
Revenue Recognition
Accounting for Acquisitions
Impairment of Tangible and Intangible Assets
Income Taxes
Further detail regarding our critical accounting policies can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report, and the Consolidated Financial Statements and the Notes included therein. We have determined that no material changes concerning our critical accounting policies have occurred since December 31, 2014.

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New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 provides additional guidance for management to reassess revenue recognition as it relates to: (1) transfer of control, (2) variable consideration, (3) allocation of transaction price based on relative standalone selling price, (3) licenses, (4) time value of money and (5) contract costs. Further disclosures will be required to provide a better understanding of revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts. ASU 2014-09 is effective for us on January 1, 2017, with no early adoption permitted. In April 2015, the FASB tentatively decided to defer the effective date of ASU 2014-09 for one year to January 1, 2018, with early adoption permitted as of January 1, 2017. We are currently evaluating the impact ASU 2014-09 will have on our consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles of current United States auditing standards. Specifically, the amendments (1) provide a definition of the term “substantial doubt”, (2) require an evaluation every reporting period, including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is still present, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU 2014‑15 is effective for us on January 1, 2017, with early adoption permitted. We do not believe that this pronouncement will have an impact on our consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis ("ASU 2015-02"). ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 is effective for us on January 1, 2016, with early adoption permitted. We do not believe that this pronouncement will have an impact on our consolidated financial statements.
In April 2015, the FASB issued No. ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”).  The amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03.  ASU 2015‑03 is effective for us on January 1, 2016, with early adoption permitted.  We do not believe that this pronouncement will have a material impact on our consolidated financial statements.
Overview
The following discussions set forth, for the periods indicated, management's discussion and analysis of financial condition and results of operations. Significant trends and changes are discussed for the three month period ended March 31, 2015 within each section.
Divestitures
In December 2014, we divested our secure shredding operations in Australia, Ireland and the United Kingdom (the ‘‘International Shredding Operations’’) in a stock transaction for approximately $26.2 million of cash at closing. The assets sold primarily consisted of customer contracts and certain long-lived assets. We have concluded that this divestiture did not meet the requirements to be presented as a discontinued operation. Revenues from our International Shredding Operations during the first quarter of 2014 and the full year 2014 represent less than 1% of our consolidated revenues. The International Shredding Operations in Australia were previously included in the Other International Business segment and the International Shredding Operations in Ireland and the United Kingdom were previously included in the Western European Business segment.

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General
As a result of a realignment in senior management reporting structure during the first quarter of 2015, we modified our internal financial reporting to better align internal reporting with how we manage our business. These modifications resulted in the separation of our former International Business segment into two unique reportable operating segments, which we refer to as (1) Western European Business segment and (2) Other International Business segment. Additionally, during the first quarter of 2015, we reassessed the nature of certain costs which were previously being allocated to the North American Records and Information Management Business and North American Data Management Business segments. As a result of this reassessment, we determined that certain product management functions, which were previously being performed to solely benefit our North American operating segments, are now being performed in a manner that benefits the enterprise as a whole. Accordingly, the costs associated with these product management functions are now included within the Corporate and Other Business segment. Previously reported segment information has been restated to conform to the current period presentation.
Our revenues consist of storage rental revenues as well as service revenues and are reflected net of sales and value added taxes. Storage rental revenues, which are considered a key driver of financial performance for the storage and information management services industry, consist primarily of recurring periodic rental charges related to the storage of materials or data (generally on a per unit basis) that are typically retained by customers for many years. Service revenues include charges for related service activities, which include: (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 the related sale of recycled paper, the price of which can fluctuate from period to period; (4) other services, including the scanning, imaging and document conversion services of active and inactive records, or Document Management Solutions ("DMS"), which relate to physical and digital records, and project revenues; (5) customer termination and permanent withdrawal fees; (6) data restoration projects; (7) special project work; (8) the storage, assembly and detailed reporting of customer marketing literature and delivery to sales offices, trade shows and prospective customers' sites based on current and prospective customer orders ("Fulfillment Services"); (9) consulting services; and (10) technology escrow services that protect and manage source code ("Intellectual Property Management") and other technology services and product sales (including specially designed storage containers and related supplies). Our service revenue growth has been negatively impacted by declining activity rates as stored records are becoming less active. While customers continue to store their records with us, they are less likely than they have been in the past to retrieve records for research purposes, thereby reducing service activity levels.
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 period the applicable storage rental or service is provided or performed. Revenues from the sales of products, which are included as a component of service revenues, are recognized when products are shipped and title has passed to the customer. Revenues from the sales of products have historically not been significant.
Cost of sales (excluding depreciation and amortization) consists primarily of wages and benefits for field personnel, facility occupancy costs (including rent and utilities), transportation expenses (including vehicle leases and fuel), other product cost of sales and other equipment costs and supplies. Of these, wages and benefits and facility occupancy costs are the most significant. Selling, general and administrative expenses consist primarily of wages and benefits for management, administrative, information technology, sales, account management and marketing personnel, as well as expenses related to communications and data processing, travel, professional fees, bad debts, training, office equipment and supplies. Trends in facility occupancy costs are impacted by the total number of facilities we occupy, the mix of properties we own versus properties we occupy under operating leases, fluctuations in per square foot occupancy costs, and the levels of utilization of these properties. Trends in total wages and benefits in dollars and as a percentage of total consolidated revenue are influenced by changes in headcount and compensation levels, achievement of incentive compensation targets, workforce productivity and variability in costs associated with medical insurance and workers' compensation.
The expansion of our international businesses has impacted the major cost of sales components and selling, general and administrative expenses. Our international operations are more labor intensive than our operations in North America and, therefore, labor costs are a higher percentage of international segment revenue. In addition, the overhead structure of our expanding international operations has not achieved the same level of overhead leverage as our North American segments, which may result in an increase in selling, general and administrative expenses, as a percentage of consolidated revenue, as our international operations become a more meaningful percentage of our consolidated results.

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Our depreciation and amortization charges result primarily from the capital-intensive nature of our business. The principal components of depreciation relate to storage systems, which include racking structures, building and leasehold improvements, computer systems hardware and software and buildings. Amortization relates primarily to customer relationship acquisition costs and is impacted by the nature and timing of acquisitions.
Our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues and expenses incurred by our entities outside the United States. It is difficult to predict the future fluctuations of foreign currency exchange rates and how those fluctuations will impact our Consolidated Statement of Operations. As a result of the relative size of our international operations, these fluctuations may be material on individual balances. Our revenues and expenses from our international operations are generally denominated in the local currency of the country in which they are derived or incurred. Therefore, the impact of currency fluctuations on our operating income and operating margin is partially mitigated. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we compare the percentage change in the results from one period to another period in this report using constant currency presentation. The constant currency growth rates are calculated by translating the 2014 results at the 2015 average exchange rates.
The following table is a comparison of underlying average exchange rates of the foreign currencies that had the most significant impact on our United States dollar-reported revenues and expenses:
 
Average Exchange
Rates for the
Three Months
Ended
March 31,
 
 
 
Percentage
Strengthening /
(Weakening) of
Foreign Currency
 
2014
 
2015
 
Australian dollar
$
0.896

 
$
0.787

 
(12.2
)%
Brazilian real
$
0.423

 
$
0.351

 
(17.0
)%
British pound sterling
$
1.655

 
$
1.516

 
(8.4
)%
Canadian dollar
$
0.907

 
$
0.807

 
(11.0
)%
Euro
$
1.370

 
$
1.127

 
(17.7
)%
Results of Operations
Comparison of Three Months Ended March 31, 2015 to Three Months Ended March 31, 2014 (in thousands):
 
Three Months Ended
March 31,
 
 
 
 
 
 
Dollar
Change
 
Percentage
Change
 
2014
 
2015
 
 
Revenues
$
770,126

 
$
749,286

 
$
(20,840
)
 
