Iron Mountain (IRM) 10-Q 2003 Q1 Quarterly report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2003
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)

Pennsylvania (State or Other Jurisdiction of Incorporation or Organization)	23-2588479 (I.R.S. Employer Identification No.)
745 Atlantic Avenue, Boston, MA 02111 (Address of Principal Executive Offices, Including Zip Code)

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

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

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes /x/    No / /

        Number of shares of the registrant's Common Stock at May 2, 2003: 85,221,960

IRON MOUNTAIN INCORPORATED

Index

			Page
PART I — FINANCIAL INFORMATION
Item 1	—	Unaudited Consolidated Financial Statements
		Consolidated Balance Sheets at December 31, 2002 and March 31, 2003 (Unaudited)	3
		Consolidated Statements of Operations for the Three Months Ended March 31, 2002 and 2003 (Unaudited)	4
		Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2003 (Unaudited)	5
		Notes to Consolidated Financial Statements (Unaudited)	6-22
Item 2	—	Management's Discussion and Analysis of Financial Condition and Results of Operations	23-35
Item 3	—	Quantitative and Qualitative Disclosures About Market Risk	35-36
Item 4	—	Controls and Procedures	36-37
PART II — OTHER INFORMATION
Item 1	—	Legal Proceedings	37
Item 6	—	Exhibits and Reports on Form 8-K	37
		Signature	38
		Section 302 Certifications	39-40

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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, 2002			March 31, 2003
ASSETS
Current Assets:
	Cash and cash equivalents		$	56,292		$	13,581
	Accounts receivable (less allowances of $20,274 and $20,316, respectively)			225,416			248,973
	Deferred income taxes			34,192			34,088
	Prepaid expenses and other			51,140			42,609
		Total Current Assets		367,040			339,251
Property, Plant and Equipment:
	Property, plant and equipment			1,577,588			1,643,511
	Less—Accumulated depreciation			(338,400	)		(367,717	)
		Net Property, Plant and Equipment		1,239,188			1,275,794
Other Assets, net:
	Goodwill			1,544,974			1,572,663
	Customer relationships and acquisition costs			48,213			50,508
	Deferred financing costs			19,358			18,878
	Other			11,882			11,776
		Total Other Assets, net		1,624,427			1,653,825
		Total Assets	$	3,230,655		$	3,268,870
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
	Current portion of long-term debt		$	69,732		$	43,858
	Accounts payable			76,115			72,782
	Accrued expenses			168,025			161,457
	Deferred revenue			95,188			97,725
	Other current liabilities			18,902			21,119
		Total Current Liabilities		427,962			396,941
Long-term Debt, net of current portion				1,662,365			1,679,861
Other Long-term Liabilities				35,433			34,790
Deferred Rent				19,438			19,708
Deferred Income Taxes				78,464			93,517
Commitments and Contingencies (Note 10)
Minority Interests				62,132			67,641
Shareholders' Equity:
	Preferred stock (par value $0.01; authorized 10,000,000 shares; none issued and outstanding)			—			—
	Common stock (par value $0.01; authorized 150,000,000 shares; issued and outstanding 85,049,624 shares and 85,190,660 shares, respectively)			850			852
	Additional paid-in capital			1,020,522			1,024,144
	Deferred compensation			(70	)		(648	)
	Accumulated deficit			(45,403	)		(24,119	)
	Accumulated other comprehensive items			(31,038	)		(23,817	)
		Total Shareholders' Equity		944,861			976,412
		Total Liabilities and Shareholders' Equity	$	3,230,655		$	3,268,870

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

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IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per Share Data)
(Unaudited)

			Three Months Ended March 31,
			2002			2003
Revenues:
	Storage		$	183,436		$	202,831
	Service and storage material sales			133,762			148,980
		Total Revenues		317,198			351,811
Operating Expenses:
	Cost of sales (excluding depreciation)			152,446			160,151
	Selling, general and administrative			82,194			91,156
	Depreciation and amortization			25,156			29,949
	Merger-related expenses			300			—
	Gain on disposal/writedown of property, plant and equipment, net			(82	)		(1,672	)
		Total Operating Expenses		260,014			279,584
Operating Income				57,184			72,227
Interest Expense, Net				32,880			35,565
Other Expense (Income), Net				1,312			(3,260	)
		Income from Continuing Operations Before Provision for Income Taxes and Minority Interest		22,992			39,922
Provision for Income Taxes				9,517			17,338
Minority Interest in Earnings of Subsidiaries				957			1,300
		Income from Continuing Operations before Cumulative Effect of Change in Accounting Principle		12,518			21,284
Cumulative Effect of Change in Accounting Principle (net of minority interest)				(6,396	)		—
		Net Income	$	6,122		$	21,284
Net Income (Loss) per Share—Basic:
	Income from Continuing Operations before Cumulative Effect of Change in Accounting Principle		$	0.15		$	0.25
	Cumulative Effect of Change in Accounting Principle			(0.08	)		—
		Net Income per Share—Basic	$	0.07		$	0.25
Net Income (Loss) per Share—Diluted:
	Income from Continuing Operations before Cumulative Effect of Change in Accounting Principle		$	0.15		$	0.25
	Cumulative Effect of Change in Accounting Principle			(0.07	)		—
		Net Income per Share—Diluted	$	0.07		$	0.25
Weighted Average Common Shares Outstanding—Basic				84,372			85,097
Weighted Average Common Shares Outstanding—Diluted				86,002			86,551

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

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IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

		Three Months Ended March 31,
		2002			2003
Cash Flows from Operating Activities:
	Net income	$	6,122		$	21,284
Adjustments to reconcile net income to income from continuing operations before cumulative effect of change in accounting principle:
	Cumulative effect of change in accounting principle (net of minority interest)		6,396			—
Income from continuing operations before cumulative effect of change in accounting principle			12,518			21,284
Adjustments to reconcile income from continuing operations before cumulative effect of change in accounting principle to cash flows provided by operating activities:
	Minority interests		957			1,300
	Depreciation and amortization		25,156			29,949
	Amortization of deferred financing costs and bond discount		1,224			1,129
	Provision for deferred income taxes		9,223			16,050
	Loss on early extinguishment of debt		1,222			1,824
	Gain on disposal/writedown of property, plant and equipment, net		(82	)		(1,672	)
	Loss (Gain) on foreign currency and other, net		66			(5,012	)
Changes in Assets and Liabilities (exclusive of acquisitions):
	Accounts receivable		(10,295	)		(20,004	)
	Prepaid expenses and other current assets		1,268			5,954
	Deferred income taxes		632			46
	Accounts payable		5,170			(4,003	)
	Accrued expenses and other current liabilities		3,792			(11,984	)
	Deferred rent		488			197
	Deferred revenue		(269	)		1,514
	Other assets and long-term liabilities		199			(48	)
	Cash Flows Provided by Operating Activities		51,269			36,524
Cash Flows from Investing Activities:
	Capital expenditures		(57,643	)		(49,633	)
	Cash paid for acquisitions, net of cash acquired		(7,756	)		(17,160	)
	Additions to customer relationship and acquisition costs		(1,622	)		(2,155	)
	Investment in convertible preferred stock		—			(1,357	)
	Proceeds from sale of property and equipment		227			6,202
	Cash Flows Used in Investing Activities		(66,794	)		(64,103	)
Cash Flows from Financing Activities:
	Net repayment of term loans.		(98,750	)		(250	)
	Repayment of debt		(27,547	)		(6,488	)
	Proceeds from borrowings		134,323			11,540
	Early retirement of senior subordinated notes		—			(24,241	)
	Debt financing (repayment to) and equity contribution from (distribution to) minority shareholders, net		(2,165	)		2,424
	Proceeds from exercise of stock options		1,388			1,800
	Financing and stock issuance costs		(1,955	)		(147	)
	Cash Flows Provided by (Used in) Financing Activities		5,294			(15,362	)
Effect of exchange rates on cash and cash equivalents			291			230
Increase in Cash and Cash Equivalents			(9,940	)		(42,711	)
Cash and Cash Equivalents, Beginning of Period			21,359			56,292
Cash and Cash Equivalents, End of Period		$	11,419		$	13,581
Supplemental Information:
Cash Paid for Interest		$	19,684		$	27,628
Cash Paid for Income Taxes		$	800		$	613

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

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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 without audit 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.

        The consolidated balance sheet presented as of December 31, 2002 has been derived from the consolidated financial statements that have been audited by our independent public accountants. The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to those rules and regulations, but we believe that the disclosures are adequate to make the information presented not misleading. The consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2002.

        Certain reclassifications have been made to the 2002 financial statements to conform to the 2003 presentation.

(2) Summary of Significant Accounting Policies

        a.    Goodwill and Other Intangible Assets

        Effective July 1, 2001 and January 1, 2002, we adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets", respectively. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually for impairment or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives.

        The result of testing our goodwill for impairment in accordance with SFAS No. 142, as of January 1, 2002, was a non-cash charge of $6,396 (net of minority interest of $8,487), which, consistent with SFAS No. 142, is reported in the caption "cumulative effect of change in accounting principle" in the accompanying consolidated statement of operations. Impairment adjustments recognized in the future, if any, are generally required to be recognized as operating expenses. The $6,396 charge relates to our South American reporting unit within our international reporting segment. The South American reporting unit failed the impairment test primarily due to a reduction in the expected future performance of the unit resulting from a deterioration of the local economic environment and the devaluation of the currency in Argentina. As goodwill amortization expense in our South American reporting unit is not deductible for tax purposes, this impairment charge is not net of a tax benefit. We have a controlling 50.1% interest in Iron Mountain South America, Ltd ("IMSA") and the remainder is owned by an unaffiliated entity. IMSA has acquired a controlling interest in entities in which local partners have retained a minority interest in order to enhance our local market expertise. These local partners have no ownership interest in IMSA. This has caused the minority interest portion of the non-cash goodwill impairment charge ($8,487) to exceed our portion of the non-cash goodwill

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impairment charge ($6,396). In accordance with SFAS No. 142, we selected October 1 as our annual goodwill impairment review date. We performed our annual goodwill impairment review as of October 1, 2002 and noted no impairment of goodwill at our reporting units as of that date. As of March 31, 2003, no factors were identified that would alter this assessment.

