Iron Mountain 10Q 2005 Q1 Quarterly report

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

FORM 10Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2005
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 May 2, 2005: 130,353,399

IRON MOUNTAIN INCORPORATED
Index

			Page
PART I—FINANCIAL INFORMATION
Item 1	—	Unaudited Consolidated Financial Statements	3
		Consolidated Balance Sheets at December 31, 2004 and March 31, 2005 (Unaudited)	3
		Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2005 (Unaudited)	4
		Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2005 (Unaudited)	5
		Notes to Consolidated Financial Statements (Unaudited)	6
Item 2	—	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3	—	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4	—	Controls and Procedures	40
PART II—OTHER INFORMATION
Item 1	—	Legal Proceedings	40
Item 2	—	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6	—	Exhibits	41
		Signature	42

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, 2004			March 31, 2005
ASSETS
Current Assets:
	Cash and cash equivalents		$	31,942		$	28,776
	Accounts receivable (less allowances of $13,886 and $14,680, respectively)			354,434			376,866
	Deferred income taxes			36,033			35,805
	Prepaid expenses and other			78,745			70,877

		Total Current Assets		501,154			512,324
Property, Plant and Equipment:
	Property, plant and equipment			2,266,839			2,329,697
	Less—Accumulated depreciation			(617,043	)		(655,731	)

		Net Property, Plant and Equipment		1,649,796			1,673,966
Other Assets, net:
	Goodwill			2,040,217			2,062,167
	Customer relationships and acquisition costs			189,780			197,576
	Deferred financing costs			36,590			35,334
	Other			24,850			26,563

		Total Other Assets, net		2,291,437			2,321,640

		Total Assets	$	4,442,387		$	4,507,930

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
	Current portion of long-term debt		$	39,435		$	50,887
	Accounts payable			103,415			101,068
	Accrued expenses			234,697			240,809
	Deferred revenue			136,470			139,578
	Other current liabilities			1,446			741

		Total Current Liabilities		515,463			533,083
Long-term Debt, net of current portion				2,438,587			2,448,526
Other Long-term Liabilities				23,932			20,748
Deferred Rent				26,253			29,550
Deferred Income Taxes				206,539			215,682
Commitments and Contingencies (see Note 9)
Minority Interests				13,045			4,873
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 129,817,914 shares and 130,327,836 shares, respectively)			1,298			1,303
	Additional paid-in capital			1,063,560			1,074,018
	Retained earnings			133,425			156,374
	Accumulated other comprehensive items, net			20,285			23,773

		Total Shareholders' Equity		1,218,568			1,255,468

		Total Liabilities and Shareholders' Equity	$	4,442,387		$	4,507,930

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 March 31,
			2004		2005
Revenues:
	Storage		$	248,595	$	285,355
	Service and storage material sales			185,327		216,051
		Total Revenues		433,922		501,406
Operating Expenses:
	Cost of sales (excluding depreciation)			198,310		230,628
	Selling, general and administrative			112,460		135,340
	Depreciation and amortization			37,280		44,546
	Loss (Gain) on disposal/writedown of property, plant and equipment, net			120		(218	)

		Total Operating Expenses		348,170		410,296
Operating Income				85,752		91,110
Interest Expense, Net				43,459		45,806
Other Expense, Net				2,270		4,663

	Income Before Provision for Income Taxes and Minority Interest			40,023		40,641
Provision for Income Taxes				16,550		17,236
Minority Interest in Earnings of Subsidiaries				476		456