(2.7
)%
Operating Expenses
637,510

 
604,352

 
(33,158
)
 
(5.2
)%
Operating Income
132,616

 
144,934

 
12,318

 
9.3
 %
Other Expenses, Net
89,895

 
103,195

 
13,300

 
14.8
 %
Income from Continuing Operations
42,721

 
41,739

 
(982
)
 
(2.3
)%
Loss from Discontinued Operations, Net of Tax
(612
)
 

 
612

 
100.0
 %
Net Income
42,109

 
41,739

 
(370
)
 
(0.9
)%
Net Income Attributable to Noncontrolling Interests
442

 
643

 
201

 
45.5
 %
Net Income Attributable to Iron Mountain Incorporated
$
41,667

 
$
41,096

 
$
(571
)
 
(1.4
)%
Adjusted OIBDA(1)
$
228,524

 
$
231,218

 
$
2,694

 
1.2
 %
Adjusted OIBDA Margin(1)
29.7
%
 
30.9
%
 
 
 
 
_______________________________________________________________________________

(1)
See "Non-GAAP Measures—Adjusted OIBDA" in this Quarterly Report for the definition, reconciliation and a discussion of why we believe these measures provide relevant and useful information to our current and potential investors.

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REVENUES
Consolidated revenues consists of the following (in thousands):
 
Three Months Ended
March 31,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency(1)
 
Internal
Growth(2)
 
2014
 
2015
 
 
 
 
Storage Rental
$
458,889

 
$
458,872

 
$
(17
)
 
 %
 
4.6
 %
 
3.0
 %
Service
311,237

 
290,414

 
(20,823
)
 
(6.7
)%
 
(1.5
)%
 
(1.0
)%
Total Revenues
$
770,126

 
$
749,286

 
$
(20,840
)
 
(2.7
)%
 
2.2
 %
 
1.4
 %
_______________________________________________________________________________
(1)
Constant currency growth rates are calculated by translating the 2014 results at the 2015 average exchange rates.
(2)
Our internal revenue growth rate represents the weighted average year-over-year growth rate of our revenues after removing the effects of acquisitions, divestitures and foreign currency exchange rate fluctuations. We calculate internal revenue growth in local currency for our international operations.
Consolidated storage rental revenues for the three months ended March 31, 2015 were consistent with consolidated storage rental revenues for the three months ended March 31, 2014, as consolidated storage rental internal growth and the net impact of acquisitions/divestitures were offset by unfavorable fluctuations in foreign exchange rates compared to the three months ended March 31, 2014. Foreign currency exchange rate fluctuations decreased our reported storage rental revenue growth rate for the three months ended March 31, 2015 by 4.6% compared to the same prior year period. This decrease was offset by storage rental internal growth of 3.0% and the net impact of acquisitions/divestitures of 1.6% in the three months ended March 31, 2015 compared to the three months ended March 31, 2014. Our consolidated storage rental revenue growth in the first three months of 2015 was driven by sustained storage rental internal growth of 0.5%, 5.2%, 3.7% and 11.1% in our North American Records and Information Management, North American Data Management, Western European and Other International Business segments, respectively. Global records management net volumes as of March 31, 2015 increased by 3.5% over the ending volume at March 31, 2014, supported by 12.9% volume increases in our Other International Business segment.
Consolidated service revenues decreased $20.8 million, or 6.7%, to $290.4 million for the three months ended March 31, 2015 from $311.2 million for the three months ended March 31, 2014. Foreign currency exchange rate fluctuations decreased our reported total service revenues by 5.2% for the three months ended March 31, 2015 compared to the same prior year period. Service revenue internal growth was negative 1.0% for the three months ended March 31, 2015. The negative service revenue internal growth for the three months ended March 31, 2015 reflects the continuation of a trend toward reduced retrieval/re-file activity and a related decrease in transportation revenues within our North American Records and Information Management Business segment, as well as continued declines in service revenue activity levels in our North American Data Management Business segment as the storage business becomes more archival in nature. Net acquisitions/divestitures decreased reported service revenues by 0.5% in the three months ended March 31, 2015 compared to the three months ended March 31, 2014 primarily due to a $6.5 million reduction in consolidated service revenue associated with the disposition of our International Shredding Operations.
For the reasons stated above, our consolidated revenues decreased $20.8 million, or 2.7%, to $749.3 million for the three months ended March 31, 2015 from $770.1 million for the three months ended March 31, 2014. For the three months ended March 31, 2015, foreign currency exchange rate fluctuations decreased our reported consolidated revenues by 4.9% compared to the same prior year period, primarily due to the weakening of the Australian dollar, Brazilian real, British pound sterling, Canadian dollar and the Euro against the United States dollar, based on an analysis of weighted average rates for the comparable periods. This decrease was partially offset by consolidated internal revenue growth of 1.4% and the net impact of acquisitions/divestitures of 0.8% in the three months ended March 31, 2015 compared to the three months ended March 31, 2014.

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Table of Contents

Internal Growth—Eight-Quarter Trend
 
2013
 
2014
 
2015
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
First
Quarter
Storage Rental Revenue
2.3
 %
 
2.3
 %
 
1.3
 %
 
1.4
 %
 
1.6
 %
 
2.2
 %
 
3.5
%
 
3.0
 %
Service Revenue
(1.9
)%
 
(0.9
)%
 
(4.4
)%
 
(0.7
)%
 
(1.9
)%
 
(2.7
)%
 
2.3
%
 
(1.0
)%
Total Revenue
0.5
 %
 
1.0
 %
 
(1.1
)%
 
0.5
 %
 
0.1
 %
 
0.2
 %
 
3.0
%
 
1.4
 %

We expect our consolidated internal revenue growth rate for 2015 to be approximately 0% to 2%. During the past eight quarters, our storage rental revenue internal growth rate has ranged between 1.3% and 3.5%. Storage rental revenue internal growth rates have been relatively stable over the past two fiscal years, averaging between 2.1% and 2.2% for full-year 2013 and 2014. At various points in the economic cycle, storage rental internal growth may be influenced by changes in pricing and volume. Recently, we initiated sales force programs focused on increasing volume through new sales and improved customer retention. In addition, we are working on enhancing our pricing strategy through implementing a statistical-based approach, which enables customized pricing based on customer profiles and needs. Within our international portfolio, the developed markets are generating consistent low-to-mid single-digit storage rental revenue growth, and the emerging markets are producing strong double-digit storage rental revenue growth by capturing the first-time outsourcing trends for physical records storage and management in those markets. The internal revenue growth rate for service revenue is inherently more volatile than the storage rental revenue internal growth rate due to the more discretionary nature of certain services we offer, such as large special projects, and, as a commodity, the volatility of pricing for recycled paper. These revenues, which are often event-driven and impacted to a greater extent by economic downturns as customers defer or cancel the purchase of certain services as a way to reduce their short-term costs, may be difficult to replicate in future periods. The internal growth rate for total service revenues reflects the following: (1) consistent pressures on activity-based service revenues related to the handling and transportation of items in storage in the North American Records and Information Management Business and the North American Data Management Business segments and secure shredding revenues; and (2) softness in some of our other service lines, such as fulfillment services.