        The changes in the carrying value of goodwill attributable to each reportable operating segment for the period ended March 31, 2003 are as follows:

	Business Records Management			Off-Site Data Protection		International			Corporate & Other		Total Consolidated
Balance as of December 31, 2002	$	1,151,760		$	237,178	$	154,665		$	1,371	$	1,544,974
Goodwill acquired during the year		10,378			—		562			—		10,940
Adjustments to purchase reserves		(306	)		—		41			—		(265	)
Fair value adjustments		27			—		(375	)		—		(348	)
Other adjustments and currency effects		8,174			—		9,188			—		17,362
Balance as of March 31, 2003	$	1,170,033		$	237,178	$	164,081		$	1,371	$	1,572,663

        The components of our amortizable intangible assets at March 31, 2003 are as follows:

	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer Relationships and Acquisition Costs	$	61,752	$	11,244	$	50,508
Non-Compete Agreements		20,393		17,715		2,678
Deferred Financing Costs		25,612		6,734		18,878
Total	$	107,757	$	35,693	$	72,064

        b.    Stock Based Compensation

        In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure," which amended SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to a fair value based method of accounting for stock-based compensation. SFAS No. 148 allows for (a) a prospective method, (b) a modified prospective method and (c) a retroactive restatement method. The prospective method involves recognizing expense for the fair value for all awards granted or modified in the year of adoption and thereafter with no expense recognition for previous awards. The modified prospective method involves recognizing expense for the fair value for all awards granted or modified in the year of adoption and thereafter and for all awards previously granted, modified or settled since 1994 (the original SFAS No. 123 implementation date) that are unvested at the beginning of the year of adoption. The retroactive restatement method involves restating all periods presented for the fair value of all awards previously granted, modified or settled since 1994 (the original SFAS No. 123 implementation date). We have adopted the fair value method of accounting in our financial statements beginning January 1, 2003 using the prospective method. We will apply the fair value recognition provisions to all stock based awards granted, modified or settled on

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or after January 1, 2003 and will continue to provide the required pro forma information for all awards previously granted, modified or settled before January 1, 2003.

        Had we elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS No. 123 and No. 148, net income and net income per share would have been changed to the pro forma amounts indicated in the table below:

		Three Months Ended March 31, 2002			Three Months Ended March 31, 2003
Net income, as reported		$	6,122		$	21,284
Add: Stock-based employee compensation expense included in reported net income, net of tax benefit			—			23
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax benefit			(749	)		(538	)
Net income, pro forma		$	5,373		$	20,769
Earnings per share:
	Basic—as reported		0.07			0.25
	Basic—pro forma		0.06			0.24
	Diluted—as reported		0.07			0.25
	Diluted—pro forma		0.06			0.24

        The weighted average fair value of options granted for the three months ended March 31, 2002 and 2003 was $9.70 and $9.44 per share, respectively. The 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:

Assumption	Three Months Ended March 31, 2002	Three Months Ended March 31, 2003
Expected volatility	27.5%	27.5%
Risk-free interest rate	4.08	2.98
Expected dividend yield	None	None
Expected life of the option	5.0 years	5.0 years

        c.    Income (Loss) Per Share—Basic and Diluted

        In accordance with SFAS No. 128, "Earnings per Share," basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding. The calculation of diluted net income (loss) per share is consistent with that of basic net 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. Potential common shares, substantially attributable to stock options, included in the

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calculation of diluted net income per share totaled 1,630,357 shares and 1,454,235 shares for the three months ended March 31, 2002 and 2003, respectively.

        d.    New Accounting Pronouncements

        In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, amendment of FASB Statement No. 13, and Technical Corrections," which among other things, limits the classification of gains and losses from extinguishment of debt as extraordinary to only those transactions that are unusual and infrequent in nature as defined by APB Opinion No. 30 "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." We adopted SFAS No. 145 on January 1, 2003. Gains and losses on certain future debt extinguishments, if any, will be recorded in pre-tax income. Losses on early extinguishment of debt of $1,222 for the three months ended March 31, 2002 and $1,824 for the three months ended March 31, 2003 are included in other (income) expense, net in our accompanying consolidated statements of operations to conform to the requirements under SFAS No. 145.

(3) Comprehensive Income (Loss)

        SFAS No. 130, "Reporting Comprehensive Income," requires presentation of the components of comprehensive income (loss), including the changes in equity from non-owner sources such as unrealized gains (losses) on hedging transactions, securities and foreign currency translation adjustments. Our total comprehensive income (loss) is as follows:

			Three Months Ended March 31,
			2002			2003
Comprehensive Income (Loss):
	Net Income		$	6,122		$	21,284
	Other Comprehensive Income (Loss):
		Foreign Currency Translation Adjustments		(2,329	)		6,806
		Unrealized Gain on Hedging Contracts		1,045			435
		Unrealized Loss on Securities		—			(20	)
Comprehensive Income			$	4,838		$	28,505

(4) Variable Interest Entities

        During the third quarter of 2002 we changed the characterization and the related accounting for properties in one variable interest entity ("VIE III") at such time and prospectively for new property acquisitions added to VIE III. In addition, anticipating the requirement to consolidate, and in line with our objective of transparent reporting, we voluntarily guaranteed all of the at-risk equity in VIE III and our two other variable interest entities (together, the "Other Variable Interest Entities" and, collectively with VIE III, our "Variable Interest Entities"). These guarantees resulted in our consolidating all of our Variable Interest Entities' assets and liabilities as of December 31, 2002. As a result of the

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consolidation of our Variable Interest Entities, rent expense decreased $2,639 and interest expense and depreciation increased $3,411 and $945, respectively, in our consolidated statement of operations for the three months ended March 31, 2003 as compared to the three months ended March 31, 2002.

(5) Derivative Instruments and Hedging Activities

        Effective January 1, 2001, we adopted the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that every derivative instrument 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 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 hedge items, as well as our risk management objectives and strategies for undertaking each hedge transaction.

        We have entered into two interest rate swap agreements, which are derivatives as defined by SFAS No. 133 and designated as cash flow hedges. These swap agreements hedge interest rate risk on certain amounts of our term loan. We have recorded, in the accompanying consolidated balance sheets, the estimated cost to terminate these swaps (fair value of the derivative liability), a deferred tax asset and a corresponding charge to accumulated other comprehensive items of $18,356 ($7,855 recorded in accrued expenses and $10,501 recorded in other long-term liabilities), $6,697 and $11,659, respectively, as of March 31, 2003. For the three months ended March 31, 2002 and 2003, we recorded additional interest expense of $1,797 and $2,118 resulting from interest rate swap settlements. These interest rate swap agreements were determined to be highly effective, and therefore no ineffectiveness was recorded in earnings.

        In addition, we have entered into a third interest rate swap agreement, which was designated as a cash flow hedge through December 31, 2002. This swap agreement hedged interest rate risk on certain amounts of our variable operating lease commitments. We have recorded, in the accompanying consolidated balance sheets, the estimated cost to terminate this swap (fair value of the derivative liability), a deferred tax asset and a corresponding charge to accumulated other comprehensive items of $2,673 ($1,861 recorded in accrued expenses and $812 recorded in other long-term liabilities), $975 and $1,698, respectively, as of March 31, 2003. From inception through December 31, 2002, this interest rate swap agreement was determined to be highly effective, and therefore no ineffectiveness was recorded in earnings. As a result of the consolidation of one of the Other Variable Interest Entities ("VIE I") on December 31, 2002, we consolidated the real estate term loans of VIE I and the operating lease commitments that were hedged by this swap are now considered to be inter-company transactions. As a result, this interest rate swap agreement was deemed to be no longer effective on a prospective basis. For the three months ended March 31, 2002 and 2003, we recorded additional rent expense of $439 and additional interest expense of $493, respectively, resulting from the settlements associated with this interest rate swap agreement.

        Also, we consolidated VIE III which had entered into an interest rate swap agreement upon its inception that was designated as a cash flow hedge. This swap agreement hedges the majority of interest rate risk associated with VIE III's real estate term loans. We have recorded, in the

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accompanying consolidated balance sheets, the estimated cost to terminate this swap (fair value of the derivative liability), a deferred tax asset and a corresponding charge to accumulated other comprehensive items of $13,649 ($4,641 recorded in accrued expenses and $9,008 recorded in other long-term liabilities), $4,979 and $8,670, respectively, as of March 31, 2003. For the three months ended March 31, 2003, we recorded additional interest expense of $1,161 resulting from interest rate swap settlements. This interest rate swap agreement has been since inception and continues to be a highly effective hedge, and therefore no ineffectiveness was recorded in earnings.

(6) Acquisitions

        During the three months ended March 31, 2003, we purchased substantially all of the assets, and assumed certain liabilities, of three businesses.

        Each of the 2003 acquisitions were accounted for using the purchase method of accounting and, accordingly, the results of operations for each acquisition have been included in our consolidated results from their respective acquisition dates. For the 2003 acquisitions, the aggregate purchase price exceeded the underlying fair value of the net assets acquired by $10,940 which has been assigned to goodwill and, consistent with SFAS No. 142, has not been amortized.

        In connection with each of our acquisitions, we have undertaken certain restructurings of the acquired businesses. The restructuring activities include certain reductions in staffing levels, elimination of duplicate facilities and other costs associated with exiting certain activities of the acquired businesses. The estimated cost of these restructuring activities were recorded as costs of the acquisitions and were provided in accordance with Emerging Issues Task Force Issue No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination." We finalize restructuring plans for each business no later than one year from the date of acquisition. Unresolved matters at March 31, 2003 primarily include completion of planned abandonments of facilities and severances for certain acquisitions.

        The following is a summary of reserves related to such restructuring activities:

	Year Ended December 31, 2002			Three Months Ended March 31, 2003
Reserves, Beginning Balance	$	16,225		$	9,906
Reserves Established		4,963			80
Expenditures		(6,745	)		(1,194	)
Adjustments to Goodwill, including currency effect (1)		(4,537	)		(452	)
Reserves, Ending Balance	$	9,906		$	8,340

(1)

Includes adjustments to goodwill as a result of management finalizing its restructuring plans.