	Net Income		$	22,997	$	22,949

Net Income per Share—Basic			$	0.18	$	0.18

Net Income per Share—Diluted			$	0.18	$	0.17

Weighted Average Common Shares Outstanding—Basic				128,558		129,981

Weighted Average Common Shares Outstanding—Diluted				130,766		131,517

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

IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

		Three Months Ended March 31,
		2004			2005
Cash Flows from Operating Activities:
	Net income	$	22,997		$	22,949
Adjustments to reconcile net income to cash flows from operating activities:
	Minority interest in earnings of subsidiaries		476			456
	Depreciation		34,917			40,479
	Amortization (includes deferred financing costs and bond discount of $752 and $1,206, respectively)		3,115			5,273
	Provision for deferred income taxes		15,214			14,092
	Loss on early extinguishment of debt		2,433			—
	Loss (Gain) on disposal/writedown of property, plant and equipment, net		120			(218	)
	(Gain) Loss on foreign currency and other, net		(3,216	)		3,150
Changes in Assets and Liabilities (exclusive of acquisitions):
	Accounts receivable		(20,030	)		(20,102	)
	Prepaid expenses and other current assets		2,788			(9,086	)
	Accounts payable		(5,075	)		(2,733	)
	Accrued expenses, deferred revenue and other current liabilities		(13,475	)		8,148
	Other assets and long-term liabilities		1,344			1,006

	Cash Flows from Operating Activities		41,608			63,414
Cash Flows from Investing Activities:
	Capital expenditures		(43,174	)		(58,646	)
	Cash paid for acquisitions, net of cash acquired		(167,643	)		(33,213	)
	Additions to customer relationship and acquisition costs		(2,682	)		(2,883	)
	Proceeds from sales of property and equipment		125			271

	Cash Flows from Investing Activities		(213,374	)		(94,471	)
Cash Flows from Financing Activities:
	Repayment of debt and term loans		(511,989	)		(115,423	)
	Proceeds from borrowings and term loans		427,436			139,253
	Early retirement of notes		(20,797	)		—
	Net proceeds from sales of senior subordinated notes		269,427			—
	Debt financing (repayment to) and equity contribution from (distribution to) minority shareholders, net		(40,446	)		(1,704	)
	Other, net		3,079			5,328

	Cash Flows from Financing Activities		126,710			27,454
Effect of exchange rates on cash and cash equivalents			1,351			437

Decrease in Cash and Cash Equivalents			(43,705	)		(3,166	)
Cash and Cash Equivalents, Beginning of Period			74,683			31,942

Cash and Cash Equivalents, End of Period		$	30,978		$	28,776

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, 2004 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, 2004.

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.

(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 expense, net, on our consolidated statements of operations. Included in other expense, net is $108 of

net gains and $4,789 of net losses associated with foreign currency transactions for the three months ended March 31, 2004 and 2005, 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, 2004 and noted no impairment of goodwill at our reporting units as of that date. As of March 31, 2005, 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 three month period ended March 31, 2005 are as follows:

	Business Records Management			Data Protection			International			Corporate & Other			Total Consolidated
Balance as of December 31, 2004	$	1,290,651		$	246,966		$	424,373		$	78,227		$	2,040,217
Deductible Goodwill acquired during the period		10,416			—			—			—			10,416
Nondeductible Goodwill acquired during the period		3,320			—			2,990			—			6,310
Adjustments to purchase reserves		(68	)		—			(24	)		(291	)		(383	)
Fair value adjustments		316			(32	)		(129	)		(876	)		(721	)
Currency effects and other adjustments		(1,684	)		—			8,012			—			6,328

Balance as of March 31, 2005	$	1,302,951		$	246,934		$	435,222		$	77,060		$	2,062,167

The components of our amortizable intangible assets at March 31, 2005 are as follows:

	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer Relationships and Acquisition Costs	$	223,976	$	26,400	$	197,576
Core Technology(1)		15,460		1,027		14,433
Non-Compete Agreements(1)		9,043		8,301		742
Deferred Financing Costs		46,485		11,151		35,334

Total	$	294,964	$	46,879	$	248,085

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

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 began using the fair value method of accounting in our financial statements beginning January 1, 2003 using the prospective method. The prospective method involves recognizing expense for the fair value for all awards granted or modified in the year of adoption and thereafter with no expense recognition for previous awards. Additionally, we recognize expense related to the discount embedded in our employee stock purchase plan. We will apply the fair value recognition provisions to all stock based awards granted, modified or settled on or after January 1, 2003 and will continue to provide the required pro forma information for all awards previously granted, modified or settled before January 1, 2003.

