Iron Mountain 10Q 2004 Q3 Quarterly report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2004
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to

Commission file number 1-13045

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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 1, 2004: 129,380,787

IRON MOUNTAIN INCORPORATED

Index

		Page
PART I—FINANCIAL INFORMATION
Item 1 —	Unaudited Consolidated Financial Statements
	Consolidated Balance Sheets at December 31, 2003 and September 30, 2004 (Unaudited)	3
	Consolidated Statements of Operations for the Three Months Ended September 30, 2003 and 2004 (Unaudited)	4
	Consolidated Statements of Operations for the Nine Months Ended September 30, 2003 and 2004 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2004 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2 —	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3 —	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4 —	Controls and Procedures	49
PART II—OTHER INFORMATION
Item 1 —	Legal Proceedings	51
Item 6 —	Exhibits	52
	Signature	53

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, 2003			September 30, 2004
ASSETS
Current Assets:
	Cash and cash equivalents		$	74,683		$	44,428
	Accounts receivable (less allowances of $20,922 and $14,010, respectively)			279,800			343,941
	Deferred income taxes			33,043			32,213
	Prepaid expenses and other			84,057			59,046

		Total Current Assets		471,583			479,628
Property, Plant and Equipment:
	Property, plant and equipment			1,950,893			2,143,420
	Less—Accumulated depreciation			(458,626	)		(567,974	)

		Net Property, Plant and Equipment		1,492,267			1,575,446
Other Assets, net:
	Goodwill			1,776,279			1,943,622
	Customer relationships and acquisition costs			116,466			162,121
	Deferred financing costs			23,934			37,149
	Other			11,570			8,262

		Total Other Assets, net		1,928,249			2,151,154

		Total Assets	$	3,892,099		$	4,206,228

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
	Current portion of long-term debt		$	115,781		$	17,923
	Accounts payable			87,006			96,619
	Accrued expenses			234,426			236,219
	Deferred revenue			107,857			119,165
	Other current liabilities			39,675			451

		Total Current Liabilities		584,745			470,377
Long-term Debt, net of current portion				1,974,147			2,330,155
Other Long-term Liabilities				24,499			22,248
Deferred Rent				20,578			22,998
Deferred Income Taxes				146,231			183,602
Commitments and Contingencies (see Note 9)
Minority Interests				75,785			11,735
Shareholders' Equity:
	Preferred stock (par value $0.01; authorized 10,000,000 shares; none issued and outstanding)			—			—
	Common stock (par value $0.01; authorized 200,000,000 shares; issued and outstanding 128,362,881 shares and 129,359,464 shares, respectively)			1,284			1,293
	Additional paid-in capital			1,033,642			1,053,088
	Retained earnings			39,234			103,538
	Accumulated other comprehensive items, net			(8,046	)		7,194

		Total Shareholders' Equity		1,066,114			1,165,113

		Total Liabilities and Shareholders' Equity	$	3,892,099		$	4,206,228

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,
			2003		2004
Revenues:
	Storage		$	222,973	$	263,867
	Service and storage material sales			158,785		195,463

		Total Revenues		381,758		459,330
Operating Expenses:
	Cost of sales (excluding depreciation)			171,355		209,797
	Selling, general and administrative			98,087		122,508
	Depreciation and amortization			33,197		42,269
	Loss (Gain) on disposal/writedown of property, plant and equipment, net			1,870		(246	)

		Total Operating Expenses		304,509		374,328
Operating Income				77,249		85,002
Interest Expense, Net				38,790		54,313
Other Expense (Income), Net				10,343		(2,979	)

		Income Before Provision for Income Taxes and Minority Interest		28,116		33,668
Provision for Income Taxes				12,012		14,293
Minority Interest in Earnings of Subsidiaries				1,310		925

		Net Income	$	14,794	$	18,450

Net Income per Share—Basic			$	0.12	$	0.14

Net Income per Share—Diluted			$	0.11	$	0.14

Weighted Average Common Shares Outstanding—Basic				127,955		129,288

Weighted Average Common Shares Outstanding—Diluted				130,089		131,366

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,
			2003		2004
Revenues:
	Storage		$	634,773	$	768,232
	Service and storage material sales			458,066		570,430

		Total Revenues		1,092,839		1,338,662
Operating Expenses:
	Cost of sales (excluding depreciation)			493,538		608,934
	Selling, general and administrative			285,377		353,456
	Depreciation and amortization			93,911		119,912
	Loss (Gain) on disposal/writedown of property, plant and equipment, net			1,886		(1,260	)

		Total Operating Expenses		874,712		1,081,042
Operating Income				218,127		257,620
Interest Expense, Net				110,752		140,431
Other Expense, Net				2,361		4,236

		Income Before Provision for Income Taxes and Minority Interest		105,014		112,953
Provision for Income Taxes				44,635		46,668
Minority Interest in Earnings of Subsidiaries				4,168		1,981

		Net Income	$	56,211	$	64,304

Net Income per Share—Basic			$	0.44	$	0.50

Net Income per Share—Diluted			$	0.43	$	0.49

Weighted Average Common Shares Outstanding—Basic				127,817		128,934

Weighted Average Common Shares Outstanding—Diluted				130,035		131,056

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,
		2003			2004
Cash Flows from Operating Activities:
	Net income	$	56,211		$	64,304
Adjustments to reconcile net income to cash flows provided by operating activities:
	Minority interests		4,168			1,981
	Depreciation		88,921			112,334
	Amortization (includes deferred financing costs and bond discount of $2,939 and $2,466, respectively)		7,929			10,044
	Provision for deferred income taxes		40,738			41,448
	Loss on early extinguishment of debt		21,175			2,454
	Loss (Gain) on disposal/writedown of property, plant and equipment, net		1,886			(1,260	)
	(Gain) Loss on foreign currency, stock-based employee compensation expense, interest rate swap expense and other, net		(18,024	)		8,607
Changes in Assets and Liabilities (exclusive of acquisitions):
	Accounts receivable		(14,880	)		(52,035	)
	Prepaid expenses and other current assets		5,098			685
	Accounts payable		(6,516	)		7,719
	Accrued expenses, deferred revenue and other current liabilities		(2,014	)		10,476
	Other assets and long-term liabilities		(1,073	)		2,222

	Cash Flows from Operating Activities		183,619			208,979
Cash Flows from Investing Activities:
	Capital expenditures		(148,039	)		(159,090	)
	Cash paid for acquisitions, net of cash acquired		(378,803	)		(253,528	)
	Additions to customer relationship and acquisition costs		(8,638	)		(9,512	)
	Investment in convertible preferred stock		(1,357	)		—
	Proceeds from sales of property and equipment		6,621			2,508

	Cash Flows from Investing Activities		(530,216	)		(419,622	)
Cash Flows from Financing Activities:
	Repayment of debt and term loans		(485,408	)		(891,151	)
	Proceeds from borrowings and term loans		626,029			862,042
	Early retirement of senior subordinated notes		(306,439	)		(20,797	)
	Net proceeds from sales of senior subordinated notes		455,590			269,427
	Debt financing (repayment to) and equity contribution from (distribution to) minority shareholders, net		20,099			(41,741	)
	Other, net		3,165			765

	Cash Flows from Financing Activities		313,036			178,545
Effect of exchange rates on cash and cash equivalents			813			1,843

Decrease in Cash and Cash Equivalents			(32,748	)		(30,255	)
Cash and Cash Equivalents, Beginning of Period			56,292			74,683

Cash and Cash Equivalents, End of Period		$	23,544		$	44,428

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, 2003 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 ("SEC"). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been omitted pursuant to those rules and regulations, but we believe that the disclosures are adequate to make the information presented not misleading. The consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2003.

On May 27, 2004, the Board of Directors of Iron Mountain Incorporated (the "Company" or "IMI") authorized and approved a three-for-two stock split effected in the form of a dividend on the Company's common stock. Such additional shares of common stock were issued on June 30, 2004 to all shareholders of record as of the close of business on June 15, 2004. All share and per share amounts have been restated to reflect the stock split.

Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentation.

(2) Summary of Significant Accounting Policies

a.: Principles of Consolidation

The accompanying financial statements reflect our financial position and results of operations on a consolidated basis. Financial position and results of operations of Iron Mountain Europe Limited ("IME"), our European subsidiary, are consolidated for the appropriate periods based on its fiscal year ended October 31. All significant intercompany account balances have been eliminated or presented to reflect the underlying economics of the transactions.

b.: Foreign Currency Translation

Local currencies are considered the functional currencies for most of our operations outside the United States. All assets and liabilities are translated at period-end exchange rates, and revenues and expenses are translated at average exchange rates for the applicable period, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." Resulting translation adjustments are reflected in the accumulated other comprehensive items component of shareholders' equity. The gain or loss on foreign currency transactions, including those related to (a) U.S. dollar denominated 8¹/8% senior notes of our Canadian subsidiary (the "Subsidiary notes"), (b) our 7¹/4% GBP Senior Subordinated Notes due 2014 (the "7¹/4% notes"), (c) the borrowings in certain foreign currencies under our revolving credit agreements, and (d) the foreign currency denominated intercompany obligations of our foreign subsidiaries to us, are included in other

(income) expense, net, on our consolidated statements of operations. The total of such net losses amounted to $4,838 and net gains of $18,796 for the three and nine months ended September 30, 2003, respectively, and the total of such net gains amounted to $2,753 and net losses of $2,185 for the three and nine months ended September 30, 2004, respectively.

c.: Goodwill and Other Intangible Assets

We apply the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill and intangible assets with indefinite lives are not 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 are amortized over their useful lives.

We have selected October 1 as our annual goodwill impairment review date. We performed our last annual goodwill impairment review as of October 1, 2003 and noted no impairment of goodwill at our reporting units as of that date. As of September 30, 2004, no factors were identified that would alter this assessment.

The changes in the carrying value of goodwill attributable to each reportable operating segment for the nine month period ended September 30, 2004 are as follows:

	Business Records Management			Off-Site Data Protection			International			Corporate & Other			Total Consolidated
Balance as of December 31, 2003	$	1,218,472		$	244,621		$	311,815		$	1,371		$	1,776,279
Goodwill acquired during the period		75,972			2,617			56,597			—			135,186
Adjustments to purchase reserves		(442	)		(70	)		10,799			—			10,287
Fair value adjustments		(1,701	)		(31	)		(225	)		—			(1,957	)
Other adjustments and currency effects		3,399			—			20,474			(46	)		23,827

Balance as of September 30, 2004	$	1,295,700		$	247,137		$	399,460		$	1,325		$	1,943,622

The components of our amortizable intangible assets at September 30, 2004 are as follows:

	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer Relationships and Acquisition Costs	$	182,853	$	20,732	$	162,121
Non-Compete Agreements		8,780		7,949		831
Deferred Financing Costs		45,221		8,072		37,149

Total	$	236,854	$	36,753	$	200,101

d.: 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 adopted 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. Additionally, we recognize expense related to the discount embedded in our employee stock purchase plan. We apply the fair value recognition provisions to all stock based awards granted, modified or settled on or after January 1, 2003 and we 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 for options granted prior to January 1, 2003, 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,
		2003			2004			2003			2004
Net income, as reported		$	14,794		$	18,450		$	56,211		$	64,304
Add: Stock-based employee compensation expense included in reported net income, net of tax benefit			380			1,578			502			2,501
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax benefit			(881	)		(2,017	)		(2,061	)		(3,890	)

Net income, pro forma		$	14,293		$	18,011		$	54,652		$	62,915

Earnings per share:
	Basic—as reported	$	0.12		$	0.14		$	0.44		$	0.50
	Basic—pro forma		0.11			0.14			0.43			0.49
	Diluted—as reported		0.11			0.14			0.43			0.49
	Diluted—pro forma		0.11			0.14			0.42			0.48

The weighted average fair value of options granted for the nine months ended September 30, 2003 and 2004 was $10.97 and $8.48 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 Assumption	Nine Months Ended September 30, 2003		Nine Months Ended September 30, 2004
Expected volatility	27.3	%	24.9	%
Risk-free interest rate	2.85		3.41
Expected dividend yield	None		None
Expected life of the option	5.0 years		5.0 years

e.: Income Per Share—Basic and Diluted

In accordance with SFAS No. 128, "Earnings per Share," basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding. The calculation of diluted net income per share is consistent with that of basic net income 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 2,135,012 shares and 2,078,369 shares for the three months ended September 30, 2003 and 2004, respectively, and 2,218,232 shares and 2,122,218 shares for the nine months ended September 30, 2003 and 2004, respectively. Potential common shares of 460,058 for the three and nine months ended September 30, 2003, respectively, and no shares for the three and nine months ended September 30, 2004 have been excluded from the calculation of diluted net income per share, as their effects are antidilutive.

f.: Supplemental Cash Flow Information

For the nine months ended September 30, 2003 and 2004, cash payments for interest were $95,043 and $134,211, respectively, and cash payments for income taxes (net of refunds) were $3,720 and $7,820, respectively.

