Iron Mountain 10Q 2003 Q3 Quarterly report

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IRON MOUNTAIN INCORPORATED Index

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 September 30, 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)		23-2588479 (I.R.S. Employer Identification No.)
745 Atlantic Avenue, Boston, MA 02111 (Address of Principal Executive Offices, Including Zip Code)
(617) 535-4766 (Registrant's Telephone Number, Including Area Code)

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

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

Number of shares of the registrant's Common Stock at November 3, 2003: 85,362,615

IRON MOUNTAIN INCORPORATED

Index

		Page
PART I—FINANCIAL INFORMATION
Item 1 —	Unaudited Consolidated Financial Statements
	Consolidated Balance Sheets at December 31, 2002 and September 30, 2003 (Unaudited)	3
	Consolidated Statements of Operations for the Three Months Ended September 30, 2002 and 2003 (Unaudited)	4
	Consolidated Statements of Operations for the Nine Months Ended September 30, 2002 and 2003 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2003 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7-29
Item 2 —	Management's Discussion and Analysis of Financial Condition and Results of Operations	30-52
Item 3 —	Quantitative and Qualitative Disclosures About Market Risk	53-54
Item 4 —	Controls and Procedures	54
PART II—OTHER INFORMATION
Item 1 —	Legal Proceedings	54-55
Item 6 —	Exhibits and Reports on Form 8-K	56
	Signature	57

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			September 30, 2003
ASSETS
Current Assets:
	Cash and cash equivalents		$	56,292		$	23,544
	Accounts receivable (less allowances of $20,274 and $22,657, respectively)			225,416			276,391
	Deferred income taxes			34,192			35,200
	Prepaid expenses and other			51,140			60,983

		Total Current Assets		367,040			396,118
Property, Plant and Equipment:
	Property, plant and equipment			1,577,588			1,897,790
	Less—Accumulated depreciation			(338,400	)		(424,314	)

		Net Property, Plant and Equipment		1,239,188			1,473,476
Other Assets, net:
	Goodwill			1,544,974			1,726,402
	Customer relationships and acquisition costs			48,213			102,026
	Deferred financing costs			19,358			21,145
	Other			11,882			20,374

		Total Other Assets, net		1,624,427			1,869,947

		Total Assets	$	3,230,655		$	3,739,541

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
	Current portion of long-term debt		$	69,732		$	60,812
	Accounts payable			76,115			77,958
	Accrued expenses			168,025			195,087
	Deferred revenue			95,188			101,989
	Other current liabilities			18,902			37,280

		Total Current Liabilities		427,962			473,126
Long-term Debt, net of current portion				1,662,365			2,002,160
Other Long-term Liabilities				35,433			30,501
Deferred Rent				19,438			20,274
Deferred Income Taxes				78,464			118,944
Commitments and Contingencies (Note 10)
Minority Interests				62,132			72,186
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 85,338,864 shares, respectively)			850			853
	Additional paid-in capital			1,020,522			1,031,075
	Deferred compensation			(70	)		(3,578	)
	(Accumulated deficit) Retained earnings			(45,403	)		10,808
	Accumulated other comprehensive items, net			(31,038	)		(16,808	)

		Total Shareholders' Equity		944,861			1,022,350

		Total Liabilities and Shareholders' Equity	$	3,230,655		$	3,739,541

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

IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, except Per Share Data)

(Unaudited)

			Three Months Ended September 30,
			2002		2003
Revenues:
	Storage		$	191,377	$	222,973
	Service and storage material sales			141,736		158,785

		Total Revenues		333,113		381,758
Operating Expenses:
	Cost of sales (excluding depreciation)			153,858		171,355
	Selling, general and administrative			83,986		98,087
	Depreciation and amortization			28,950		33,197
	Merger-related expenses			190		—
	Loss on disposal/writedown of property, plant and equipment, net			139		1,870

		Total Operating Expenses		267,123		304,509
Operating Income				65,990		77,249
Interest Expense, Net				36,017		38,790
Other Expense, Net				2,648		10,343

		Income from Continuing Operations Before Provision for Income Taxes and Minority Interest		27,325		28,116
Provision for Income Taxes				11,241		12,012
Minority Interest in Earnings of Subsidiaries, Net				387		1,310

		Net Income	$	15,697	$	14,794

Net Income per Share:
		Net Income per Share—Basic	$	0.19	$	0.17

		Net Income per Share—Diluted	$	0.18	$	0.17

Weighted Average Common Shares Outstanding—Basic				84,769		85,303

Weighted Average Common Shares Outstanding—Diluted				85,997		86,726

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

IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, except Per Share Data)

(Unaudited)

			Nine Months Ended September 30,
			2002			2003
Revenues:
	Storage		$	561,797		$	634,773
	Service and storage material sales			416,234			458,066

		Total Revenues		978,031			1,092,839
Operating Expenses:
	Cost of sales (excluding depreciation)			461,711			493,538
	Selling, general and administrative			251,492			285,377
	Depreciation and amortization			80,459			93,911
	Merger-related expenses			770			—
	(Gain) Loss on disposal/writedown of property, plant and equipment, net			(1,921	)		1,886

		Total Operating Expenses		792,511			874,712
Operating Income				185,520			218,127
Interest Expense, Net				101,685			110,752
Other (Income) Expense, Net				(2,308	)		2,361

		Income from Continuing Operations Before Provision for Income Taxes and Minority Interest		86,143			105,014
Provision for Income Taxes				35,497			44,635
Minority Interest in Earnings of Subsidiaries, Net				2,442			4,168

		Income from Continuing Operations before Cumulative Effect of Change in Accounting Principle		48,204			56,211
Cumulative Effect of Change in Accounting Principle (net of minority interest)				(6,396	)		—

		Net Income	$	41,808		$	56,211

Net Income per Share—Basic:
	Income from Continuing Operations before Cumulative Effect of Change in Accounting Principle		$	0.57		$	0.66
	Cumulative Effect of Change in Accounting Principle			(0.08	)		—

		Net Income per Share—Basic	$	0.49		$	0.66

Net Income per Share—Diluted:
	Income from Continuing Operations before Cumulative Effect of Change in Accounting Principle		$	0.56		$	0.65
	Cumulative Effect of Change in Accounting Principle			(0.07	)		—

		Net Income per Share—Diluted	$	0.49		$	0.65

Weighted Average Common Shares Outstanding—Basic				84,558			85,211

Weighted Average Common Shares Outstanding—Diluted				86,026			86,690

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

IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

		Nine Months Ended September 30,
		2002			2003
Cash Flows from Operating Activities:
	Net income	$	41,808		$	56,211
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			48,204			56,211
Adjustments to reconcile income from continuing operations before cumulative effect of change in accounting principle to cash flows provided by operating activities:
	Minority interests, net		2,442			4,168
	Depreciation		76,835			88,921
	Amortization (includes deferred financing costs and bond discount of $3,691 and $2,939, respectively)		7,315			7,929
	Provision for deferred income taxes		33,111			40,738
	Loss on early extinguishment of debt		1,222			21,175
	(Gain) Loss on disposal/writedown of property, plant and equipment, net		(1,921	)		1,886
	Gain on foreign currency and other, net		(3,513	)		(18,024	)
Changes in Assets and Liabilities (exclusive of acquisitions):
	Accounts receivable		(8,230	)		(14,880	)
	Prepaid expenses and other current assets		8,898			5,098
	Accounts payable		(3,845	)		(6,516	)
	Accrued expenses, deferred revenue and other current liabilities		10,707			(2,014	)
	Other assets and long-term liabilities		1,223			(1,073	)

	Cash Flows Provided by Operating Activities		172,448			183,619
Cash Flows from Investing Activities:
	Capital expenditures		(142,018	)		(148,039	)
	Cash paid for acquisitions, net of cash acquired		(22,969	)		(378,803	)
	Additions to customer relationship and acquisition costs		(6,841	)		(8,638	)
	Investment in convertible preferred stock		—			(1,357	)
	Proceeds from sales of property and equipment		6,331			6,621

	Cash Flows Used in Investing Activities		(165,497	)		(530,216	)
Cash Flows from Financing Activities:
	Repayment of debt and term loans		(428,954	)		(485,408	)
	Proceeds from borrowings and term loans		426,528			626,029
	Early retirement of senior subordinated notes		—			(306,439	)
	Net proceeds from sales of senior subordinated notes		—			455,590
	Debt financing (repayment to) and equity contribution from (distribution to) minority shareholders, net		(2,859	)		20,099
	Other, net		4,487			3,165

	Cash Flows (Used in) Provided by Financing Activities		(798	)		313,036
Effect of Exchange Rates on Cash and Cash Equivalents			85			813

Increase (Decrease) in Cash and Cash Equivalents			6,238			(32,748	)
Cash and Cash Equivalents, Beginning of Period			21,359			56,292

Cash and Cash Equivalents, End of Period		$	27,597		$	23,544

Supplemental Information (Note 2)

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

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 auditors. 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/A 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

We apply the provisions of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." 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.

Upon adoption of SFAS No. 142, as of January 1, 2002, we recorded a charge of $6,396 (net of minority interest of $8,487), that was 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 related 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 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 September 30, 2003, no factors were identified that would alter this assessment and we are in the process of completing our annual 2003 assessment, utilizing data as of October 1, 2003.

The changes in the carrying value of goodwill attributable to each reportable operating segment for the period ended September 30, 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		47,327			6,391			106,979			—		160,697
Adjustments to purchase reserves		(309	)		(52	)		66			—		(295	)
Fair value adjustments		(168	)		(150	)		(4,458	)		—		(4,776	)
Other adjustments and currency effects		18,874			8			6,920			—		25,802

Balance as of September 30, 2003	$	1,217,484		$	243,375		$	264,172		$	1,371	$	1,726,402

The components of our amortizable intangible assets at September 30, 2003 are as follows:

	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer Relationships and Acquisition Costs	$	114,918	$	12,892	$	102,026
Non-Compete Agreements		20,943		18,832		2,111
Deferred Financing Costs		26,177		5,032		21,145

Total	$	162,038	$	36,756	$	125,282

b.: Stock Based Compensation

As of January 1, 2003, we adopted the measurement provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." As a result we began using the fair value method of accounting in our financial statements beginning January 1, 2003 using the prospective 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. We will apply the fair value recognition provisions to all stock based awards granted, modified or settled on 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 September 30,						Nine Months Ended September 30,
		2002			2003			2002			2003
Net income, as reported		$	15,697		$	14,794		$	41,808		$	56,211
Add: Stock-based employee compensation expense included in reported net income, net of tax benefit			—			380			—			502
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax benefit			(675	)		(881	)		(2,184	)		(2,061	)

Net income, pro forma		$	15,022		$	14,293		$	39,624		$	54,652

Earnings per share:
	Basic—as reported		0.19			0.17			0.49			0.66
	Basic—pro forma		0.18			0.17			0.47			0.64
	Diluted—as reported		0.18			0.17			0.49			0.65
	Diluted—pro forma		0.18			0.17			0.46			0.63

The weighted average fair value of options granted for the nine months ended September 30, 2002 and 2003 was $9.31 and $10.97 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:

Weighted Average Assumptions	Nine Months Ended September 30, 2002	Nine Months Ended September 30, 2003
Expected volatility	25.0%	27.3%
Risk-free interest rate	4.28	2.85
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 calculation of diluted net income per share totaled 1,228,121 shares and 1,467,641 shares for the three and nine months ended September 30, 2002 and 1,423,341 shares and 1,478,821 shares for the three and nine months ended September 30, 2003, respectively.