        At March 31, 2003, the restructuring reserves related to acquisitions consisted of lease losses on abandoned facilities of $4,670, severance costs for approximately six people of $522 and other exit costs of $3,148. These accruals are expected to be used prior to March 31, 2004 except for lease losses of

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$3,074 and severance contracts of $399, both of which are based on contracts that extend beyond one year.

(7) Long-term Debt

        Long-term debt consists of the following:

	December 31, 2002					March 31, 2003
	Carrying Amount			Fair Value		Carrying Amount			Fair Value
Revolving Credit Facility (3)	$	75,360		$	75,360	$	90,742		$	90,742
Term Loan (3)		249,750			249,750		249,500			249,500
91/8% Senior Subordinated Notes due 2007 (1) (2)		22,409			24,241		—			—
81/8% Senior Notes due 2008 (the "Subsidiary notes") (2)		124,666			138,038		125,143			139,388
83/4% Senior Subordinated Notes due 2009 (1) (2)		249,727			257,825		219,769			229,900
81/4% Senior Subordinated Notes due 2011 (1) (2)		149,625			154,500		149,636			157,125
85/8% Senior Subordinated Notes due 2013 (1) (2)		481,097			502,513		481,092			514,535
73/4% Senior Subordinated Notes due 2015 (1) (2)		100,000			100,000		129,973			133,880
Real Estate Term Loans (3)		202,647			202,647		202,647			202,647
Real Estate Mortgages (3)		16,262			16,262		16,031			16,031
Seller Notes (3)		12,864			12,864		11,565			11,565
Other (3)		47,690			47,690		47,621			47,621
Total Debt		1,732,097					1,723,719
Less Current Portion		(69,732	)				(43,858	)
Long-term Debt, Net of Current Portion	$	1,662,365				$	1,679,861

(1)

These debt instruments are collectively referred to as the "Parent notes".

(2)

The fair value of the Parent notes and the Subsidiary notes are based on quoted market prices for these notes on December 31, 2002 and March 31, 2003.

(3)

The fair value of this long-term debt either approximates the carrying value (as borrowings under these debt instruments are based on current variable market interest rates as of December 31, 2002 and March 31, 2003) or it is impracticable to estimate the fair value due to the nature of such long-term debt.

        On March 15, 2002, we entered into a new amended and restated revolving credit agreement (together with the term loan, the "Amended and Restated Credit Agreement"). The Amended and Restated Credit Agreement replaced our prior credit agreement. As a result, we recorded a charge to other (income) expense, net in the accompanying consolidated statement of operations of $1,222 related to the early retirement of debt in conjunction with the refinancing of our credit facility.

        As of March 31, 2003, we had $90,742 of borrowings under our revolving credit facility, of which $10,000 was denominated in U.S. dollars and the remaining balance was denominated in Canadian dollars in the amount of CDN 118,790. We also had various outstanding letters of credit totaling $35,076. The remaining availability under the revolving credit facility was $274,182 as of March 31, 2003, and the interest rates in effect ranged from 3.56% to 5.13% as of March 31, 2003.

12

        Our Variable Interest Entities were financed with real estate term loans. See Note 4. As of March 31, 2003, these real estate term loans amounted to $202,647. No further financing is currently available to our Variable Interest Entities to fund further property acquisitions. The real estate term loans held by our Variable Interest Entities have always been and continue to be treated as indebtedness for purposes of our financial covenants under our Amended and Restated Credit Agreement. As of the date they were consolidated into our financial statements, they were considered indebtedness under our Parent notes and Subsidiary notes.

        In January 2003, we redeemed the remaining $23,183 of outstanding principal amount of our 9¹/8% Senior Subordinated Notes due 2007 (the "9¹/8% notes"), at a redemption price (expressed as a percentage of principal amount) of 104.563%, plus accrued and unpaid interest, totaling $25,299 with proceeds of our underwritten public offering of $100,000 in aggregate principal of our 7³/4% Senior Subordinated Notes due 2015 (the "7³/4% notes"). We recorded a charge to other (income) expense, net in the accompanying consolidated statement of operations of $1,824 in the first quarter of 2003 related to the early retirement of the remaining 9¹/8% notes.

        In March 2003, we completed two debt exchanges which resulted in the issuance of $31,255 in face value of our 7³/4% notes and the retirement of $30,000 of our 8³/4% Senior Subordinated Notes due 2009 (the "8³/4% notes"). These non-cash debt exchanges resulted in carryover basis and, therefore, no gain (loss) on extinguishment of debt in accordance with EITF No. 96-19, "Debtor's Accounting for Modification or Exchange of Debt Instruments." These exchanges result in a lower interest rate and, therefore, lower interest expense in future periods, as well as extend the maturity of our debt obligations. From time to time, we may enter into similar exchange transactions that we deem appropriate.

        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 our indentures and other agreements governing our indebtedness. As of March 31, 2003, we were in compliance in all material respects with all debt covenants.

13

(8) Selected Financial Information of Parent, Guarantors and Non-guarantors

        The following financial data summarizes the consolidating Company on the equity method of accounting as of March 31, 2003 and December 31, 2002 and for the three month periods ended March 31, 2003 and 2002. The Guarantors column includes all subsidiaries that guarantee the Parent notes and the Subsidiary notes. The Canada Company column includes Iron Mountain Canada Corporation ("Canada Company"), the issuer of the Subsidiary notes, and our other Canadian subsidiaries that guarantee the Subsidiary notes, but do not guarantee the Parent notes. The Parent also guarantees the Subsidiary notes. The subsidiaries that do not guarantee either the Parent notes or the Subsidiary notes are referred to in the table as the "Non-Guarantors."

			March 31, 2003
			Parent		Guarantors		Canada Company			Non- Guarantors		Eliminations			Consolidated
Assets
Current Assets:
	Cash and Cash Equivalents		$	—	$	9,673	$	1,757		$	2,151	$	—		$	13,581
	Accounts Receivable			—		201,095		14,669			33,209		—			248,973
	Intercompany Receivable			800,889		—		—			13,036		(813,925	)		—
	Other Current Assets			3,545		60,834		1,439			11,074		(195	)		76,697
		Total Current Assets		804,434		271,602		17,865			59,470		(814,120	)		339,251
Property, Plant and Equipment, Net				—		941,780		82,508			251,506		—			1,275,794
Other Assets, Net:
	Long-term Intercompany Receivable			12,834		—		—			98,715		(111,549	)		—
	Long-term Notes Receivable from Affiliates			1,126,254		—		—			—		(1,126,254	)		—
	Investment in Subsidiaries			385,136		82,040		—			—		(467,176	)		—
	Goodwill, Net			—		1,283,913		122,265			156,744		9,741			1,572,663
	Other			19,556		55,267		4,966		��	5,373		(4,000	)		81,162
		Total Other Assets, Net		1,543,780		1,421,220		127,231			260,832		(1,699,238	)		1,653,825
		Total Assets	$	2,348,214	$	2,634,602	$	227,604		$	571,808	$	(2,513,358	)	$	3,268,870
Liabilities and Shareholders' Equity
	Intercompany Payable		$	—	$	644,458	$	93,677		$	75,790	$	(813,925	)	$	—
	Total Current Liabilities			39,481		233,371		18,285			105,999		(195	)		396,941
	Long-term Debt, Net of Current Portion			1,321,122		1,142		126,894			230,703		—			1,679,861
	Long-term Intercompany Payable			—		111,549		—			—		(111,549	)		—
	Long-term Notes Payable to Affiliates			—		1,126,254		—			—		(1,126,254	)		—
	Other Long-term Liabilities			11,199		122,871		1,400			16,545		(4,000	)		148,015
	Commitments and Contingencies
	Minority Interests			—		—		—			1,836		65,805			67,641
	Shareholders' Equity (Deficit)			976,412		394,957		(12,652	)		140,935		(523,240	)		976,412
		Total Liabilities and Shareholders' Equity	$	2,348,214	$	2,634,602	$	227,604		$	571,808	$	(2,513,358	)	$	3,268,870

14

			December 31, 2002
			Parent		Guarantors		Canada Company			Non- Guarantors		Eliminations			Consolidated
Assets
Current Assets:
	Cash and Cash Equivalents		$	—	$	52,025	$	1,759		$	2,508	$	—		$	56,292
	Accounts Receivable			—		183,610		13,898			27,908		—			225,416
	Intercompany Receivable			782,547		—		—			13,785		(796,332	)		—
	Other Current Assets			3,400		72,140		2,299			7,665		(172	)		85,332
		Total Current Assets		785,947		307,775		17,956			51,866		(796,504	)		367,040
Property, Plant and Equipment, Net				—		926,147		77,003			236,038		—			1,239,188
Other Assets, Net:
	Long-term Intercompany Receivable			36,875		—		—			98,715		(135,590	)		—
	Long-term Notes Receivable from Affiliates			1,113,752		—		—			—		(1,113,752	)		—
	Investment in Subsidiaries			367,355		76,011		—			—		(443,366	)		—
	Goodwill, Net			—		1,273,774		114,131			147,328		9,741			1,544,974
	Other			21,191		52,292		9,327			4,785		(8,142	)		79,453
		Total Other Assets, Net		1,539,173		1,402,077		123,458			250,828		(1,691,109	)		1,624,427
		Total Assets	$	2,325,120	$	2,635,999	$	218,417		$	538,732	$	(2,487,613	)	$	3,230,655
Liabilities and Shareholders' Equity
	Intercompany Payable		$	—	$	637,941	$	92,259		$	66,132	$	(796,332	)	$	—
	Total Current Liabilities			62,025		255,016		15,249			95,844		(172	)		427,962
	Long-term Debt, Net of Current Portion			1,306,027		1,232		126,408			228,698		—			1,662,365
	Long-term Intercompany Payable			—		135,590		—			—		(135,590	)		—
	Long-term Notes Payable to Affiliates			—		1,113,752		—			—		(1,113,752	)		—
	Other Long-term Liabilities			12,207		111,415		997			16,858		(8,142	)		133,335
	Commitments and Contingencies
	Minority Interests			—		—		—			4,182		57,950			62,132
	Shareholders' Equity (Deficit)			944,861		381,053		(16,496	)		127,018		(491,575	)		944,861
		Total Liabilities and Shareholders' Equity	$	2,325,120	$	2,635,999	$	218,417		$	538,732	$	(2,487,613	)	$	3,230,655