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OPERATING EXPENSES
Cost of Sales
Consolidated cost of sales (excluding depreciation and amortization) consists of the following expenses (in thousands):
 
Three Months Ended
March 31,
 
 
 
Percentage Change
 
% of
Consolidated
Revenues
 
Percentage
Change
(Favorable)/
Unfavorable
 
 
 
 
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
 
 
2014
 
2015
 
 
 
 
2014
 
2015
 
Labor
$
164,620

 
$
157,644

 
$
(6,976
)
 
(4.2
)%
 
1.6
 %
 
21.4
%
 
21.0
%
 
(0.4
)%
Facilities
114,593

 
111,225

 
(3,368
)
 
(2.9
)%
 
1.8
 %
 
14.9
%
 
14.8
%
 
(0.1
)%
Transportation
29,124

 
24,676

 
(4,448
)
 
(15.3
)%
 
(11.2
)%
 
3.8
%
 
3.3
%
 
(0.5
)%
Product Cost of Sales and Other
26,808

 
28,109

 
1,301

 
4.9
 %
 
12.7
 %
 
3.5
%
 
3.8
%
 
0.3
 %
 
$
335,145

 
$
321,654

 
$
(13,491
)
 
(4.0
)%
 
1.4
 %
 
43.5
%
 
42.9
%
 
(0.6
)%
Labor
Labor expense decreased to 21.0% of consolidated revenues in the three months ended March 31, 2015 compared to 21.4% in the three months ended March 31, 2014. Labor costs were favorably impacted by 5.8 percentage points due to currency rate changes during the three months ended March 31, 2015. Labor expense for the three months ended March 31, 2015 increased by 1.6% on a constant dollar basis compared to the three months ended March 31, 2014, primarily due to an increase in labor costs of $5.0 million in our Other International Business segment, primarily associated with the impact of recent acquisitions, partially offset by a $3.8 million reduction in restructuring, medical and workers' compensation costs, primarily associated with our North American Records and Information Management Business segment.
Facilities
Facilities costs decreased to 14.8% of consolidated revenues in the three months ended March 31, 2015 compared to 14.9% in the three months ended March 31, 2014. Rent expense increased by $1.2 million on a constant dollar basis for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, primarily driven by increased costs in our Other International Business segment. Other facilities costs increased by $0.7 million on a constant dollar basis for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, primarily due to higher property taxes and common area charges of $2.3 million and building maintenance and security costs of $2.5 million, offset by a decrease in insurance costs of $4.1 million primarily associated with a fire at one of our facilities in Buenos Aires, Argentina in February 2014. Facilities costs were favorably impacted by 4.7 percentage points due to currency rate changes during the three months ended March 31, 2015.
Transportation
Transportation costs decreased by $3.1 million on a constant dollar basis in the three months ended March 31, 2015 compared to the three months ended March 31, 2014, primarily as a result of decreased fuel and insurance costs of $2.8 million and $1.0 million, respectively. Transportation costs were favorably impacted by 4.1 percentage points due to currency rate changes during the three months ended March 31, 2015.
Product Cost of Sales and Other
Product cost of sales and other, which includes cartons, media and other service, storage and supply costs, is highly correlated to service revenue streams, particularly project revenues. For the three months ended March 31, 2015, product cost of sales and other increased by $1.3 million compared to the three months ended March 31, 2014 on an actual basis, primarily associated with higher special project costs within our North American Data Management Business segment. These costs were favorably impacted by 7.8 percentage points due to currency rate changes during the three months ended March 31, 2015.

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Table of Contents

Selling, General and Administrative Expenses
Selling, general and administrative expenses consists of the following expenses (in thousands):
 
Three Months Ended
March 31,
 
 
 
Percentage Change
 
% of
Consolidated
Revenues
 
Percentage
Change
(Favorable)/
Unfavorable
 
 
 
 
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
 
 
2014
 
2015
 
 
 
 
2014
 
2015
 
General and Administrative
$
131,001

 
$
117,545

 
$
(13,456
)
 
(10.3
)%
 
(6.2
)%
 
17.0
%
 
15.7
%
 
(1.3
)%
Sales, Marketing & Account Management
54,553

 
52,333

 
(2,220
)
 
(4.1
)%
 
0.2
 %
 
7.1
%
 
7.0
%
 
(0.1
)%
Information Technology
24,506

 
24,707

 
201

 
0.8
 %
 
5.0
 %
 
3.2
%
 
3.3
%
 
0.1
 %
Bad Debt Expense
4,720

 
1,829

 
(2,891
)
 
(61.3
)%
 
(60.6
)%
 
0.6
%
 
0.2
%
 
(0.4
)%
 
$
214,780

 
$
196,414

 
$
(18,366
)
 
(8.6
)%
 
(4.5
)%
 
27.9
%
 
26.2
%
 
(1.7
)%
General and Administrative
General and administrative expenses decreased to 15.7% of consolidated revenues during the three months ended March 31, 2015 compared to 17.0% in the three months ended March 31, 2014. On a constant dollar basis, general and administrative expenses decreased by $7.8 million during the three months ended March 31, 2015 compared to the three months ended March 31, 2014, primarily as a result of an $8.3 million decrease in REIT Costs and a $1.4 million decrease in restructuring costs, partially offset by a $1.9 million increase in general and administrative expenses associated with our Other International Business segment. General and administrative expenses were favorably impacted by 4.1 percentage points due to currency rate changes during the three months ended March 31, 2015.
Sales, Marketing & Account Management
Sales, marketing and account management expenses decreased to 7.0% of consolidated revenues during the three months ended March 31, 2015 compared to 7.1% in the three months ended March 31, 2014. On a constant dollar basis, sales, marketing and account management expenses during the three months ended March 31, 2015 were flat compared to the three months ended March 31, 2014. Sales, marketing and account management expenses were favorably impacted by 4.3 percentage points due to currency rate changes during the three months ended March 31, 2015.
Information Technology
On a constant dollar basis, information technology expenses increased $1.2 million during the three months ended March 31, 2015 compared to the three months ended March 31, 2014, primarily due to increased compensation expenses of $0.8 million. Information technology expenses were favorably impacted by 4.2 percentage points due to currency rate changes during the three months ended March 31, 2015.
Bad Debt Expense
Consolidated bad debt expense for the three months ended March 31, 2015 decreased $2.9 million to $1.8 million (0.2% of consolidated revenues) from $4.7 million (0.6% of consolidated revenues) in the three months ended March 31, 2014. We maintain an allowance for doubtful accounts that is calculated based on our past loss experience, current and prior trends in our aged receivables, current economic conditions, and specific circumstances of individual receivable balances. We continue to monitor our customers' payment activity and make adjustments based on their financial condition and in light of historical and expected trends.
Depreciation, Amortization, and (Gain) Loss on Disposal/Write-down of Property, Plant and Equipment (Excluding Real Estate), Net
Depreciation expense increased $3.4 million on a constant dollar basis for the three months ended March 31, 2015 compared to the three months ended March 31, 2014 primarily due to the increased depreciation of property, plant and equipment acquired through business combinations.
Amortization expense increased $0.4 million on a constant dollar basis for the three months ended March 31, 2015 compared to the three months ended March 31, 2014 primarily due to the increased amortization of customer relationship intangible assets acquired through business combinations.

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As a result of our conversion to a REIT and in accordance with SEC rules applicable to REITs, we no longer report (gain) loss on the sale of real estate as a component of operating income, but we report it as a component of income (loss) from continuing operations. We report the (gain) loss on sale of property, plant and equipment (excluding real estate), along with any impairment, write-downs or involuntary conversions related to real estate, as a component of operating income. Previously reported amounts have been reclassified to conform to this presentation.
Consolidated loss on disposal/write-down of property, plant and equipment (excluding real estate), net was $0.3 million for the three months ended March 31, 2015 and consisted primarily of the write-off of certain property associated with our North American Records and Information Management Business segment. Consolidated loss on disposal/write-down of property, plant and equipment (excluding real estate), net was $1.2 million for the three months ended March 31, 2014 and consisted primarily of losses associated with the write-off of certain software associated with our North American Records and Information Management Business segment.
OPERATING INCOME AND ADJUSTED OIBDA
As a result of the foregoing factors, consolidated operating income increased $12.3 million, or 9.3%, to $144.9 million (19.3% of consolidated revenues) for the three months ended March 31, 2015 from $132.6 million (17.2% of consolidated revenues) for the three months ended March 31, 2014 and consolidated Adjusted OIBDA increased $2.7 million, or 1.2%, to $231.2 million (30.9% of consolidated revenues) for the three months ended March 31, 2015 from $228.5 million (29.7% of consolidated revenues) for the three months ended March 31, 2014.
OTHER EXPENSES, NET
Interest Expense, Net
Consolidated interest expense, net increased $2.6 million to $64.9 million (8.7% of consolidated revenues) for the three months ended March 31, 2015 from $62.3 million (8.1% of consolidated revenues) for the three months ended March 31, 2014 primarily due to the issuance in September 2014 of 400.0 million British pounds sterling in aggregate principal of the 61/8% Senior Notes due 2022 (the "GBP Notes") by Iron Mountain Europe PLC ("IME"), partially offset by the redemption of $306.0 million aggregate principal outstanding of our 83/8% Senior Subordinated Notes due 2021 in December 2014, as well as the redemption of 150.0 million British pounds sterling of the 71/4% GBP Senior Subordinated Notes due 2014 in January 2014. Our weighted average interest rate was 5.4% and 5.8% at March 31, 2015 and March 31, 2014, respectively.
Other Expense (Income), Net (in thousands)
 