For the three months ended September 30, 2002 and 2003, 491,899 and 307,176, respectively, potential common shares have been excluded from the calculation of diluted net income per share, as their effects are antidilutive.

d.: Supplemental Cash Flow Information

For the nine months ended September 30, 2002 and 2003, cash payments for interest were $96,763 and $95,043, respectively, and cash payments for income taxes were $1,810 and $3,967, respectively.

e.: New Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board ("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 $0 and $1,222 for the three and nine months ended September 30, 2002 and $5,510 and $21,175 for the three and nine months ended September 30, 2003, respectively, are included in other income, 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 September 30,					Nine Months Ended September 30,
			2002			2003		2002			2003
Comprehensive Income (Loss):
	Net Income		$	15,697		$	14,794	$	41,808		$	56,211
	Other Comprehensive Income (Loss):
		Foreign Currency Translation Adjustments		3,490			656		3,315			11,093
		Unrealized (Loss) Gain on Hedging Contracts, Net of Tax		(4,645	)		3,377		(7,782	)		2,987
		Unrealized Gain on Securities, Net of Tax		—			46		—			150

Comprehensive Income			$	14,542		$	18,873	$	37,341		$	70,441

(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 consolidation of our Variable Interest Entities, (1) rent expense decreased $214 and interest expense and depreciation increased $3,377 and $945, respectively, in our consolidated statement of operations for the three months ended September 30, 2003 as compared to the three months ended September 30, 2002, and (2) rent expense decreased $5,261 and interest expense and depreciation increased $10,291 and $2,835, respectively, in our consolidated statement of operations for the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002.

(5) Derivative Instruments and Hedging Activities

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," 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 $16,038 ($8,444 recorded in accrued expenses and $7,594 recorded in other long-term liabilities), $5,851 and $10,187, respectively, as of September 30, 2003. For the three and nine months ended September 30, 2002, we recorded additional interest expense of $1,881 and $5,560, respectively, resulting from interest rate swap settlements. For the three and nine months ended September 30, 2003, we recorded additional interest expense of $2,198 and $6,471, respectively, 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 $1,803 ($1,406 recorded in accrued expenses and $397 recorded in other long-term liabilities), $658 and $1,145, respectively, as of September 30, 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 and nine months ended September 30, 2002, we recorded additional rent expense of $452 and $1,330, respectively, resulting from the settlements associated with this interest rate swap agreement. For the three and nine months ended September 30, 2003, we recorded additional interest expense of $539 and $1,541, 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 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 $12,820 ($4,768 recorded in accrued expenses and $8,052 recorded in other long-term liabilities), $4,677 and $8,143, respectively, as of September 30, 2003. For the three and nine months ended September 30, 2003, we recorded additional interest expense of $1,231 and $3,576, respectively, 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.

We provided the initial financing totaling 190,459 British pounds sterling to Iron Mountain Europe Limited ("IME"), our European joint venture, for all of the consideration associated with the acquisition of the European operations of the information management services business of Hays plc ("Hays IMS") using cash on hand and borrowings under our revolving credit facility. IME is currently seeking permanent financing to repay all or a portion of the funding provided by us. We recorded a foreign currency gain of $6,892 in other (income) expense, net for this intercompany balance as of September 30, 2003. In order to minimize the foreign currency risk associated with providing IME with the consideration necessary for the acquisition of Hay IMS, we borrowed 80,000 British pounds sterling under our revolving credit facility to create a natural hedge. We recorded a foreign currency loss of $2,584 on the translation of this revolving credit balance to U.S. dollars in other (income) expense, net for the three months ended September 30, 2003. Additionally, on July 16, 2003 we entered into two cross currency swaps with a combined notional value of 100,000 British pounds sterling. These swaps each have a term of one year and at maturity we have a right to receive $162,800 in exchange for 100,000 British pounds sterling. We have not designated these swaps as hedges and, therefore, all mark to market fluctuations of the swaps are recorded in other (income) expense, net in our consolidated statements of operations. We have recorded, in the accompanying consolidated balance sheets, the fair value of the derivative liability and the associated swap cost of $6,180 in accrued expenses as of September 30, 2003 and for the three and nine months ended September 30, 2003, we recorded $6,180 in other (income) expense, net in the accompanying consolidated statements of operations.

(6) Acquisitions

During the nine months ended September 30, 2003, we purchased substantially all of the assets, and assumed certain liabilities, of seven businesses.

In July 2003, we and IME completed the acquisition of Hays IMS in two simultaneous transactions. IME acquired the European operations of Hays IMS for aggregate cash consideration (including transaction costs) of approximately 191,000 pounds sterling ($311,000), while we acquired the U.S. operations of Hays IMS for aggregate cash consideration (including transaction costs) of approximately 14,500 pounds sterling ($24,000). These aggregate cash considerations included an amount of $5,070 associated with the final post-closing purchase price adjustment, which was paid to IME by Hays plc in October 2003 after our third quarter ended. Both transactions were on a cash and debt free basis.

A summary of the consideration paid and the allocation of the purchase price of all 2003 acquisitions is as follows:

Cash Paid (net of cash acquired)(1)		$	378,803
Fair Value of Identifiable Net Assets Acquired:
	Fair Value of Identifiable Assets Acquired(2)		256,828
	Liabilities Assumed(3)		(38,722	)

Total Fair Value of Identifiable Net Assets Acquired			218,106

Recorded Goodwill		$	160,697

(1): Includes $5,070 associated with the final post-closing purchase price adjustment, which was paid to IME by Hays plc in October 2003 after our third quarter ended.
(2): Primarily represents accounts receivable, prepaid expenses and other, land, buildings, racking, leasehold improvements, and customer relationship assets.
(3): Primarily represents accounts payable, accrued expenses and deferred revenue.

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.

Allocation of the purchase price for the 2003 acquisitions was based on estimates of the fair value of net assets acquired, and is subject to adjustment. The purchase price allocations of certain 2003 transactions are subject to finalization of the assessment of the fair value of property, plant and equipment, intangible assets (primarily customer relationship assets), operating leases, restructuring purchase reserves and deferred income taxes. We are not aware of any information that would indicate that the final purchase price allocations will differ meaningfully from preliminary estimates.

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 September 30, 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			Nine Months Ended September 30, 2003
Reserves, Beginning Balance	$	16,225		$	9,906
Reserves Established		4,963			1,033
Expenditures		(6,745	)		(3,696	)
Adjustments to Goodwill, including currency effect(1)		(4,537	)		(355	)

Reserves, Ending Balance	$	9,906		$	6,888

(1): Includes adjustments to goodwill as a result of management finalizing its restructuring plans.

At September 30, 2003, the restructuring reserves related to acquisitions consisted of lease losses on abandoned facilities of $4,390, severance costs for two people of $521 and other exit costs of $1,977. These accruals are expected to be used prior to September 30, 2004 except for lease losses of $2,432 and severance contracts of $344, 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					September 30, 2003
	Carrying Amount			Fair Value		Carrying Amount			Fair Value
Revolving Credit Facility due 2005(1)	$	75,360		$	75,360	$	229,253		$	229,253
Term Loan due 2008(1)		249,750			249,750		249,000			249,000
9¹/8% Senior Subordinated Notes due 2007(2)(3)		22,409			24,241		—			—
8¹/8% Senior Notes due 2008 (the "Subsidiary notes")(3)		124,666			138,038		79,392			88,188
8³/4% Senior Subordinated Notes due 2009(2)(3)		249,727			257,825		—			—
8¹/4% Senior Subordinated Notes due 2011(2)(3)		149,625			154,500		149,659			156,000
8⁵/8% Senior Subordinated Notes due 2013(2)(3)		481,097			502,513		481,081			509,726
7³/4% Senior Subordinated Notes due 2015(2)(3)		100,000			100,000		441,559			448,505
6⁵/8% Senior Subordinated Notes due 2016(2)(3)		—			—		150,000			144,000
Real Estate Term Loans(1)		202,647			202,647		202,647			202,647
Real Estate Mortgages(1)		16,262			16,262		15,694			15,694
Seller Notes(1)		12,864			12,864		12,208			12,208
Other(1)		47,690			47,690		52,479			52,479

Total Debt		1,732,097					2,062,972
Less Current Portion		(69,732	)				(60,812	)

Long-term Debt, Net of Current Portion	$	1,662,365				$	2,002,160

(1): 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 September 30, 2003) or it is impracticable to estimate the fair value due to the nature of such long-term debt.
(2): These debt instruments are collectively referred to as the "Parent notes."
(3): 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 September 30, 2003.

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, 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 September 30, 2003, we had $229,253 of borrowings under our revolving credit facility, of which $44,000 was denominated in U.S. dollars and the remaining balance was denominated in British pounds sterling and Canadian dollars in the amount of GBP 80,000 and CDN 70,200, respectively. We also had various outstanding letters of credit totaling $34,098. The remaining availability under the

revolving credit facility was $136,649 as of September 30, 2003, and the interest rates in effect ranged from 2.9% to 5.4% as of September 30, 2003.

Our Variable Interest Entities were financed with real estate term loans (see Note 4). As of September 30, 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 the terms of 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, with proceeds from 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 $1,804 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.

In April 2003, we completed an underwritten public offering of an additional $300,000 in aggregate principal amount of our 7³/4% notes, which were issued at a price to investors of 104% of par, implying an effective yield to worst of 7.066%. Our net proceeds of $307,340, after paying the underwriters' discounts, commissions and transaction fees, were used to fund our offer to purchase and consent solicitation relating to our outstanding 8³/4% notes, to otherwise redeem the 8³/4% notes, repay borrowings under our revolving credit facility, and repay other indebtedness and 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 redeemed 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 recorded a charge to other (income) expense, net of $13,841 in the second quarter of 2003 related to the early retirement of the 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.

In June 2003, we completed an underwritten public offering of $150,000 in aggregate principal amount of our 6⁵/8% Senior Subordinated Notes due 2016 (the "6⁵/8% notes"). The 6⁵/8% notes were

issued at a price to investors of 100% of par. Our net proceeds of $147,500, after paying the underwriters' discounts, commissions and transaction fees, were used to redeem $50,000 in aggregate principal amount of the outstanding Subsidiary notes in the third quarter of 2003 and the remainder was used for acquisitions.

In July 2003, we redeemed $50,000 of outstanding principal amount of the Subsidiary notes, at a redemption price (expressed as a percentage of principal amount) of 104.063%, plus accrued and unpaid interest. We recorded a charge to other (income) expense, net of $5,530 in the third quarter of 2003 related to the early retirement of these Subsidiary notes, which consists of redemption premiums and transaction costs, as well as original issue discount related to these Subsidiary notes.

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 September 30, 2003, we were in compliance in all material respects with all material debt covenants and agreements.

(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 September 30, 2003 and December 31, 2002 and for the three and nine month periods ended September 30, 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."