15

			Three Months Ended March 31, 2003
			Parent			Guarantors			Canada Company			Non- Guarantors			Eliminations			Consolidated
Revenues:
	Storage		$	—		$	172,100		$	10,161		$	20,570		$	—		$	202,831
	Service and Storage Material Sales			—			123,998			10,055			14,927			—			148,980
		Total Revenues		—			296,098			20,216			35,497			—			351,811
Operating Expenses:
	Cost of Sales (Excluding Depreciation)			—			133,357			10,436			16,358			—			160,151
	Selling, General and Administrative			57			78,943			3,178			8,978			—			91,156
	Depreciation and Amortization			—			25,051			1,907			2,991			—			29,949
	(Gain) Loss on Disposal/Writedown of Property, Plant and Equipment, Net			—			(2,035	)		389			(26	)		—			(1,672	)
		Total Operating Expenses		57			235,316			15,910			28,301			—			279,584
Operating (Loss) Income				(57	)		60,782			4,306			7,196			—			72,227
Interest Expense, Net				1,849			26,804			3,662			3,250			—			35,565
Equity in the Earnings of Subsidiaries				(30,414	)		(1,361	)		—			—			31,775			—
Other Expense (Income), Net				7,224			(1,845	)		(8,559	)		(80	)		—			(3,260	)
	Income Before Provision for Income Taxes and Minority Interest			21,284			37,184			9,203			4,026			(31,775	)		39,922
Provision for Income Taxes				—			11,657			4,349			1,332			—			17,338
Minority Interest in Earnings of Subsidiaries				—			—			—			1,300			—			1,300
	Net Income		$	21,284		$	25,527		$	4,854		$	1,394		$	(31,775	)	$	21,284

16

			Three Months Ended March 31, 2002
			Parent			Guarantors			Canada Company			Non- Guarantors			Eliminations			Consolidated
Revenues:
	Storage		$	—		$	160,077		$	8,519		$	14,840		$	—		$	183,436
	Service and Storage Material Sales			—			113,166			9,993			10,603			—			133,762
		Total Revenues		—			273,243			18,512			25,443			—			317,198
Operating Expenses:
	Cost of Sales (excluding depreciation)			—			129,881			9,356			13,209			—			152,446
	Selling, General and Administrative			12			72,090			3,076			7,016			—			82,194
	Depreciation and Amortization			—			22,147			1,441			1,568			—			25,156
	Merger-related Expenses			—			300			—			—			—			300
	Gain on Disposal/Writedown of Property, Plant and Equipment, Net			—			(79	)		(3	)		—			—			(82	)
		Total Operating Expenses		12			224,339			13,870			21,793			—			260,014
Operating (Loss) Income				(12	)		48,904			4,642			3,650			—			57,184
Interest Expense, Net				2,965			24,908			3,297			1,710			—			32,880
Equity in the (Earnings) Losses of Subsidiaries				(9,836	)		5,630			—			—			4,206			—
Other Expense (Income), Net				737			717			309			(451	)		—			1,312
	Income from Continuing Operations before Provision for Income Taxes and Minority Interest			6,122			17,649			1,036			2,391			(4,206	)		22,992
Provision for Income Taxes				—			8,160			691			666			—			9,517
Minority Interest in Earnings of Subsidiaries				—			—			—			957			—			957
	Income from Continuing Operations before Cumulative Effect of Change in Accounting Principle			6,122			9,489			345			768			(4,206	)		12,518
Cumulative Effect of Change in Accounting Principle (net of Minority Interest)				—			—			—			(6,396	)		—			(6,396	)
	Net Income (Loss)		$	6,122		$	9,489		$	345		$	(5,628	)	$	(4,206	)	$	6,122

17

			Three Months Ended March 31, 2003
			Parent			Guarantors			Canada Company			Non- Guarantors			Eliminations			Consolidated
Cash Flows from Operating Activities:
Cash Flows Provided by Operating Activities			$	13,768		$	12,250		$	6,268		$	4,238		$	—		$	36,524
Cash Flows from Investing Activities:
	Capital expenditures			—			(39,808	)		(1,138	)		(8,687	)		—			(49,633	)
	Cash paid for acquisitions, net of cash acquired			—			(14,058	)		—			(3,102	)		—			(17,160	)
	Intercompany loans to subsidiaries			3,616			(5,004	)		—			—			1,388			—
	Investment in subsidiaries			(128	)		(128	)		—			—			256			—
	Investment in convertible preferred stock			—			(1,357	)		—			—			—			(1,357	)
	Additions to customer relationship and acquisition costs			—			(1,718	)		(165	)		(272	)		—			(2,155	)
	Proceeds from sales of property and equipment			—			6,202			—			—			—			6,202
		Cash Flows Provided by (Used in) Investing Activities		3,488			(55,871	)		(1,303	)		(12,061	)		1,644			(64,103	)
Cash Flows from Financing Activities:
	Net repayment of term loans			(250	)		—			—			—			—			(250	)
	Repayment of debt			(4,418	)		(172	)		(143	)		(1,755	)		—			(6,488	)
	Proceeds from borrowings			10,000			—			—			1,540			—			11,540
	Early retirement of senior subordinated notes			(24,241	)		—			—			—			—			(24,241	)
	Debt financing (repayment to) and equity contribution from (distribution to) minority shareholders, net			—			—			—			2,424			—			2,424
	Intercompany loans from parent			—			1,313			(5,036	)		5,111			(1,388	)		—
	Equity contribution from parent			—			128			—			128			(256	)		—
	Proceeds from exercise of stock options			1,800			—			—			—			—			1,800
	Financing and stock issuance costs			(147	)		—			—			—			—			(147	)
		Cash Flows (Used in) Provided by Financing Activities		(17,256	)		1,269			(5,179	)		7,448			(1,644	)		(15,362	)
Effect of exchange rates on cash and cash equivalents				—			—			212			18			—			230
Decrease in cash and cash equivalents				—			(42,352	)		(2	)		(357	)		—			(42,711	)
Cash and cash equivalents, beginning of period				—			52,025			1,759			2,508			—			56,292
Cash and cash equivalents, end of period			$	—		$	9,673		$	1,757		$	2,151		$	—		$	13,581

18

			Three Months Ended March 31, 2002
			Parent			Guarantors			Canada Company			Non- Guarantors			Eliminations			Consolidated
Cash Flows from Operating Activities:
	Cash Flows (Used in) Provided by Operating Activities		$	(9,179	)	$	57,744		$	2,281		$	1,180		$	(757	)	$	51,269
Cash Flows from Investing Activities:
	Capital expenditures			—			(37,887	)		(3,382	)		(16,374	)		—			(57,643	)
	Cash paid for acquisitions, net of cash acquired			—			(7,819	)		—			63			—			(7,756	)
	Intercompany loans to subsidiaries			451			(16,864	)		—			—			16,413			—
	Investment in subsidiaries			(2	)		(2	)		—			—			4			—
	Additions to customer relationship and acquisition costs			—			(1,486	)		(26	)		(110	)		—			(1,622	)
	Proceeds from sales of property and equipment			—			224			3			—			—			227
		Cash Flows Provided by (Used in) Investing Activities		449			(63,834	)		(3,405	)		(16,421	)		16,417			(66,794	)
Cash Flows from Financing Activities:
	Net repayment of term loans			(98,750	)		—			—			—			—			(98,750	)
	Repayment of debt			(26,188	)		(119	)		(127	)		(1,113	)		—			(27,547	)
	Proceeds from borrowings			134,235			—			—			88			—			134,323
	Debt financing (repayment to) and equity contribution from (distribution to) minority shareholders, net			—			—			—			(2,165	)		—			(2,165	)
	Intercompany loans from parent			—			321			(772	)		16,864			(16,413	)		—
	Equity contribution from parent			—			2			—			2			(4	)		—
	Proceeds from exercise of stock options			1,388			—			—			—			—			1,388
	Financing and stock issuance costs			(1,955	)		—			—			—			—			(1,955	)
		Cash Flows Provided by (Used in) Financing Activities		8,730			204			(899	)		13,676			(16,417	)		5,294
Effect of exchange rates on cash and cash equivalents				—			—			327			(36	)		—			291
Decrease in cash and cash equivalents				—			(5,886	)		(1,696	)		(1,601	)		(757	)		(9,940	)
Cash and cash equivalents, beginning of period				—			11,395			1,696			8,268			—			21,359
Cash and cash equivalents, end of period			$	—		$	5,509		$	—		$	6,667		$	(757	)	$	11,419

19

(9) Segment Information

        An analysis of our business segment information and reconciliation to the consolidated financial statements is as follows:

	Business Records Management		Off-Site Data Protection		International		Corporate & Other			Total Consolidated
Three Months Ended March 31, 2002
Revenue	$	228,909	$	57,349	$	24,976	$	5,964		$	317,198
Contribution		60,687		14,226		4,714		2,931			82,558
Total Assets		2,298,757		350,635		268,081		(40,728	)(1)		2,876,745
Three Months Ended March 31, 2003
Revenue		248,521		61,386		34,887		7,017			351,811
Contribution		66,686		16,788		8,010		9,020			100,504
Total Assets		2,406,325		366,689		347,743		148,113	(1)		3,268,870

(1)

Total corporate & other assets include the intersegment elimination amount of $1,673,092 and $1,474,634 as of March 31, 2002 and 2003, respectively.

        The accounting policies of the reportable segments are the same as those described in Note 2 to Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2002 except that certain costs continue to be allocated by Corporate to the other segments in both 2002 and 2003, primarily our domestic and Canadian operations. These allocations, which include rent, worker's compensation, property, general liability, auto and other insurance, pension/medical costs, sick and vacation costs, incentive compensation, real estate property taxes and provision for bad debts, are based on rates set at the beginning of each year. Contribution (formerly referred to as Adjusted EBITDA in our Annual Report on Form 10-K for the year ended December 31, 2002) for each segment is defined as total revenues less cost of sales and selling, general and administrative expenses including the costs allocated to each segment as described above. Internally, we use Contribution as the basis for evaluating the performance of and allocating resources to our operating segments.