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

	Three Months Ended March 31, 2004			Three Months Ended March 31, 2005
Net income, as reported	$	22,997		$	22,949
Add: Stock-based employee compensation expense included in reported net income, net of tax benefit		443			859
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax benefit		(927	)		(1,198	)

Net income, pro forma	$	22,513		$	22,610

Earnings per share:
Basic—as reported		0.18			0.18
Basic—pro forma		0.18			0.17
Diluted—as reported		0.18			0.17
Diluted—pro forma		0.17			0.17

The weighted average fair value of options granted for the three months ended March 31, 2004 and 2005 was $12.09 and $10.39 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	Three Months Ended March 31, 2004		Three Months Ended March 31, 2005
Expected volatility	25.5	%	27.5	%(1)
Risk-free interest rate	3.08		3.96
Expected dividend yield	None		None
Expected life of the option	5.0 years		6.6 years

(1)

Calculated utilizing daily historical volatility over a period that equates to the expected life of the option.

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 2,208,772 shares and 1,536,016 shares for the three months ended March 31, 2004 and 2005, respectively. No potential common shares for the three months ended March 31, 2004 and potential common shares of 420,961 for the three months ended March 31, 2005, have been excluded from the calculation of diluted net income per share, as their effects are antidilutive.

f.: Supplemental Cash Flow Information

For the three months ended March 31, 2004 and 2005, cash payments for interest were $46,277 and $46,483, respectively, and cash payments for income taxes were $3,106 and $1,307, respectively.

g.: New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123R, "Share-Based Payment." SFAS No. 123R is a revision of SFAS No. 123 and supersedes Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). We adopted the measurement provisions of SFAS No. 123 and SFAS No. 148 in our financial statements beginning January 1, 2003 using the prospective method. The prospective method involves recognizing expense for the fair value for all awards granted or modified in the year of adoption and thereafter with no expense recognition for previous awards. We have applied the fair value recognition provisions to all stock based awards granted, modified or settled on or after January 1, 2003.

June 15, 2005, which would be our first quarter of 2006, although early adoption is allowed. SFAS No. 123R permits companies to adopt its requirements using either a "modified prospective" method, or a "modified retrospective" method. Under the "modified prospective" method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS No. 123R for all share-based payments granted after that date, and based on the requirements of SFAS No. 123 for all unvested awards granted prior to the effective date of SFAS No. 123R. Under the "modified retrospective" method, the requirements are the same as under the "modified prospective" method, but this method also permits entities to restate financial statements of previous periods based on proforma disclosures made in accordance with SFAS No. 123.

SFAS No. 123R also requires that the benefits associated with the tax deductions in excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating cash flow as required under current rules. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after the effective date. Since we do not pay significant cash taxes currently, we do not expect this provision to materially impact our statement of cash flows within the next few years.

We expect to adopt SFAS No. 123R effective January 1, 2006 using the modified prospective method of implementation. Subject to a complete review of the requirements of SFAS No. 123R, based on outstanding stock options granted to employees prior to our prospective implementation of the measurement provisions of SFAS No. 123 and SFAS No. 148 on January 1, 2003, we expect to record $949 of stock compensation expense in 2006 associated with unvested stock option grants issued prior to January 1, 2003.

In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143" (FIN 47). FIN 47 clarifies that conditional asset retirement obligations meet the definition of liabilities and should be recognized when incurred if their fair values can be reasonably estimated. FIN 47 is effective no later than December 31, 2005. The cumulative effect of initially applying FIN 47 will be recognized as a change in accounting principle. We are in the process of evaluating the effect of FIN 47 on our consolidated results of operations and financial position.

(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 March 31,
			2004		2005
Comprehensive Income:
	Net Income		$	22,997	$	22,949
	Other Comprehensive Income:
		Foreign Currency Translation Adjustments		3,565		2,355
		Unrealized Gain on Hedging Contracts		427		1,124
		Unrealized Gain on Securities		54		9

Comprehensive Income			$	27,043	$	26,437

(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.