			September 30, 2003
			Parent		Guarantors		Canada Company			Non- Guarantors		Eliminations			Consolidated
Assets
Current Assets:
	Cash and Cash Equivalents		$	—	$	7,709	$	916		$	14,919	$	—		$	23,544
	Accounts Receivable			—		200,796		16,437			59,158		—			276,391
	Intercompany Receivable			852,934		—		—			13,581		(866,515	)		—
	Other Current Assets			3,593		64,911		1,743			26,148		(212	)		96,183

		Total Current Assets		856,527		273,416		19,096			113,806		(866,727	)		396,118
Property, Plant and Equipment, Net				—		965,038		92,368			416,070		—			1,473,476
Other Assets, Net:
	Long-term Intercompany Receivable			305,671		—		—			98,715		(404,386	)		—
	Long-term Notes Receivable from Affiliates			1,155,754		—		—			—		(1,155,754	)		—
	Investment in Subsidiaries			393,444		83,880		—			—		(477,324	)		—
	Goodwill, Net			—		1,326,875		132,950			256,836		9,741			1,726,402
	Other			21,208		66,770		5,954			53,009		(3,396	)		143,545

		Total Other Assets, Net		1,876,077		1,477,525		138,904			408,560		(2,031,119	)		1,869,947

		Total Assets	$	2,732,604	$	2,715,979	$	250,368		$	938,436	$	(2,897,846	)	$	3,739,541

Liabilities and Shareholders' Equity
	Intercompany Payable		$	—	$	380,127	$	100,952		$	385,436	$	(866,515	)	$	—
	Total Current Liabilities			52,385		235,235		19,098			166,620		(212	)		473,126
	Long-term Debt, Net of Current Portion			1,649,053		911		132,903			219,293		—			2,002,160
	Long-term Intercompany Payable			—		404,386		—			—		(404,386	)		—
	Long-term Notes Payable to Affiliates			—		1,155,754		—			—		(1,155,754	)		—
	Other Long-term Liabilities			8,816		141,055		5,345			17,899		(3,396	)		169,719
	Commitments and Contingencies
	Minority Interests			—		—		—			4,667		67,519			72,186
	Shareholders' Equity (Deficit)			1,022,350		398,511		(7,930	)		144,521		(535,102	)		1,022,350

		Total Liabilities and Shareholders' Equity	$	2,732,604	$	2,715,979	$	250,368		$	938,436	$	(2,897,846	)	$	3,739,541

			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

			Three Months Ended September 30, 2003
			Parent			Guarantors			Canada Company			Non- Guarantors			Eliminations			Consolidated
Revenues:
	Storage		$	—		$	181,568		$	11,823		$	29,582		$	—		$	222,973
	Service and Storage Material Sales			—			127,449			10,395			20,941			—			158,785

		Total Revenues		—			309,017			22,218			50,523			—			381,758
Operating Expenses:
	Cost of Sales (Excluding Depreciation)			—			137,406			10,682			23,267			—			171,355
	Selling, General and Administrative			(33	)		80,236			3,914			13,970			—			98,087
	Depreciation and Amortization			4			26,814			1,314			5,065			—			33,197
	Loss on Disposal/Writedown of Property, Plant and Equipment, Net			—			1,822			48			—			—			1,870

		Total Operating Expenses		(29	)		246,278			15,958			42,302			—			304,509

Operating Income				29			62,739			6,260			8,221			—			77,249
Interest Expense, Net				5,176			25,890			3,299			4,425			—			38,790
Equity in the Earnings of Subsidiaries				(28,612	)		(677	)		—			—			29,289			—
Other Expense (Income), Net				8,671			(6,033	)		7,766			(61	)		—			10,343

	Income (Loss) before Provision (Benefit) for Income Taxes and Minority Interest			14,794			43,559			(4,805	)		3,857			(29,289	)		28,116
Provision (Benefit) for Income Taxes				—			12,268			(2,022	)		1,766			—			12,012
Minority Interest in Earnings of Subsidiaries, Net				—			—			—			1,310			—			1,310

		Net Income (Loss)	$	14,794		$	31,291		$	(2,783	)	$	781		$	(29,289	)	$	14,794

			Three Months Ended September 30, 2002
			Parent			Guarantors			Canada Company			Non- Guarantors		Eliminations			Consolidated
Revenues:
	Storage		$	—		$	166,287		$	9,077		$	16,013	$	—		$	191,377
	Service and Storage Material Sales			—			121,134			8,848			11,754		—			141,736

		Total Revenues		—			287,421			17,925			27,767		—			333,113
Operating Expenses:
	Cost of Sales (Excluding Depreciation)			—			130,453			9,092			14,313		—			153,858
	Selling, General and Administrative			2			73,352			3,525			7,107		—			83,986
	Depreciation and Amortization			—			25,594			1,430			1,926		—			28,950
	Merger-related Expenses			—			190			—			—		—			190
	Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net			—			141			(5	)		3		—			139

		Total Operating Expenses		2			229,730			14,042			23,349		—			267,123

Operating (Loss) Income				(2	)		57,691			3,883			4,418		—			65,990
Interest Expense, Net				2,891			27,737			3,622			1,767		—			36,017
Equity in the Earnings of Subsidiaries				(13,824	)		(115	)		—			—		13,939			—
Other (Income) Expense, Net				(4,766	)		1,416			4,870			1,128		—			2,648

	Income (Loss) Before Provision for Income Taxes and Minority Interest			15,697			28,653			(4,609	)		1,523		(13,939	)		27,325
Provision (Benefit) for Income Taxes				—			12,110			(1,907	)		1,038		—			11,241
Minority Interest in Earnings of Subsidiaries, Net				—			—			—			387		—			387

	Net Income (Loss)		$	15,697		$	16,543		$	(2,702	)	$	98	$	(13,939	)	$	15,697

			Nine Months Ended September 30, 2003
			Parent			Guarantors			Canada Company			Non- Guarantors			Eliminations			Consolidated
Revenues:
	Storage		$	—		$	529,554		$	33,202		$	72,017		$	—		$	634,773
	Service and Storage Material Sales			—			375,045			31,413			51,608			—			458,066

		Total Revenues		—			904,599			64,615			123,625			—			1,092,839
Operating Expenses:
	Cost of Sales (Excluding Depreciation)			—			404,863			31,992			56,683			—			493,538
	Selling, General and Administrative			247			241,215			10,991			32,924			—			285,377
	Depreciation and Amortization			13			78,178			4,359			11,361			—			93,911
	(Gain) Loss on Disposal/Writedown of Property, Plant and Equipment, Net			—			1,674			238			(26	)		—			1,886

		Total Operating Expenses		260			725,930			47,580			100,942			—			874,712

Operating (Loss) Income				(260	)		178,669			17,035			22,683			—			218,127
Interest Expense, Net				9,706			79,387			10,670			10,989			—			110,752
Equity in the Earnings of Subsidiaries				(97,027	)		(3,319	)		—			—			100,346			—
Other Expense (Income), Net				30,850			(15,632	)		(12,293	)		(564	)		—			2,361

	Income Before Provision for Income Taxes and Minority Interest			56,211			118,233			18,658			12,258			(100,346	)		105,014
Provision for Income Taxes				—			31,803			8,183			4,649			—			44,635
Minority Interest in Earnings of Subsidiaries, Net				—			—			—			4,168			—			4,168

	Net Income		$	56,211		$	86,430		$	10,475		$	3,441		$	(100,346	)	$	56,211

			Nine Months Ended September 30, 2002
			Parent			Guarantors			Canada Company			Non- Guarantors			Eliminations			Consolidated
Revenues:
	Storage		$	—		$	489,370		$	26,508		$	45,919		$	—		$	561,797
	Service and Storage Material Sales			—			353,560			29,419			33,255			—			416,234

		Total Revenues		—			842,930			55,927			79,174			—			978,031
Operating Expenses:
	Cost of Sales (Excluding Depreciation)			—			393,046			27,775			40,890			—			461,711
	Selling, General and Administrative			32			219,417			10,425			21,618			—			251,492
	Depreciation and Amortization			—			70,804			4,263			5,392			—			80,459
	Merger-related Expenses			—			770			—			—			—			770
	Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net			—			135			(8	)		(2,048	)		—			(1,921	)

		Total Operating Expenses		32			684,172			42,455			65,852			—			792,511

Operating (Loss) Income				(32	)		158,758			13,472			13,322			—			185,520
Interest Expense, Net				8,691			76,812			11,041			5,141			—			101,685
Equity in the (Earnings) Losses of Subsidiaries				(52,474	)		4,438			—			—			48,036			—
Other Expense (Income), Net				1,943			(3,629	)		(1,298	)		676			—			(2,308	)

	Income from Continuing Operations Before Provision for Income Taxes and Minority Interest			41,808			81,137			3,729			7,505			(48,036	)		86,143
Provision for Income Taxes				—			30,812			1,561			3,124			—			35,497
Minority Interest in Earnings of Subsidiaries, Net				—			—			—			2,442			—			2,442

Income from Continuing Operations before Cumulative Effect of Change in Accounting Principle				41,808			50,325			2,168			1,939			(48,036	)		48,204
Cumulative Effect of Change in Accounting Principle (net of Minority Interest)				—			—			—			(6,396	)		—			(6,396	)

	Net Income (Loss)		$	41,808		$	50,325		$	2,168		$	(4,457	)	$	(48,036	)	$	41,808

			Nine Months Ended September 30, 2003
			Parent			Guarantors			Canada Company			Non- Guarantors			Eliminations			Consolidated
Cash Flows from Operating Activities:
	Cash Flows (Used in) Provided by Operating Activities		$	(309	)	$	156,209		$	14,482		$	13,237		$	—		$	183,619
Cash Flows from Investing Activities:
	Capital expenditures			—			(112,828	)		(6,407	)		(28,804	)		—			(148,039	)
	Cash paid for acquisitions, net of cash acquired			—			(65,407	)		—			(313,396	)		—			(378,803	)
	Intercompany loans to subsidiaries			(290,090	)		(316,357	)		—			—			606,447			—
	Investment in subsidiaries			(1,655	)		(1,655	)		—			—			3,310			—
	Additions to customer relationship and acquisition costs			—			(6,498	)		(546	)		(1,594	)		—			(8,638	)
	Investment in convertible preferred stock			—			(1,357	)		—			—			—			(1,357	)
	Proceeds from sales of property and equipment			—			6,555			47			19			—			6,621

		Cash Flows Provided by (Used in) Investing Activities		(291,745	)		(497,547	)		(6,906	)		(343,775	)		609,757			(530,216	)
Cash Flows from Financing Activities:
	Repayment of debt and term loans			(442,078	)		(489	)		(536	)		(42,305	)		—			(485,408	)
	Proceeds from borrowings and term loans			529,784			—			49,569			46,676			—			626,029
	Early retirement of senior subordinated notes			(254,407	)		—			(52,032	)		—			—			(306,439	)
	Net proceeds from sales of senior subordinated notes			455,590			—			—			—			—			455,590
	Debt financing (repayment to) and equity contribution from (distribution to) minority shareholders, net			—			—			—			20,099			—			20,099
	Intercompany loans from parent			—			295,856			(5,998	)		316,589			(606,447	)		—
	Equity contribution from parent			—			1,655			—			1,655			(3,310	)		—
	Other, net			3,165			—			—			—			—			3,165

		Cash Flows Provided by (Used in) Financing Activities		292,054			297,022			(8,997	)		342,714			(609,757	)		313,036
Effect of exchange rates on cash and cash equivalents				—			—			578			235			—			813

(Decrease) Increase in cash and cash equivalents				—			(44,316	)		(843	)		12,411			—			(32,748	)
Cash and cash equivalents, beginning of period				—			52,025			1,759			2,508			—			56,292

Cash and cash equivalents, end of period			$	—		$	7,709		$	916		$	14,919		$	—		$	23,544

			Nine Months Ended September 30, 2002
			Parent			Guarantors			Canada Company			Non- Guarantors			Eliminations			Consolidated
Cash Flows from Operating Activities:
	Cash Flows (Used in) Provided by Operating Activities		$	(1,127	)	$	152,444		$	9,226		$	11,905		$	—		$	172,448
Cash Flows from Investing Activities:
	Capital expenditures			—			(105,540	)		(6,614	)		(29,864	)		—			(142,018	)
	Cash paid for acquisitions, net of cash acquired			—			(15,867	)		—			(7,102	)		—			(22,969	)
	Intercompany loans to subsidiaries			(2,652	)		(17,805	)		—			—			20,457			—
	Investment in subsidiaries			(688	)		(688	)		—			—			1,376			—
	Additions to customer relationship and acquisition costs			—			(5,986	)		(397	)		(458	)		—			(6,841	)
	Proceeds from sales of property and equipment			—			771			8			5,552			—			6,331

		Cash Flows Provided by (Used in) Investing Activities		(3,340	)		(145,115	)		(7,003	)		(31,872	)		21,833			(165,497	)
Cash Flows from Financing Activities:
	Repayment of debt and term loans			(426,255	)		(407	)		(400	)		(1,892	)		—			(428,954	)
	Proceeds from borrowings and term loans			426,235			—			—			293			—			426,528
	Debt financing (repayment to) and equity contribution from (distribution to) minority shareholders, net			—			—			—			(2,859	)		—			(2,859	)
	Intercompany loans from parent			—			3,399			(906	)		17,964			(20,457	)		—
	Equity contribution from parent			—			688			—			688			(1,376	)		—
	Other, net			4,487			—			—			—			—			4,487