20

        A reconciliation of Contribution to income from continuing operations before provision for income taxes and minority interest on a consolidated basis is as follows:

		Three Months Ended March 31,
		2002			2003
Contribution		$	82,558		$	100,504
	Less: Depreciation and Amortization		25,156			29,949
	Merger-related Expenses		300			—
	Gain on Disposal/Writedown of Property, Plant and           Equipment, Net		(82	)		(1,672	)
	Interest Expense, Net.		32,880			35,565
	Other Expense (Income), Net		1,312			(3,260	)
Income from Continuing Operations before Provision for Income Taxes and Minority Interest		$	22,992		$	39,922

        Our secure shredding business, previously analyzed as part of Corporate & Other, is now analyzed within the Business Records Management category. Our film and sound business, previously analyzed as part of Business Records Management, is now analyzed within the Off-Site Data Protection category. Our electronic vaulting business, previously analyzed as part of Corporate & Other, is now analyzed within the Off-Site Data Protection category. Our Canada operating segment, previously analyzed as part of our International segment, is now analyzed within the Business Records Management segment. In addition, certain allocations from Corporate & Other to Business Records Management and Off-Site Data Protection have been changed. To the extent practicable, the prior period numbers shown above have been adjusted to reflect all of these changes.

        Information about our operations in different geographical areas is as follows:

		Three Months Ended March 31,
		2002		2003
Revenues:
United States		$	273,710	$	296,708
International			43,488		55,103
	Total Revenues	$	317,198	$	351,811

		December 31, 2002		March 31, 2003
Long-lived Assets:
United States		$	2,395,018	$	2,425,871
International			468,597		503,748
	Total Long-lived Assets	$	2,863,615	$	2,929,619

21

(10) Commitments and Contingencies

        We are a party to numerous operating leases. No material changes in the obligations associated with these leases have occurred since December 31, 2002. See our Annual Report on Form 10-K for the year ended December 31, 2002 for amounts outstanding at December 31, 2002.

        We are involved in litigation from time to time in the ordinary course of business with a portion of the defense and/or settlement costs being covered by various commercial liability insurance policies purchased by us. In the opinion of management, after consultation with legal counsel, the outcome of outstanding legal proceedings will not have a material adverse effect on our financial condition or results of operations, although there can be no assurance in this regard.

(11) Subsequent Event

        In April 2003, we completed an underwritten public offering of $300,000 in aggregate principal amount of 7³/4% notes. The 7³/4% notes were issued at a price to investors of 104% of par, which implies an effective yield to worst of 7.066%. Our net proceeds of $307,340, after paying the underwriters' discounts and commissions and transaction fees, were used to fund our offer to purchase and consent solicitation relating to our outstanding 8³/4% notes, or to otherwise redeem the 8³/4% notes, and for general corporate purposes, including the repayment of borrowings under our revolving credit facility, the possible repayment of other indebtedness and possible future acquisitions.

        In April 2003, we received and accepted tenders for $143,317 of the $220,000 aggregate principal amount outstanding of our 8³/4% notes. In May 2003, we will redeem the remaining $76,683 of outstanding principal amount of our 8³/4% notes, at a redemption price (expressed as a percentage of principal amount) of 104.375%, plus accrued and unpaid interest. We will record a charge to other (income) expense, net of approximately $13,900 in the second quarter of 2003 related to the early retirement of these 8³/4% notes, which consists of redemption premiums and transaction costs, as well as original issue discount and unamortized deferred financing costs related to the 8³/4% notes.

22

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, 2003 and 2002 should be read in conjunction with the consolidated financial statements and footnotes for the three months ended March 31, 2003 included herein, and the year ended December 31, 2002, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 21, 2003.

Forward Looking Statements

        This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and is subject to the safe-harbor created by such Act. Forward-looking statements include our statements regarding our goals, beliefs, strategies, objectives, plans or current expectations. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from those contemplated in the forward-looking statements. Such factors include, but are not limited to: (i) the cost and availability of financing for contemplated growth; (ii) changes in customer preferences and demand for our services; (iii) changes in the price for our services relative to the cost of providing such services; (iv) our ability or inability to complete acquisitions on satisfactory terms and to integrate acquired companies efficiently; (v) in the various digital businesses on which we are embarking, capital and technical requirements will be beyond our means, markets for our services will be less robust than anticipated, or competition will be more intense than anticipated; (vi) the possibility that business partners upon which we depend for technical assistance or management and acquisition expertise outside the United States will not perform as anticipated; (vii) changes in the political and economic environments in the countries in which our international subsidiaries operate; and (viii) other trends in competitive or economic conditions affecting our financial condition or results of operations not presently contemplated. 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 on Forms 10-K, 10-Q and 8-K filed with the SEC.

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 accounting principles generally accepted in the United States. 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 on-going basis, we evaluate the estimates used, including those related to the allowance for doubtful accounts, impairments of tangible and intangible assets, income taxes, purchase accounting related reserves, self-insurance liabilities, incentive compensation liabilities, litigation liabilities and contingencies. 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. We use these estimates to assist us in the identification and assessment of the accounting treatment necessary with respect to commitments and contingencies. Actual results may differ from these estimates under

23

different assumptions or conditions. Our critical accounting policies include the following and are in no particular order:

•

Accounting for Acquisitions

•

Allowance for Doubtful Accounts

•

Accounting for Variable Interest Entities

•

Accounting for Derivative Instruments and Hedging Activities

•

Accounting for Internal Use Software

•

Deferred Income Taxes

        Further detail regarding our critical accounting policies can be found in the consolidated financial statements and the notes included in our latest Annual Report on Form 10-K as filed with the SEC. Management has determined that no material changes concerning our critical accounting policies has occurred since our Annual Report on Form 10-K for the year ended December 31, 2002.

Results of Operations

        The following table sets forth, for the periods indicated, information derived from our consolidated statements of operations.

			Three Months Ended March 31,
									Dollar Change			Percent Change
			2002			2003
			(In Thousands)
Revenues:
	Storage		$	183,436		$	202,831		$	19,395		10.6	%
	Service and Storage Material Sales			133,762			148,980			15,218		11.4	%
		Total Revenues		317,198			351,811			34,613		10.9	%
Operating Expenses:
	Cost of Sales (excluding depreciation)			152,446			160,151			7,705		5.1	%
	Selling, General and Administrative			82,194			91,156			8,962		10.9	%
	Depreciation and Amortization			25,156			29,949			4,793		19.1	%
	Merger-related Expenses			300			—			(300	)	(100.0	%)
	Gain on Disposal/Writedown of Property, Plant and Equipment, Net			(82	)		(1,672	)		(1,590	)	(1,939.0	%)
		Total Operating Expenses		260,014			279,584			19,570		7.5	%
Operating Income				57,184			72,227			15,043		26.3	%
Interest Expense, Net				32,880			35,565			2,685		8.2	%
Other Expense (Income), Net				1,312			(3,260	)		(4,572	)	(348.5	%)
Income from Continuing Operations Before Provision for Income Taxes and Minority Interest				22,992			39,922			16,930		73.6	%
Provision for Income Taxes				9,517			17,338			7,821		82.2	%
Minority Interest in Earnings of Subsidiaries				957			1,300			343		35.8	%
Income from Continuing Operations before Cumulative Effect of Change in Accounting Principle				12,518			21,284			8,766		70.0	%
Cumulative Effect of Change in Accounting Principle (net of minority interest)				(6,396	)		—			6,396		100.0	%
Net Income			$	6,122		$	21,284		$	15,162		247.7	%

24

        The following table sets forth, for the periods indicated, information derived from our consolidated statements of operations, expressed as a percentage of total consolidated revenues.

			Three Months Ended March 31,
			2002		2003
Revenues:
	Storage		57.8	%	57.7	%
	Service and Storage Material Sales		42.2		42.3
		Total Revenues	100.0		100.0
Operating Expenses:
	Cost of Sales (excluding depreciation)		(48.1	)	(45.5	)
	Selling, General and Administrative		(25.9	)	(25.9	)
	Depreciation and Amortization		(7.9	)	(8.5	)
	Merger-related Expenses		(0.1	)	—
	Gain on Disposal/Writedown of Property, Plant and Equipment, Net		0.0		0.5
		Total Operating Expenses	(82.0	)	(79.5	)
Operating Income			18.0		20.5
Interest Expense, Net			(10.4	)	(10.1	)
Other Expense (Income), Net			0.4		(0.9	)
Income from Continuing Operations before Provision for Income Taxes and Minority Interest			7.2		11.3
Provision for Income Taxes			(3.0	)	(4.9	)
Minority Interest in Earnings of Subsidiaries			(0.3	)	(0.4	)
Income from Continuing Operations before Cumulative Effect of Change in Accounting Principle			3.9		6.0
Cumulative Effect of Change in Accounting Principle (net of minority interest)			(2.0	)	—
Net Income			1.9	%	6.0	%
Other Data:
EBITDA(1)			25.2	%	29.6	%

(1)

We believe that EBITDA (earnings before interest, taxes, depreciation and amortization) is useful to investors because it is an important financial measure used in evaluating our performance, as EBITDA is an internally generated source of funds for investment in continued growth and for servicing indebtedness. Externally, holders of our publicly issued debt use EBITDA and EBITDA-based calculations as important criteria for evaluating us and, as a result, all of our bond indentures and covenants include EBITDA and EBITDA-based calculations as primary measures of financial performance.

Reconciliation of Operating Income to EBITDA

	Three Months Ended March 31,
						Dollar Change			Percent Change
	2002		2003
	(In Thousands)
Operating Income	$	57,184	$	72,227		$	15,043		26.3	%
Add: Depreciation and Amortization		25,156		29,949			4,793		19.1	%
		82,340		102,176			19,836		24.1	%
Less: Other Expense (Income), net		1,312		(3,260	)		(4,572	)	(348.5	)%
Minority Interests in Earnings of Subsidiaries		957		1,300			343		35.8	%
EBITDA	$	80,071	$	104,136		$	24,065		30.1	%

25

IRON MOUNTAIN INCORPORATED

Revenue

        For the three months ended March 31, 2003, our consolidated revenues increased $34.6 million, or 10.9%, compared to the same period of 2002. This increase was principally a result of internal revenue growth, which for the three months ended March 31, 2003 was 7.9%, comprised of 8.2% for storage revenue and 7.5% for service and storage material sales revenue. We calculate internal revenue growth in local currency for our international operations.