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 $2,484, $909 and $1,575, respectively, as of March 31, 2005. For the three months ended March 31, 2004 and 2005, we recorded additional interest expense of $2,237 and $1,533, respectively, resulting from interest rate swap cash payments. 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. This swap expired in March 2005. For the three months ended March 31, 2004 and 2005, we recorded additional interest expense of $528 and $134,

respectively, resulting from the cash payments associated with this interest rate swap agreement. As a result of the repayment of the real estate term loans, we recorded an additional $795 of interest expense in the first quarter of 2004 and $140 of interest income in the first quarter of 2005, representing changes in the fair value of the derivative liability. The total impact of marking to market the fair market value of the derivative liability and cash payments associated with the interest rate swaps agreement resulted in our recording interest expense of $1,323 and interest income of $6 for the three months ended March 31, 2004 and 2005, 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 $4,658 ($3,393 recorded in accrued expenses and $1,265 recorded in other long-term liabilities) as of March 31, 2005. For the three months ended March 31, 2004 and 2005, we recorded additional interest expense of $1,228 and $848, respectively, resulting from interest rate swap cash payments. As a result of the repayment of the real estate term loans in the third quarter of 2004, we began marking to market the fair value of the derivative liability. The total impact of marking to market the fair market value of the derivative liability and cash payments associated with the interest rate swap agreement resulted in our recording interest income of $1,428 for the three months ended March 31, 2005.

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 payment, 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 payment 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 $41 (which was all recorded in other current assets), $13 and $28, respectively, as of March 31, 2005. For the three months ended March 31, 2005, we recorded additional interest income of $20, resulting from interest rate swap cash payments. These interest rate swap agreements were determined to be highly effective, and therefore no ineffectiveness was recorded in earnings.

(5) Acquisitions

We account for acquisitions using the purchase method of accounting, and accordingly, the results of operations for each acquisition has been included in our consolidated results from their respective acquisition dates. Cash consideration for the various acquisitions was provided through our credit facilities.

A summary of the consideration paid and the allocation of the purchase price of all 2005 acquisitions is as follows:

Cash Paid (net of cash acquired)		$	33,171
Fair Value of Identifiable Net Assets Acquired:
	Fair Value of Identifiable Assets Acquired(1)		(8,569	)
	Liabilities Assumed(2)		942
	Minority Interest(3)		(8,818	)

	Total Fair Value of Identifiable Net Assets Acquired		(16,445	)

Recorded Goodwill		$	16,726

(1): Comprised primarily of accounts receivable, prepaid expenses and other, land, buildings, racking, leasehold improvements, and customer relationship assets.
(2): Comprised primarily of accounts payable, accrued expenses and notes payable.
(3): Comprised primarily of the carrying value of minority interests of Latin American partners at the date of acquisition.

Allocation of the purchase price for the 2005 acquisitions was based on estimates of the fair value of net assets acquired, and is subject to adjustment. The purchase price allocations of certain 2004 and 2005 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 certain 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 March 31, 2005 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, 2004			Three Months Ended March 31, 2005
Reserves, Beginning Balance	$	16,322		$	21,414
Reserves Established		15,282			279
Expenditures		(10,200	)		(1,909	)
Adjustments to Goodwill, including currency effect(1)		10			137

Reserves, Ending Balance	$	21,414		$	19,921

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

At March 31, 2005, the restructuring reserves related to acquisitions consisted of lease losses on abandoned facilities of $12,521, severance costs for approximately 54 people of $2,141 and other exit costs of $5,259. These accruals are expected to be used prior to March 31, 2006 except for lease losses of $10,239 and severance contracts of $163, both of which are based on contracts that extend beyond one year.

(6) Long-term Debt

Long-term debt consists of the following:

	December 31, 2004					March 31, 2005
	Carrying Amount			Fair Value		Carrying Amount			Fair Value
IMI Revolving Credit Facility(1)	$	122,563		$	122,563	$	151,248		$	151,248
IMI Term Loan Facility(1)		349,000			349,000		348,000			348,000
IME Revolving Credit Facility(1)		101,478			101,478		89,963			89,963
IME Term Loan Facility(1)		184,330			184,330		188,760			188,760
8¹/4% Senior Subordinated Notes due 2011(2)		149,715			154,500		149,726			151,125
8⁵/8% Senior Subordinated Notes due 2013(2)		481,054			509,726		481,049			485,683
7¹/4% GBP Senior Subordinated Notes due 2014(2)		288,990			275,263		281,850			266,701
7³/4% Senior Subordinated Notes due 2015(2)		440,418			435,568		440,190			420,474
6⁵/8% Senior Subordinated Notes due 2016(2)		314,565			299,200		314,688			288,000
Real Estate Mortgages(1)		5,908			5,908		7,340			7,340
Seller Notes(1)		11,307			11,307		10,333			10,333
Other(1)		28,694			28,694		36,266			36,266