(3) Comprehensive Income

SFAS No. 130, "Reporting Comprehensive Income," requires presentation of the components of comprehensive income, 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 is as follows:

			Three Months Ended September 30,					Nine Months Ended September 30,
			2003		2004			2003		2004
Comprehensive Income:
	Net Income		$	14,794	$	18,450		$	56,211	$	64,304
	Other Comprehensive Income (Loss):
		Foreign Currency Translation Adjustments		656		5,602			11,093		2,437
		Unrealized Gain (Loss) on Hedging Contracts		3,377		6,625			2,987		12,993
		Unrealized Gain (Loss) on Securities		46		(206	)		150		(190	)

Comprehensive Income			$	18,873	$	30,471		$	70,441	$	79,544

(4) 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. Given the recurring nature of our revenues and the long term nature of our asset base, we have the ability and the preference to use long term, fixed interest rate debt to finance our

business, thereby preserving our long term returns on invested capital. We target a range 80% to 85% of our debt portfolio to be fixed with respect to interest rates. Occasionally, we will use floating to fixed interest rate swaps as a tool to maintain our targeted level of fixed rate debt. In addition we will use borrowings in foreign currencies, either obtained in the U.S. or by our foreign subsidiaries, to naturally hedge foreign currency risk associated with our international investments. Sometimes we enter into currency swaps to temporarily hedge an overseas investment, such as a major acquisition to lock in certain transaction economics, while we arrange permanent financing.

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 sheet, 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 $6,649 ($5,252 recorded in accrued expenses and $1,397 recorded in other long-term liabilities), $2,424 and $4,225, respectively, as of September 30, 2004. 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 cash settlements. For the three and nine months ended September 30, 2004, we recorded additional interest expense of $2,149 and $6,642 respectively, resulting from interest rate swap cash 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 sheet, the estimated cost to terminate this swap (fair value of the derivative liability) of $316 (which was all recorded in accrued expenses) as of September 30, 2004. For the three and nine months ended September 30, 2003, we recorded additional interest expense of $539 and $1,541, respectively, resulting from the cash settlements associated with this interest rate swap agreement. As a result of the repayment of the real estate term loans discussed in Note 6, we recorded an additional $795 of interest in the first quarter of 2004, representing the fair value of the derivative liability. The total impact of marking to market the fair market value of the derivative liability and cash settlements associated with the interest rate swaps agreement resulted in our recording additional interest expense of $23 and $1,249 for the three and nine months ended September 30, 2004, respectively.

Also, we consolidated a variable interest entity ("VIE III", collectively with our two other variable interest entities, our "Variable Interest Entities") 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 sheet, the estimated cost to terminate this swap (fair value of the derivative liability) of $8,451 ($3,550 recorded in accrued expenses and $4,901 recorded in other long-term liabilities) as of September 30, 2004. 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 cash settlements. As a result of the repayment of the real estate term loans discussed in

Note 6, we recorded an additional $8,656 of interest in the third quarter of 2004, representing the fair value of the derivative liability. The total impact of marking to market the fair market value of the derivative liability and cash settlements associated with the interest rate swap agreement resulted in our recording additional interest expense of $9,598 and $12,057 for the three and nine months ended September 30, 2004, respectively.

In July 2003, we provided the initial financing totaling 190,459 British pounds sterling to IME for all of the consideration associated with the acquisition of the European information management services business of Hays plc ("Hays IMS") using cash on hand and borrowings under our revolving credit facility. In March 2004, IME repaid 135,000 British pounds sterling with proceeds from their new credit agreement (see Note 6). We recorded a foreign currency gain of $11,866 in other (income) expense, net for this intercompany balance in the first quarter of 2004. 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. In the first quarter of 2004, these borrowings were repaid and we recorded a foreign currency loss of $2,995 on the translation of this revolving credit balance to U.S. dollars in other (income) expense, net.

In addition, on July 16, 2003, we entered into two cross currency swaps with a combined notional value of 100,000 British pounds sterling. We settled these swaps in March 2004 by paying our counter parties a total of $27,714 representing the fair market value of the derivative and the associated swap costs, of which $18,978 was accrued for as of December 31, 2003. In the first quarter of 2004, we recorded a foreign currency loss for this swap of $8,736 in other (income) expense, net in the accompanying consolidated statement of operations. Upon cash settlement, we received $162,800 in exchange for 100,000 British pounds sterling. We did not designate these swaps as hedges and, therefore, all mark to market fluctuations of the swaps were recorded in other (income) expense, net in our consolidated statements of operations from inception to cash settlement of the swaps.

In April 2004, IME entered into two floating for fixed interest rate swap contracts, each with a notional value of 50,000 British pounds sterling and a duration of two years, which were designated as cash flow hedges. These swap agreements hedge interest rate risk on IME's 100,000 British pounds sterling term loan facility (see Note 6). We have recorded, in the accompanying consolidated balance sheet, the fair value of the derivative asset, a deferred tax liability and a corresponding increase to accumulated other comprehensive items of $1,376 (which was all recorded in other current assets), $406 and $970, respectively, as of September 30, 2004. For the three and nine months ended September 30, 2004, we recorded additional interest expense of $16 and $218, respectively, resulting from interest rate swap cash settlements.

(5) Acquisitions

In February 2004, we completed the acquisition of Mentmore plc's ("Mentmore") 49.9% equity interest in IME for total consideration of 82,500 British pounds sterling ($154,000) in cash. Included in this amount is the repayment of all trade and working capital funding owed to Mentmore by IME. Completion of the transaction gives us 100% ownership of IME, affording us full access to all future

cash flows and greater strategic and financial flexibility. We do not expect this transaction to have material impact on revenue or operating income since we already fully consolidate IME's financial results. Using the purchase method of accounting for this acquisition, the net assets of IME will be adjusted to reflect 49.9% of the difference between the fair market value and their current carrying value.

Each of the 2004 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. Cash consideration for the various acquisitions was provided through our credit facilities and the issuance of certain of our senior subordinated notes.

A summary of the consideration paid and the allocation of the purchase price of all 2004 acquisitions is as follows:

Cash Paid (net of cash acquired)(1)		$	250,786
Fair Value of Identifiable Net Assets Acquired:
	Fair Value of Identifiable Assets Acquired(2)		(60,229	)
	Liabilities Assumed(3)		16,165
	Minority Interest(4)		(71,536	)

	Total Fair Value of Identifiable Net Assets Acquired		(115,600	)

Recorded Goodwill		$	135,186

(1): Included in cash paid for acquisitions in the consolidated statement of cash flows for the nine months ended September 30, 2004 is $2,742 of contingent and other payments that were paid in 2004 related to acquisitions made in 1999 and 2003.
(2): Comprised primarily of accounts receivable, prepaid expenses and other, land, buildings, racking, leasehold improvements and customer relationship assets.
(3): Comprised primarily of accounts payable, accrued expenses and notes payable.
(4): Comprised primarily of the carrying value of Mentmore's 49.9% minority interest in IME at the date of acquisition.

Allocation of the purchase price for the 2004 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 and 2004 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 for 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, 2004 primarily include completion of planned abandonments of facilities and severance contracts in connection with certain acquisitions.

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

	Year Ended December 31, 2003			Nine Months Ended September 30, 2004
Reserves, Beginning Balance	$	9,906		$	16,322
Reserves Established		12,526			13,714
Expenditures		(5,436	)		(8,581	)
Adjustments to Goodwill, including currency effect(1)		(674	)		(229	)

Reserves, Ending Balance	$	16,322		$	21,226

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

At September 30, 2004, the restructuring reserves related to acquisitions consisted of lease losses on abandoned facilities of $12,761, severance costs for approximately 62 people of $1,956 and other exit costs of $6,509. These accruals are expected to be used prior to September 30, 2005, except for lease losses of $10,868 and severance contracts of $222, both of which are based on contracts that extend beyond one year.

(6) Long-term Debt

Our long-term debt consists of the following:

	December 31, 2003					September 30, 2004
	Carrying Amount			Fair Value		Carrying Amount			Fair Value
IMI Revolving Credit Facility(1)	$	142,280		$	142,280	$	172,184		$	172,184
IMI Term Loan Facility(1)		248,750			248,750		199,500			199,500
IME Revolving Credit Facility(1)		—			—		85,772			85,772
IME Term Loan Facility(1)		—			—		182,140			182,140
8¹/8% Senior Notes due 2008 (Subsidiary notes)(3)		18,768			20,684		—			—
8¹/4% Senior Subordinated Notes due 2011(2)(3)		149,670			156,375		149,704			156,375
8⁵/8% Senior Subordinated Notes due 2013(2)(3)		481,075			521,748		481,060			524,153
7¹/4% GBP Senior Subordinated Notes due 2014(2)(3)		—			—		269,910			257,089
7³/4% Senior Subordinated Notes due 2015(2)(3)		441,331			456,052		440,647			454,974
6⁵/8% Senior Subordinated Notes due 2016(2)(3)		314,071			311,200		314,441			310,400
Real Estate Term Loans(1)		202,647			202,647		—			—
Real Estate Mortgages(1)		17,584			17,584		16,283			16,283
Seller Notes(1)		12,607			12,607		10,561			10,561
Other(1)		61,145			61,145		25,876			25,876

Total Long-term Debt		2,089,928					2,348,078
Less Current Portion		(115,781	)				(17,923	)

Long-term Debt, Net of Current Portion	$	1,974,147				$	2,330,155

(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, 2003 and September 30, 2004) 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 values of the Parent notes and the Subsidiary notes are based on quoted market prices for these notes on December 31, 2003 and September 30, 2004.

In January 2004, we completed an offering of 150,000 British pounds sterling in aggregate principal amount of our 7¹/4% notes, which were issued at a price of 100% of par. Our net proceeds of 146,900 British pounds sterling, after paying the initial purchasers' discounts, commissions and transaction fees, were used to fund our acquisition of Mentmore's 49.9% equity interest in IME for total consideration of 82,500 British pounds sterling, to redeem $19,985 in aggregate principal amount of our outstanding Subsidiary notes in February 2004, to repay borrowings under our revolving credit facility, to repay $48,750 of our term loans, to repay other indebtedness and to pay for other acquisitions.

In February 2004, we redeemed the remaining $19,985 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 $2,028 in the first quarter of 2004 related to the early retirement of these remaining Subsidiary notes, which consists of redemption premiums and transaction costs as well as original issue discount related to these Subsidiary notes.

In March 2004, IME and certain of its subsidiaries entered into a credit agreement (the "IME Credit Agreement") with a syndicate of European lenders. The IME Credit Agreement provides for maximum borrowing availability in the principal amount of 210,000 British pounds sterling, including a 100,000 British pounds sterling revolving credit facility (the "IME revolving credit facility"), which includes the ability to borrow in certain other foreign currencies, a 100,000 British pounds sterling term loan (the "IME term loan facility"), and a 10,000 British pounds sterling overdraft protection line. The IME revolving credit facility matures on March 5, 2009. The IME term loan facility is payable in three installments; two installments of 20,000 British pounds sterling on March 5, 2007 and 2008, respectively, and the final payment of the remaining balance on March 5, 2009. The interest rate on borrowings under the IME Credit Agreement varies depending on IME's choice of currency options and interest rate period, plus an applicable margin. The IME Credit Agreement includes various financial covenants applicable to the results of IME, which may restrict IME's ability to incur indebtedness under the IME Credit Agreement and from third parties, as well as limit IME's ability to pay dividends to us. Most of IME's non-dormant subsidiaries have either guaranteed the obligations or have their shares pledged to secure IME's obligations under the IME Credit Agreement. We have not guaranteed or otherwise provided security for the IME Credit Agreement nor have any of our U.S., Canadian, Mexican or South American subsidiaries.