        Consolidated storage revenues increased $19.4 million, or 10.6%, to $202.8 million for the three months ended March 31, 2003. The increase was primarily attributable to internal revenue growth of 8.2% resulting from net increases in records and other media stored by existing customers and sales to new customers. The net effect of foreign currency translation on storage revenues was an increase in revenue of $1.4 million. This was a result of a strengthening of the British pound sterling, the Canadian dollar, and the Euro against the U.S. dollar, offset by a weakening of the Argentine peso and the Brazilian real against the U.S. dollar, based on an analysis of weighted average rates for the comparable periods.

        Consolidated service and storage material sales revenues increased $15.2 million, or 11.4%, to $149.0 million for the three months ended March 31, 2003. The increase was primarily attributable to internal revenue growth of 7.5% resulting from net increases in service and storage material sales to existing customers and sales to new customers. The net effect of foreign currency translation on service and storage material sales revenues was an increase in revenue of $1.6 million. This was a result of a strengthening of the British pound sterling, the Canadian dollar, and the Euro against the U.S. dollar, offset by a weakening of the Argentine peso and the Brazilian real against the U.S. dollar, based on an analysis of weighted average rates for the comparable periods.

Internal Growth—Eight-Quarter Trend

	2001			2002				2003
	Second Quarter	Third Quarter	Fourth Quarter	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	First Quarter
Storage Revenue	11.5%	10.9%	9.6%	8.4%	8.6%	8.6%	8.0%	8.2%
Service and Storage Material Sales Revenue	8.7%	5.1%	10.6%	9.1%	10.0%	15.4%	9.8%	7.5%
Total Revenue	10.3%	8.5%	10.0%	8.7%	9.2%	11.4%	8.8%	7.9%

        The consecutive quarter storage revenue internal growth trend over the last eight quarters, as calculated quarterly comparing the current quarter to the applicable quarter in the prior year, is primarily attributable to a decline in the rate at which customers have added new cartons to their inventory, which may be a result of current economic conditions. However, we have not seen a decline in the duration that our customers maintain their cartons in inventory nor an increase in the rate of cartons destroyed or permanently removed from inventory as a percentage of the total population. The increase in the storage internal growth rate for the three months ended March 31, 2003 compared to the three months ended December 31, 2002 is attributable to increased growth within our European and Latin American operations and higher growth rates resulting from our digital initiatives, which offset softness experienced within our off-site data protection segment. Our North American storage business, which is the largest component of our internal growth, remained consistent over these periods. In addition, growth from new sales was adversely affected in 2001 and 2002 as a result of the disruption caused by the merging of our sales force with that of Pierce Leahy in 2000.

26

        Service and storage material sales revenue internal growth is subject to fluctuations in the timing of non-recurring service projects ordered by customers and in some cases can be affected by delays or cancellations as some customers seek to reduce short-term costs. During 2002, we benefited from a number of large non-recurring service projects in North America and Europe. While we expect to realize revenue associated with these and similar projects in 2003, it has been difficult to replace all of these projects. The market in which our off-site data protection segment operates continued to experience downward pressure on information technology related spending for the three months ended March 31, 2003. This market has negatively impacted overall internal growth for this period. The volatility in the service revenue growth for the third and fourth quarters of 2001 and 2002 is primarily due to a disruption in the normal pattern of services we provide to our customers following the events of September 11, 2001 and the resulting shift of some services and related revenue to the fourth quarter of 2001. This caused a favorable comparison for the service revenue growth rate in the third quarter of 2002 and a difficult comparison in the fourth quarter of 2002.

Cost of Sales

        Consolidated cost of sales (excluding depreciation) is comprised of the following expenses:

										% of Consolidated Revenues
	Three Months Ended March 31,									Three Months Ended March 31,
					Dollar Change			Percent Change				Percent Change (Favorable)/ Unfavorable
	2002		2003							2002	2003
	(In Thousands)
Labor	$	76,185	$	78,320	$	2,135		2.8%		24.0%	22.3%	(1.7)%
Facilities		47,789		52,564		4,775		10.0%		15.1%	14.9%	(0.2)%
Transportation		13,694		14,833		1,139		8.3%		4.3%	4.2%	(0.1)%
Product Cost of Sales		8,596		8,117		(479	)	(5.6%	)	2.7%	2.3%	(0.4)%
Other		6,182		6,317		135		2.2%		1.9%	1.8%	(0.1)%
	$	152,446	$	160,151	$	7,705		5.1%		48.1%	45.5%	(2.5)%

Labor

        The dollar increase in labor expense is primarily attributable to increases in headcount and changes in our labor mix resulting from the expansion of our secure shredding operations. In addition, our domestic operations, which comprise approximately 75% of our workforce, experienced an overall increase in wages due to normal inflation, merit increases and increases in medical insurance expense of $0.5 million. The increase in labor expenses was substantially offset by reductions in incentive compensation expenses due to changes in our estimates of those expenses.

Facilities

        Our property management activities combined with a higher utilization of our space has driven the decrease of our facilities expenses as a percentage of consolidated revenues from 15.1% for the three months ended March 31, 2002 to 14.9% for the three months ended March 31, 2003. The largest component of our facilities cost is rent expense, which decreased $1.9 million for the three months ended March 31, 2003. We reduced the number of leased facilities we occupy by 45 as of March 31, 2003 compared to March 31, 2002 primarily through the consolidation of 31 properties owned by our Variable Interest Entities as of March 31, 2002, which were consolidated on our balance sheet as of December 31, 2002, and the consolidation of our property portfolio as we exited less desirable facilities

27

and consolidated our remaining properties subsequent to the Pierce Leahy merger. We recorded $2.6 million of rent expense for these 31 properties during the three months ended March 31, 2002 and no rent expense in 2003. We have recorded interest expense and depreciation expense associated with these properties for the three months ended March 31, 2003. The overall decrease in rent is offset by increased rent in our European operations of $1.2 million primarily attributable to a new facility and properties acquired through an acquisition.

        The dollar increase in facilities expenses is attributable to property taxes, utilities, property insurance, and snow removal expenses which increased $3.1 million, $1.7 million, $0.5 million, and $0.4 million, respectively, for the three months ended March 31, 2003 compared to the three months ended March 31, 2002.

Transportation

        Our transportation expenses are influenced by several variables including total number of vehicles, owned versus leased vehicles, use of subcontracted couriers, fuel expenses, and maintenance. The results of our ongoing transportation efficiency projects and the completion of our conversions to theSafeKeeper Plus® system have been significant in reducing transportation expenses, including fuel and outside courier fees, as a percentage of consolidated revenues. Operating lease expense increased $0.2 million for the three months ended March 31, 2003 as compared to the three months ended March 31, 2002. For the three months ending March 31, 2003, fuel expense increased $0.5 million, as the average price per gallon of fuel was approximately one third higher in 2003. We benefited from no increase in subcontracted courier fees, which we believe is the result of better management of internal transportation resources. We also experienced a $0.5 million increase in transportation expenses in our European operations, which is primarily attributable to the growth of operations and acquisitions.

Product Cost of Sales and Other Cost of Sales

        Product and other cost of sales are highly correlated to complementary revenue streams. Product cost of sales for the three months ended March 31, 2003 was consistent with the three months ended March 31, 2002 as a percentage of product revenues.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses are comprised of the following expenses:

										% of Consolidated Revenues
	Three Months Ended March 31,									Three Months Ended March 31,
					Dollar Change			Percent Change				Percent Change (Favorable)/ Unfavorable
	2002		2003							2002	2003
	(In Thousands)
General and Administrative	$	43,867	$	48,755	$	4,888		11.1%		13.8%	13.9%	0.1%
Sales, Marketing & Account Management		20,846		24,782		3,936		18.9%		6.6%	7.0%	0.4%
Information Technology		13,643		16,010		2,367		17.3%		4.3%	4.6%	0.3%
Bad Debt Expense		3,838		1,609		(2,229	)	(58.1%	)	1.2%	0.5%	(0.7%	)
	$	82,194	$	91,156	$	8,962		10.9%		25.9%	25.9%	0.0%

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General and Administrative

        The dollar increase in general and administrative expenses is primarily attributable to an increase in wages due to normal inflation and merit increases and an increase in medical expenses. We also experienced a $1.2 million increase in general and administrative expenses in our European operations, which is primarily attributable to the growth of operations and acquisitions. These increases were offset by decreases in professional fees, office facilities, and recruiting expenses.

Sales, Marketing & Account Management

        The majority of our sales, marketing and account management costs are labor related and are primarily driven by the headcount in each of these departments. Increased headcount and commissions are the most significant contributors to the increase in sales and marketing expenses for the three months ended March 31, 2003. Throughout 2002 and the first quarter of 2003, we continued to invest in the expansion and improvement of our sales force. We added more than 40 new sales and marketing employees since March 31, 2002, a 10% increase in headcount. We have also increased our account management force.

Information Technology

        Information technology expenses increased $2.4 million, or 17.3%, to $16.0 million (4.6% of consolidated revenues) for the three months ended March 31, 2003 principally due to increased compensation costs as a result of increased headcount and normal inflation and merit increases of $1.6 million. Additionally, as our digital initiatives mature, more of our efforts are maintenance related and capitalizable expenditures are decreasing, which resulted in an increase in information technology costs of $1.0 million. These increased costs were offset by a reduction of $0.3 million of information technology equipment lease expenses and savings of $0.2 million realized through improved management of information technology telecommunication expenses.

Bad Debt Expense

        Consolidated bad debt expense decreased $2.2 million, or 58.1%, to $1.6 million (0.5% of consolidated revenues) for the three months ended March 31, 2003. Our projects to centralize collection efforts within our divisions have contributed significantly to decreasing bad debt expense from $3.8 million (1.2% of consolidated revenues) for the three months ended March 31, 2002.