Three Months Ended
March 31,
 
Dollar
Change
 
 
2014
 
2015
 
 
Foreign currency transaction losses, net
$
6,438

 
$
22,266

 
$
15,828

 
Other, net
(1,121
)
 
83

 
1,204

 
 
$
5,317

 
$
22,349

 
$
17,032

 
We recorded net foreign currency transaction losses of $22.3 million in the three months ended March 31, 2015, based on period-end exchange rates. These losses resulted primarily from changes in the exchange rate of each of the Argentine peso, Brazilian real, Ukrainian hryvnia and Euro against the United States dollar compared to December 31, 2014, as these currencies relate to our intercompany balances with and between our Latin American and European subsidiaries, as well as Euro forward contracts. These losses were partially offset by gains primarily from changes in the exchange rate of each of the British pound sterling and Russian ruble as these currencies relate to our intercompany balances with and between our European subsidiaries, and Euro denominated bonds issued by Iron Mountain Incorporated ("IMI").
We recorded net foreign currency transaction losses of $6.4 million in the three months ended March 31, 2014, based on period-end exchange rates. These losses resulted primarily from changes in the exchange rate of each of the Argentine peso, Russian ruble and Euro against the United States dollar compared to December 31, 2013, as these currencies relate to our intercompany balances with and between our Latin American and European subsidiaries, as well as losses on Australian dollar and British pound sterling forward contracts, which were partially offset by gains primarily from changes in the exchange rate of each of the Brazilian real, British pound sterling and Australian dollar, as these currencies relate to our intercompany balances with and between our Latin American, European and Australian subsidiaries.

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Provision for Income Taxes
Our effective tax rate for the three months ended March 31, 2014 and 2015 was 45.8% and 27.6%, respectively. The primary reconciling items between the federal statutory rate of 35% and our overall effective tax rate in the three months ended March 31, 2014 were differences in the rates of tax at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates and state income taxes (net of federal tax benefit). During the three months ended March 31, 2014, there were foreign currency losses recorded in jurisdictions with tax rates lower than the federal statutory rate of 35% associated with our marking-to-market of intercompany loans, which increased our first quarter 2014 effective tax rate by 1.1%. In addition, the controlled foreign corporation look-through rule, which provided for the exception of certain foreign earnings from United States federal taxation as Subpart F income, expired on December 31, 2013 and as a result, our first quarter 2014 effective tax rate increased by 1.3%. The primary reconciling item between the federal statutory tax rate of 35% and our overall effective tax rate in the three months ended March 31, 2015 was due to 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.
As a REIT, we are entitled to a deduction for dividends paid, resulting in a substantial reduction of federal income tax expense. As a REIT, substantially all of our income tax expense will be incurred based on the earnings generated by our foreign subsidiaries and our domestic taxable REIT subsidiaries.
We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period they occur. Our effective tax rate is subject to variability in the future due to, among other items: (1) changes in the mix of income between our qualified REIT subsidiaries and our taxable REIT subsidiaries; (2) tax law changes; (3) volatility in foreign exchange gains (losses); (4) the timing of the establishment and reversal of tax reserves; and (5) our ability to utilize net operating losses that we generate. We are subject to income taxes in the United States and numerous foreign jurisdictions. We are subject to examination by various tax authorities in jurisdictions in which we have business operations or a taxable presence. 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.
Gain on Sale of Real Estate, Net of Tax
Consolidated gain on sale of real estate for the three months ended March 31, 2014 was $7.5 million, net of tax of $2.0 million associated with the sale of two buildings in the United Kingdom.
INCOME FROM CONTINUING OPERATIONS
As a result of the foregoing factors, consolidated income from continuing operations for the three months ended March 31, 2015 decreased $1.0 million, or 2.3%, to $41.7 million (5.6% of consolidated revenues) from $42.7 million (5.5% of consolidated revenues) for the three months ended March 31, 2014.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX
Loss from discontinued operations, net of tax was $0.6 million for the three months ended March 31, 2014, primarily related to legal reserves.
NONCONTROLLING INTERESTS
For the three months ended March 31, 2014 and 2015, net income attributable to noncontrolling interests resulted in a decrease in net income attributable to IMI of $0.4 million and $0.6 million, respectively. These amounts represent our noncontrolling partners' share of earnings/losses in our majority-owned international subsidiaries that are consolidated in our operating results.

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Segment Analysis (in thousands)
As a result of a realignment in senior management reporting structure during the first quarter of 2015, we modified our internal financial reporting to better align internal reporting with how we manage our business. These modifications resulted in the separation of our former International Business segment into two unique reportable operating segments, which we refer to as (1) Western European Business segment and (2) Other International Business segment. Additionally, during the first quarter of 2015, we reassessed the nature of certain costs which were previously being allocated to the North American Records and Information Management Business and North American Data Management Business segments. As a result of this reassessment, we determined that certain product management functions, which were previously being performed to solely benefit our North American operating segments, are now being performed in a manner that benefits the enterprise as a whole. Accordingly, the costs associated with these product management functions are now included within the Corporate and Other Business segment. Previously reported segment information has been restated to conform to the current period presentation.
Our reportable operating segments are North American Records and Information Management Business, North American Data Management Business, Western European Business, Other International Business and Corporate and Other Business (see Note 6 to Notes to Consolidated Financial Statements). Our North American Records and Information Management Business segment offers storage and information management services throughout the United States and Canada, including the storage of paper documents, as well as other media such as microfilm and microfiche, master audio and videotapes, film, X-rays and blueprints, including healthcare information services, vital records services, service and courier operations, and the collection, handling and disposal of sensitive documents for corporate customers ("Records Management"); information destruction services ("Destruction"); DMS; Fulfillment Services; and Intellectual Property Management. Our North American Data Management Business segment offers the storage and rotation of backup computer media as part of corporate disaster recovery plans throughout the United States and Canada, including service and courier operations ("Data Protection & Recovery"); server and computer backup services; digital content repository systems to house, distribute and archive key media assets; and storage, safeguarding and electronic or physical delivery of physical media of all types, primarily for entertainment and media industry clients. Our Western European Business segment offers storage and information management services throughout the United Kingdom, Ireland, Norway, Austria, Belgium, France, Germany, Netherlands, Spain and Switzerland, including Records Management, Data Protection & Recovery and DMS. Until December 2014, our Western European Business segment offered Destruction in the United Kingdom and Ireland. Our Other International Business segment offers storage and information management services throughout the remaining European countries in which we operate, Latin America and Asia Pacific, including Records Management, Data Protection & Recovery and DMS. Our European operations included within the Other International Business segment provide Records Management, Data Protection & Recovery and DMS. Our Latin America operations provide Records Management, Data Protection & Recovery, Destruction and DMS throughout Argentina, Brazil, Chile, Colombia, Mexico and Peru. Our Asia Pacific operations provide Records Management, Data Protection & Recovery and DMS throughout Australia, with Records Management and Data Protection & Recovery also provided in certain cities in India, Singapore, Hong Kong-SAR and China. Until December 2014, our Other International Business segment offered Destruction in Australia. Our Corporate and Other Business segment consists of our data center business in the United States, the primary product offering of our Emerging Businesses segment, as well as costs related to executive and staff functions, including finance, human resources and information technology, which benefit the enterprise as a whole. These costs are primarily related to the general management of these functions on a corporate level and the design and development of programs, policies and procedures that are then implemented in the individual segments, with each segment bearing its own cost of implementation. Our Corporate and Other Business segment also includes stock-based employee compensation expense associated with all stock options, restricted stock, restricted stock units, performance units and shares of stock issued under our employee stock purchase plan.