Total Long-term Debt		2,478,022					2,499,413
Less Current Portion		(39,435	)				(50,887	)

Long-term Debt, Net of Current Portion	$	2,438,587				$	2,448,526

(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, 2004 and March 31, 2005) 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." The fair values of these Parent notes are based on quoted market prices for these notes on December 31, 2004 and March 31, 2005.

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 200,000 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 and a 100,000 British pounds sterling term loan (the "IME term loan facility"). 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. Our consolidated balance sheet as of March 31, 2005 included 147,660 British pounds sterling ($278,723) 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 January 31, 2005, was approximately 34,348 British pounds sterling ($64,835). The interest rate in effect

under the IME revolving credit facility ranged from 3.4% to 6.6% as of January 31, 2005. For the three months ended March 31, 2005, we recorded commitment fees of $206 based on 0.9% of unused balances under the IME revolving credit facility.

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. In November 2004, we entered into 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 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 March 31, 2005, we had $151,248 of borrowings under our IMI revolving credit facility, all of which were denominated in Canadian dollars (CAD 184,000); we also had various outstanding letters of credit totaling $23,960. The remaining availability, based on IMI's current level of external debt and the leverage ratio under the IMI revolving credit facility, on March 31, 2005 was $174,792. The interest rate in effect under the IMI revolving credit facility was 4.6% as of March 31, 2005. For the three months ended March 31, 2005, we recorded commitment fees of $257 based on 0.5% of unused balances under the IMI revolving credit facility.

The IME Credit Agreement, IMI Credit Agreement, our indentures and other agreements governing our indebtedness contain certain restrictive financial and operating covenants, including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take certain other corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under the IME Credit Agreement and IMI Credit Agreement. We were in compliance with all material debt covenants as of March 31, 2005.

(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 December 31, 2004 and March 31, 2005 and for the three month periods ended March 31, 2004 and 2005. 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."

			December 31, 2004
			Parent		Guarantors		Non- Guarantors		Eliminations			Consolidated
Assets
Current Assets:
	Cash and Cash Equivalents		$	—	$	11,021	$	20,921	$	—		$	31,942
	Accounts Receivable			—		239,015		115,419		—			354,434
	Intercompany Receivable			869,370		—		—		(869,370	)		—
	Other Current Assets			1,064		83,977		30,146		(409	)		114,778

		Total Current Assets		870,434		334,013		166,486		(869,779	)		501,154
Property, Plant and Equipment, Net				—		1,131,277		518,519		—			1,649,796
Other Assets, Net:
		Long-term Notes Receivable from Affiliates and Intercompany Receivable		1,923,614		11,420		—		(1,935,034	)		—
	Investment in Subsidiaries			479,270		182,866		1,061		(663,197	)		—
	Goodwill			—		1,435,151		594,264		10,802			2,040,217
	Other			30,128		116,438		105,196		(542	)		251,220

		Total Other Assets, Net		2,433,012		1,745,875		700,521		(2,587,971	)		2,291,437

		Total Assets	$	3,303,446	$	3,211,165	$	1,385,526	$	(3,457,750	)	$	4,442,387

Liabilities and Shareholders' Equity
	Intercompany Payable		$	—	$	313,259	$	556,111	$	(869,370	)	$	—
	Current Portion of Long-term Debt			3,823		2,355		33,257		—			39,435
	Total Other Current Liabilities			51,190		298,755		126,492		(409	)		476,028
	Long-term Debt, Net of Current Portion			2,024,224		112		414,251		—			2,438,587
	Long-term Notes Payable to Affiliates and Intercompany Payable			1,000		1,923,614		10,420		(1,935,034	)		—
	Other Long-term Liabilities			4,641		212,083		40,542		(542	)		256,724
	Commitments and Contingencies
	Minority Interests			—		—		4,177		8,868			13,045
	Shareholders' Equity			1,218,568		460,987		200,276		(661,263	)		1,218,568