In March 2004, IME borrowed approximately 147,000 British pounds sterling under the IME Credit Agreement, including the full amount of the term loan. IME used those proceeds to repay us 135,000 British pounds sterling related to our initial financing of the acquisition of Hays IMS, to repay amounts outstanding under its prior term loan and revolving credit facility and to pay transaction costs associated with the IME Credit Agreement. We used the 135,000 British pounds sterling received from IME to: (1) pay down $103,932 of real estate term loans, (2) settle all obligations totaling $27,714 associated with terminating our two cross currency swaps used to hedge the foreign currency impact of our intercompany financing with IME related to the Hays IMS acquisition, and (3) to pay down amounts outstanding under our prior credit agreement. Our consolidated balance sheet as of September 30, 2004 included 147,092 British pounds sterling ($267,912) of borrowings under the IME Credit Agreement. The remaining availability, based on its current level of external debt and the leverage ratio under the IME revolving credit facility on July 31, 2004, was approximately 49,600 British pounds sterling ($90,300). The interest rate in effect under the IME revolving credit facility ranged from 3.8% to 6.6% as of July 31, 2004.

On April 2, 2004 and subsequently on July 8, 2004, we entered into a new amended and restated revolving credit facility and term loan facility (the "IMI Credit Agreement") to replace our prior credit agreement and to reflect more favorable pricing of our term loans. The IMI Credit Agreement has an aggregate principal amount of $550,000 and is comprised of a $350,000 revolving credit facility (the "IMI revolving credit facility"), which includes the ability to borrow in certain foreign currencies, and a $200,000 term loan facility (the "IMI term loan facility"). The IMI revolving credit facility matures on

April 2, 2009. With respect to the IMI term loan facility, quarterly loan payments of $500 began in the third quarter of 2004 and will continue through maturity on April 2, 2011, at which time the remaining outstanding principal balance of the IMI term loan facility is due. The interest rate on borrowings under the IMI Credit Agreement varies depending on our choice of interest rate and currency options, plus an applicable margin. All intercompany notes and the capital stock of most of our U.S. subsidiaries are pledged to secure the IMI Credit Agreement. As of September 30, 2004, we had $172,184 of borrowings under our IMI revolving credit facility, of which $6,000 was denominated in U.S. dollars and the remaining balance was denominated in Canadian dollars (CAD 211,000); we also had various outstanding letters of credit totaling $22,427. The remaining availability, based on IMI's current level of external debt and the leverage ratio under the IMI revolving credit facility, on September 30, 2004 was $155,389. The interest rate in effect under the IMI revolving credit facility was 4.5% as of September 30, 2004.

Our Variable Interest Entities were financed with real estate term loans. In March 2004, $103,932 of these real estate term loans was repaid; the remaining $98,715 of real estate term loans was repaid in August 2004. We recorded a charge to other (income) expense, net of $426 for the nine months ended September 30, 2004 related to the early retirement of these real estate term loans.

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, 2004, we were in compliance with all material debt covenants and agreements.

(7) 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, 2004 and December 31, 2003 and for the three and nine month periods ended September 30, 2004 and 2003. The Guarantors column includes all subsidiaries that guarantee the Parent notes. The subsidiaries that do not guarantee the Parent notes are referred to in the table as the "Non-Guarantors."

			September 30, 2004
			Parent		Guarantors		Non- Guarantors		Eliminations			Consolidated
Assets
Current Assets:
	Cash and Cash Equivalents		$	—	$	13,236	$	31,192	$	—		$	44,428
	Accounts Receivable			—		234,963		108,978		—			343,941
	Intercompany Receivable			869,607		—		—		(869,607	)		—
	Other Current Assets			1,915		63,656		26,105		(417	)		91,259

		Total Current Assets		871,522		311,855		166,275		(870,024	)		479,628
Property, Plant and Equipment, Net				—		1,098,646		476,800		—			1,575,446
Other Assets, Net:
	Long-term Notes Receivable from Affiliates and Intercompany Receivable			1,712,645		1,000		—		(1,713,645	)		—
	Investment in Subsidiaries			470,301		174,430		925		(645,656	)		—
	Goodwill			—		1,367,427		566,440		9,755			1,943,622
	Other			30,510		78,556		99,038		(572	)		207,532

		Total Other Assets, Net		2,213,456		1,621,413		666,403		(2,350,118	)		2,151,154

		Total Assets	$	3,084,978	$	3,031,914	$	1,309,478	$	(3,220,142	)	$	4,206,228

Liabilities and Shareholders' Equity
	Intercompany Payable		$	—	$	384,835	$	484,772	$	(869,607	)	$	—
	Current Portion of Long-term Debt			2,274		1,212		14,437		—			17,923
	Total Other Current Liabilities			51,628		278,941		122,302		(417	)		452,454
	Long-term Debt, Net of Current Portion			1,860,336		1,291		468,528		—			2,330,155
	Long-term Notes Payable to Affiliates and Intercompany Payable			1,000		1,712,645		—		(1,713,645	)		—
	Other Long-term Liabilities			4,627		199,755		25,038		(572	)		228,848
	Commitments and Contingencies
	Minority Interests			—		—		3,094		8,641			11,735
	Shareholders' Equity			1,165,113		453,235		191,307		(644,542	)		1,165,113

		Total Liabilities and Shareholders' Equity	$	3,084,978	$	3,031,914	$	1,309,478	$	(3,220,142	)	$	4,206,228

			December 31, 2003
			Parent		Guarantors		Non- Guarantors		Eliminations			Consolidated
Assets
Current Assets:
	Cash and Cash Equivalents		$	—	$	54,793	$	19,890	$	—		$	74,683
	Accounts Receivable			—		202,271		77,529		—			279,800
	Intercompany Receivable			870,924		—		13,935		(884,859	)		—
	Other Current Assets			3,591		84,733		29,186		(410	)		117,100

		Total Current Assets		874,515		341,797		140,540		(885,269	)		471,583
Property, Plant and Equipment, Net				—		973,619		518,648		—			1,492,267
Other Assets, Net:
	Long-term Notes Receivable from Affiliates and Intercompany Receivable			1,625,796		1,000		98,715		(1,725,511	)		—
	Investment in Subsidiaries			402,045		91,336		—		(493,381	)		—
	Goodwill			—		1,323,340		443,198		9,741			1,776,279
	Other			23,661		69,221		61,783		(2,695	)		151,970

		Total Other Assets, Net		2,051,502		1,484,897		603,696		(2,211,846	)		1,928,249

		Total Assets	$	2,926,017	$	2,800,313	$	1,262,884	$	(3,097,115	)	$	3,892,099

Liabilities and Shareholders' Equity
	Intercompany Payable		$	—	$	237,392	$	647,467	$	(884,859	)	$	—
	Current Portion of Long-term Debt			1,265		1,645		112,871		—			115,781
	Total Other Current Liabilities			73,385		256,018		139,971		(410	)		468,964
	Long-term Debt, Net of Current Portion			1,777,480		2,924		193,743		—			1,974,147
	Long-term Notes Payable to Affiliates and Intercompany Payable			1,000		1,724,511		—		(1,725,511	)		—
	Other Long-term Liabilities			6,773		169,695		17,535		(2,695	)		191,308
	Commitments and Contingencies
	Minority Interests			—		—		6,105		69,680			75,785
	Shareholders' Equity			1,066,114		408,128		145,192		(553,320	)		1,066,114

		Total Liabilities and Shareholders' Equity	$	2,926,017	$	2,800,313	$	1,262,884	$	(3,097,115	)	$	3,892,099

			Three Months Ended September 30, 2004
			Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
Revenues:
	Storage		$	—		$	195,460		$	68,407		$	—		$	263,867
	Service and Storage Material Sales			—			136,647			58,816			—			195,463

		Total Revenues		—			332,107			127,223			—			459,330
Operating Expenses:
	Cost of Sales (Excluding Depreciation)			—			146,680			63,117			—			209,797
	Selling, General and Administrative			(42	)		90,979			31,571			—			122,508
	Depreciation and Amortization			9			31,605			10,655			—			42,269
	(Gain) Loss on Disposal/Writedown of Property, Plant and Equipment, Net			—			(286	)		40			—			(246	)

		Total Operating Expenses		(33	)		268,978			105,383			—			374,328

Operating Income				33			63,129			21,840			—			85,002
Interest Expense, Net				37,477			616			16,220			—			54,313
Equity in the (Earnings) Losses of Subsidiaries				(54,553	)		1,207			—			53,346			—
Other (Income) Expense, Net				(1,341	)		(4,502	)		2,864			—			(2,979	)

	Income Before Provision for Income Taxes and Minority Interest			18,450			65,808			2,756			(53,346	)		33,668
Provision for Income Taxes				—			11,379			2,914			—			14,293
Minority Interest in Earnings of Subsidiaries				—			—			925			—			925

		Net Income (Loss)	$	18,450		$	54,429		$	(1,083	)	$	(53,346	)	$	18,450

			Three Months Ended September 30, 2003
			Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
Revenues:
	Storage		$	—		$	181,568		$	41,405		$	—		$	222,973
	Service and Storage Material Sales			—			127,449			31,336			—			158,785

		Total Revenues		—			309,017			72,741			—			381,758
Operating Expenses:
	Cost of Sales (Excluding Depreciation)			—			137,406			33,949			—			171,355
	Selling, General and Administrative			(33	)		80,236			17,884			—			98,087
	Depreciation and Amortization			4			26,814			6,379			—			33,197
	Loss on Disposal/Writedown of Property, Plant and Equipment, Net			—			1,822			48			—			1,870

		Total Operating Expenses		(29	)		246,278			58,260			—			304,509

Operating Income				29			62,739			14,481			—			77,249
Interest Expense, Net				5,176			25,890			7,724			—			38,790
Equity in the Earnings of Subsidiaries				(28,612	)		(677	)		—			29,289			—
Other Expense (Income), Net				8,671			(6,033	)		7,705			—			10,343

	Income (Loss) Before Provision (Benefit) for Income Taxes and Minority Interest			14,794			43,559			(948	)		(29,289	)		28,116
Provision (Benefit) for Income Taxes				—			12,268			(256	)		—			12,012
Minority Interest in Earnings of Subsidiaries				—			—			1,310			—			1,310

		Net Income (Loss)	$	14,794		$	31,291		$	(2,002	)	$	(29,289	)	$	14,794

			Nine Months Ended September 30, 2004
			Parent			Guarantors			Non- Guarantors		Eliminations			Consolidated
Revenues:
	Storage		$	—		$	572,912		$	195,320	$	—		$	768,232
	Service and Storage Material Sales			—			408,225			162,205		—			570,430

		Total Revenues		—			981,137			357,525		—			1,338,662
Operating Expenses:
	Cost of Sales (Excluding Depreciation)			—			432,936			175,998		—			608,934
	Selling, General and Administrative			81			264,541			88,834		—			353,456
	Depreciation and Amortization			25			91,286			28,601		—			119,912
	(Gain) Loss on Disposal/Writedown of Property, Plant and Equipment, Net			—			(1,365	)		105		—			(1,260	)

		Total Operating Expenses		106			787,398			293,538		—			1,081,042

Operating (Loss) Income				(106	)		193,739			63,987		—			257,620
Interest Expense (Income), Net				112,018			(9,797	)		38,210		—			140,431
Equity in the Earnings of Subsidiaries				(179,545	)		(6,067	)		—		185,612			—
Other Expense (Income), Net				3,117			(8,295	)		9,414		—			4,236

	Income Before Provision for Income Taxes and Minority Interest			64,304			217,898			16,363		(185,612	)		112,953
Provision for Income Taxes				—			38,674			7,994		—			46,668
Minority Interest in Earnings of Subsidiaries				—			—			1,981		—			1,981

		Net Income	$	64,304		$	179,224		$	6,388	$	(185,612	)	$	64,304

			Nine Months Ended September 30, 2003
			Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
Revenues:
	Storage		$	—		$	529,554		$	105,219		$	—		$	634,773
	Service and Storage Material Sales			—			375,045			83,021			—			458,066

		Total Revenues		—			904,599			188,240			—			1,092,839
Operating Expenses:
	Cost of Sales (Excluding Depreciation)			—			404,863			88,675			—			493,538
	Selling, General and Administrative			247			241,215			43,915			—			285,377
	Depreciation and Amortization			13			78,178			15,720			—			93,911
	Loss on Disposal/Writedown of Property, Plant and Equipment, Net			—			1,674			212			—			1,886

		Total Operating Expenses		260			725,930			148,522			—			874,712

Operating (Loss) Income				(260	)		178,669			39,718			—			218,127
Interest Expense, Net				9,706			79,387			21,659			—			110,752
Equity in the Earnings of Subsidiaries				(97,027	)		(3,319	)		—			100,346			—
Other Expense (Income), Net				30,850			(15,632	)		(12,857	)		—			2,361