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North American Records and Information Management Business
 
Three Months Ended
March 31,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
Internal
Growth
 
2014
 
2015
 
 
 
 
Storage Rental
$
268,523

 
$
269,626

 
$
1,103

 
0.4
 %
 
1.5
 %
 
0.5
 %
Service
177,609

 
173,061

 
(4,548
)
 
(2.6
)%
 
(1.1
)%
 
(1.8
)%
Segment Revenue
$
446,132

 
$
442,687

 
$
(3,445
)
 
(0.8
)%
 
0.5
 %
 
(0.4
)%
Segment Adjusted OIBDA(1)
$
169,209

 
$
181,480

 
$
12,271

 
 
 
 
 
 
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue
37.9
%
 
41.0
%
 
 
 
 
 
 
 
 
_______________________________________________________________________________

(1)
See Note 6 to Notes to the Consolidated Financial Statements included in this Quarterly Report for the definition of Adjusted OIBDA and for the basis on which allocations are made and a reconciliation of Adjusted OIBDA to income (loss) from continuing operations before provision (benefit) for income taxes and (gain) loss on sale of real estate.
For the three months ended March 31, 2015, reported revenue in our North American Records and Information Management Business segment decreased 0.8% compared to the three months ended March 31, 2014, primarily due to negative internal revenue growth and foreign currency exchange rate fluctuations. For the three months ended March 31, 2015, foreign currency exchange rate fluctuations decreased our reported revenues for the North American Records and Information Management Business segment by 1.3% compared to the same prior year period due to the weakening of the Canadian dollar against the United States dollar. Negative internal growth of 0.4% in the three months ended March 31, 2015 was primarily the result of negative service internal growth of 1.8%, resulting from the continuation of a trend toward reduced retrieval/re-file activity and a related decrease in transportation revenues, partially offset by storage rental revenue internal growth of 0.5% in the three months ended March 31, 2015. Net acquisitions/divestitures increased reported revenue in our North American Records and Information Management Business segment by 0.9% in the three months ended March 31, 2015 compared to the three months ended March 31, 2014. Adjusted OIBDA as a percentage of segment revenue increased 310 basis points during the three months ended March 31, 2015 compared to the three months ended March 31, 2014, primarily driven by a $2.7 million decrease in fuel and insurance costs, a $2.6 million decrease in workers' compensation and medical costs, a $2.4 million decrease in bad debt expense, a $2.1 million decrease in restructuring costs, and a decrease in sales, marketing and account management costs.
North American Data Management Business
 
Three Months Ended
March 31,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
Internal
Growth
 
2014
 
2015
 
 
 
 
Storage Rental
$
60,984

 
$
63,852

 
$
2,868

 
4.7
 %
 
5.5
 %
 
5.2
 %
Service
35,740

 
33,383

 
(2,357
)
 
(6.6
)%
 
(5.9
)%
 
(5.9
)%
Segment Revenue
$
96,724

 
$
97,235

 
$
511

 
0.5
 %
 
1.3
 %
 
1.1
 %
Segment Adjusted OIBDA(1)
$
54,668

 
$
51,288

 
$
(3,380
)
 
 
 
 
 
 
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue
56.5
%
 
52.7
%
 
 
 
 
 
 
 
 
_______________________________________________________________________________

(1)
See Note 6 to Notes to the Consolidated Financial Statements included in this Quarterly Report for the definition of Adjusted OIBDA and for the basis on which allocations are made and a reconciliation of Adjusted OIBDA to income (loss) from continuing operations before provision (benefit) for income taxes and (gain) loss on sale of real estate.

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During the three months ended March 31, 2015, reported revenue in our North American Data Management Business segment increased 0.5% compared to the three months ended March 31, 2014, primarily due to internal growth of 1.1%. The internal growth was primarily attributable to storage rental revenue internal growth of 5.2% in the three months ended March 31, 2015, primarily related to volume increases, offset by negative service internal growth of 5.9% in the three months ended March 31, 2015, which was due to declines in service revenue activity levels as the business becomes more archival in nature. For the three months ended March 31, 2015, foreign currency exchange rate fluctuations decreased our reported revenues for the North American Data Management Business segment by 0.8% compared to the same prior year period due to the weakening of the Canadian dollar against the United States dollar. Adjusted OIBDA as a percentage of segment revenue decreased 380 basis points during the three months ended March 31, 2015 compared to the three months ended March 31, 2014, primarily due to increased overhead expenses of $3.3 million, primarily associated with higher sales, marketing and account management expenses.
Western European Business
 
Three Months Ended
March 31,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
Internal
Growth
 
2014
 
2015
 
 
 
 
Storage Rental
$
65,252

 
$
60,175

 
$
(5,077
)
 
(7.8
)%
 
4.9
 %
 
3.7
 %
Service
51,879

 
40,637

 
(11,242
)
 
(21.7
)%
 
(11.0
)%
 
(2.6
)%
Segment Revenue
$
117,131

 
$
100,812

 
$
(16,319
)
 
(13.9
)%
 
(2.2
)%
 
1.1
 %
Segment Adjusted OIBDA(1)
$
34,563

 
$
29,453

 
$
(5,110
)
 
 
 
 
 
 
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue
29.5
%
 
29.2
%
 
 
 
 
 
 
 
 
_______________________________________________________________________________

(1)
See Note 6 to Notes to the Consolidated Financial Statements included in this Quarterly Report for the definition of Adjusted OIBDA and for the basis on which allocations are made and a reconciliation of Adjusted OIBDA to income (loss) from continuing operations before provision (benefit) for income taxes and (gain) loss on sale of real estate.
During the three months ended March 31, 2015, reported revenue in our Western European Business segment decreased 13.9% compared to the three months ended March 31, 2014, primarily as a result of fluctuations in foreign currency exchange rates. Foreign currency fluctuations resulted in decreased revenue in the three months ended March 31, 2015, as measured in United States dollars, of approximately 11.7%, as compared to the same prior year period, due to the weakening of the British pound sterling and the Euro against the United States dollar. Internal growth for the three months ended March 31, 2015 was 1.1%, supported by 3.7% storage rental internal growth. Net acquisitions/divestitures decreased reported revenue in our Western European Business segment by 3.3% in the three months ended March 31, 2015 compared to the three months ended March 31, 2014, primarily due to a $4.3 million reduction in reported service revenue associated with the disposition of our shredding operations in the United Kingdom and Ireland in December 2014. Adjusted OIBDA as a percentage of segment revenue decreased 30 basis points during the three months ended March 31, 2015 compared to the three months ended March 31, 2014.