		Total Liabilities and Shareholders' Equity	$	3,303,446	$	3,211,165	$	1,385,526	$	(3,457,750	)	$	4,442,387

			March 31, 2005
			Parent		Guarantors		Non- Guarantors		Eliminations			Consolidated
Assets
Current Assets:
	Cash and Cash Equivalents		$	—	$	12,643	$	16,133	$	—		$	28,776
	Accounts Receivable			—		247,085		129,781		—			376,866
	Intercompany Receivable			868,917		—		—		(868,917	)		—
	Other Current Assets			909		74,104		32,074		(405	)		106,682

		Total Current Assets		869,826		333,832		177,988		(869,322	)		512,324
Property, Plant and Equipment, Net				—		1,141,339		532,627		—			1,673,966
Other Assets, Net:
	Long-term Notes Receivable from Affiliates and Intercompany Receivable			1,929,983		11,186		—		(1,941,169	)		—
		Investment in Subsidiaries		496,853		206,325		1,166		(704,344	)		—
	Goodwill			—		1,448,623		602,637		10,907			2,062,167
	Other			29,362		117,726		113,047		(662	)		259,473

		Total Other Assets, Net		2,456,198		1,783,860		716,850		(2,635,268	)		2,321,640

		Total Assets	$	3,326,024	$	3,259,031	$	1,427,465	$	(3,504,590	)	$	4,507,930

Liabilities and Shareholders' Equity
	Intercompany Payable		$	—	$	326,834	$	542,083	$	(868,917	)	$	—
	Current Portion of Long-term Debt			3,828		1,279		45,780		—			50,887
	Total Other Current Liabilities			49,213		297,114		136,274		(405	)		482,196
	Long-term Debt, Net of Current Portion			2,012,662		349		435,515		—			2,448,526
	Long-term Notes Payable to Affiliates and Intercompany Payable			1,000		1,929,983		10,186		(1,941,169	)		—
	Other Long-term Liabilities			3,853		224,209		38,580		(662	)		265,980
	Commitments and Contingencies
	Minority Interests			—		—		1,188		3,685			4,873
	Shareholders' Equity			1,255,468		479,263		217,859		(697,122	)		1,255,468

		Total Liabilities and Shareholders' Equity	$	3,326,024	$	3,259,031	$	1,427,465	$	(3,504,590	)	$	4,507,930

			Three Months Ended March 31, 2004
			Parent			Guarantors			Non- Guarantors		Eliminations			Consolidated
Revenues:
	Storage		$	—		$	187,029		$	61,566	$	—		$	248,595
	Service and Storage Material Sales			—			137,770			47,557		—			185,327

		Total Revenues		—			324,799			109,123		—			433,922
Operating Expenses:
	Cost of Sales (Excluding Depreciation)			—			143,920			54,390		—			198,310
	Selling, General and Administrative			83			85,458			26,919		—			112,460
	Depreciation and Amortization			10			29,894			7,376		—			37,280
	Loss on Disposal/Writedown of Property, Plant and Equipment, Net			—			45			75		—			120

		Total Operating Expenses		93			259,317			88,760		—			348,170

Operating (Loss) Income				(93	)		65,482			20,363		—			85,752
Interest Expense (Income), Net				37,374			(4,943	)		11,028		—			43,459
Equity in the Earnings of Subsidiaries				(67,851	)		(1,336	)		—		69,187			—
Other Expense (Income), Net				7,387			(11,657	)		6,540		—			2,270

Income Before Provision for Income Taxes and Minority Interest				22,997			83,418			2,795		(69,187	)		40,023
Provision for Income Taxes				—			15,451			1,099		—			16,550
Minority Interest in Earnings of Subsidiaries				—			—			476		—			476

Net Income			$	22,997		$	67,967		$	1,220	$	(69,187	)	$	22,997

			Three Months Ended March 31, 2005
			Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
Revenues:
	Storage		$	—		$	208,053		$	77,302		$	—		$	285,355
	Service and Storage Material Sales			—			153,034			63,017			—			216,051