	Income Before Provision for Income Taxes and Minority Interest			56,211			118,233			30,916			(100,346	)		105,014
Provision for Income Taxes				—			31,803			12,832			—			44,635
Minority Interest in Earnings of Subsidiaries				—			—			4,168			—			4,168

		Net Income	$	56,211		$	86,430		$	13,916		$	(100,346	)	$	56,211

			Nine Months Ended September 30, 2004
			Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
Cash Flows from Operating Activities:
	Cash Flows from Operating Activities		$	(140,178	)	$	303,838		$	45,319		$	—		$	208,979
Cash Flows from Investing Activities:
	Capital expenditures			—			(108,193	)		(50,897	)		—			(159,090	)
	Cash paid for acquisitions, net of cash acquired			—			(52,053	)		(201,475	)		—			(253,528	)
	Intercompany loans to subsidiaries			160,067			188,709			—			(348,776	)		—
	Investment in subsidiaries			(111,988	)		(111,988	)		—			223,976			—
	Additions to customer relationship and acquisition costs			—			(7,593	)		(1,919	)		—			(9,512	)
	Proceeds from sales of property and equipment			—			2,454			54			—			2,508

		Cash Flows from Investing Activities		48,079			(88,664	)		(254,237	)		(124,800	)		(419,622	)
Cash Flows from Financing Activities:
	Repayment of debt and term loans			(591,649	)		(205,162	)		(94,340	)		—			(891,151	)
	Proceeds from borrowings and term loans			408,192			—			453,850			—			862,042
	Early retirement of senior subordinated notes			—			—			(20,797	)		—			(20,797	)
	Net proceeds from sales of senior subordinated notes			269,427			—			—			—			269,427
	Debt financing (repayment to) and equity contribution from (distribution to) minority shareholders, net			—			—			(41,741	)		—			(41,741	)
	Intercompany loans from parent			—			(163,557	)		(185,219	)		348,776			—
	Equity contribution from parent			—			111,988			111,988			(223,976	)		—
	Other, net			6,129			—			(5,364	)		—			765

		Cash Flows from Financing Activities		92,099			(256,731	)		218,377			124,800			178,545
Effect of exchange rates on cash and cash equivalents				—			—			1,843			—			1,843

(Decrease) Increase in cash and cash equivalents				—			(41,557	)		11,302			—			(30,255	)
Cash and cash equivalents, beginning of period				—			54,793			19,890			—			74,683

Cash and cash equivalents, end of period			$	—		$	13,236		$	31,192		$	—		$	44,428

			Nine Months Ended September 30, 2003
			Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
Cash Flows from Operating Activities:
	Cash Flows from Operating Activities		$	(309	)	$	156,209		$	27,719		$	—		$	183,619
Cash Flows from Investing Activities:
	Capital expenditures			—			(112,828	)		(35,211	)		—			(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			—
	Investment in convertible preferred stock			—			(1,357	)		—			—			(1,357	)
	Additions to customer relationship and acquisition costs			—			(6,498	)		(2,140	)		—			(8,638	)
	Proceeds from sales of property and equipment			—			6,555			66			—			6,621

		Cash Flows from Investing Activities		(291,745	)		(497,547	)		(350,681	)		609,757			(530,216	)
Cash Flows from Financing Activities:
	Repayment of debt and term loans			(442,078	)		(489	)		(42,841	)		—			(485,408	)
	Proceeds from borrowings and term loans			529,784			—			96,245			—			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			310,591			(606,447	)		—
	Equity contribution from parent			—			1,655			1,655			(3,310	)		—
	Other, net			3,165			—			—			—			3,165

		Cash Flows from Financing Activities		292,054			297,022			333,717			(609,757	)		313,036
Effect of exchange rates on cash and cash equivalents				—			—			813			—			813

(Decrease) Increase in cash and cash equivalents				—			(44,316	)		11,568			—			(32,748	)
Cash and cash equivalents, beginning of period				—			52,025			4,267			—			56,292

Cash and cash equivalents, end of period			$	—		$	7,709		$	15,835		$	—		$	23,544

(8) 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, 2003
Revenue	$	260,983	$	63,937	$	49,780	$	7,058		$	381,758
Contribution		74,363		17,691		11,157		9,105			112,316
Expenditures for Segment Assets		70,753		3,088	��	319,278		7,502			400,621
Three Months Ended September 30, 2004
Revenue		279,326		70,250		98,689		11,065			459,330
Contribution		71,096		20,065		23,925		11,939			127,025
Expenditures for Segment Assets		95,407		4,521		19,636		12,750			132,314
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
Expenditures for Segment Assets(2)		143,973		23,451		343,165		24,891			535,480
Nine Months Ended September 30, 2004
Revenue		823,305		204,775		279,503		31,079			1,338,662
Contribution		221,905		58,853		68,421		27,093			376,272
Total Assets		2,671,816		387,932		967,052		179,428	(1)		4,206,228
Expenditures for Segment Assets(2)		170,796		15,508		207,756		28,070			422,130

(1): Total Corporate & Other assets include the intersegment elimination amounts of $1,745,805 and $1,870,821 as of September 30, 2003 and 2004, respectively.
(2): Includes capital expenditures, cash paid for acquisitions, net of cash acquired and additions to customer relationship and acquisition costs in the accompanying consolidated statements of cash flows.

The accounting policies of the reportable segments are the same as those described in Note 2 to Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2003, except that certain costs continue to be allocated from Corporate & Other to the other segments in both 2003 and 2004, 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, 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,
			2003		2004			2003		2004
Contribution			$	112,316	$	127,025		$	313,924	$	376,272
	Less: Depreciation and Amortization			33,197		42,269			93,911		119,912
		Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net		1,870		(246	)		1,886		(1,260	)
		Interest Expense, Net		38,790		54,313			110,752		140,431
		Other Expense (Income), Net		10,343		(2,979	)		2,361		4,236
		Provision for Income Taxes		12,012		14,293			44,635		46,668
		Minority Interest in Earnings of Subsidiaries		1,310		925			4,168		1,981

Net Income			$	14,794	$	18,450		$	56,211	$	64,304

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

		Three Months Ended September 30,				Nine Months Ended September 30,
		2003		2004		2003		2004
Revenues:
United States		$	309,760	$	333,110	$	906,616	$	983,785
United Kingdom			35,937		69,549		87,919		203,754
Canada			22,218		27,533		64,615		75,374
Other International			13,843		29,138		33,689		75,749

	Total Revenues	$	381,758	$	459,330	$	1,092,839	$	1,338,662

		December 31, 2003		September 30, 2004
Long-lived Assets:
United States		$	2,514,031	$	2,596,872
United Kingdom			551,924		599,137
Canada			253,874		297,944
Other International			100,687		232,647

	Total Long-lived Assets	$	3,420,516	$	3,726,600

(9) Commitments and Contingencies

We are a party to numerous operating leases. No material changes in the obligations associated with these leases have occurred since December 31, 2003. See our Annual Report on Form 10-K for the year ended December 31, 2003 for amounts outstanding at December 31, 2003.

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2003 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, the arbitrator in

our arbitration proceeding against J. Peter Pierce did not find the evidence provided by us sufficient to rule in our favor on the particular claims at issue and, in response to that decision, we filed a motion to vacate the arbitrator's decision and award in the Superior Court for Middlesex County, New Jersey. On June 16, 2004, that court denied our motion to vacate and confirmed the arbitration decision. We have appealed the court's decision to the Appellate Division of the New Jersey Superior Court. Mr. Pierce filed a motion to dismiss the appeal. The motion to dismiss filed by Mr. Pierce was denied. In the meanwhile, on September 13, 2004, the arbitrator issued a final award, granting Mr. Pierce indemnification for legal expenses incurred in the arbitration in the amount of approximately $1,600. Mr. Pierce brought an action in the Superior Court for Middlesex County to confirm such award and such court issued an order to show cause. We opposed this action and filed a motion to dismiss Mr. Pierce's claims and vacate the arbitration award, or in the alternative, for a stay pending disposition of the pending appeal regarding the motion to vacate.

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2003, six lawsuits were outstanding against us by certain of our customers or abutters and/or their insurers in connection with the arson that resulted in damage to one and destruction of another records and information management services facility in South Brunswick Township, New Jersey in March 1997. As a result of a mediation in August, 2004, the parties to these six lawsuits entered into a written settlement of these matters. Pursuant to the settlement agreement, the Company contributed $500 to a settlement fund in exchange for a complete release. The Superior Court for Middlesex County, New Jersey has, therefore, dismissed all of these cases. In addition, our insurers reimbursed us for the costs of the defense.

Other than the matters discussed above, there have been no material developments during the third quarter of 2004 in the proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2003 or our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004 and June 30, 2004.

Additionally, we are involved in litigation from time to time in the ordinary course of business with a portion of the defense and/or settlement costs being covered by various commercial liability insurance policies purchased by us. In the opinion of management, no material legal proceedings, other than those described above and in our Annual Report on Form 10-K for the year ended December 31, 2003 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004 and June 30, 2004, are pending to which we, or any of our properties, are subject.

(10) Subsequent Events

In late October, the Company began a process to raise an additional $150,000 of term loans as permitted under our IMI Credit Agreement. The new term loans will mature at the same time as our current IMI term loan facility with quarterly loan payments of $375 beginning in the first quarter of 2005 and will be priced at LIBOR plus a margin of 1.75%. The transaction is expected to close by mid-November.

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, 2004 and 2003 should be read in conjunction with our consolidated financial statements and notes for the three and nine months ended September 30, 2004 included herein, and for the year ended December 31, 2003, included in our Annual Report on Form 10-K for the year ended December 31, 2003.

Forward Looking Statements

We have made statements in this Quarterly Report on Form 10-Q that constitute "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995 and in other federal securities laws. These forward-looking statements concern our operations, economic performance, financial condition, goals, beliefs, strategies, objectives, plans and current expectations. The forward-looking statements are subject to various known and unknown risks, uncertainties and other factors. When we use words such as "believes," "expects," "anticipates," "estimates" or similar expressions, we are making forward-looking statements. Although we believe that our forward-looking statements are based on reasonable assumptions, our expected results may not be achieved, and actual results may differ materially from our expectations. Important factors that could cause actual results to differ from expectations include, among others: (1) changes in customer preferences and demand for our services; (2) changes in the price for our services relative to the cost of providing such services; (3) the cost and availability of financing for contemplated growth; (4) our ability or inability to complete acquisitions on satisfactory terms and to integrate acquired companies efficiently; (5) 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; (6) 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; (7) changes in the political and economic environments in the countries in which our international subsidiaries operate, including foreign currency fluctuations; and (8) other trends in competitive or economic conditions affecting our financial condition or results of operations not presently contemplated. You should not rely upon forward-looking statements except as statements of our present intentions and of our present expectations, which may or may not occur. You should read these cautionary statements as being applicable to all forward-looking statements wherever they appear. We undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures we have made in this document, as well as our other periodic reports on Forms 10-K, 10-Q and 8-K filed with the SEC.

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 conjunction with our discounted cash flow models to determine our overall enterprise valuation and to evaluate acquisition targets. We believe OIBDA and OIBDA Margin are useful measures to evaluate 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, specifically (1) minority interest in earnings (losses) of subsidiaries, net, (2) other (income) expense, net, (3) income from discontinued operations and loss on sale of discontinued operations and (4) 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 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 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,
	2003		2004			2003		2004
OIBDA	$	110,446	$	127,271		$	312,038	$	377,532
Less: Depreciation and Amortization		33,197		42,269			93,911		119,912

Operating Income		77,249		85,002			218,127		257,620
Less: Interest Expense, Net		38,790		54,313			110,752		140,431
Other Expense (Income), Net		10,343		(2,979	)		2,361		4,236
Provision for Income Taxes		12,012		14,293			44,635		46,668
Minority Interest		1,310		925			4,168		1,981

Net Income	$	14,794	$	18,450		$	56,211	$	64,304

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended. On an 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. 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
•: Stock-based Compensation

Further detail regarding our critical accounting policies can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the notes included in our Annual Report on Form 10-K for the year ended December 31, 2003 as filed with the SEC. Management has determined that no material changes concerning our critical accounting polices have occurred since December 31, 2003.

Overview

The following discussions set forth, for the periods indicated, management's discussion and analysis of results. Significant trends and changes are discussed for the three and nine month periods ended September 30, 2004 within each section, except in instances where the trend or explanation of the change is consistent for both periods reported. In those instances, only the trend or explanation for the change for the nine months ended September 30, 2004 is referenced.