		Cash Flows Provided by (Used in) Financing Activities		4,467			3,680			(1,306	)		14,194			(21,833	)		(798	)
Effect of exchange rates on cash and cash equivalents				—			—			358			(273	)		—			85

Increase (Decrease) in cash and cash equivalents				—			11,009			1,275			(6,046	)		—			6,238
Cash and cash equivalents, beginning of period				—			11,395			1,696			8,268			—			21,359

Cash and cash equivalents, end of period			$	—		$	22,404		$	2,971		$	2,222		$	—		$	27,597

(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 September 30, 2002
Revenue	$	239,102	$	60,490	$	27,083	$	6,438		$	333,113
Contribution		68,878		16,008		5,858		4,525			95,269
Three Months Ended September 30, 2003
Revenue		260,983		63,937		49,780		7,058			381,758
Contribution		74,363		17,691		11,157		9,105			112,316
Nine Months Ended September 30, 2002
Revenue		704,472		177,644		77,509		18,406			978,031
Contribution		194,635		46,736		15,186		8,271			264,828
Total Assets		2,345,191		357,653		293,720		35,678	(1)		3,032,242
Nine Months Ended September 30, 2003
Revenue		762,580		187,202		121,608		21,449			1,092,839
Contribution		213,341		52,144		27,680		20,759			313,924
Total Assets		2,502,547		377,816		715,875		143,303	(1)		3,739,541

(1): Total corporate & other assets include the inter-segment elimination amount of $1,526,593 and $1,745,805 as of September 30, 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/A for the year ended December 31, 2002 except that certain costs are allocated from Corporate to the other segments in both 2002 and 2003, primarily to our Business Records Management and Off-Site Data Protection segments. 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 for each segment is defined as total revenues less cost of sales (excluding depreciation) 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.

A reconciliation of Contribution to net income on a consolidated basis is as follows:

			Three Months Ended September 30,				Nine Months Ended September 30,
			2002		2003		2002			2003
Contribution			$	95,269	$	112,316	$	264,828		$	313,924
	Less: Depreciation and Amortization			28,950		33,197		80,459			93,911
		Merger-related Expenses.		190		—		770			—
		Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net		139		1,870		(1,921	)		1,886
		Interest Expense, Net.		36,017		38,790		101,685			110,752
		Other Expense (Income), Net		2,648		10,343		(2,308	)		2,361
		Provision for Income Taxes		11,241		12,012		35,497			44,635
		Minority Interest in Earnings of Subsidiaries		387		1,310		2,442			4,168
		Cumulative Effect of Change in Accounting Principle (net of minority interest)		—		—		6,396			—

Net Income			$	15,697	$	14,794	$	41,808		$	56,211

Our secure shredding business, previously analyzed as part of Corporate & Other, is now analyzed within the Business Records Management segment. Our film and sound business, previously analyzed as part of Business Records Management, is now analyzed within the Off-Site Data Protection segment. Our electronic vaulting business, previously analyzed as part of Corporate & Other, is now analyzed within the Off-Site Data Protection segment. Our Canadian business, 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 September 30,				Nine Months Ended September 30,
		2002		2003		2002		2003
Revenues:
United States		$	288,105	$	309,760	$	844,595	$	906,616
International			45,008		71,998		133,436		186,223

	Total Revenues	$	333,113	$	381,758	$	978,031	$	1,092,839

		December 31, 2002		September 30, 2003
Long-lived Assets:
United States		$	2,395,018	$	2,504,525
International			468,597		838,898

	Total Long-lived Assets	$	2,863,615	$	3,343,423

(10) Commitments and Contingencies

a.: Leases

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/A for the year ended December 31, 2002 for amounts outstanding at December 31, 2002.

b.: Sequedex and Pierce Proceedings

As previously disclosed in our Annual Report on Form 10-K/A for the year ended December 31, 2002, in October, 2000, Iron Mountain Information Management, Inc., one of our wholly-owned subsidiaries ("IMIM"), commenced three actions in Middlesex County, New Jersey against three former management employees of IMIM who became employed by or associated with Sequedex LLC ("Sequedex"), alleging that the employees' association with Sequedex breached non-competition and confidentiality agreements that each had signed with IMIM. In addition, these actions asserted claims against Sequedex for tortious interference with the confidentiality and non-competition agreements as well as claims against all defendants for misappropriation and misuse of trade secrets and confidential information. The three individual defendants have denied the material allegations and asserted various affirmative defenses. Sequedex and the individual defendants have also filed counterclaims and third party complaints for tortious interference with certain contracts and prospective business relationships between Sequedex and its actual and potential customers, as well as a claim for trade disparagement and defamation. Sequedex subsequently served, but has not received permission to file, an amended counterclaim and third party complaint that includes an allegation that Sequedex incurred damages caused by our March 28, 2002 filing of the complaint in the action against J. Peter Pierce, Sr. and

others. Sequedex claims that IMIM acted maliciously and in bad faith in filing the March 28, 2002 complaint.

In connection with its proposed amended counterclaim, Sequedex has recently furnished a preliminary statement of damages and answered an interrogatory seeking information concerning the damages that Sequedex alleges it incurred. Sequedex's estimate of compensatory damages is approximately $172,000, and Sequedex has indicated that it intends to seek punitive damages of approximately $1,500,000. Extensive discovery has been conducted in the three cases; on the basis of that discovery, it is our belief that Sequedex has not produced any material evidence that we or IMIM acted wrongfully in any respect. Further, limited discovery has been conducted in respect of Sequedex's damages claim; on the basis of that discovery, we do not believe that Sequedex has any foundation, and we believe that it cannot provide any foundation, for its damages calculations. We believe that the damages calculations submitted by Sequedex are not supported by credible evidence and are subject to serious legal, methodological and factual deficiencies. A trial of the three actions in which the Sequedex counterclaim has been asserted is scheduled to commence in the spring of 2004.

Discovery is proceeding in each of the cases except the Pierce arbitration (in which the evidence portion of the arbitration has been completed, and final arguments are scheduled for December, 2003). We intend to prosecute these and the related actions vigorously, as well as to similarly defend against the counterclaims and third party complaints. At this time, the outcome of these and the related proceedings cannot be predicted. Based on our present assessment of the situation, after consultation with legal counsel, we believe that the outcome of these and the related 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.

c.: Other Litigation

In addition to the matters discussed above, 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 insurance policies purchased by us. In the opinion of our management, no other material legal proceedings are pending to which we, or any of our properties, are subject.

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 and nine months ended September 30, 2003 and 2002 should be read in conjunction with the consolidated financial statements and footnotes for the three and nine months ended September 30, 2003 included herein, and the year ended December 31, 2002, included in our Annual Report on Form 10-K/A for the year ended December 31, 2002.

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) changes in customer preferences and demand for our services; (ii) changes in the price for our services relative to the cost of providing such services; (iii) the cost and availability of financing for contemplated growth; (iv) our ability or inability to complete acquisitions on satisfactory terms and to integrate acquired companies efficiently; (v) in the various digital businesses in which we are engaged, 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 whom 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 Securities and Exchange Commission, or SEC.

Non-GAAP Measures

Operating Income Before Depreciation and Amortization, or OIBDA

OIBDA is defined as operating income before depreciation and amortization expenses. OIBDA Margin is calculated by dividing OIBDA by total revenues. Our management uses these measures to evaluate the operating performance of our consolidated business. As such, we believe these measures provide relevant and useful information to our current and potential investors. We use OIBDA for planning purposes and multiples of current or projected OIBDA-based calculations in our discounted cash flow models to determine our overall enterprise valuation. Additionally, we use OIBDA and OIBDA Margin to evaluate acquisition targets. We believe OIBDA and OIBDA Margin are useful measures of our ability to grow our revenues faster than our operating expenses and they are an integral part of our internal reporting system utilized by management to assess and evaluate the operating performance of our business. OIBDA does not include certain items, including (1) minority interest in earnings of subsidiaries, net, (2) other (income) expense, net, which primarily consists of extinguishment charges and foreign currency gains and losses, and (3) cumulative effect of change in accounting principle that we believe are not indicative of our core operating results. OIBDA also does not include interest expense, net and the provision (benefit) for income taxes. These expenses are associated with our capitalization and tax structures, which management does not consider when

evaluating the profitability of our core operations. Finally, OIBDA does not include depreciation and amortization expenses, in order to eliminate the impact of capital investments, which management believes is better evaluated by comparing capital expenditures to incremental revenue generated and as a percentage of total revenues. OIBDA and OIBDA Margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with accounting principles generally accepted in the Unites States of America, or GAAP, such as operating or net income or cash flows from operating activities (as determined in accordance with GAAP).

Reconciliation of OIBDA to Operating Income and Net Income (In Thousands):

		Three Months Ended September 30,				Nine Months Ended September 30,
		2002		2003		2002			2003
OIBDA		$	94,940	$	110,446	$	265,979		$	312,038
Less: Depreciation and Amortization			28,950		33,197		80,459			93,911

Operating Income			65,990		77,249		185,520			218,127
Less: Interest Expense, Net			36,017		38,790		101,685			110,752
	Other Expense (Income), Net		2,648		10,343		(2,308	)		2,361
	Provision for Income Taxes		11,241		12,012		35,497			44,635
	Minority Interest		387		1,310		2,442			4,168
	Cumulative Effect of Change in Accounting Principle		—		—		6,396			—

Net Income		$	15,697	$	14,794	$	41,808		$	56,211

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 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/A 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/A 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 (in thousands).

			Three Months Ended September 30,
			Three Months Ended September 30,						Dollar Change			Percent Change
			2002			2003			Dollar Change			Percent Change
Revenues:
	Storage		$	191,377		$	222,973		$	31,596		16.5	%
	Service and Storage Material Sales			141,736			158,785			17,049		12.0	%

		Total Revenues		333,113			381,758			48,645		14.6	%
Operating Expenses:
	Cost of Sales (excluding depreciation)			153,858			171,355			17,497		11.4	%
	Selling, General and Administrative			83,986			98,087			14,101		16.8	%
	Depreciation and Amortization			28,950			33,197			4,247		14.7	%
	Merger-related Expenses			190			—			(190	)	(100	%)
	Loss on Disposal/Writedown of Property, Plant and Equipment, Net			139			1,870			1,731		1245.3	%

		Total Operating Expenses		267,123			304,509			37,386		14.0	%
Operating Income				65,990			77,249			11,259		17.1	%
Interest Expense, Net				36,017			38,790			2,773		7.7	%
Other Expense, Net				2,648			10,343			7,695		290.6	%

Income from Continuing Operations Before Provision for Income Taxes and Minority Interest				27,325			28,116			791		2.9	%
Provision for Income Taxes				11,241			12,012			771		6.9	%
Minority Interest in Earnings of Subsidiaries, Net				387			1,310			923		238.5	%

Net Income			$	15,697		$	14,794		$	(903	)	(5.8	%)

Other Data:
OIBDA(1)			$	94,940		$	110,446		$	15,506		16.3	%
OIBDA Margin				28.5	%		28.9	%

(1): See "—Non-GAAP Measures-Operating Income Before Depreciation and Amortization, or OIBDA" for definition.