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Other International Business
 
Three Months Ended
March 31,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
Internal
Growth
 
2014
 
2015
 
 
 
 
Storage Rental
$
61,322

 
$
61,637

 
$
315

 
0.5
 %
 
17.9
%
 
11.1
%
Service
45,977

 
42,354

 
(3,623
)
 
(7.9
)%
 
9.6
%
 
6.8
%
Segment Revenue
$
107,299

 
$
103,991

 
$
(3,308
)
 
(3.1
)%
 
14.4
%
 
9.3
%
Segment Adjusted OIBDA(1)
$
24,200

 
$
20,835

 
$
(3,365
)
 
 
 
 
 
 
Segment Adjusted OIBDA(1) as a Percentage of Segment Revenue
22.6
%
 
20.0
%
 
 
 
 
 
 
 
 
_____________________________________________________________________________

(1)
See Note 6 to Notes to the Consolidated Financial Statements included in this Quarterly Report for the definition of Adjusted OIBDA and for the basis on which allocations are made and a reconciliation of Adjusted OIBDA to income (loss) from continuing operations before provision (benefit) for income taxes and (gain) loss on sale of real estate.
During the three months ended March 31, 2015, reported revenues in our Other International Business segment decreased 3.1% compared to the three months ended March 31, 2014, primarily as a result of fluctuations in foreign currency exchange rates. Foreign currency fluctuations in the three months ended March 31, 2015 resulted in decreased revenue, as measured in United States dollars, of approximately 17.5%, as compared to the same prior year period, primarily due to the weakening of the Australian dollar, Brazilian real and Euro against the United States dollar. Internal growth for the three months ended March 31, 2015 was 9.3%, supported by 11.1% storage rental internal growth. Net acquisitions/divestitures increased reported revenue in our Other International Business segment by 5.1% in the three months ended March 31, 2015 compared to the three months ended March 31, 2014, as the impact of our recent acquisitions in Brazil, Turkey and Poland were partially offset by a $2.2 million decrease in reported service revenue associated with the disposition of our Australian shredding operations in December 2014. Adjusted OIBDA as a percentage of segment revenue decreased 260 basis points during the three months ended March 31, 2015 compared to the three months ended March 31, 2014, as a result of a decrease in gross profit, primarily attributable to a $5.0 million increase in labor costs and a $3.4 million increase in facilities costs, which were primarily associated with efforts to optimize the business and integrate past acquisitions.
Corporate and Other Business
 
Three Months Ended
March 31,
 
 
 
Percentage Change
 
 
 
 
Dollar
Change
 
Actual
 
Constant
Currency
 
Internal
Growth
 
2014
 
2015
 
 
 
 
Storage Rental
$
2,808

 
$
3,582

 
$
774

 
27.6
%
 
27.6
%
 
27.6
%
Service
32

 
979

 
947

 
2,959.4
%
 
2,959.4
%
 
2,959.4
%
Segment Revenue
$
2,840

 
$
4,561

 
$
1,721

 
60.6
%
 
60.6
%
 
60.6
%
Segment Adjusted OIBDA(1)
$
(54,116
)
 
$
(51,838
)
 
$
2,278

 
 
 
 
 
 
Segment Adjusted OIBDA(1) as a Percentage of Consolidated Revenue
(7.0
)%
 
(6.9
)%
 
 
 
 
 
 
 
 
_______________________________________________________________________________

(1)
See Note 6 to Notes to the Consolidated Financial Statements included in this Quarterly Report for the definition of Adjusted OIBDA and for the basis on which allocations are made and a reconciliation of Adjusted OIBDA to income (loss) from continuing operations before provision (benefit) for income taxes and (gain) loss on sale of real estate.
During the three months ended March 31, 2015, Adjusted OIBDA in the Corporate and Other Business segment as a percentage of consolidated revenue improved primarily due to a decrease in insurance costs of $3.5 million in 2015 as compared to 2014 associated with a fire at one of our facilities in Buenos Aires, Argentina in February 2014.

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Liquidity and Capital Resources
The following is a summary of our cash balances and cash flows (in thousands) as of and for the three months ended March 31,
 
2014
 
2015
Cash flows from operating activities—continuing operations
$
55,641

 
$
5,512

Cash flows from investing activities—continuing operations
(128,903
)
 
(76,180
)
Cash flows from financing activities—continuing operations
120,839

 
68,863

Cash and cash equivalents at the end of period
169,906

 
119,605

Net cash provided by operating activities from continuing operations was $5.5 million for the three months ended March 31, 2015 compared to $55.6 million for the three months ended March 31, 2014. The 90.1% period over period decrease resulted primarily from an increase in cash used in working capital of $82.8 million, primarily related to the timing of operating accounts payable payments and accruals, partially offset by an increase in net income, including non-cash charges and realized foreign exchange losses, of $32.7 million.
Our business requires capital expenditures to support our expected revenue growth and ongoing operations as well as new products and services and increased profitability. These expenditures are included in the cash flows from investing activities from continuing operations. The nature of our capital expenditures has evolved over time along with the nature of our business. We make capital expenditures to support a number of different objectives. The majority of our capital goes to support business-line growth and our ongoing operations, but we also expend capital to support the development and improvement of products and services and projects designed to increase our profitability. These expenditures are generally small and discretionary in nature. Cash paid for our capital expenditures, cash paid for acquisitions (net of cash acquired) and additions to customer acquisition costs during the three months ended March 31, 2015 amounted to $74.8 million, $6.4 million and $9.2 million, respectively. For the three months ended March 31, 2015, these expenditures were primarily funded with cash flows provided by borrowings under the Credit Agreement and the Accounts Receivable Securitization Program (both of which are defined below). Excluding capital expenditures associated with potential future acquisitions and additional real estate purchases above our plan, we expect our capital expenditures to be approximately $330.0 million to $360.0 million in the year ending December 31, 2015 (inclusive of approximately $25.0 million in planned real estate purchases).
Net cash provided by financing activities from continuing operations was $68.9 million for the three months ended March 31, 2015. During the three months ended March 31, 2015, we received net proceeds of $168.1 million of debt (primarily associated with the Accounts Receivable Securitization Program and the Credit Agreement) and $4.4 million from proceeds from the exercise of stock options. We used the proceeds from these transactions for the payment of dividends in the amount of $102.5 million on our common stock.
Dividends and Distributions
On September 15, 2014, we announced the declaration by our board of directors of a special distribution of $700.0 million (the "Special Distribution"), payable to stockholders of record as of September 30, 2014 (the "Record Date"). The Special Distribution represented the remaining amount of our undistributed earnings and profits attributable to all taxable periods ending on or prior to December 31, 2013, which in accordance with tax rules applicable to REIT conversions, we were required to pay to our stockholders on or before December 31, 2014 in connection with our conversion to a REIT. The Special Distribution also included certain items of taxable income that we recognized in 2014, such as depreciation recapture in respect of accounting method changes commenced in our pre-REIT period as well as foreign earnings and profits recognized as dividend income. The Special Distribution followed an initial special distribution of $700.0 million paid to stockholders in November 2012.

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Table of Contents

The Special Distribution was paid on November 4, 2014 (the ‘‘Payment Date’’) to stockholders of record as of the Record Date in a combination of common stock and cash. Stockholders had the right to elect to be paid their pro rata portion of the Special Distribution in all common stock or all cash, with the total cash payment to stockholders limited to no more than $140.0 million, or 20% of the total Special Distribution, not including cash paid in lieu of fractional shares. Based on stockholder elections, we paid $140.0 million of the Special Distribution in cash, not including cash paid in lieu of fractional
shares, with the balance paid in the form of common stock. Our shares of common stock were valued for purposes of the Special Distribution based upon the average closing price on the three trading days following October 24, 2014, or $35.55 per share, and as such, we issued approximately 15.8 million shares of common stock in the Special Distribution. These shares impact weighted average shares outstanding from the date of issuance, and thus impact our earnings per share data prospectively from the Payment Date.
In February 2010, our board of directors adopted a dividend policy under which we have paid, and in the future intend to pay, quarterly cash dividends on our common stock. Declaration and payment of future quarterly dividends is at the discretion of our board of directors.
In November 2014, our board of directors declared a distribution of $0.255 per share (the ‘‘Catch-Up Distribution’’) payable on December 15, 2014 to stockholders of record on November 28, 2014. Our board of directors declared the Catch-Up Distribution because our cash distributions paid from January 2014 through July 2014 were declared and paid before our board of directors had determined that we would elect REIT status effective January 1, 2014 and were lower than they otherwise would have been if the final determination to elect REIT status effective January 1, 2014 had been prior to such distributions.
In fiscal year 2014 and in the first quarter of 2015, our board of directors declared the following dividends:
Declaration Date
 