Results of Operations

The following tables set 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
	2003			2004			Dollar Change		Percent Change
Revenues	$	381,758		$	459,330		$	77,572	20.3	%
Operating Expenses		304,509			374,328			69,819	22.9	%

Operating Income		77,249			85,002			7,753	10.0	%
Other Expenses, Net		62,455			66,552			4,097	6.6	%

Net Income	$	14,794		$	18,450		$	3,656	24.7	%

OIBDA(1)	$	110,446		$	127,271		$	16,825	15.2	%

OIBDA Margin(1)		28.9	%		27.7	%

	Nine Months Ended September 30,
	Nine Months Ended September 30,						Dollar Change		Percent Change
	2003			2004			Dollar Change		Percent Change
Revenues	$	1,092,839		$	1,338,662		$	245,823	22.5	%
Operating Expenses		874,712			1,081,042			206,330	23.6	%

Operating Income		218,127			257,620			39,493	18.1	%
Other Expenses, Net		161,916			193,316			31,400	19.4	%

Net Income	$	56,211		$	64,304		$	8,093	14.4	%

OIBDA(1)	$	312,038		$	377,532		$	65,494	21.0	%

OIBDA Margin(1)		28.6	%		28.2	%

(1): See "Non-GAAP Measures—Operating Income Before Depreciation and Amortization, or OIBDA" for definition, reconciliation and a discussion of why we believe these measures provide relevant and useful information to our current and potential investors.

REVENUES

Our consolidated storage revenues increased $40.9 million, or 18.3%, to $263.9 million and $133.5 million, or 21.0%, to $768.2 million for the three and nine months ended September 30, 2004 compared to the same periods in 2003, respectively. For the three months ended September 30, 2004, the increase is attributable to acquisitions (8%), consisting primarily of $15.2 million from the operations of Hays IMS, internal revenue growth (8%) resulting from net increases in records and other media stored by existing customers and sales to new customers, and foreign currency exchange rate fluctuations (2%). For the nine months ended September 30, 2004, the increase is attributable to acquisitions (10%), consisting primarily of $60.4 million from the operations of Hays IMS, internal revenue growth (8%) resulting from net increases in records and other media stored by existing customers and sales to new customers, and foreign currency exchange rate fluctuations (3%). Foreign currency exchange rate fluctuations were due primarily 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 $36.7 million, or 23.1%, to $195.5 million and $112.4 million, or 24.5%, to $570.4 million for the three and nine months ended September 30, 2004 compared to the same periods in 2003, respectively. For the three months ended September 30, 2004, the increase is attributable to acquisitions (15%), including revenue from the Hays IMS operations of $16.4 million, internal revenue growth (5%) resulting from net increases in service and storage material sales to existing customers and sales to new customers, and foreign currency exchange rate fluctuations (4%). For the nine months ended September 30, 2004, the increase is attributable to acquisitions (16%), including revenue from the Hays IMS operations of $60.9 million, internal revenue growth (5%) resulting from net increases in service and storage material sales to existing customers, sales to new customers, and foreign currency exchange rate fluctuations (4%). 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 $77.6 million, or 20.3%, to $459.3 million and $245.8 million, or 22.5% to $1.3 billion, for the three and nine months ended September 30, 2004 compared to the same periods in 2003, respectively. Internal revenue growth was 7% for the three and nine months ended September 30, 2004. We calculate internal revenue growth in local currency for our international operations.

Internal Growth—Eight-Quarter Trend

	2002		2003								2004
	Fourth Quarter		First Quarter		Second Quarter		Third Quarter		Fourth Quarter		First Quarter		Second Quarter		Third Quarter
Storage Revenue	8	%	8	%	8	%	9	%	8	%	8	%	9	%	8	%
Service and Storage Material Sales Revenue	10	%	8	%	3	%	2	%	1	%	6	%	4	%	5	%
Total Revenue	9	%	8	%	6	%	6	%	5	%	8	%	7	%	7	%

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 between 8% and 9%. Our storage revenue internal growth rate for the three and nine months ended September 30, 2004 reflects stabilized net carton volume growth in our North American records management business

and higher growth rates in our digital businesses and our international 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 due to 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 internal growth rate for service and storage material sales revenues increased during the first quarter of 2004 compared to the last three quarters of 2003 due primarily to high growth in our Secure Shredding product line. The growth rate for our Secure Shredding product line remained strong in the second quarter of 2004. However, the absence of large special projects, lower product sales and softness in certain storage related services contributed to the decrease in our service and storage material sales revenue internal growth rate and our total revenue growth rate during the second quarter of 2004. Our service and storage material sales revenue internal growth rate improved during the third quarter of 2004 due to a rebound in product sales, the completion of a few large special projects and increasing revenues from our digital business offset by continued softness in certain service and storage related services.

OPERATING EXPENSES

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,				Percent Change (Favorable)/Unfavorable
	2003		2004		Dollar Change		Percent Change		2003		2004		Percent Change (Favorable)/Unfavorable
Labor	$	88,490	$	107,538	$	19,048	21.5	%	23.2	%	23.4	%	0.2	%
Facilities		51,800		62,582		10,782	20.8	%	13.6	%	13.6	%	0.0	%
Transportation		16,425		21,085		4,660	28.4	%	4.3	%	4.6	%	0.3	%
Product Cost of Sales		7,304		8,207		903	12.4	%	1.9	%	1.8	%	(0.1	)%
Other		7,336		10,385		3,049	41.6	%	1.9	%	2.3	%	0.4	%

	$	171,355	$	209,797	$	38,442	22.4	%	44.9	%	45.7	%	0.8	%

									% 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,				Percent Change (Favorable)/Unfavorable
	2003		2004		Dollar Change		Percent Change		2003		2004		Percent Change (Favorable)/Unfavorable
Labor	$	249,903	$	311,783	$	61,880	24.8	%	22.9	%	23.3	%	0.4	%
Facilities		152,981		184,143		31,162	20.4	%	14.0	%	13.8	%	(0.2	)%
Transportation		47,239		59,705		12,466	26.4	%	4.3	%	4.5	%	0.2	%
Product Cost of Sales		22,692		25,439		2,747	12.1	%	2.1	%	1.9	%	(0.2	)%
Other		20,723		27,864		7,141	34.5	%	1.9	%	2.1	%	0.2	%

	$	493,538	$	608,934	$	115,396	23.4	%	45.2	%	45.5	%	0.3	%

Labor

Labor expense for the three and nine months ended September 30, 2004 increased compared to the three and nine months ended September 30, 2003 as a percentage of revenue primarily due to the Hays IMS acquisition, which first entered our reported results for one month in the third quarter of 2003 and is fully included in the first nine months of 2004. Incentive compensation expense for the nine months ended September 30, 2004 was higher than incentive compensation expense for the nine months ended September 30, 2003 as a result of changes in estimates in the first quarter of 2003, which resulted in lower expenses during that period. Labor expenses have also increased as a result of higher allocations of internal information technology personnel and consultants to revenue producing projects in our digital business. These increases were partially offset by improved labor management in our off-site data protection operations. In addition, during the three months ended September 30, 2004, we experienced higher labor costs as a percentage of revenue in our U.S. records management business due to higher growth of labor expenses compared to growth in service revenue. We have implemented plans to address this labor management issue. We expect that labor expenses as a percentage of consolidated revenues in 2004 will continue to trend higher compared to 2003 as we report a full year of integrated Hays IMS operations.

Facilities

The largest component of our facilities cost is rent expense, which increased $18.5 million for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003 primarily as a result of increased rent in our European operations of $13.3 million attributable to new facilities and properties acquired through acquisitions, including our acquisition of Hays IMS. Other facilities expenses in our European operations for the nine months ended September 30, 2004 increased $13.9 million compared to the nine months ended September 30, 2003 primarily due to the growth of operations and acquisitions. Excluding our European operations, the remaining facilities expenses decreased as a result of property insurance, which decreased $3.7 million for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003.

Transportation

Our transportation expenses, which increased 0.2% as a percentage of consolidated revenues for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, are influenced by several variables including total number of vehicles, owned versus leased vehicles, use of subcontracted couriers, fuel expenses, and maintenance. In the nine months ended September 30, 2004, we experienced a $5.3 million increase in transportation expenses in our European operations as compared to the nine months ended September 30, 2003, which is primarily attributable to an increase in fleet size and vehicles under operating lease resulting from the acquisition of Hays IMS and growth of operations. An increased percentage of vehicles under operating lease, higher fuel expenses, and increased subcontracted courier expenses during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003 also contributed to higher expenses.

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, 2004 was lower than the nine months ended September 30, 2003 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
	Three Months Ended September 30,										Three Months Ended September 30,
	Three Months Ended September 30,					Dollar Change			Percent Change		Three Months Ended September 30,				Percent Change (Favorable)/Unfavorable
	2003		2004			Dollar Change			Percent Change		2003		2004		Percent Change (Favorable)/Unfavorable
General and Administrative	$	50,909	$	64,222		$	13,313		26.2	%	13.3	%	14.0	%	0.7	%
Sales, Marketing & Account Management		29,482		40,426			10,944		37.1	%	7.7	%	8.8	%	1.1	%
Information Technology		16,461		20,348			3,887		23.6	%	4.3	%	4.4	%	0.1	%
Bad Debt Expense		1,235		(2,488	)		(3,723	)	(301.5	)%	0.3	%	(0.5	)%	(0.8	)%

	$	98,087	$	122,508		$	24,421		24.9	%	25.7	%	26.7	%	1.0	%

											% 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,				Percent Change (Favorable)/Unfavorable
	2003		2004			Dollar Change			Percent Change		2003		2004		Percent Change (Favorable)/Unfavorable
General and Administrative	$	149,971	$	191,480		$	41,509		27.7	%	13.7	%	14.3	%	0.6	%
Sales, Marketing & Account Management		82,006		108,627			26,621		32.5	%	7.5	%	8.1	%	0.6	%
Information Technology		50,096		56,970			6,874		13.7	%	4.6	%	4.3	%	(0.3	)%
Bad Debt Expense		3,304		(3,621	)		(6,925	)	(209.6	)%	0.3	%	(0.3	)%	(0.6	)%

	$	285,377	$	353,456		$	68,079		23.9	%	26.1	%	26.4	%	0.3	%

General and Administrative

The increase in general and administrative expenses as a percentage of consolidated revenues for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003 is primarily attributable to a $26.8 million increase in general and administrative expenses in our European operations due to the growth of operations and acquisitions, including Hays IMS. In our North American operations, general and administrative expenses increased as a result of higher wages due to normal inflation and merit increases, increased stock compensation expense, increased travel, recruiting, professional fees and higher insurance costs. These increases were partially offset by lower incentive compensation expenses. We expect that our general and administrative expenses as a percentage of consolidated revenues in 2004 will continue to trend higher compared to 2003, as we report a full year of integrated Hays IMS operations.

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, 2004 compared to the nine months ended September 30, 2003. Throughout the year ended December 31, 2003 and during 2004, we have continued to invest in the expansion and improvement of our sales force and account management personnel. Excluding our European operations, since September 30, 2003, we added sales and marketing employees, enlarged our

account management force and continued several new marketing and promotional efforts 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. Our larger North American sales force generated a $6.9 million increase in sales commissions for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003. In addition, costs associated with our European sales and account management teams increased by $5.3 million for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, due to the doubling of our sales force through the hiring of new personnel and acquisitions. We expect that sales, marketing and account management expenses will continue to increase as a percentage of consolidated revenues as we continue to expand and train our sales force and develop new marketing initiatives.

Information Technology

Information technology expenses decreased as a percentage of consolidated revenues for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003 principally due to increased utilization of existing information technology resources and increasing allocations of information technology resources to revenue producing projects in our digital business. The decrease as a percentage of consolidated revenues was partially offset by increased information technology spending in our European operations of $7.1 million for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003. In addition to our European operations, during the three months ended September 30, 2004, information technology expenses increased as a result of several software development projects within our digital business.

Bad Debt Expense

The decrease in consolidated bad debt expense for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003 is primarily attributable to the success of our centralized collection efforts within the U.S. and Canada, which resulted in improved cash collections and an improved accounts receivable aging that allowed us to continue to reduce our allowance for doubtful accounts during the nine months ended September 30, 2004.

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

Consolidated depreciation and amortization expense increased $26.0 million to $119.9 million (9.0% of consolidated revenues) for the nine months ended September 30, 2004 from $93.9 million (8.6% of consolidated revenues) for the nine months ended September 30, 2003. Depreciation expense increased $7.7 million and $23.4 million for the three and nine months ended September 30, 2004 compared to the same periods in 2003, respectively, primarily due to the additional depreciation expense related to recent capital expenditures, including storage systems, which include racking, building and leasehold improvements, computer systems hardware and software, and buildings.