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 September 30,
			2002		2003
Revenues:
	Storage		57.5	%	58.4	%
	Service and Storage Material Sales		42.5		41.6

		Total Revenues	100.0		100.0
Operating Expenses:
	Cost of Sales (excluding depreciation)		(46.2	)	(44.9	)
	Selling, General and Administrative		(25.2	)	(25.7	)
	Depreciation and Amortization		(8.7	)	(8.7	)
	Merger-related Expenses		(0.1	)	—
	Loss on Disposal/Writedown of Property, Plant and Equipment, Net		—		(0.5	)

		Total Operating Expenses	(80.2	)	(79.8	)
Operating Income			19.8		20.2
Interest Expense, Net			(10.8	)	(10.2	)
Other Expense, Net			(0.8	)	(2.7	)

Income from Continuing Operations before Provision for Income Taxes and Minority Interest			8.2		7.4
Provision for Income Taxes			(3.4	)	(3.1	)
Minority Interest in Earnings of Subsidiaries, Net			(0.1	)	(0.3	)

Net Income			4.7	%	3.9	%

Other Data:
OIBDA Margin(1)			28.5	%	28.9	%

(1): See "—Non-GAAP Measures-Operating Income Before Depreciation and Amortization, or OIBDA" for definition.

Revenue

Consolidated storage revenues increased $31.6 million, or 16.5%, to $223.0 million for the three months ended September 30, 2003. The increase is attributable to internal revenue growth (8.6%) resulting from net increases in records and other media stored by existing customers and sales to new customers, acquisitions (5.9%), primarily $8.0 million from the operations of the information services business of Hays plc ("Hays IMS"), and foreign currency exchange rate fluctuations (2.0%). Foreign currency exchange rate fluctuations were primarily due to the strengthening of the British pound sterling, Canadian dollar, and Euro 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 $17.0 million, or 12.0%, to $158.8 million for the three months ended September 30, 2003. The increase is attributable to internal revenue growth (2.3%) resulting from net increases in service and storage material sales to existing customers and sales to new customers, acquisitions (7.5%), including revenue from the Hays IMS operations of $6.8 million, and foreign currency exchange rate fluctuations (2.2%). Foreign currency exchange rate fluctuations were primarily due to the strengthening of the British pound sterling, Canadian dollar, and Euro against the U.S. dollar, based on an analysis of weighted average rates for the comparable periods.

For the reasons stated above, our consolidated revenues increased $48.6 million, or 14.6%, to $381.8 million. Internal revenue growth for the three months ended September 30, 2003 was 5.9%. We calculate internal revenue growth in local currency for our international operations.

Internal Growth—Eight-Quarter Trend

	2001		2002								2003
	Fourth Quarter		First Quarter		Second Quarter		Third Quarter		Fourth Quarter		First Quarter		Second Quarter		Third Quarter
Storage Revenue	9.6	%	8.4	%	8.6	%	8.6	%	8.0	%	8.2	%	8.4	%	8.6	%
Service and Storage Material Sales Revenue	10.6	%	9.1	%	10.0	%	15.4	%	9.8	%	7.5	%	2.9	%	2.3	%
Total Revenue	10.0	%	8.7	%	9.2	%	11.4	%	8.8	%	7.9	%	6.1	%	5.9	%

Our internal revenue growth rate represents the weighted average year over year growth rate of our revenues after removing the effects of acquisitions and foreign currency exchange rate fluctuations. Over the past eight quarters, the internal growth rate of our storage revenues has ranged from a high of 9.6% to a low of 8.0%. The most recent three quarters show our storage revenue internal growth rate coming off its two-year low and increasing steadily. We attribute this recent trend to higher growth rates in our international businesses, primarily Europe, stabilized net carton volume growth in our North American records management business and higher growth rates in our digital businesses. Net carton volume growth is a function of the rate new cartons are added by existing and new customers offset by the rate of carton destructions and other permanent removals.

The internal growth rate for service and storage material sales revenue is inherently more volatile than the storage revenue internal growth rate. The volatility arises from the more discretionary services we offer such as large special projects, data products and carton sales and recycled paper. These revenues are impacted to a greater extent by economic downturns as customers defer or cancel the purchase of these services as a way to reduce their short-term costs. As a commodity, recycled paper prices are subject to the volatility of that market. The quarterly growth rates in 2003 were negatively impacted by several factors: (1) large special project service revenue did not achieve the same high levels experienced in the corresponding periods of 2002, (2) product sales, primarily data product sales, decreased and (3) carton destructions and other permanent removals have decreased relative to prior periods. In addition, our off-site data protection business continued to operate in a market experiencing downward pressure on information technology spending as companies look to reduce their costs.

Cost of Sales

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

										% of Consolidated Revenues
	Three Months Ended September 30,									Three Months Ended September 30,
	Three Months Ended September 30,				Dollar Change			Percent Change		Three Months Ended September 30,
	2002		2003		Dollar Change			Percent Change		2002		2003		Variance
Labor	$	80,593	$	88,490	$	7,897		9.8	%	24.2	%	23.2	%	(1.0	)%
Facilities		43,507		51,800		8,293		19.1	%	13.1	%	13.6	%	0.5	%
Transportation		14,560		16,425		1,865		12.8	%	4.4	%	4.3	%	(0.1	)%
Product Cost of Sales		8,530		7,304		(1,226	)	(14.4	)%	2.6	%	1.9	%	(0.7	)%
Other		6,668		7,336		668		10.0	%	2.0	%	1.9	%	(0.1	)%

	$	153,858	$	171,355	$	17,497		11.4	%	46.2	%	44.9	%	(1.3	)%

Labor

Labor expense decreased as a percentage of revenue due to improved labor management and reductions in incentive compensation expenses due to changes in our estimates of those expenses during the third quarter of 2003. These were partially offset by increases in headcount due to growth and acquisitions and the expansion of our secure shredding operations and its associated higher labor mix. In addition, our domestic operations, which comprise the majority of our workforce, experienced an overall increase in wages due to normal inflation, merit increases and increases in medical insurance expense of $0.6 million.

Facilities

The largest component of our facilities cost is rent expense, which increased $4.4 million for the three months ended September 30, 2003, primarily as a result of increased rent in our European operations of $3.1 million attributable to new facilities and properties occupied through acquisitions, including our acquisition of Hays IMS. In addition, after adjusting for the consolidation of properties owned by our variable interest entities, we have increased the number of leased facilities we occupy domestically by 17 as of September 30, 2003 compared to September 30, 2002 primarily due to acquisitions. Excluding our European operations, the dollar increase in facilities expenses is attributable to property taxes, utilities, and property insurance, which increased $1.0 million, $1.3 million, and $0.5 million, respectively, for the three months ended September 30, 2003 compared to the three months ended September 30, 2002. Facilities expenses in our European operations increased $1.0 million primarily due to the growth of operations and acquisitions for the three months ended September 30, 2003 compared to the three months ended September 30, 2002.

Transportation

Our transportation expenses, which were flat as a percentage of consolidated revenues, are influenced by several variables including total number of vehicles in our fleet, the number of owned versus leased vehicles, use of subcontracted couriers, fuel expenses, and maintenance. Domestic operating lease expense increased $0.3 million for the three months ended September 30, 2003 as a result of an increased percentage of vehicles within our fleet subject to operating leases. For the three months ended September 30, 2003, domestic fuel expense increased $0.3 million due to an increase in the average price per gallon of fuel of approximately 15% in 2003 and an increase in the size of our fleet. We experienced a $1.0 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 September 30, 2003 was lower than the three months ended September 30, 2002 as a percentage of product revenues due to more focused selling efforts on higher margin product and improved product sourcing.

Selling, General and Administrative Expenses

Selling, general and administrative expenses are comprised of the following expenses (in thousands):

										% of Consolidated Revenues
	Three Months Ended September 30,									Three Months Ended September 30,
	Three Months Ended September 30,				Dollar Change			Percent Change		Three Months Ended September 30,
	2002		2003		Dollar Change			Percent Change		2002		2003		Variance
General and Administrative	$	45,776	$	50,909	$	5,133		11.2	%	13.7	%	13.3	%	(0.4	)%
Sales, Marketing & Account Management		21,142		29,482		8,340		39.4	%	6.3	%	7.7	%	1.4	%
Information Technology		14,126		16,461		2,335		16.5	%	4.2	%	4.3	%	0.1	%
Bad Debt Expense		2,942		1,235		(1,707	)	(58.0	)%	0.9	%	0.3	%	(0.6	)%

	$	83,986	$	98,087	$	14,101		16.8	%	25.2	%	25.7	%	0.5	%

General and Administrative

The dollar increase in general and administrative expenses is primarily attributable to an increase in headcount, normal inflation and merit increases and an increase in worker's compensation expenses. We also experienced a $4.4 million increase in general and administrative expenses in our European operations, which is primarily attributable to the growth of operations and acquisitions. The increase in labor expenses was offset by reductions in incentive compensation expenses due to changes in our estimates of those expenses during the third quarter of 2003.

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 September 30, 2003. Throughout 2002 and 2003, we continued to invest in the expansion and improvement of our sales force. Excluding our European operations, we added 75 sales and marketing employees since September 30, 2002, a 20% increase in headcount, increased our account management force and initiated several new marketing and promotional efforts in 2003 to develop awareness in the marketplace of our entire service offerings. The costs associated with these efforts have contributed to the increase in our sales, marketing and account management expenses. In addition, costs associated with our European sales and account management teams have increased by $1.5 million for the three months ended September 30, 2003 as compared to the three months ended September 30, 2002, due to the hiring of new personnel and the integration of the Hays IMS sales force.

Information Technology

Information technology expenses increased $2.3 million, but remained flat as a percentage of consolidated revenues, for the three months ended September 30, 2003. The dollar increase was principally due to higher compensation costs resulting from increased headcount, normal inflation and merit increases, as well as an increase in external resources offset by reductions in incentive compensation expenses due to changes in our estimates of those expenses during the third quarter of 2003. The net dollar impact was $0.9 million. As our technology initiatives mature, less of our efforts are development related thus decreasing capitalizable expenditures, which results in increased information technology expenses. We also incurred $1.0 million of additional costs for expanding

bandwidth and international connectivity and other telecommunication expenses in 2003 as compared to 2002.

Bad Debt Expense

The decrease in consolidated bad debt expense for the three months ended September 30, 2003 compared to the three months ended September 30, 2002 is primarily attributable to the centralization of our collection efforts within our divisions which resulted in improved cash collections.

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

Consolidated depreciation and amortization expense increased $4.2 million to $33.2 million (8.7% of consolidated revenues) for the three months ended September 30, 2003 from $29.0 million (8.7% of consolidated revenues) for the three months ended September 30, 2002. Depreciation expense increased $3.8 million, primarily due to the additional depreciation expense related to recent 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 $1.2 million during the three months ended September 30, 2003 as a result of software and hardware assets placed in service throughout 2002 and 2003.

Merger-related expenses are certain expenses directly related to our merger with Pierce Leahy Corp. that cannot be capitalized and include system conversion costs, costs of exiting certain facilities, severance, relocation and pay-to-stay payments and other transaction-related costs. Merger-related expenses were $0.2 million for the three months ended September 30, 2002. All merger related activities associated with the Pierce Leahy merger were completed in 2002.

Consolidated loss on disposal/writedown of property, plant and equipment, net was $1.9 million during the third quarter of 2003 compared to $0.1 million during the third quarter of 2002.

Operating Income

As a result of the foregoing factors, consolidated operating income increased $11.3 million, or 17.1%, to $77.2 million (20.2% of consolidated revenues) for the three months ended September 30, 2003 from operating income of $66.0 million (19.8% of consolidated revenues) for the three months ended September 30, 2002.

OIBDA

As a result of the foregoing factors, consolidated OIBDA increased $15.5 million, or 16.3%, to $110.4 million (28.9% of consolidated revenues) for the three months ended September 30, 2003 from $94.9 million (28.5% of consolidated revenues) for the three months ended September 30, 2002.

IRON MOUNTAIN INCORPORATED

Interest Expense, Net

Consolidated interest expense, net increased $2.8 million to $38.8 million (10.2% of consolidated revenues) for the three months ended September 30, 2003 from $36.0 million (10.8% of consolidated revenues) for the three months ended September 30, 2002. This increase was primarily attributable to borrowings under our revolving credit facility and the issuance of our 6⁵/8% Senior Subordinated Notes dues 2016 (the "6⁵/8% notes") which were used to finance the Hays IMS acquisition. The increase was offset by a decline in our overall weighted average interest rate from 8.5% as of September 30, 2002 to 7.6% as of September 30, 2003 resulting from our refinancing efforts, a higher percentage of variable rate debt and a decline in variable interest rates.