Depreciation, Amortization, Merger-Related Expenses and Gain on Disposal/Writedown of Property, Plant and Equipment, Net

        Consolidated depreciation and amortization expense increased $4.8 million, or 19.1%, to $29.9 million (8.5% of consolidated revenues) for the three months ended March 31, 2003 from $25.2 million (7.9% of consolidated revenues) for the three months ended March 31, 2002. Depreciation expense increased $4.0 million, primarily due to the additional depreciation expense related to capital expenditures, including storage systems, which include racking, building improvements and leasehold improvements, computer systems hardware and software, and new buildings, and depreciation associated with facilities accounted for as capital leases. Depreciation associated with our digital initiatives increased $1.4 million during the three months ended March 31, 2003 as a result of software and hardware assets placed in service throughout 2002. The consolidation of 40 properties owned by our Variable Interest Entities during 2002 resulted in $0.9 million of additional depreciation in the three months ended March 31, 2003.

29

        Merger-related expenses are certain expenses directly related to our merger with Pierce Leahy that cannot be capitalized and included system conversion costs, costs of exiting certain facilities, severance, relocation and pay-to-stay payments and other transaction-related costs. Merger-related expenses were $0.3 million (0.1% of consolidated revenues) for the three months ended March 31, 2002. All merger related activities associated with the Pierce Leahy merger were completed in 2002.

        Consolidated gains on disposal/writedown of property, plant and equipment, net increased $1.6 million to $1.7 million for the three months ended March 31, 2003 from $0.1 million for the three months ended March 31, 2002. The increase was primarily due to the sale of a property in Texas that resulted in a gain of $2.5 million offset by disposals and asset writedowns of $0.8 million.

Interest Expense, Net

        Consolidated interest expense, net increased $2.7 million, or 8.2%, to $35.6 million for the three months ended March 31, 2003 from $32.9 million for the three months ended March 31, 2002. This increase was primarily attributable to $3.4 million of interest expense associated with real estate term loans held by our Variable Interest Entities that were consolidated during 2002. These increases were offset by a decline in our overall weighted average interest rate resulting from a general decline in interest rates coupled with our refinancing efforts.

Other (Income) Expense, Net

        Consolidated other income, net was $3.3 million for the three months ended March 31, 2003 compared to other expense, net of $1.3 million for the three months ended March 31, 2002. Significant items included in other (income) expense, net include the following:

	Three Months Ended March 31,
	2002		2003			Change
	(In Thousands)
Foreign currency transaction losses and (gains)	$	41	$	(5,084	)	$	(5,125	)
Debt extinguishment expense		1,222		1,824			602
Other, net		49		—			(49	)
	$	1,312	$	(3,260	)	$	(4,572	)

        Foreign currency gains of $5.1 million based on period-end exchange rates were recorded in the three months ended March 31, 2003 primarily due to the strengthening of the Canadian dollar against the U.S. dollar as this currency relates to our intercompany balances with our Canadian subsidiaries, U.S. dollar denominated debt held by our Canadian subsidiary and Canadian dollar borrowings under our revolving credit facility.

        During the three months ended March 31, 2003, we redeemed the remaining outstanding principal amount of our 9¹/8% Senior Subordinated Notes due 2007 (the "9¹/8% notes") resulting in a charge of $1.8 million. The charge consisted primarily of the call and tender premiums associated with the extinguished debt. During the three months ended March 31, 2002, we recorded a charge of $1.2 million related to the early retirement of debt in conjunction with the refinancing of our credit facility. The charge consisted primarily of the write-off of unamortized deferred financing costs. Effective January 1, 2003, we have reflected these charges to other (income) expense, net in accordance with recent changes in accounting pronouncements.

30

IRON MOUNTAIN INCORPORATED

Provision for Income Taxes

        The provision for income taxes was $17.3 million for the three months ended March 31, 2003 compared to $9.5 million for the three months ended March 31, 2002. The effective rate was 43.4% for the three months ended March 31, 2003 and the primary reconciling item between the statutory rate of 35% and the effective rate is state income taxes (net of federal benefit). A Massachusetts tax increase, retroactive to January 1, 2002, increased the provision for income taxes for the first three months of 2003 by 2.2%. The effective rate projected for 2003 is 41.9%. The effective rate was 41.4% for the three months ended March 31, 2002. There may be future volatility with respect to our effective rate related to items including unusual unforecasted permanent items, significant changes in tax rates in foreign jurisdictions and the need for additional valuation allowances. Also, as a result of our net operating loss carryforwards, we do not expect to pay any significant federal and state income taxes during 2003.

Minority Interest and Cumulative Effect of Change in Accounting Principle

        Minority interest in earnings of subsidiaries resulted in a charge to income of $1.3 million (0.4% of consolidated revenues) for the three months ended March 31, 2003 compared to $1.0 million for the three months ended March 31, 2002. This represents our minority partners' share of earnings in our majority-owned international subsidiaries that are consolidated in our operating results. The improved results are primarily a result of increased profitability in our European business.

        In the first quarter of 2002, we recorded a non-cash charge for the cumulative effect of change in accounting principle of $6.4 million (net of minority interest of $8.5 million) as a result of our implementation of Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets".

Net Income

        As a result of the foregoing factors, consolidated net income increased $15.2 million, or 247.7%, to $21.3 (6.0% of consolidated revenues) for the three months ended March 31, 2003 from net income of $6.1 million (1.9% of consolidated revenues) for the three months ended March 31, 2002.

EBITDA

        As a result of the foregoing factors, consolidated EBITDA increased $24.1 million, or 30.1%, to $104.1 million (29.6% of consolidated revenues) for the three months ended March 31, 2003 from $80.1 million (25.2% of consolidated revenues) for the three months ended March 31, 2002.

31

Segment Analysis

	Business Records Management			Off-Site Data Protection			International			Corporate & Other			Total Consolidated
	(In Thousands)
Segment Revenue
Three Months Ended
March 31, 2003	$	248,521		$	61,386		$	34,887		$	7,017		$	351,811
March 31, 2002		228,909			57,349			24,976			5,964			317,198
Increase in Revenues	$	19,612		$	4,037		$	9,911		$	1,053		$	34,613
Percentage Increase in Revenues		8.6	%		7.0	%		39.7	%		17.7	%		10.9	%
Contribution(1)
Three Months Ended
March 31, 2003	$	66,686		$	16,788		$	8,010		$	9,020		$	100,504
March 31, 2002		60,687			14,226			4,714			2,931			82,558
Contribution as a Percentage of Segment Revenue
Three Months Ended
March 31, 2003		26.8	%		27.3	%		23.0	%		128.5	%		28.6	%
March 31, 2002		26.5	%		24.8	%		18.9	%		49.1	%		26.0	%

(1)

See Note 9 to Notes to Consolidated Financial Statements for definition of Contribution and for the basis on which allocations are made.

        A reconciliation of Contribution to income from continuing operations before provision for income taxes and minority interest on a consolidated basis is as follows:

		Three Months Ended March 31,
		2002			2003
		(In Thousands)
Contribution		$	82,558		$	100,504
	Less: Depreciation and Amortization		25,156			29,949
	Merger-related Expenses		300			—
	Gain on Disposal/Writedown of Property, Plant and           Equipment, Net		(82	)		(1,672	)
	Interest Expense, Net.		32,880			35,565
	Other Expense (Income), Net		1,312			(3,260	)
Income from Continuing Operations before Provision for Income Taxes and Minority Interest		$	22,992		$	39,922

        Revenue in our business records management segment increased 8.6% primarily due to increased storage revenues, growth of our secure shredding operations and acquisitions. The increase in Contribution as a percent of segment revenue for our business records management segment is primarily due to lower rent and bad debt expense as well as increasing transportation efficiencies. This increase was partially offset by higher property taxes, utilities and our continuing investment in our sales and account management force.

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        Revenue in our off-site data protection segment increased 7.0% primarily due to internal revenue growth from both existing and new customers in the face of increasing pressure in the marketplace to reduce information technology related spending. Contribution as a percent of segment revenue for our off-site data protection segment increased primarily due to reduced bad debt expense, increased product sales margins and improved labor and transportation management. This increase was partially offset by increased investment in our sales and account management force.

        Revenue in our international segment increased 39.7% primarily due to increased sales efforts and a large service project in the United Kingdom, as well as, acquisitions completed in Europe and South America in the fourth quarter of 2002 and the first quarter of 2003. Contribution as a percent of segment revenue for our international segment increased primarily due to improved gross margins from both our European operations and our South American operations and overall increased overhead utilization. This increase was partially offset by increased rent associated with a new property and increased investment in our European sales and account management force. Unfavorable currency fluctuations in South America during the three months ended March 31, 2003 compared to the three months ended March 31, 2002 reduced revenues, as measured in U.S. dollars, by $1.3 million. This reduction was offset by the impact of favorable currency fluctuations during the three months ended March 31, 2003 in Europe that increased revenue $3.2 million when compared to the three months ended March 31, 2002.

Liquidity and Capital Resources

        The following is a summary of our cash balances and cash flows for the three months ended March 31, 2002 and 2003 (in millions).

	2002			2003
Cash flows provided by operating activities	$	51.3		$	36.5
Cash flows used in investing activities		(66.8	)		(64.1	)
Cash flows provided by (used in) financing activities		5.3			(15.4	)
Cash and cash equivalents at the end of period	$	11.4		$	13.6

        Net cash provided by operating activities was $36.5 million for the three months ended March 31, 2003 compared to $51.3 million for the three months ended March 31, 2002. The decrease resulted primarily from an increase in operating income offset by working capital variations primarily associated with reduced accounts receivable collections, increased disbursements to vendors and the timing of certain incentive compensation payments.

        We have made significant capital investments, including: (1) capital expenditures, primarily related to growth, including investments in storage systems and information systems and discretionary investments in real estate; (2) acquisitions; and (3) customer relationship and acquisition costs. Cash paid for these investments during the three months ended March 31, 2003 amounted to $49.6 million, $17.2 million (net of cash acquired) and $2.2 million, respectively. These investments have been funded primarily through cash flows from operations and borrowings under our revolving credit facilities. In addition, we received proceeds from sales of property and equipment of $6.2 million in the three months ended March 31, 2003. Excluding any potential acquisitions, we expect to invest between $190.0 million and $215.0 million on capital expenditures for the 2003 fiscal year.