Consolidated gains on disposal/writedown of property, plant and equipment, net of $0.2 million and $1.3 million for the three and nine months ended September 30, 2004, respectively, consisted primarily of a gain on the sale of a property in Florida during the second quarter of 2004 of $1.2 million. We recorded losses on disposal/writedown of property, plant and equipment, net of $1.9 million for the three and nine months ended September 30, 2003, consisting of $4.4 million of disposals and asset writedowns during the nine months ended September 30, 2003 offset by a gain of $2.5 million on the sale of a property in Texas during the first quarter of 2003.

OPERATING INCOME

As a result of the foregoing factors, consolidated operating income increased $7.8 million, or 10.0%, to $85.0 million (18.5% of consolidated revenues) for the three months ended September 30, 2004 from $77.2 million (20.2% of consolidated revenues) for the three months ended September 30, 2003. Consolidated operating income increased $39.5 million, or 18.1%, to $257.6 million (19.2% of consolidated revenues) for the nine months ended September 30, 2004 from $218.1 million (20.0% of consolidated revenues) for the nine months ended September 30, 2003.

OIBDA

As a result of the foregoing factors, consolidated OIBDA increased $16.8 million, or 15.2%, to $127.3 million (27.7% of consolidated revenues) for the three months ended September 30, 2004 from $110.4 million (28.9% of consolidated revenues) for the three months ended September 30, 2003. Consolidated OIBDA increased $65.5 million, or 21.0%, to $377.5 million (28.2% of consolidated revenues) for the nine months ended September 30, 2004 from $312.0 million (28.6% of consolidated revenues) for the nine months ended September 30, 2003.

OTHER EXPENSES, NET

Interest Expense, Net

Consolidated interest expense, net increased $15.5 million to $54.3 million (11.8% of consolidated revenues) and $29.7 million to $140.4 million (10.5% of consolidated revenues) for the three and nine months ended September 30, 2004, respectively, from $38.8 million (10.2% of consolidated revenues) and $110.8 million (10.1% of consolidated revenues) for the three and nine months ended September 30, 2003, respectively. The increase of interest expense, net as a percentage of consolidated revenues is primarily due to a non-cash charge of $8.7 million due to recharacterization of the interest rate swap associated with a real estate term loan we repaid in August 2004. This charge represents the fair market value of the swap, which is a calculation of the net present value of the expected monthly cash payments over the remaining term of the swap based on current market conditions, as of the date the real estate term loan was repaid. We did not terminate the swap and will continue to mark to market the fair market value of the derivative liability to interest expense, net and make our monthly cash settlements as required under the swap contract for the remaining term of approximately three years. Increased borrowings and a slight increase in our overall weighted average interest rate from 7.6% as of September 30, 2003 to 7.8% as of September 30, 2004 also contributed to the increase in interest expense as a percentage of revenue.

The increase in dollar terms was primarily attributable to additional borrowings, which were used to finance our acquisitions, primarily the Hays IMS acquisition, and the charges of $8.7 million in the third quarter of 2004 and $0.8 million in the first quarter of 2004 associated with the fair market value of interest rate swaps we had used to hedge two of our real estate term loans that were repaid in March 2004 and August 2004, respectively.

Other (Income) Expense, Net

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

	Three Months Ended September 30,									Nine Months Ended September 30,
	2003			2004			Change			2003			2004			Change
Foreign currency transaction (gains) losses, net	$	4,838		$	(2,753	)	$	(7,591	)	$	(18,796	)	$	2,185		$	20,981
Debt extinguishment expense		5,510			29			(5,481	)		21,175			2,454			(18,721	)
Other, net		(5	)		(255	)		(250	)		(18	)		(403	)		(385	)

	$	10,343		$	(2,979	)	$	(13,322	)	$	2,361		$	4,236		$	1,875

Foreign currency losses of $2.2 million based on period-end exchange rates were recorded in the nine months ended September 30, 2004 primarily due to the weakening of the Canadian dollar against the U.S. dollar and the weakening of the British pound sterling against the Euro offset by the strengthening of the British pound sterling against the U.S. dollar during the nine months ended September 30, 2004 as these currencies relate to our intercompany balances with our Canadian, U.K. and European subsidiaries, U.S. dollar denominated debt held by our Canadian subsidiary, borrowings denominated in foreign currencies under our revolving credit facility, British pounds sterling denominated debt held by our U.S. parent company, British pounds sterling currency held in the U.S. and our British pound sterling denominated cross currency swap, which was terminated in March 2004. For the nine months ended September 30, 2003, foreign currency gains of $18.8 million based on period-end exchange rates were recorded primarily due to the strengthening of the Canadian dollar against the U.S. dollar as these currencies relate to our intercompany balances with our Canadian subsidiaries, U.S. dollar denominated debt held by our Canadian subsidiary and Canadian dollar borrowings under our revolving credit facility.

Foreign currency gains of $2.8 million based on period-end exchange rates were recorded in the three months ended September 30, 2004 primarily due to the strengthening of the Canadian dollar against the U.S. dollar offset by the weakening of the British pound sterling against both the Euro and the U.S. dollar during the three months ended September 30, 2004 as these currencies relate to our intercompany balances with and between our Canadian, U.K. and European subsidiaries, and British pounds sterling denominated debt held by our U.S. parent company. For the three months ended September 30, 2003, foreign currency losses of $4.8 million based on period-end exchange rates were recorded primarily due to the weakening of the Canadian dollar and the British pound sterling against the U.S. dollar as these currencies relate to our intercompany balances with our Canadian and U.K. subsidiaries, and U.S. dollar denominated debt held by our Canadian subsidiary.

During the three months ended March 31, 2004, we redeemed the remaining outstanding principal amount of the Subsidiary notes, resulting in a charge of $2.0 million and we repaid a portion of our real estate term loans, which resulted in a charge of $0.4 million. During the nine months ended September 30, 2003, we recorded a charge of $1.8 million related to the early retirement of our 9¹/8% Senior Subordinated Notes due 2007 in the first quarter of 2003, a charge of $13.8 million related to the early retirement of our 8³/4% Senior Subordinated Notes due 2007 in the second quarter of 2003, and a charge of $5.5 million related to the early retirement of $50.0 million our 8¹/8% Senior Notes due 2008 in the third quarter in 2003. The charges consisted primarily of the call and tender premiums associated with the extinguished debt and the write-off of unamortized deferred financing costs and discounts. We did not incur any such charges during the three months ended September 30, 2004.

Provision for Income Taxes

Our effective tax rates for the three and nine months ended September 30, 2004 were 42.5% and 41.3%, respectively. The primary reconciling item between the statutory rate of 35% and our effective tax rate is state income taxes (net of federal benefit). Our effective tax rates were 42.7% and 42.5% for the three and nine months ended September 30, 2003, respectively. The decrease in our effective tax rate in 2004 compared to 2003 is the result of increased income earned in foreign jurisdictions that are taxed at rates lower than in the U.S. Also, the disallowance of certain intercompany interest charges by states, including a change in Massachusetts tax laws, retroactive to January 1, 2002 increased our provision for income taxes for the nine months ended September 30, 2003 by 0.8%. 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 international, U.S. federal and state income taxes during 2004.

Minority Interest

Minority interest in earnings of subsidiaries, net resulted in a charge to income of $0.9 million (0.2% of consolidated revenues) and $2.0 million (0.1% of consolidated revenues) for the three and nine months ended September 30, 2004, respectively, compared to $1.3 million (0.3% of consolidated revenues) and $4.2 million (0.4% of consolidated revenues) for the three and nine months ended September 30, 2003, respectively. This represents our minority partners' share of earnings in our majority-owned international subsidiaries that are consolidated in our operating results. The decrease is a result of increased financing expenses incurred by our European operations due to the acquisition of the operations of Hays IMS and our acquisition of the remaining 49.9% equity interest in IME which was reflected for the first time during the second quarter of 2004, which were offset by the increased profitability of our South American businesses.

NET INCOME

As a result of the foregoing factors, consolidated net income increased $3.7 million, or 24.7%, to $18.5 (4.0% of consolidated revenues) for the three months ended September 30, 2004 from net income of $14.8 million (3.9% of consolidated revenues) for the three months ended September 30, 2003. For the nine months ended September 30, 2004 consolidated net income increased $8.1 million, or 14.4%, to $64.3 million (4.8% of consolidated revenues) from net income of $56.2 million (5.1% of consolidated revenues) for the nine months ended September 30, 2003.

Segment Analysis (In Thousands)

The results of our various operating segments are discussed below. In general, our business records management segment offers records management, secure shredding, healthcare information services, vital records services, and service and courier operations in the U.S. and Canada. Our off-site data protection segment offers data backup and disaster recovery services, vital records services, service and courier operations, and intellectual property management services in the U.S. Our international segment offers elements of our business records management and off-site data protection services lines outside the U.S. and Canada. Our corporate and other segment includes our corporate overhead functions and our fulfillment, consulting and digital archiving services.

Business Records Management

	Segment Revenue								Segment Contribution(1)				Segment Contributions as a Percentage of Segment Revenue
	September 30, 2003		September 30, 2004		Increase in Revenues		Percentage Increase in Revenues		September 30, 2003		September 30, 2004		September 30, 2003		September 30, 2004
Three Months Ended	$	260,983	$	279,326	$	18,343	7.0	%	$	74,363	$	71,096	28.5	%	25.5	%
Nine Months Ended		762,580		823,305		60,725	8.0	%		213,341		221,905	28.0	%	27.0	%

Items Excluded from the Calculation of Contribution

	Depreciation Amortization				Foreign Currency (Gains) Losses, Net						Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net
	September 30, 2003		September 30, 2004		September 30, 2003			September 30, 2004			September 30, 2003		September 30, 2004
Three Months Ended	$	17,571	$	21,551	$	2,973		$	(5,439	)	$	1,648	$	22
Nine Months Ended		52,215		62,080		(22,963	)		1,055			14		(1,304	)

(1): See Note 8 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.

During the three and nine months ended September 30, 2004, revenue in our business records management segment increased 7.0% and 8.0%, respectively, compared to the three and nine months ended September 30, 2003 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 $8.2 million for the nine months ended September 30, 2004), and was impacted by slower growth in service and special project revenue. In addition, favorable currency fluctuations during the three and nine months ended September 30, 2004 in Canada increased revenue $1.4 million and $5.2 million, respectively, when compared to the three and nine months ended September 30, 2003. Contribution as a percent of segment revenue decreased in the three and nine months ended September 30, 2004 due to higher transportation expenses and our increased investment in our sales and account management force, which were partially offset by reduced facility expenses. We also experienced higher labor costs as a percentage of revenue in the quarter ending September 30, 2004 due to higher growth of labor expenses compared to growth in service revenue. We have implemented plans to address this labor management issue.

Off-Site Data Protection

	Segment Revenue								Segment Contribution(1)				Segment Contribution as a Percentage of Segment Revenue
	September 30, 2003		September 30, 2004		Increase in Revenues		Percentage Increase in Revenues		September 30, 2003		September 30, 2004		September 30, 2003		September 30, 2004
Three Months Ended	$	63,937	$	70,250	$	6,313	9.9	%	$	17,691	$	20,065	27.7	%	28.6	%
Nine Months Ended		187,202		204,775		17,573	9.4	%		52,144		58,853	27.9	%	28.7	%

Items Excluded from the Calculation of Contribution

	Depreciation and Amortization				Loss (Gain) on Disposal/ Writedown of Property, Plant and Equipment, Net
	September 30, 2003		September 30, 2004		September 30, 2003		September 30, 2004
Three Months Ended	$	3,555	$	3,909	$	107	$	(109	)
Nine Months Ended		10,166		10,691		1,792		(21	)

(1): See Note 8 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.

During the three and nine months ended September 30, 2004, revenue in our off-site data protection segment increased 9.9% and 9.4%, respectively, compared to the three and nine months ended September 30, 2003 primarily due to internal revenue growth from both existing and new customers. Higher revenue growth rates from our electronic vaulting and intellectual property management services augmented the segment's overall revenue growth rate. Contribution as a percent of segment revenue increased primarily due to increased product sales margins, improved labor management, and stable overhead costs. This increase was partially offset by the growth of our sales and account management force.