Other Expense, Net

Significant items included in other (income) expense, net include the following (in thousands):

	Three Months Ended September 30,
	2002		2003			Change
Foreign currency transaction losses, net	$	2,581	$	4,838		$	2,257
Debt extinguishment expense		—		5,510			5,510
Other, net		67		(5	)		(72	)

	$	2,648	$	10,343		$	7,695

Foreign currency losses of $4.8 million based on period-end exchange rates were recorded in the three months ended September 30, 2003 primarily due to the weakening of the Canadian dollar and the strengthening of the British pound sterling against the U.S. dollar as these currencies relate to our intercompany balances with our Canadian and U.K. subsidiaries, U.S. dollar denominated debt held by our Canadian subsidiary, British pound sterling borrowings under our revolving credit facility, and our British pound sterling denominated cross currency swaps.

During the three months ended September 30, 2003, we redeemed $50.0 million of the outstanding principal amount of the 8¹/8% Senior Notes due 2008 of our Canadian subsidiary (the "Subsidiary notes") resulting in a charge of $5.5 million. The charge consisted primarily of redemption premiums and transaction costs, as well as original issue discounts related to these Subsidiary notes.

Provision for Income Taxes

Our effective tax rate for the three months ended September 30, 2003 was 42.7%. The primary reconciling item between the statutory rate of 35% and our effective tax rate is state income taxes (net of federal benefit). The effective tax rate projected for 2003 is 42.4%. The disallowance of certain intercompany interest charges, including a change in Massachusetts tax laws, retroactive to January 1, 2002, increased our provision for income taxes for the three months ended September 30, 2003 by 0.9%. Our effective tax rate was 41.1% for the three months ended September 30, 2002. There may be future volatility with respect to our effective tax 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

Minority interest in earnings of subsidiaries, net resulted in a charge to income of $1.3 million (0.3% of consolidated revenues) for the three months ended September 30, 2003 compared to $0.4 million (0.1% of consolidated revenues) for the three months ended September 30, 2002. This represents our minority partners' share of earnings in our majority-owned international subsidiaries that are consolidated in our operating results. The increase is a result of the improved profitability of our European and South American businesses.

Net Income

As a result of the foregoing factors, consolidated net income decreased $0.9 million, or 5.8%, to $14.8 million (3.9% of consolidated revenues) for the three months ended September 30, 2003 from net income of $15.7 million (4.7% of consolidated revenues) for the three months ended September 30, 2002.

Segment Analysis (In Thousands)

	Business Records Management			Off-Site Data Protection			International			Corporate & Other
Segment Revenue
Three Months Ended
September 30, 2003	$	260,983		$	63,937		$	49,780		$	7,058
September 30, 2002		239,102			60,490			27,083			6,438

Increase in Revenues	$	21,881		$	3,447		$	22,697		$	620

Percentage Increase in Revenues		9.2	%		5.7	%		83.8	%		9.6	%
Contribution(1)
Three Months Ended
September 30, 2003	$	74,363		$	17,691		$	11,157		$	9,105
September 30, 2002		68,878			16,008			5,858			4,525
Contribution as a Percentage of Segment Revenue
Three Months Ended
September 30, 2003		28.5	%		27.7	%		22.4	%		129.0	%
September 30, 2002		28.8	%		26.5	%		21.6	%		70.3	%

(1): See Note 9 of Notes to Consolidated Financial Statements for definition of Contribution and for the basis on which allocations are made and a reconciliation of Contribution to net income on a consolidated basis.

Business Records Management

Revenue in our business records management segment increased 9.2% primarily due to increased storage revenues, growth of our secure shredding operations and acquisitions (including revenue from the U.S. operations of Hays IMS of $4.1 million), and was offset by lower special project service revenue and lower permanent removal fees during 2003. In addition, favorable currency fluctuations during the three months ended September 30, 2003 in Canada increased revenue $2.6 million when compared to the three months ended September 30, 2002. Contribution as a percent of segment revenue decreased primarily due to higher property taxes, utilities and increased investment in our sales

and account management force which was partially offset by lower bad debt expense. Items excluded from the calculation of Contribution include the following: (1) depreciation and amortization expense for the three months ended September 30, 2003 of $17.6 million compared to $17.1 million for the three months ended September 30, 2002, (2) foreign currency losses of $3.0 million and $7.2 million for the three months ended September 30, 2003 and 2002, respectively, and (3) a loss on disposal/writedown of property, plant and equipment, net of $1.6 million for the three months ended September 30, 2003.

Off-Site Data Protection

Revenue in our off-site data protection segment increased 5.7% 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 increased primarily due to increased product sales margins and improved labor management. This increase was partially offset by increased investment in our sales and account management force. Excluded from the calculation of Contribution was depreciation and amortization expense for the three months ended September 30, 2003 of $3.6 million compared to $3.2 million for the three months ended September 30, 2002.

International

Revenue in our international segment increased 83.8% primarily due to acquisitions completed in Europe, including $10.7 million from the acquisition of Hays IMS, and in South America, as well as increased sales efforts in the United Kingdom. Favorable currency fluctuations during the three months ended September 30, 2003 in Europe increased revenue, as measured in U.S. dollars, by $4.3 million compared to the three months ended September 30, 2002. Contribution as a percent of segment revenue increased primarily due to improved gross margins from both our European and South American operations and overall increased overhead utilization. This increase was partially offset by increased rent associated with new properties in Europe. Excluded from the calculation of Contribution was depreciation and amortization expense for the three months ended September 30, 2003 of $4.4 million compared to $1.8 million for the three months ended September 30, 2002, including $1.3 million associated with the acquisition of Hays IMS in 2003. A foreign currency gain of $0.3 million in the third quarter of 2003 compared to a loss of $1.0 million in the third quarter of 2002 is also excluded from the calculation of Contribution.

Results of Operations

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

			Nine Months Ended September 30,
			Nine Months Ended September 30,						Dollar Change			Percent Change
			2002			2003			Dollar Change			Percent Change
Revenues:
	Storage		$	561,797		$	634,773		$	72,976		13.0	%
	Service and Storage Material Sales			416,234			458,066			41,832		10.1	%

		Total Revenues		978,031			1,092,839			114,808		11.7	%
Operating Expenses:
	Cost of Sales (excluding depreciation)			461,711			493,538			31,827		6.9	%
	Selling, General and Administrative			251,492			285,377			33,885		13.5	%
	Depreciation and Amortization			80,459			93,911			13,452		16.7	%
	Merger-related Expenses			770			—			(770	)	(100.0	)%
	(Gain) Loss on Disposal/Writedown of Property, Plant and Equipment, Net			(1,921	)		1,886			3,807		(198.2	)%

		Total Operating Expenses		792,511			874,712			82,201		10.4	%
Operating Income				185,520			218,127			32,607		17.6	%
Interest Expense, Net				101,685			110,752			9,067		8.9	%
Other (Income) Expense, Net				(2,308	)		2,361			4,669		(202.3	)%

Income from Continuing Operations Before Provision for Income Taxes and Minority Interest				86,143			105,014			18,871		21.9	%
Provision for Income Taxes				35,497			44,635			9,138		25.7	%
Minority Interest in Earnings of Subsidiaries, Net				2,442			4,168			1,726		70.7	%

Income from Continuing Operations before Cumulative Effect of Change in Accounting Principle				48,204			56,211			8,007		16.6	%
Cumulative Effect of Change in Accounting Principle (net of minority interest)				(6,396	)		—			6,396		(100	)%

Net Income			$	41,808		$	56,211		$	14,403		34.5	%

Other Data:
OIBDA(1)			$	265,979		$	312,038		$	46,059		17.3	%
OIBDA Margin				27.2	%		28.6	%

(1): See "—Non-GAAP Measures-Operating Income Before Depreciation and Amortization, or OIBDA" for definition.

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.

			Nine Months Ended September 30,
			2002		2003
Revenues:
	Storage		57.4	%	58.1	%
	Service and Storage Material Sales		42.6		41.9

		Total Revenues	100.0		100.0
Operating Expenses:
	Cost of Sales (excluding depreciation)		(47.2	)	(45.2	)
	Selling, General and Administrative		(25.7	)	(26.1	)
	Depreciation and Amortization		(8.2	)	(8.6	)
	Merger-related Expenses		(0.1	)	—
	Gain (Loss) on Disposal/Writedown of Property, Plant and Equipment, Net		0.2		(0.2	)

		Total Operating Expenses	(81.0	)	(80.0	)
Operating Income			19.0		20.0
Interest Expense, Net			(10.4	)	(10.1	)
Other Income (Expense), Net			0.2		(0.2	)

Income from Continuing Operations before Provision for Income Taxes and Minority Interest			8.8		9.6
Provision for Income Taxes			(3.6	)	(4.1	)
Minority Interest in Earnings of Subsidiaries, Net			(0.2	)	(0.4	)

Income from Continuing Operations before Cumulative Effect of Change in Accounting Principle			4.9		5.1
Cumulative Effect of Change in Accounting Principle (net of minority interest)			(0.7	)	—

Net Income			4.3	%	5.1	%

Other Data:
OIBDA Margin(1)			27.2	%	28.6	%

(1): See "—Non-GAAP Measures-Operating Income Before Depreciation and Amortization, or OIBDA" for definition.

Revenue

Consolidated storage revenues increased $73.0 million, or 13.0%, to $634.8 million for the nine months ended September 30, 2003. The increase is attributable to internal revenue growth (8.5%) resulting from net increases in records and other media stored by existing customers and sales to new customers, acquisitions (3.0%), primarily $8.0 million from the operations of Hays IMS, and foreign currency exchange rate fluctuations (1.5%). Foreign currency exchange rate fluctuations were primarily due to the strengthening of the British pound sterling, Canadian dollar, and Euro against the U.S. dollar, offset by a weakening of the Mexican peso and 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 $41.8 million, or 10.1%, to $458.1 million for the nine months ended September 30, 2003. The increase is attributable to internal revenue growth (4.1%) resulting from net increases in service and storage material sales to existing

customers and sales to new customers, acquisitions (4.2%), including revenue from the Hays IMS operations of $6.8 million and foreign currency exchange rate fluctuations (1.8%). Foreign currency exchange rate fluctuations were primarily due to the strengthening of the British pound sterling, Canadian dollar, Euro against the U.S. dollar, offset by a weakening of the Mexican peso and Brazilian real against the U.S. dollar, based on an analysis of weighted average rates for the comparable periods.

For the reasons stated above, our consolidated revenues increased $114.8 million, or 11.7%, to $1,092.8 million. Internal revenue growth for the nine months ended September 30, 2003 was 6.6%. We calculate internal revenue growth in local currency for our international operations.