Dividend
Per Share
 
Record Date
 
Total
Amount
(in thousands)
 
Payment
Date
March 14, 2014
 
$
0.2700

 
March 25, 2014
 
$
51,812

 
April 15, 2014
May 28, 2014
 
0.2700

 
June 25, 2014
 
52,033

 
July 15, 2014
September 15, 2014
 
0.4750

 
September 25, 2014
 
91,993

 
October 15, 2014
September 15, 2014(1)
 
3.6144

 
September 30, 2014
 
700,000

 
November 4, 2014
November 17, 2014(2)
 
0.2550

 
November 28, 2014
 
53,450

 
December 15, 2014
November 17, 2014
 
0.4750

 
December 5, 2014
 
99,617

 
December 22, 2014
February 19, 2015
 
0.4750

 
March 6, 2015
 
99,795

 
March 20, 2015
_______________________________________________________________________________

(1) Represents Special Distribution.

(2) Represents Catch-Up Distribution.
Financial Instruments and Debt
Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents (including money market funds and time deposits), restricted cash (primarily United States Treasuries) and accounts receivable. The only significant concentrations of liquid investments as of March 31, 2015 relate to cash and cash equivalents and restricted cash held on deposit with three global banks and one "Triple A" rated money market fund, all of 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 $50.0 million or in any one financial institution to a maximum of $75.0 million. As of March 31, 2015, our cash and cash equivalents and restricted cash balance was $139.6 million, including money market funds and time deposits amounting to $33.9 million. The money market funds are invested substantially in United States Treasuries.

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Our consolidated debt as of March 31, 2015 comprised the following (in thousands):
Revolving Credit Facility(1)
$
823,881

Term Loan(1)
248,750

63/4% Euro Senior Subordinated Notes due 2018 (the "63/4% Notes")(2)
273,760

73/4% Senior Subordinated Notes due 2019 (the "73/4% Notes ")(2)
400,000

83/8% Senior Subordinated Notes due 2021 (the "83/8% Notes")(2)
106,038

61/8% CAD Senior Notes due 2021 (the "CAD Notes")(3)
157,470

61/8% GBP Senior Notes due 2022 (the "GBP Notes")(4)
592,160

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

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

Accounts Receivable Securitization Program(5)
220,800

Real Estate Mortgages, Capital Leases and Other
298,983

Total Long-term Debt
4,721,842

Less Current Portion
(54,483
)
Long-term Debt, Net of Current Portion
$
4,667,359

_______________________________________________________________________________
(1)
The capital stock or other equity interests of most of our United States subsidiaries, and up to 66% of the capital stock or other equity interests of our first-tier foreign subsidiaries, are pledged to secure these debt instruments, together with all intercompany obligations (including promissory notes) of subsidiaries owed to us or to one of our United States subsidiary guarantors. In addition, Iron Mountain Canada Operations ULC ("Canada Company") has pledged 66% of the capital stock of its subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by it, to secure the Canadian dollar subfacility under the Revolving Credit Facility (defined below).
 
(2)
Collectively, the "Parent Notes." IMI is the direct obligor on the Parent Notes, which are fully and unconditionally guaranteed, on a senior or senior subordinated basis, as the case may be, by most of its direct and indirect 100% owned United States subsidiaries (the "Guarantors"). These guarantees are joint and several obligations of the Guarantors. Canada Company, IME, the Special Purpose Subsidiaries (as defined below) and the remainder of our subsidiaries do not guarantee the Parent Notes.

(3) Canada Company is the direct obligor on the CAD Notes, which are fully and unconditionally guaranteed, on a senior basis, by IMI and the Guarantors. These guarantees are joint and several obligations of IMI and the Guarantors. See Note 5 to Notes to Consolidated Financial Statements included in this Quarterly Report.

(4)
IME is the direct obligor on the GBP Notes, which are fully and unconditionally guaranteed, on a senior basis, by IMI and the Guarantors. These guarantees are joint and several obligations of IMI and the Guarantors. See Note 5 to Notes to Consolidated Financial Statements included in this Quarterly Report.

(5)
The Special Purpose Subsidiaries are the obligors under this program.
On August 7, 2013, we amended our existing credit agreement. The revolving credit facilities (the "Revolving Credit Facility") under our credit agreement, as amended (the "Credit Agreement"), allow IMI and certain of its United States and foreign subsidiaries to borrow in United States dollars and (subject to sublimits) a variety of other currencies (including Canadian dollars, British pounds sterling, Euros, Brazilian reais and Australian dollars, among other currencies) in an aggregate outstanding amount not to exceed $1.5 billion. Additionally, the Credit Agreement included an option to allow us to request additional commitments of up to $500.0 million, in the form of term loans or through increased commitments under the Revolving Credit Facility. On September 24, 2014, we exercised the option and borrowed an additional $250.0 million in the form of a term loan under the Credit Agreement (the "Term Loan"). Commencing on December 31, 2014, the Term Loan began to amortize in quarterly installments in an amount equal to $0.6 million per quarter, with the remaining balance due on June 27, 2016. The Term Loan may be prepaid without penalty or premium, in whole or in part, at any time. The Credit Agreement continues to include an option to allow us to request additional commitments of up to $250.0 million, in the form of term loans or through increased commitments under the Revolving Credit Facility.