International

	Segment Revenue								Segment Contribution(1)				Segment Contribution as a Percentage of Segment Revenue
	September 30, 2003		September 30, 2004		Increase in Revenues		Percentage Increase in Revenues		September 30, 2003		September 30, 2004		September 30, 2003		September 30, 2004
Three Months Ended	$	49,780	$	98,689	$	48,909	98.3	%	$	11,157	$	23,925	22.4	%	24.2	%
Nine Months Ended		121,608		279,503		157,895	129.8	%		27,680		68,421	22.8	%	24.5	%

Items Excluded from the Calculation of Contribution

	Depreciation and Amortization				Foreign Currency (Gains) Losses, Net
	September 30, 2003		September 30, 2004		September 30, 2003			September 30, 2004
Three Months Ended	$	4,410	$	8,875	$	(61	)	3,103
Nine Months Ended		9,402		23,696		(564	)	7,150

(1): See Note 8 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.

Revenue in our international segment increased 98.3% and 129.8% during the three and nine months ended September 30, 2004, respectively, compared to the three and nine months ended September 30, 2003, primarily due to acquisitions completed in Europe, including revenue of $31.3 million and $113.1 million from the acquisition of Hays IMS during the three and nine months ended September 30, 2004, respectively, and in South America, as well as increased sales efforts. Favorable currency fluctuations during the nine months ended September 30, 2004 in Europe, Mexico and South America increased revenue, as measured in U.S. dollars, by $9.3 and $29.3 million compared to the three and nine months ended September 30, 2003, respectively. Contribution as a percent of segment revenue increased primarily due to improved gross margins from our European, South American, and Mexican operations.

Corporate and Other

The Corporate and Other segment is comprised of results from operations not discussed above including our digital and fulfillment operations and costs associated with our corporate headquarter operations. Certain costs incurred by our Corporate division were allocated to the other segments in both 2003 and 2004, 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, incentive compensation, real estate property taxes and provision for bad debts, are based on rates set at the beginning of each year. Revenue in our Corporate and Other segment increased $4.0 million to $11.1 million for the three months ended September 30, 2004 compared to $7.1 million for the three months ended September 30, 2003 and increased $9.6 million to $31.1 million for the nine months ended September 30, 2004 compared to $21.4 million for the nine months ended September 30, 2003. Contribution increased $2.8 million to $11.9 million for the three months ended September 30, 2004 compared to $9.1 million for the three months ended September 30, 2003 and increased $6.3 million to $27.1 million for the nine months ended September 30, 2004 compared to $20.8 million for the nine months ended September 30, 2003. Items excluded from the calculation of Contribution include the following: (1) depreciation and amortization expense for the three months ended September 30, 2004 of $7.9 million compared to $7.7 million for the three months ended September 30, 2003 and depreciation and amortization expense for the nine months ended September 30, 2004 of $23.4 million compared to $22.1 million for the nine months ended September 30, 2003, (2) foreign currency gains of $0.4 million and losses of $1.9 million for the three months ended September 30, 2004 and 2003, respectively and foreign currency gains of $6.0 million and $4.7 million for the nine months ended September 30, 2004 and 2003, respectively.

Liquidity and Capital Resources

The following is a summary of our cash balances and cash flows for the nine months ended September 30, 2003 and 2004 (in thousands).

	2003			2004
Cash flows provided by operating activities	$	183,619		$	208,979
Cash flows used in investing activities		(530,216	)		(419,622	)
Cash flows provided by financing activities		313,036			178,545
Cash and cash equivalents at end of period	$	23,544		$	44,428

Net cash provided by operating activities was $209.0 million for the nine months ended September 30, 2004 compared to $183.6 million for the nine months ended September 30, 2003. The increase resulted primarily from an increase in operating income and non-cash items, such as depreciation offset by the net change in assets and liabilities. The net change in assets and liabilities is

primarily associated with growth in revenues and the resulting increase in receivables, an increase in days sales outstanding, increased cash taxes and increased purchase reserve payments year over year.

We have made significant capital expenditures, additions to customer relationship and acquisition costs and other investments, primarily acquisitions. Our capital expenditures are primarily related to growth and include investments in storage systems, information systems and discretionary investments in real estate. Cash paid for our capital expenditures and additions to customer relationship and acquisition costs during the nine months ended September 30, 2004 amounted to $159.1 million and $9.5 million, respectively. For the nine months ended September 30, 2004 and 2003, capital expenditures, net and additions to customer relationship and acquisition costs were funded entirely with cash flows provided by operating activities. Excluding acquisitions, we expect our capital expenditures to be between approximately $210 million and approximately $240 million in the year ending December 31, 2004.

In the nine months ended September 30, 2004, we paid net cash consideration of $253.5 million for acquisitions, which included $111.7 million associated with the purchase of Mentmore's 49.9% equity interest in IME. Cash flows from operations, recent borrowings under our revolving credit facilities and the net proceeds from other financing transactions funded these acquisitions.

Since September 30, 2004, we completed four acquisitions for total consideration, including related real estate and in one case significant net operating loss carryforwards, of approximately $136 million. These transactions will be reflected in our consolidated statement of cash flows in the fourth quarter of 2004.

Net cash provided by financing activities was $178.5 million for the nine months ended September 30, 2004. During the nine months ended September 30, 2004 we had gross borrowings under our revolving credit facilities of $862.0 million and we received net proceeds of $269.4 million from the issuance of our 7¹/4% notes. We used the proceeds from these financing transactions to repay debt and term loans ($891.1 million), retire the Subsidiary notes ($20.8 million), repay debt financing from minority shareholders, net ($41.7 million) and to fund acquisitions.

We are highly leveraged and expect to continue to be highly leveraged for the foreseeable future. Our consolidated debt as of September 30, 2004 was comprised of the following (in thousands):

IMI Revolving Credit Facility	$	172,184
IMI Term Loan Facility		199,500
IME Revolving Credit Facility		85,772
IME Term Loan Facility		182,140
8¹/4% Senior Subordinated Notes due 2011(1)		149,704
8⁵/8% Senior Subordinated Notes due 2013(1)		481,060
7¹/4% GBP Senior Subordinated Notes due 2014(1)		269,910
7³/4% Senior Subordinated Notes due 2015(1)		440,647
6⁵/8% Senior Subordinated Notes due 2016(1)		314,441
Real Estate Mortgages		16,283
Seller Notes		10,561
Other		25,876

Long-term Debt		2,348,078
Less Current Portion		(17,923	)

Long-term Debt, Net of Current Portion	$	2,330,155

(1): These debt instruments are collectively referred to as the "Parent notes." The Parent notes are fully and unconditionally guaranteed, on a senior subordinated basis, by substantially all of our direct and indirect wholly owned U.S. subsidiaries (the "Guarantors"). These guarantees are joint and several obligations of the Guarantors. The remainder of our subsidiaries do not guarantee the Parent notes or the IMI revolving credit facility and IMI term loan facility.

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, was 5.0 as of September 30, 2004 and December 31, 2003. 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.

In January 2004, we completed an offering of 150 million British pounds sterling in aggregate principal amount of our 7¹/4% notes, which were issued at a price of 100.0% of par. Our net proceeds of 146.9 million British pounds sterling, after paying the initial purchasers' discounts, commissions and transaction fees, were used to fund our acquisition of Mentmore's 49.9% equity interest in IME for total consideration of 82.5 million British pounds sterling, to redeem $20.0 million in aggregate principal amount of our outstanding 8¹/8% Senior Notes due 2008 ("Subsidiary notes") in February 2004, to repay borrowings under our revolving credit facility, to repay $48.8 million of our term loans and to repay other indebtedness and to pay for other acquisitions.

In February 2004, using proceeds from our January 2004 offering of 7¹/4% notes, we redeemed the remaining $20 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 of approximately $2 million to other (income) expense, net in the first quarter of 2004 related to the early retirement of these remaining Subsidiary notes, which consists of redemption premiums and transaction costs as well as original issue discount related to these Subsidiary notes.

In February 2004, we completed the acquisition of Mentmore's 49.9% equity interest in IME for total consideration of 82.5 million British pounds sterling ($154 million) in cash from proceeds of our 7¹/4% notes issued in January 2004. Included in this amount is the repayment of all trade and working capital funding owed to Mentmore by IME. Completion of the transaction gave us 100% ownership of IME, affording us full access to all future cash flows and greater strategic and financial flexibility. This transaction should have no material impact on revenue or operating income since we already fully consolidate IME's financial results. Using the purchase method of accounting for this acquisition, the net assets of IME will be adjusted to reflect 49.9% of the difference between the fair market value and their current carrying value. As a result, we expect this transaction will increase depreciation and amortization expenses going forward. Additionally, we will record an increase in interest expense, net associated with the 7¹/4% notes used to fund this acquisition and will no longer record the minority interest in earnings of subsidiaries, net related to Mentmore's ownership interest in IME.

In March 2004, IME and certain of its subsidiaries entered into a credit agreement (the "IME Credit Agreement") with a syndicate of European lenders. The IME Credit Agreement provides for

maximum borrowing availability in the principal amount of 210 million British pounds sterling, including a 100 million British pounds sterling revolving credit facility (the "IME revolving credit facility"), which includes the ability to borrow in certain other foreign currencies, a 100 million British pounds sterling term loan (the "IME term loan facility"), and a 10 million British pounds sterling overdraft protection line. The IME revolving credit facility matures on March 5, 2009. The IME term loan facility is payable in three installments; two installments of 20 million British pounds sterling on March 5, 2007 and 2008, respectively, and the final payment of the remaining balance on March 5, 2009. The interest rate on borrowings under the IME Credit Agreement varies depending on IME's choice of currency options and interest rate period, plus an applicable margin. The IME Credit Agreement includes various financial covenants applicable to the results of IME, which may restrict IME's ability to incur indebtedness under the IME Credit Agreement and from third parties, as well as limit IME's ability to pay dividends to us. Most of IME's non-dormant subsidiaries have either guaranteed the obligations or have their shares pledged to secure IME's obligations under the IME Credit Agreement. We have not guaranteed or otherwise provided security for the IME Credit Agreement nor have any of our U.S., Canadian, Mexican or South American subsidiaries.

In March 2004, IME borrowed approximately 147 million British pounds sterling under the IME Credit Agreement, including the full amount of the term loan. IME used those proceeds to repay us 135 million British pounds sterling related to our initial financing of the acquisition of the European operations of Hays IMS, to repay amounts outstanding under its prior term loan and revolving credit facility and to pay transaction costs associated with the IME Credit Agreement. We used the 135 million British pounds sterling received from IME to: (1) pay down approximately $104 million of real estate term loans, (2) settle all obligations totaling $27.7 million associated with terminating our two cross currency swaps used to hedge the foreign currency impact of our intercompany financing with IME related to the Hays IMS acquisition, and (3) to pay down amounts outstanding under our prior credit agreement. The IME Credit Agreement in conjunction with our 7¹/4% notes provided permanent financing for the Hays IMS acquisition and allowed us to maintain the economics of the transaction with respect to exchange rates as originally contemplated at the time of the acquisition. Our consolidated balance sheet as of September 30, 2004 included 147.1 million British pounds sterling ($267.9 million) of borrowings under the IME Credit Agreement. The remaining availability, based on its current level of external debt and the leverage ratio under the IME revolving credit facility on July 31, 2004, was approximately 50 million British pounds sterling ($90.3 million).

On April 2, 2004 and subsequently on July 8, 2004, we entered into a new amended and restated credit facility and term loan facility (the "IMI Credit Agreement") to replace our prior credit agreement and to reflect more favorable pricing of our term loans. The IMI Credit Agreement has an aggregate principal amount of $550.0 million and is comprised of a $350.0 million revolving credit facility (the "IMI revolving credit facility"), which includes the ability to borrow in certain foreign currencies, and a $200.0 million term loan facility (the "IMI term loan facility"). The IMI revolving credit facility matures on April 2, 2009. With respect to the IMI term loan facility, quarterly loan payments of $0.5 million began in the third quarter of 2004 and will continue through maturity on April 2, 2011, at which time the remaining outstanding principal balance of the IMI term loan facility is due. The interest rate on borrowings under the IMI Credit Agreement varies depending on our choice of interest rate and currency options, plus an applicable margin. All intercompany notes and the capital stock of most of our U.S. subsidiaries are pledged to secure the IMI Credit Agreement. As of September 30, 2004, we had $172.2 million of borrowings under the IMI revolving credit facility, of which $6 million was denominated in U.S. dollars and the remaining balance was denominated in Canadian dollars (CAD 211 million); we also had various outstanding letters of credit totaling $22.4 million. The remaining availability, based on IMI's current level of external debt and the leverage ratio under the IMI revolving credit facility, on September 30, 2004 was $155.4 million.