Cost of Sales

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

										% of Consolidated Revenues
	Nine Months Ended September 30,									Nine Months Ended September 30,
	Nine Months Ended September 30,				Dollar Change			Percent Change		Nine Months Ended September 30,
	2002		2003		Dollar Change			Percent Change		2002		2003		Variance
Labor	$	236,867	$	249,919	$	13,052		5.5	%	24.2	%	22.9	%	(1.3	)%
Facilities		138,190		152,973		14,783		10.7	%	14.1	%	14.0	%	(0.1	)%
Transportation		42,097		47,239		5,142		12.2	%	4.3	%	4.3	%	0.0	%
Product Cost of Sales		25,178		22,689		(2,489	)	(9.9	)%	2.6	%	2.1	%	(0.5	)%
Other		19,379		20,718		1,339		6.9	%	2.0	%	1.9	%	(0.1	)%

	$	461,711	$	493,538	$	31,827		6.9	%	47.2	%	45.2	%	(2.0	)%

Labor

Facilities

The largest component of our facilities cost is rent expense, which increased $1.3 million for the nine months ended September 30, 2003, primarily as a result of increased rent in our European operations of $5.3 million attributable to new facilities and properties occupied through acquisitions, including our acquisition of Hays IMS. In addition, after adjusting for the consolidation of properties owned by our variable interest entities, we have increased the number of leased facilities we occupy domestically by 17 as of September 30, 2003 compared to September 30, 2002 primarily due to acquisitions. The increase in rent is offset by our consolidating 38 properties owned by our Variable Interest Entities during the third and fourth quarters of 2002. The leases associated with these properties were accounted for as operating leases prior to December 31, 2002. We recorded $5.3 million of rent expense for these 38 properties during the nine months ended September 30, 2002 and no rent expense in 2003. Rather than rent expense, we recorded interest expense and depreciation

expense associated with these properties for the nine months ended September 30, 2003. Excluding our European operations, the dollar increase in facilities expenses is attributable to property taxes, utilities, and property insurance, which increased $4.4 million, $3.5 million, and $1.4 million, respectively, for the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002. Facilities expenses in our European operations increased $2.6 million primarily due to the growth of operations and acquisitions for the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002. On a year to date basis, facilities costs were flat as a percentage of revenues compared to the prior year.

Transportation

Our transportation expenses, which were flat as a percentage of consolidated revenues, are influenced by several variables including total number of vehicles in our fleet, the number of owned versus leased vehicles, use of subcontracted couriers, fuel expenses, and maintenance. Domestic operating lease expense increased $1.3 million for the nine months ended September 30, 2003 as a result of an increased percentage of vehicles within our fleet subject to operating leases. For the nine months ended September 30, 2003, domestic fuel expense increased $1.2 million due to an increase in the average price per gallon of fuel of approximately 19% in 2003 and an increase in the size of our fleet, and external courier expenses increased $0.4 million. We experienced a $1.9 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 nine months ended September 30, 2003 was lower than the nine months ended September 30, 2002 as a percentage of product revenues due to more focused selling efforts on higher margin products and improved product sourcing.

Selling, General and Administrative Expenses

Selling, general and administrative expenses are comprised of the following expenses (in thousands):

										% of Consolidated Revenues
	Nine Months Ended September 30,									Three Months Ended September 30,
	Nine Months Ended September 30,				Dollar Change			Percent Change		Three Months Ended September 30,
	2002		2003		Dollar Change			Percent Change		2002		2003		Variance
General and Administrative	$	135,847	$	149,971	$	14,124		10.4	%	13.9	%	13.7	%	(0.2	)%
Sales, Marketing & Account Management		63,552		82,007		18,455		29.0	%	6.5	%	7.5	%	1.0	%
Information Technology		40,950		50,096		9,146		22.3	%	4.2	%	4.6	%	0.4	%
Bad Debt Expense		11,143		3,303		(7,840	)	(70.4	)%	1.1	%	0.3	%	(0.8	)%

	$	251,492	$	285,377	$	33,885		13.5	%	25.7	%	26.1	%	0.4	%

General and Administrative

The dollar increase in general and administrative expenses is primarily attributable to an increase in headcount, normal inflation and merit increases and an increase in worker's compensation expenses. We also experienced a $7.3 million increase in general and administrative expenses in our European operations, which is primarily attributable to the growth of operations and acquisitions and includes approximately $1.2 million associated with the strengthening of the British pound sterling against the U.S. dollar, based on an analysis of weighted average rates for the comparable periods. The increase in labor expenses was offset by decreases in professional fees and general insurance 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 nine months ended September 30, 2003. Throughout 2002 and 2003, we continued to invest in the expansion and improvement of our sales force. Excluding our European operations, we added 75 sales and marketing employees since September 30, 2002, a 20% increase in headcount, increased our account management force and initiated several new marketing and promotional efforts in 2003 to develop awareness in the marketplace of our entire service offerings. The costs associated with these efforts have contributed to the increase in our sales, marketing and account management expenses. In addition, costs associated with our European sales and account management teams have increased by $2.8 million for the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002, due to the hiring of new personnel and the integration of the Hays IMS sales force.

Information Technology

Information technology expenses increased $9.1 million for the nine months ended September 30, 2003 principally due to higher compensation costs resulting from increased headcount, normal inflation and merit increases, as well as an increase in external resources that collectively totaled $6.9 million. As our technology initiatives mature, less of our efforts are development related thus decreasing capitalizable expenditures, which results in increased information technology expenses. In addition, we incurred $1.7 million of additional costs for expanding bandwidth and international connectivity and other telecommunication expenses in 2003 as compared to 2002. These increased costs were offset by a reduction of $0.6 million realized through reduced technology equipment lease expenses.

Bad Debt Expense

The decrease in consolidated bad debt expense for the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002 is primarily attributable to the centralization of our collection efforts within our divisions which resulted in improved cash collections.

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

Consolidated depreciation and amortization expense increased $13.5 million to $93.9 million (8.6% of consolidated revenues) for the nine months ended September 30, 2003 from $80.5 million (8.2% of consolidated revenues) for the nine months ended September 30, 2002. Depreciation expense increased $12.1 million, primarily due to the additional depreciation expense related to recent 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 $3.9 million during the nine months ended September 30, 2003 as a result of software and hardware assets placed in service throughout 2002 and 2003. The consolidation of the properties owned by our Variable Interest Entities during 2002 resulted in $1.7 million of additional depreciation in the nine months ended September 30, 2003. Amortization expense increased as a result of the amortization of intangible assets associated with acquisitions we have completed in the fourth quarter of 2002 and during 2003.

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 $0.8 million for the nine months ended September 30, 2002. All merger related activities associated with the Pierce Leahy merger were completed in 2002.

Consolidated (gain) loss on disposal/writedown of property, plant and equipment, net consisted of disposals and asset writedowns of $4.4 million, offset by a $2.5 million gain on the sale of a property in Texas in 2003 and a gain of $2.1 million on the sale of a property held by one of our European subsidiaries in 2002.

Operating Income

As a result of the foregoing factors, consolidated operating income increased $32.6 million, or 17.6%, to $218.1 million (20.0% of consolidated revenues) for the nine months ended September 30, 2003 from net operating of $185.5 million (19.0% of consolidated revenues) for the nine months ended September 30, 2002.

OIBDA

As a result of the foregoing factors, consolidated OIBDA increased $46.1 million, or 17.3%, to $312.0 million (28.6% of consolidated revenues) for the nine months ended September 30, 2003 from $266.0 million (27.2% of consolidated revenues) for the nine months ended September 30, 2002.

Interest Expense, Net

Consolidated interest expense, net increased $9.1 million to $110.8 million (10.1% of consolidated revenues) for the nine months ended September 30, 2003 from $101.7 million (10.4% of consolidated revenues) for the nine months ended September 30, 2002. This increase was primarily attributable to (1) $6.9 million of interest expense associated with real estate term loans held by our Variable Interest Entities that were consolidated in the second half of 2002, (2) borrowings under our revolving credit facility and the issuance of our 6⁵/8% notes which were used to finance the Hays IMS acquisition, as well as (3) an increase in our overall weighted average outstanding borrowings. The increase was offset by a decline in our overall weighted average interest rate from 8.5% as of September 30, 2002 to 7.6% as of September 30, 2003 resulting from our refinancing efforts, a higher percentage of variable rate debt and a decline in variable interest rates.

Other (Income) Expense, Net

Significant items included in other (income) expense, net include the following (in thousands):

	Nine Months Ended September 30,
	2002			2003			Change
Foreign currency transaction gains	$	(3,693	)	$	(18,796	)	$	(15,103	)
Debt extinguishment expense		1,222			21,175			19,953
Other, net		163			(18	)		(181	)

	$	(2,308	)	$	2,361		$	4,669

Foreign currency gains of $18.8 million based on period-end exchange rates were recorded in the nine months ended September 30, 2003 primarily due to the strengthening of the Canadian dollar and British pound sterling against the U.S. dollar as these currencies relate to our intercompany balances with our Canadian and U.K. subsidiaries, U.S. dollar denominated debt held by our Canadian subsidiary, borrowings denominated in foreign currencies under our revolving credit facility, and our British pound sterling denominated cross currency swap.

During the nine months ended September 30, 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 remaining outstanding principal amount of our 8³/4% Senior Subordinated Notes due 2009 (the "8³/4% notes"), resulting in a charge of $13.8 million and $50.0 million of the outstanding principal of the Subsidiary notes, resulting in a charge of $5.5 million. The charges consisted primarily of the call and tender premiums associated with the extinguished debt and the write-off of unamortized deferred financing cost and discounts. During the nine months ended September 30, 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 in other (income) expense, net in accordance with recent changes in accounting pronouncements.

Provision for Income Taxes

Our effective tax rate for the nine months ended September 30, 2003 was 42.5%. The primary reconciling item between the statutory rate of 35% and our effective tax rate is state income taxes (net of federal benefit). The disallowance of certain intercompany interest charges, including a change in Massachusetts tax laws, retroactive to January 1, 2002, increased our provision for income taxes for the first nine months of 2003 by 1.4%. The effective tax rate projected for 2003 is 42.4%. Our effective tax rate was 41.2% for the nine months ended September 30, 2002. There may be future volatility with respect to our effective tax 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, net resulted in a charge to income of $4.2 million (0.4% of consolidated revenues) for the nine months ended September 30, 2003 compared to $2.4 million (0.2% of consolidated revenues) for the nine months ended September 30, 2002. This represents our minority partners' share of earnings in our majority-owned international subsidiaries that are consolidated in our operating results. The increase is a result of the improved profitability of our European and South American businesses.

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 $14.4 million, or 34.5%, to $56.2 million (5.1% of consolidated revenues) for the nine months ended September 30, 2003 from net income of $41.8 million (4.3% of consolidated revenues) for the nine months ended September 30, 2002.

Segment Analysis (In Thousands)

	Business Records Management			Off-Site Data Protection			International			Corporate & Other
Segment Revenue
Nine Months Ended
September 30, 2003	$	762,580		$	187,202		$	121,608		$	21,449
September 30, 2002		704,472			177,644			77,509			18,406

Increase in Revenues	$	58,108		$	9,558		$	44,099		$	3,043

Percentage Increase in Revenues		8.2	%		5.4	%		56.9	%		16.5	%
Contribution(1)
Nine Months Ended
September 30, 2003	$	213,341		$	52,144		$	27,680		$	20,759
September 30, 2002		194,635			46,736			15,186			8,271
Contribution as a Percentage of Segment Revenue
Nine Months Ended
September 30, 2003		28.0	%		27.9	%		22.8	%		96.8	%
September 30, 2002		27.6	%		26.3	%		19.6	%		44.9	%

(1): See Note 9 to Notes to Consolidated Financial Statements for definition of Contribution and for the basis on which allocations are made and a reconciliation of Contribution to net income on a consolidated basis.

Business Records Management

Revenue in our business records management segment increased 8.2% primarily due to increased storage revenues, growth of our secure shredding operations and acquisitions (including revenue from the U.S. operations of Hays IMS of $4.1 million), and was offset by lower special project service revenue and lower permanent removal and destruction fees during 2003. In addition, favorable currency fluctuations during the nine months ended September 30, 2003 in Canada increased revenue $5.9 million when compared to the nine months ended September 30, 2002. Contribution as a percent of segment revenue increased primarily due to lower bad debt expense which was partially offset by higher property taxes, utilities and our increased investment in our sales and account management force. Items excluded from the calculation of Contribution include the following: (1) depreciation and amortization expense for the nine months ended September 30, 2003 of $52.2 million compared to

$50.1 million for the nine months ended September 30, 2002, and (2) foreign currency gains of $23.0 million and $1.4 million for the nine months ended September 30, 2003 and 2002, respectively.