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The Credit Agreement terminates on June 27, 2016, at which point all obligations become due. IMI and the Guarantors guarantee all obligations under the Credit Agreement, and have pledged the capital stock or other equity interests of most of their United States subsidiaries, up to 66% of the capital stock or other equity interests of their first-tier foreign subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by them to secure the Credit Agreement. In addition, Canada Company has pledged 66% of the capital stock of its subsidiaries, and all intercompany obligations (including promissory notes) owed to or held by it to secure the Canadian dollar subfacility under the Revolving Credit Facility. The interest rate on borrowings under the Credit Agreement varies depending on our choice of interest rate and currency options, plus an applicable margin, which varies based on our consolidated leverage ratio. Additionally, the Credit Agreement requires the payment of a commitment fee on the unused portion of the Revolving Credit Facility, which fee ranges from between 0.3% to 0.5% based on certain financial ratios and fees associated with outstanding letters of credit. As of March 31, 2015, we had $823.9 million and $248.8 million of outstanding borrowings under the Revolving Credit Facility and the Term Loan, respectively. Of the $823.9 million of outstanding borrowings under the Revolving Credit Facility, $632.3 million was denominated in United States dollars, 81.2 million was denominated in Canadian dollars, 67.8 million was denominated in Euros and 71.6 million was denominated in Australian dollars. In addition, we also had various outstanding letters of credit totaling $12.2 million. The remaining amount available for borrowing under the Revolving Credit Facility as of March 31, 2015, based on IMI's leverage ratio, the last 12 months' earnings before interest, taxes, depreciation and amortization and rent expense ("EBITDAR"), other adjustments as defined in the Credit Agreement and current external debt, was $663.9 million (which amount represents the maximum availability as of such date). The average interest rate in effect under the Credit Agreement was 2.8% as of March 31, 2015. The average interest rate in effect under the Revolving Credit Facility was 2.9% and ranged from 2.3% to 5.1% as of March 31, 2015 and the interest rate in effect under the Term Loan as of March 31, 2015 was 2.4%.
In March 2015, we entered into a $250.0 million accounts receivable securitization program (the "Accounts Receivable Securitization Program") involving several of our wholly owned subsidiaries and certain financial institutions. Under the Accounts Receivable Securitization Program, certain of our subsidiaries sell substantially all of their United States accounts receivable balances to our wholly owned special purpose entities, Iron Mountain Receivables QRS, LLC and Iron Mountain Receivables TRS, LLC (the "Special Purpose Subsidiaries"). The Special Purpose Subsidiaries use the accounts receivable balances to collateralize loans obtained from certain financial institutions. Iron Mountain Information Management, LLC retains the responsibility of servicing the accounts receivable balances pledged as collateral in this transaction and IMI provides a performance guaranty. The Accounts Receivable Securitization Program terminates on March 6, 2018, at which point all obligations become due. The maximum availability allowed is limited by eligible accounts receivable, as defined under the terms of the Accounts Receivable Securitization Program.  As of March 31, 2015, the maximum availability allowed and amount outstanding under the Accounts Receivable Securitization Program was $220.8 million. The interest rate in effect under the Accounts Receivable Securitization Program was 1.1% as of March 31, 2015. Commitment fees at a rate of 40 basis points are charged on amounts made available but not borrowed under the Accounts Receivable Securitization Program.
The Credit Agreement, our indentures and other agreements governing our indebtedness contain certain restrictive financial and operating covenants, including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take certain other corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under the Credit Agreement, our indentures or other agreements governing our indebtedness. The Credit Agreement uses EBITDAR-based calculations as the primary measures of financial performance, including leverage and fixed charge coverage ratios. IMI's Credit Agreement net total lease adjusted leverage ratio was 5.4 and 5.5 as of December 31, 2014 and March 31, 2015, respectively, compared to a maximum allowable ratio of 6.5, and its net secured debt lease adjusted leverage ratio was 2.6 and 2.7 as of December 31, 2014 and March 31, 2015, respectively, compared to a maximum allowable ratio of 4.0. IMI's bond leverage ratio (which is not lease adjusted), per the indentures, was 5.7 and 5.6 as of December 31, 2014 and March 31, 2015, respectively, compared to a maximum allowable ratio of 6.5. IMI's Credit Agreement fixed charge coverage ratio was 2.5 and 2.4 as of December 31, 2014 and March 31, 2015, respectively, compared to a minimum allowable ratio of 1.5 under the Credit Agreement. Noncompliance with these leverage and fixed charge coverage ratios would have a material adverse effect on our financial condition and liquidity.
For the three months ended March 31, 2014 and 2015, we recorded commitment fees and letters of credit fees of $0.7 million and $0.9 million, respectively, based on the unused balances under the Revolving Credit Facility and the Accounts Receivable Securitization Program.
Our ability to pay interest on or to refinance our indebtedness depends on our future performance, working capital levels and capital structure, which are subject to general economic, financial, competitive, legislative, regulatory and other factors which may be beyond our control. There can be no assurance that we will generate sufficient cash flow from our operations or that future financings will be available on acceptable terms or in amounts sufficient to enable us to service or refinance our indebtedness or to make necessary capital expenditures.

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Acquisitions
In April 2015, we completed four acquisitions of records and data management businesses for an aggregate purchase price of approximately $15.3 million.
On April 28, 2015, we reached an agreement in principle with Recall to acquire Recall by way of a recommended court approved Scheme of Arrangement for 0.1722 of a share of our common stock for each outstanding share of Recall common stock. In addition, Recall shareholders will be offered the option to elect to receive alternative consideration of 8.50 Australian dollars per Recall share in cash, subject to a proration mechanism that will cap the total amount of cash consideration to be paid to Recall shareholders at 225.0 million Australian dollars. The proposed transaction is contingent on our and Recall conducting confirmatory due diligence and negotiating and executing mutually acceptable merger documentation, including entering into a Scheme Implementation Agreement, and other terms and conditions. The agreement in principle does not assure that a definitive agreement regarding the proposed transaction will be reached or that any transaction between us and Recall will actually occur. Conditions precedent to the closing of the proposed transaction will include, among other things, receipt of antitrust/competition and other requisite regulatory approvals, no material adverse event affecting either party, Recall shareholder approval, our shareholder approval, Australian Court approvals and other customary conditions for a transaction of this nature.
Contractual Obligations
We expect to meet our cash flow requirements for the next twelve months from cash generated from operations, existing cash, cash equivalents, borrowings under the Credit Agreement and other financings, which may include senior or senior subordinated notes, secured credit facilities, securitizations and mortgage or capital lease financings, and the issuance of equity. We expect to meet our long-term cash flow requirements using the same means described above. We are highly leveraged. While we expect to continue to be highly leveraged for the foreseeable future, as a REIT we expect our long-term capital allocation strategy will naturally shift toward increased use of equity to support lower leverage, though our leverage has increased, in the short- term, to fund the costs of our conversion to a REIT for federal income tax purposes.
Net Operating Losses
We have federal net operating loss carryforwards, which expire from 2021 through 2033, of $88.0 million ($0, tax effected) at March 31, 2015 to reduce future federal taxable income, on which no federal tax benefit is expected to be realized. We have state net operating loss carryforwards, which expire from 2015 through 2033, of $74.4 million ($0.1 million, tax effected) at March 31, 2015 to reduce future state taxable income, on which an insignificant state tax benefit is expected to be realized. We have assets for foreign net operating losses of $76.9 million, with various expiration dates (and in some cases no expiration date), subject to a valuation allowance of approximately 66%.
Inflation
Certain of our expenses, such as wages and benefits, insurance, occupancy costs and equipment repair and replacement, are subject to normal inflationary pressures. Although to date we have been able to offset inflationary cost increases through increased operating efficiencies, the negotiation of favorable long-term real estate leases and customer contracts which contain provisions for inflationary price escalators, we can give no assurance that we will be able to offset any future inflationary cost increases through similar efficiencies, leases or increased storage rental or service charges.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These rules refer to the controls and other procedures of a company that are designed to ensure that information is recorded, processed, summarized and communicated to management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding what is required to be disclosed by a company in the reports that it files under the Exchange Act. As of March 31, 2015 (the "Evaluation Date"), we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, our chief executive officer and chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.

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Changes in Internal Control over Financial Reporting
Our management, with the participation of our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements.
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Securities Act of 1934) during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not sell any unregistered securities during the three months ended March 31, 2015, nor did we repurchase any shares of our common stock during the three months ended March 31, 2015.

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Item 6. Exhibits
(a)    Exhibits
Certain exhibits indicated below are incorporated by reference to documents we have filed with the SEC. Each exhibit marked by a pound sign (#) is a management contract or compensatory plan.
Exhibit No.
 
Description
 
 
 
10.1

 
Addendum, dated February 27, 2015, to the Contract of Employment between Iron Mountain BPM International Sarl and Marc Duale, dated September 29, 2011, as amended March 19, 2012, together with the Contract of Employment between Iron Mountain BPM International Sarl and Marc Duale, dated September 29, 2011, the Agreement Regarding the Suspension of the Employment Contract, effective September 30, 2011, and the Terms and Conditions for the Office of Director (Gerant) between Iron Mountain BPM SPRL and Marc Duale, dated October 1, 2011. (#) (Filed herewith.)

 
 
 
12

 
Statement: re Computation of Ratios. (Filed herewith.)
 
 
 
31.1

 
Rule 13a-14(a) Certification of Chief Executive Officer. (Filed herewith.)
 
 
 
31.2

 
Rule 13a-14(a) Certification of Chief Financial Officer. (Filed herewith.)
 
 
 
32.1

 
Section 1350 Certification of Chief Executive Officer. (Furnished herewith.)
 
 
 
32.2

 
Section 1350 Certification of Chief Financial Officer. (Furnished herewith.)
 
 
 
101.1

 
The following materials from Iron Mountain Incorporated's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and in detail. (Filed herewith.)

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
IRON MOUNTAIN INCORPORATED
 
By:
/s/ RODERICK DAY
 
 
 
 
 
 
 
 
Roderick Day
 Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: April 30, 2015

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