In late October, the Company began a process to raise an additional $150 million of term loans as permitted under our IMI Credit Agreement. The new term loans will mature at the same time as our current IMI term loan facility with quarterly loan payments of $0.4 million beginning in the first quarter of 2005 and will be priced at LIBOR plus a margin of 1.75%. The transaction is expected to close by mid-November.

In April 2004, IME entered into two floating for fixed interest rate swap contracts, each with a notional value of 50.0 million British pounds sterling and a duration of two years, which were designated as cash flow hedges. These swap agreements hedge interest rate risk on IME's 100 million British pounds sterling term loan facility.

Our Variable Interest Entities were financed with real estate term loans. In March 2004, approximately $104 million of these real estate term loans was repaid. In August 2004, we repaid the remaining $98.7 million of real estate term loans held by one of our Variable Interest Entities using available borrowing capacity under the IMI revolving credit facility. As a result, during the third quarter of 2004, we recorded a non-cash charge of $8.7 million due to recharacterization of the interest rate swap associated with this real estate term loan. This charge represents the fair market value of the swap, which is a calculation of the net present value of the expected monthly cash payments over the remaining term of the swap based on current market conditions, as of the date the real estate term loan was repaid. We did not terminate the swap and expect to enjoy the benefit of the fixed rate financing and will continue to mark to market the fair market value of the derivative liability to interest expense, net and make our monthly cash settlements as required under the swap contract for the remaining term of approximately three years. See Notes 4 and 6 to Notes to Consolidated Financial Statements and "—Critical Accounting Policies."

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 facilities and other financings, which may include secured credit facilities, securitizations and mortgage or capital lease financings.

Net Operating Loss Carryforwards

At September 30, 2004, we had estimated net operating loss carryforwards of approximately $112 million for federal income tax purposes. As a result of such loss carryforwards, cash paid for income taxes has historically been substantially lower than the provision for income taxes. These net operating loss carryforwards do not include approximately $103 million of potential preacquisition net operating loss carryforwards of Arcus Group, Inc. and certain foreign acquisitions. Any tax benefit realized related to preacquisition net operating loss carryforwards will be recorded as a reduction of goodwill when, and if, realized. The Arcus Group carryforwards begin to expire in two years. As a result of these loss carryforwards, we do not expect to pay significantly more international, U.S. federal and state income taxes in 2004 as compared to 2003.

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

Given the recurring nature of our revenues and the long term nature of our asset base, we have the ability and the preference to use long term, fixed interest rate debt to finance our business, thereby preserving our long term returns on invested capital. We target a range 80% to 85% of our debt portfolio to be fixed with respect to interest rates. Occasionally, we will use floating to fixed interest rate swaps as a tool to maintain our targeted level of fixed rate debt. As part of this strategy, in December 2000, January 2001, May 2001, and April 2004 we, IME, and our Variable Interest Entities, which we now consolidate, entered into a total of six derivative financial contracts, which are variable-for-fixed interest rate 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 based on interest payments previously payable on our real estate term loans of an aggregate principal amount of $47.5 million that have been subsequently repaid, (c) one contract based on interest payments previously payable on our real estate term loans of an aggregate principal amount of $97.0 million that have been subsequently repaid, and (d) two contracts for interest payments payable on IME's term loan of an aggregate principal amount of 100.0 million British pounds sterling. 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 for the year ended December 31, 2003.

After consideration of the swap contracts mentioned above, as of September 30, 2004, we had $157.7 million of variable rate debt outstanding with a weighted average variable interest rate of 5.3%, and $2,190.4 million of fixed rate debt outstanding. As of September 30, 2004, 93% 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 three and six months ended September 30, 2004 would have been reduced by $0.3 million and $1.1 million, respectively. See Note 6 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, 2004 included in this Form 10-Q.

Currency Risk

Our investments in IME, Iron Mountain Canada Corporation ("IM Canada"), 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 and expenses 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, particularly the Argentine peso, have experienced substantial volatility and depreciation. Declines in the value of the local currencies in which we are paid relative to the U.S. dollar will cause revenues in U.S. dollar terms to decrease and dollar-denominated liabilities to increase in local currency. The impact on our earnings is mitigated somewhat by the fact that most operating and other expenses are also incurred and paid in the 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.

We have adopted and implemented a number of strategies to mitigate the risks associated with fluctuations in currency valuations. One strategy is to finance our largest international subsidiaries with

local debt that is denominated in local currencies, thereby providing a natural hedge. In determining the amount of any such financing, we take into account local tax strategies among other factors. Another strategy we utilize is to borrow in foreign currencies at the U.S. parent level to hedge our intercompany financing activities. Finally, on occasion, we enter into currency swaps to temporarily hedge an overseas investment, such as a major acquisition to lock in certain transaction economics, while we arrange permanent financing. We have implemented these strategies for our two major foreign investments in the U.K. and Canada. Specifically, through IME borrowing under the IME Credit Agreement and our 150 million British pounds sterling denominated 7¹/4 notes, which effectively hedges most of our outstanding intercompany loan with IME. With respect to Canada, in August 2004, we repaid the remaining $98.7 million of real estate term loans by having IM Canada draw on its portion of the IMI revolving credit facility in local currency and repaying a portion of its intercompany loan back to the U.S. parent. This has created a natural hedge and will reduce our currency fluctuations with regard to our investment in IM Canada while providing IM Canada with additional borrowings and interest expenses to reduce its income tax burden. As of September 30, 2004, except as noted above, our currency exposures to intercompany balances are unhedged.

Item 4. 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, 2004 (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.

Additionally, we strive to give our shareholders as much information as possible to allow them to make their own judgments regarding our performance. In that spirit, we are presenting a summary of our approach and progress in meeting the requirements of the SEC's rules under Section 404 of the Sarbanes-Oxley Act of 2002 ("Section 404").

We are steadily working towards achieving compliance with Section 404, requiring us to document, assess and test our system of internal controls over financial reporting. We selected the framework developed by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission to assess the design effectiveness of our internal controls over financial reporting. We began with an extensive planning effort, where we identified our critical processes and significant accounts across all of our business units and corporate support groups around the world. Our effort includes, to varying degrees, our operations within North America, Europe, and Latin America. It also includes our information technology functions that are critical to supporting our business operations.

Our North American operations are comprised of our U.S. and Canadian business records management, off-site data protection, electronic records divisions, and all of our corporate functions. We completed the documentation of all risks and controls in these areas and we are fully engaged in our internal testing phase. To date, we have not identified any significant issues which we anticipate will not be remediated prior to December 31, 2004.

Our European operations, which comprise approximately 19% of our consolidated revenues, have undergone dramatic changes due to numerous acquisitions and significant internal growth over the past few years. Revenue in our European operations has grown from approximately $100 million in 2002 to expected annual revenue of greater than $300 million for 2004. Over this period, we engaged in significant merger integration activities. These include customer focused activities, information system conversions, facilities rationalization, and various other activities. Also, as part of the Hays integration, we identified the need to consolidate the existing accounting operations with the Hays accounting operations. As such, during 2003, we began planning the transition to a new accounting operations center. We began processing in this new accounting operations center during June 2004. Part of this implementation was to hire approximately 45 new employees to process most financial transactions for the United Kingdom. As such, the average tenure of our accounting staff in the new accounting operations center is less than one year. All of these activities make our Section 404 assessment process in Europe more challenging to complete than in our other operations.

Within our European operations, we are finalizing the documentation of our risks and controls and started our internal testing phase. During these phases, we identified opportunities to strengthen our internal controls over financial reporting. We implemented improvements in our internal controls over financial reporting including preparing and reviewing account reconciliations on a more timely basis, obtaining more complete information in order to prepare certain account analysis and judgmental estimates, and strengthening our local monitoring controls. We are developing remediation plans for identified improvement areas, some of which are currently being implemented. Remediation plans include the hiring of temporary and permanent resources as well as implementing and improving processes, systems, and controls within our European operations. We believe that we have put in place sufficient processes and controls to ensure that our SEC reports fairly present in all material respects our results of operations and cash flows for the periods presented and that such information is recorded, summarized and reported within the time periods specified by the SEC. We are devoting significant internal and external resources to the Section 404 assessment within our European operations and will consider the status of these matters when assessing the effectiveness of the Company's internal control over financial reporting as of December 31, 2004.

Our information technology functions include all of our general computer controls, controls supporting our significant billing and enterprise resource planning systems, and network controls that support our critical processes and significant accounts. Our efforts in our information technology area closely mirror the progress within our business processes in North America and Europe. We are fully engaged in our internal testing for North America and recently began our internal testing in Europe. To date, we have not identified any significant issues which we anticipate will not be remediated prior to December 31, 2004.

The COSO framework that we adopted also requires us to assess our corporate control environment, which includes concepts such as "tone-at-the-top", attitudes towards internal controls, competency of the employee base, and overall management style. We are currently utilizing a variety of techniques to assess the corporate control environment including, but not limited to, face-to-face interviews, employee surveys, a review of Board of Directors and executive management communication, and a review of hiring and training practices. Additionally, as required by Section 404, we began the review of the design and assessment of the effectiveness of our anti-fraud controls throughout the organization. We included all of our operations within the process and will be conducting testing at all our business units regardless of size.

During our Section 404 readiness assessment, we made enhancements to our internal control over financial reporting including documentation, monitoring and review, approvals, fraud deterrence, and segregation of duties. We are continuing our assessment, remediation efforts, and testing in order to meet the requirements of Section 404. Therefore, we cannot offer assurances as to the ultimate conclusion of our final assessment or represent that there will not be any reportable conditions or material weaknesses that would be required to be disclosed at December 31, 2004.

Part II. Other Information

Item 1. Legal Proceedings

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2003 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, the arbitrator in our arbitration proceeding against J. Peter Pierce did not find the evidence provided by us sufficient to rule in our favor on the particular claims at issue and, in response to that decision, we filed a motion to vacate the arbitrator's decision and award in the Superior Court for Middlesex County, New Jersey. On June 16, 2004, that court denied our motion to vacate and confirmed the arbitration decision. We have appealed the court's decision to the Appellate Division of the New Jersey Superior Court. Mr. Pierce filed a motion to dismiss the appeal. The motion to dismiss filed by Mr. Pierce was denied. In the meanwhile, on September 13, 2004, the arbitrator issued a final award, granting Mr. Pierce indemnification for legal expenses incurred in the arbitration in the amount of approximately $1.6 million. Mr. Pierce brought an action in the Superior Court for Middlesex County to confirm such award and such court issued an order to show cause. We opposed this action and filed a motion to dismiss Mr. Pierce's claims and vacate the arbitration award, or in the alternative, for a stay pending disposition of the pending appeal regarding the motion to vacate.

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2003, six lawsuits were outstanding against us by certain of our customers or abutters and/or their insurers in connection with the arson that resulted in damage to one and destruction of another records and information management services facility in South Brunswick Township, New Jersey in March 1997. As a result of a mediation in August, 2004, the parties to these six lawsuits entered into a written settlement of these matters. Pursuant to the settlement agreement, the Company contributed $0.5 million to a settlement fund in exchange for a complete release. The Superior Court for Middlesex County, New Jersey has, therefore, dismissed all of these cases. In addition, our insurers reimbursed us for the costs of the defense.

Item 6. Exhibits

Exhibit No.		Description
3.1		Amended and Restated Articles of Incorporation, as amended.
3.2		Amended and Restated By-Laws, as amended.
31.1		Certification required by Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2		Certification required by Rule 13a-14(a)/15d-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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		IRON MOUNTAIN INCORPORATED
NOVEMBER 9, 2004 (DATE)		BY:		/s/ JEAN A. BUA Jean A. Bua Vice President and Corporate Controller (Principal Accounting Officer)

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Index

Part I. Financial Information

Item 1. Unaudited Consolidated Financial Statements

Consolidated Balance Sheets at December 31, 2003 and September 30,2004 (Unaudited)
Consolidated Statements of Operations for the Three Months Ended September 30, 2003 and 2004 (Unaudited)
Consolidated Statements of Operations for the Nine Months Ended September 30, 2003 and 2004 (Unaudited)
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2004 (Unaudited)
Notes to Consolidated Financial Statements
IRON MOUNTAIN INCORPORATED

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Item 4. Controls and Procedures

Part II. Other Information

Item 1. Legal Proceedings

Item 6. Exhibits

SIGNATURES

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

Iron Mountain (IRM) 10-Q2004 Q3 Quarterly report

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