        Net cash used by financing activities was $15.4 million for the three months ended March 31, 2003, consisting primarily of the early retirement of 9¹/8% notes totaling $24.2 million offset by a net increase in debt under our credit facilities and other debt of $4.8 million.

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        We are highly leveraged and expect to continue to be highly leveraged for the foreseeable future. Our consolidated debt as of March 31, 2003 was comprised of the following:

Revolving Credit Facility due 2005	$	90,742
Term Loan due 2008		249,500
81/8% Senior Notes due 2008 (the "Subsidiary notes")		125,143
83/4% Senior Subordinated Notes due 2009 (the "83/4% notes")		219,769
81/4% Senior Subordinated Notes due 2011 (the "81/4% notes")		149,636
85/8% Senior Subordinated Notes due 2013 (the "85/8% notes")		481,092
73/4% Senior Subordinated Notes due 2015 (the "73/4% notes")		129,973
Real Estate Term Loans		202,647
Real Estate Mortgages		16,031
Seller Notes		11,565
Other		47,621
Long-term Debt		1,723,719
Less Current Portion		(43,858	)
Long-term Debt, Net of Current Portion	$	1,679,861

        Our key bond leverage ratio of indebtedness to Adjusted EBITDA, as calculated per our bond indenture agreements, decreased to 4.7 as of March 31, 2003 from 4.8 as of December 31, 2002. Our target for this ratio is generally in the range of 4.5 to 5.5.

        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.

        As of March 31, 2003, we had $90.7 million of borrowings under our revolving credit facility, of which $10.0 million was denominated in U.S. dollars and the remaining balance was denominated in Canadian dollars in the amount of CDN 118.8 million. We also had various outstanding letters of credit totaling $35.1 million. The remaining availability under the revolving credit facility was $274.2 as of March 31, 2003, and the interest rates in effect ranged from 3.56% to 5.13% as of March 31, 2003.

        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 our indentures and other agreements governing our indebtedness. As of March 31, 2003, we were in compliance in all material respects with all debt covenants.

        In January 2003, we redeemed the remaining $23.2 million of outstanding principal amount of our 9¹/8% notes, at a redemption price (expressed as a percentage of principal amount) of 104.563%, plus accrued and unpaid interest, totaling $25.3 million with proceeds of our underwritten public offering of $100.0 million in aggregate principal of our 7³/4% notes. We recorded a charge to other (income) expense, net in the accompanying consolidated statement of operations of $1.8 million in the first quarter of 2003 related to the early retirement of the remaining 9¹/8% notes.

        In March 2003, we completed two debt exchanges which resulted in the issuance of $31.3 million in face value of our 7³/4% notes and the retirement of $30.0 million of our 8³/4% notes. These non-cash

34

debt exchanges resulted in carryover basis and, therefore, no gain (loss) on extinguishment of debt in accordance with EITF No. 96-19, "Debtor's Accounting for Modification or Exchange of Debt Instruments." These exchanges result in a lower interest rate and, therefore, lower interest expense in future periods, as well as, extend the maturity of our debt obligations. From time to time, we may enter into similar exchange transactions that we deem appropriate.

        In April 2003, we completed an underwritten public offering of $300 million aggregate principal amount of 7³/4% notes. The 7³/4% notes were issued at a price to investors of 104% of par, which implies an effective yield to worst of 7.066%. Our net proceeds of $307.3 million, after paying the underwriters' discounts and commissions and transaction fees, were used to fund our offer to purchase and consent solicitation relating to our outstanding 8³/4% notes, or to otherwise redeem the 8³/4% notes, and for general corporate purposes, including the repayment of borrowings under our revolving credit facility, the possible repayment of other indebtedness and possible future acquisitions.

        In April 2003, we received and accepted tenders for $143.3 million of the $220 million aggregate principal amount outstanding of our 8³/4% notes. In May 2003, we will redeem the remaining $76.7 million of outstanding principal amount of our 8³/4% notes, at a redemption price (expressed as a percentage of principal amount) of 104.375%, plus accrued and unpaid interest. We will record a charge to other (income) expense, net of approximately $13.9 million in the second quarter of 2003 related to the early retirement of these 8³/4% notes, which consists of redemption premiums and transaction costs, as well as original issue discount and unamortized deferred financing costs related to the 8³/4% notes.

        We expect to meet our cash flow requirements for the next twelve months from cash generated from operations, existing cash, cash equivalents and marketable securities, borrowings under our revolving credit facility and other financings, which may include secured credit facilities, securitizations and mortgage or capital lease financings.

Seasonality

        Historically, our businesses have not been subject to seasonality in any material respect.

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 and the negotiation of favorable long-term real estate leases, we can give no assurance that we will be able to offset any future inflationary cost increases through similar efficiencies, leases or increased storage or service charges.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

        In December 2000, January 2001 and May 2001, we and variable interest entities which we now consolidate entered into a total of four derivative financial contracts, which are variable-for-fixed swaps consisting of (a) two contracts for interest payments payable on our term loan of an aggregate principal amount of $195.5 million, (b) one contract for interest payments payable (previously certain variable operating lease commitments payable) on our real estate term loans of an aggregate principal amount of $47.5 million and (c) one contract for interest payments payable on our real estate term loans of an aggregate principal amount of $97.0 million. See Note 4 to Notes to Consolidated Financial Statements and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of

35

Operations—Critical Accounting Policies" in our Annual Report on Form 10-K for the year ended December 31, 2002.

        After consideration of the swap contracts mentioned above, as of March 31, 2003, we had $245.4 million of variable rate debt outstanding with a weighted average variable interest rate of 4.53%, and $1,478.3 million of fixed rate debt outstanding. 86% of our total debt outstanding is fixed. If the weighted average variable interest rate on our variable rate debt had increased by 1%, such increase would have had a negative impact on our net income for the three months ended March 31, 2003 by $0.3 million. See Note 7 to Notes to Consolidated Financial Statements for a discussion of our long-term indebtedness, including the fair values of such indebtedness as of March 31, 2003 included in this Form 10-Q.

Currency Risk

        Our investments in Iron Mountain Europe Limited, Iron Mountain South America, Ltd. and other international investments may be subject to risks and uncertainties related to fluctuations in currency valuation. Our reporting currency is the U.S. dollar. However, our international revenues are generated in the currencies of the countries in which we operate, primarily the Canadian dollar and British pound sterling. The currencies of many Latin American countries have experienced substantial volatility and depreciation in the past, including the Argentine peso. In addition, one of our Canadian subsidiaries, Iron Mountain Canada Corporation, has U.S. dollar denominated debt. Declines in the value of the local currencies in which we are paid relative to the U.S. dollar will cause revenues in the U.S. dollar terms to decrease and dollar-denominated liabilities to increase in local currency. We also have several intercompany obligations between our foreign subsidiaries and Iron Mountain and our U.S.-based subsidiaries. These intercompany obligations are primarily denominated in the local currency of the foreign subsidiary. Our currency exposures to intercompany borrowings are unhedged. At March 31, 2003, we did not have any outstanding foreign currency hedging contracts.

        The impact of devaluation or depreciating currency on an entity depends on the residual effect on the local economy and the ability of an entity to raise prices and/or reduce expenses. Due to our constantly changing currency exposure and the potential substantial volatility of currency exchange rates, we cannot predict the effect of exchange fluctuations on our business.

Item 4. Controls and Procedures

        (a)    Evaluation of Disclosure Controls and Procedures

        The term "disclosure controls and procedures" is defined in Rules 13a-14(c) and 15d-14(c) 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 required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. Within 90 days prior to the filing date of this Form 10-Q (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 the design and operation of our disclosure controls and procedures. Based upon that evaluation, the chief executive officer and chief financial officer have concluded that, as of the Evaluation Date, such disclosure controls and procedures were effective in ensuring that required information will be disclosed on a timely basis in our reports filed under the Exchange Act.

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IRON MOUNTAIN INCORPORATED

        (b)    Changes in Internal Controls

        We maintain a system of internal accounting controls that are designed to provide reasonable assurance that our transactions are properly recorded and reported and that our assets are safeguarded against unauthorized or improper use. As part of the evaluation of our disclosure controls and procedures, we evaluated our internal controls. There were no significant changes to our internal controls or other factors that could significantly affect the controls subsequent to the Evaluation Date, nor were any corrective actions taken with regard to any significant deficiencies or material weaknesses.

Part II. Other Information

Item 1. Legal Proceedings

        There have been no material developments during the first quarter of 2003 in the proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2002.

Item 6. Exhibits and Reports on Form 8-K

        (a)    Exhibits

Exhibit No.	Description
99.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

        (b)    Reports on Form 8-K

        On April 9, 2003, the Company filed a Current Report on Form 8-K under Items 5 and 7 to announce (1) the Company's proposed underwritten public offering of an additional $250 million in aggregate principal amount of 7³/4% Senior Subordinated Notes due 2015, (2) the Company's tender offer and consent solicitation relating to the 8³/4% Senior Subordinated Notes due 2009 and (3) the pricing of the underwritten public offering.

        On April 10, 2003, the Company filed a Current Report on Form 8-K under Item 7 to attach the Underwriting Agreement dated April 9, 2003 between the Company and certain underwriters as an exhibit.

        On April 30, 2003, the Company filed a Current Report on Form 8-K under Items 7 and 9 to announce its first quarter 2003 financial results.

        On May 7, 2003, the Company filed a Current Report on Form 8-K under Items 5 and 7 to announce the expiration of the tender offer and consent solicitation relating to the 8³/4% Senior Subordinated Notes due 2009.

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IRON MOUNTAIN INCORPORATED

        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
May 15, 2003(date)	By:	/s/  JEAN A. BUA      Jean A. Bua Vice President and Corporate Controller (Principal Accounting Officer)

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IRON MOUNTAIN INCORPORATED

SECTION 302 CERTIFICATIONS

        I, C. Richard Reese, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Iron Mountain Incorporated;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003
	/s/ C. Richard ReeseC. Richard Reese Chief Executive Officer

39

IRON MOUNTAIN INCORPORATED

SECTION 302 CERTIFICATIONS

        I, John F. Kenny, Jr., certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Iron Mountain Incorporated;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003
	/s/ John F. Kenny, Jr.John F. Kenny, Jr. Chief Financial Officer

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