Off-Site Data Protection

Revenue in our off-site data protection segment increased 5.4% 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 increased primarily due to reduced bad debt expense, increased product sales margins and improved labor management. This increase was partially offset by increased investment in our sales and account management force. Items excluded from the calculation of Contribution include the following: (1) depreciation and amortization expense for the nine months ended September 30, 2003 of $10.2 million compared to $9.6 million for the nine months ended September 30, 2002 and (2) a loss on disposal/writedown of property plant and equipment, net of $1.8 million for the nine months ended September 30, 2003.

International

Revenue in our international segment increased 56.9% primarily due to acquisitions completed in Europe, including $10.7 million from the acquisition of Hays IMS, and in South America, as well as increased sales efforts and a large service project in the United Kingdom. Favorable currency fluctuations during the nine months ended September 30, 2003 in Europe increased revenue, as measured in U.S. dollars, by $11.4 million compared to the nine months ended September 30, 2002. This increase was offset by $1.5 million of unfavorable currency fluctuations in South America during the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002. Contribution as a percent of segment revenue increased primarily due to improved gross margins from both our European and South American operations and overall increased overhead utilization. This increase was partially offset by increased rent associated with new properties in Europe. Items excluded from the calculation of Contribution include the following: (1) depreciation and amortization expense for the nine months ended September 30, 2003 of $9.4 million compared to $5.0 million for the nine months ended September 30, 2002, including $1.3 million associated with the acquisition of Hays IMS in 2003, (2) a gain on disposal/writedown of property plant and equipment, net of $2.1 million for the nine months ended September 30, 2002 and (3) a foreign currency gain of $0.8 million in 2003 compared to a loss of $0.5 million in 2002.

Liquidity and Capital Resources

The following is a summary of our cash balances and cash flows for the nine months ended September 30, 2002 and 2003 (in thousands).

	2002			2003
Cash flows provided by operating activities	$	172,448		$	183,619
Cash flows used in investing activities		(165,497	)		(530,216	)
Cash flows (used in) provided by financing activities		(798	)		313,036
Cash and cash equivalents at the end of period	$	27,597		$	23,544

Net cash provided by operating activities was $183.6 million for the nine months ended September 30, 2003 compared to $172.4 million for the nine months ended September 30, 2002. The increase resulted primarily from an increase in operating income and non-cash items, such as depreciation, amortization, debt extinguishment expenses, and deferred income taxes offset by working

capital variations primarily associated with decreased accounts receivable collections and increased disbursements to vendors and non-cash foreign currency transaction gains.

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 nine months ended September 30, 2003 amounted to $148.0 million, $378.8 million (net of cash acquired) and $8.6 million, respectively. These investments have been funded primarily through cash flows from operations, borrowings under our revolving credit facilities and other financing transactions. In addition, we received proceeds from sales of property and equipment of $6.3 and $6.6 million in the nine months ended September 30, 2002 and 2003, respectively. 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 provided by financing activities of $313.0 million for the nine months ended September 30, 2003 primarily related to proceeds from the issuance of our 7³/4% Senior Subordinated Notes due 2015 (the "7³/4 notes") and our 6⁵/8% notes totaling $455.6 million, proceeds of $20.1 million received from minority joint venture partners, a net increase in debt under our credit facilities and other debt of $141.0 million offset by the early retirement of our 9¹/8%, 8³/4% and a portion of the Subsidiary notes totaling $306.4 million.

We are highly leveraged and expect to continue to be highly leveraged for the foreseeable future. Our consolidated debt as of September 30, 2003 was comprised of the following (in thousands):

Revolving Credit Facility due 2005	$	229,253
Term Loan due 2008		249,000
Subsidiary Notes		79,392
Parent Notes		1,222,299
Real Estate Term Loans		202,647
Other		80,381

Long-term Debt		2,062,972
Less Current Portion		(60,812	)

Long-term Debt, Net of Current Portion	$	2,002,160

Our indentures use OIBDA-based calculations as primary measures of financial performance, including leverage ratios. Our key bond leverage ratio, as calculated per our bond indentures, increased to 5.1 as of September 30, 2003 from 4.8 as of December 31, 2002. The increase was primarily attributable to indebtedness incurred by us and lent to Iron Mountain Europe Limited ("IME"), our European joint venture, to fund IME's acquisition of Hays IMS. We expect that IME will obtain permanent financing to repay all or a portion of the funding we provided, which will ultimately have the effect of reducing our bond leverage ratio. Noncompliance with this leverage ratio would have a material adverse effect on our financial condition and liquidity. Our target for this ratio is generally in the range of 4.5 to 5.5 while the maximum ratio allowable under the bond indentures is 6.5.

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 September 30, 2003, we had $229.3 million of borrowings under our revolving credit facility, of which $44.0 million was denominated in U.S. dollars and the remaining balance was denominated in British pounds sterling and Canadian dollars in the amount of GBP 80.0 million and CDN 70.2 million, respectively. We also had various outstanding letters of credit totaling $34.1 million. The remaining availability under the revolving credit facility was $136.6 million as of September 30, 2003, and the interest rates in effect ranged from 2.9% to 5.4% as of September 30, 2003.

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, with proceeds from 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 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 an additional $300 million in aggregate principal amount of our 7³/4% notes, which were issued at a price to investors of 104% of par, implying an effective yield to worst of 7.066%. Our net proceeds of $307.3 million, after paying the underwriters' discounts, commissions and transaction fees, were used to fund our offer to purchase and consent solicitation relating to our outstanding 8³/4% notes, to otherwise redeem the 8³/4% notes, repay borrowings under our revolving credit facility, and repay other indebtedness and 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 redeemed 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 recorded a charge to other (income) expense, net of $13.8 million in the second quarter of 2003 related to the early retirement of the 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.

In June 2003, we completed an underwritten public offering of $150 million in aggregate principal amount of our 6⁵/8% notes. The 6⁵/8% notes were issued at a price to investors of 100% of par. Our net proceeds of $147.5 million, after paying the underwriters' discounts, commissions and transaction fees, were used to redeem $50 million in aggregate principal amount of the outstanding Subsidiary notes in the third quarter of 2003 and the remainder was used for acquisitions.

In July 2003, we redeemed $50 million of outstanding principal amount of the Subsidiary notes, at a redemption price (expressed as a percentage of principal amount) of 104.063%, plus accrued and

unpaid interest. We recorded a charge to other (income) expense, net of $5.5 million in the third quarter of 2003 related to the early retirement of these Subsidiary notes, which consists of redemption premiums and transaction costs, as well as original issue discount related to these Subsidiary notes.

In July 2003, we and IME completed the acquisition of Hays IMS in two simultaneous transactions. IME acquired the European operations of Hays IMS for aggregate cash consideration (including transaction costs) of approximately 191.0 million pounds sterling ($311.0 million), while we acquired the U.S. operations of Hays IMS for aggregate cash consideration (including transaction costs) of 14.5 million pounds sterling ($24.0 million). These aggregate cash considerations included $5.1 million associated with the final post-closing purchase price adjustment, which was paid to IME by Hays plc in October 2003 after our third quarter ended. Both transactions were on a cash and debt free basis.

We provided the initial financing totaling 190.5 million British pounds sterling to IME for all of the consideration associated with the acquisition of the European operations of Hays IMS using cash on hand and borrowings under our revolving credit facility. IME is currently seeking permanent financing to repay all or a portion of the funding provided by us. We recorded a foreign currency gain of $6.9 million in other (income) expense, net for this intercompany balance as of September 30, 2003. In order to minimize the foreign currency risk associated with providing IME with the consideration necessary for the acquisition of Hay IMS, we borrowed 80.0 million British pounds sterling under our revolving credit facility to create a natural hedge. We recorded a foreign currency loss of $2.6 million on the translation of this revolving credit balance to U.S. dollars in other (income) expense, net for the three months ended September 30, 2003. Additionally, on July 16, 2003 we entered into two cross currency swaps with a combined notional value of 100.0 million British pounds sterling. These swaps each have a term of one year and at maturity we have a right to receive $162.8 million in exchange for 100.0 million British pounds sterling. We have not designated these swaps as hedges and, therefore, all mark to market fluctuations of the swaps are recorded in other (income) expense, net in our consolidated statements of operations. We have recorded, for the three and nine months ended September 30, 2003, $6.2 million in other (income) expense, net in the accompanying consolidated statements of operations.

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

After consideration of the swap contracts mentioned above, as of September 30, 2003, we had $389.9 million of variable rate debt outstanding with a weighted average variable interest rate of 4.45%, and $1,673.1 million of fixed rate debt outstanding. As of September 30, 2003, 81% of our total debt outstanding was fixed. If the weighted average variable interest rate on our variable rate debt had increased by 1%, our net income for the nine months ended September 30, 2003 would have been reduced by $1.1 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 September 30, 2003 included in this Form 10-Q.

Currency Risk

Our investments in IME, Iron Mountain Canada Corporation, 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 generally unhedged, except as discussed below.

We provided the initial financing to IME for all of the consideration associated with the acquisition of the European operations of Hays IMS using cash on hand and borrowings under our revolving credit facility. In order to minimize the foreign currency risk associated with providing IME with the consideration necessary for the acquisition of Hay IMS, we borrowed 80.0 million British pounds sterling under our revolving credit facility to create a natural hedge. Additionally, on July 16, 2003 we entered into two cross currency swaps with a combined notional value of 100.0 million British pounds sterling. These swaps each have a term of one year and at maturity we have a right to receive $162.8 million in exchange for 100.0 million British pounds sterling. We have not designated these swaps as hedges and, therefore, all mark to market fluctuations of the swaps are recorded in other (income) expense, net in our consolidated statements of operations.

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-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These rules refer to the controls and other procedures of a company that are designed to ensure that information 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. As of September 30, 2003 (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.

(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 changes to our internal control over financial reporting during the third fiscal quarter of 2003 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting, including any corrective actions taken with regard to any significant deficiencies or material weaknesses.

Part II. Other Information

Item 1. Legal Proceedings

others. Sequedex claims that IMIM acted maliciously and in bad faith in filing the March 28, 2002 complaint.

In connection with its proposed amended counterclaim, Sequedex has recently furnished a preliminary statement of damages and answered an interrogatory seeking information concerning the damages that Sequedex alleges it incurred. Sequedex's estimate of compensatory damages is approximately $172 million, and Sequedex has indicated that it intends to seek punitive damages of approximately $1.5 billion. Extensive discovery has been conducted in the three cases; on the basis of that discovery, it is our belief that Sequedex has not produced any material evidence that we or IMIM acted wrongfully in any respect. Further, limited discovery has been conducted in respect of Sequedex's damages claim; on the basis of that discovery, we do not believe that Sequedex has any foundation, and we believe that it cannot provide any foundation, for its damages calculations. We believe that the damages calculations submitted by Sequedex are not supported by credible evidence and are subject to serious legal, methodological and factual deficiencies. A trial of the three actions in which the Sequedex counterclaim has been asserted is scheduled to commence in the spring of 2004.

Item 6. Exhibits and Reports on Form 8-K

(a): Exhibits

Exhibit No.		Description
2.1		Agreement, dated July 12, 2003, between Hays plc and Iron Mountain Europe Limited (portions of this exhibit have been omitted pursuant to a request for confidential treatment).
10.1		First Amendment, dated as of July 9, 2003, to the Fifth Amended and Restated Credit Agreement, dated as of March 15, 2002, among the Company, certain lenders party thereto and J.P. Morgan Chase Bank, as Administrative Agent.
31.1		Certification required by Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended.
31.2		Certification required by Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended.
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		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 October 29, 2003, the Company furnished a Current Report on Form 8-K under Item 12 to announce its third quarter 2003 financial results.

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
NOVEMBER 14, 2003 (DATE)		By:	/s/ JEAN A. BUA Jean A. Bua Vice President and Corporate Controller (Principal Accounting Officer)

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. junior Avg

Iron Mountain (IRM) 10-Q2003 Q3 Quarterly report

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