		Total Revenues		—			361,087			140,319			—			501,406
Operating Expenses:
	Cost of Sales (Excluding Depreciation)			—			161,405			69,223			—			230,628
	Selling, General and Administrative			54			100,309			34,977			—			135,340
	Depreciation and Amortization			9			32,276			12,261			—			44,546
	Gain on Disposal/Writedown of Property, Plant and Equipment, Net			—			(203	)		(15	)		—			(218	)

		Total Operating Expenses		63			293,787			116,446			—			410,296

Operating (Loss) Income				(63	)		67,300			23,873			—			91,110
Interest Expense (Income), Net				39,089			(8,253	)		14,970			—			45,806
Equity in the Earnings of Subsidiaries				(54,818	)		(4,525	)		—			59,343			—
Other (Income) Expense, Net				(7,283	)		10,933			1,013			—			4,663

Income Before Provision for Income Taxes and Minority Interest				22,949			69,145			7,890			(59,343	)		40,641
Provision for Income Taxes				—			14,691			2,545			—			17,236
Minority Interest in Earnings of Subsidiaries				—			—			456			—			456

Net Income			$	22,949		$	54,454		$	4,889		$	(59,343	)	$	22,949

			Three Months Ended March 31, 2004
			Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
Cash Flows from Operating Activities			$	(69,495	)	$	98,626		$	12,477		$	—		$	41,608
Cash Flows from Investing Activities:
	Capital expenditures			—			(31,787	)		(11,387	)		—			(43,174	)
	Cash paid for acquisitions, net of cash acquired			—			(48,189	)		(119,454	)		—			(167,643	)
	Intercompany loans to subsidiaries			74,518			(59,474	)		—			(15,044	)		—
	Investment in subsidiaries			(110,692	)		(110,692	)		—			221,384			—
	Additions to customer relationship and acquisition costs			—			(2,156	)		(526	)		—			(2,682	)
	Proceeds from sales of property and equipment			—			82			43			—			125

		Cash Flows from Investing Activities		(36,174	)		(252,216	)		(131,324	)		206,340			(213,374	)
Cash Flows from Financing Activities:
	Repayment of debt and term loans			(358,696	)		(106,014	)		(47,279	)		—			(511,989	)
	Proceeds from borrowings and term loans			191,859			219,794			15,783			—			427,436
	Early retirement of 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			—			(42,843	)		2,397			—			(40,446	)
	Intercompany loans from parent			—			(76,759	)		61,715			15,044			—
	Equity contribution from parent			—			110,692			110,692			(221,384	)		—
	Other, net			3,079			—			—			—			3,079

		Cash Flows from Financing Activities		105,669			104,870			122,511			(206,340	)		126,710
Effect of exchange rates on cash and cash equivalents				—			—			1,351			—			1,351
(Decrease) Increase in cash and cash equivalents				—			(48,720	)		5,015			—			(43,705	)
Cash and cash equivalents, beginning of period				—			54,793			19,890			—			74,683

Cash and cash equivalents, end of period			$	—		$	6,073		$	24,905		$	—		$	30,978

			Three Months Ended March 31, 2005
			Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
Cash Flows from Operating Activities			$	(39,927	)	$	93,046		$	10,295		$	—		$	63,414
Cash Flows from Investing Activities:
	Capital expenditures			—			(39,735	)		(18,911	)		—			(58,646	)
	Cash paid for acquisitions, net of cash acquired			—			(13,958	)		(19,255	)		—			(33,213	)
	Intercompany loans to subsidiaries			54,561			19,652			—			(74,213	)		—
	Investment in subsidiaries			(15,686	)		(15,686	)		—			31,372			—
	Additions to customer relationship and acquisition costs			—			(1,641	)		(1,242	)		—			(2,883	)
	Proceeds from sales of property and equipment			—			271			—			—			271

		Cash Flows from Investing Activities		38,875			(51,097	)		(39,408	)		(42,841	)		(94,471	)
Cash Flows from Financing Activities:
	Repayment of debt and term loans			(104,318	)		(797	)		(10,308	)		—			(115,423	)
	Proceeds from borrowings and term loans			100,000			—			39,253			—			139,253
	Debt financing (repayment to) and equity contribution from (distribution to) minority shareholders, net			—			—			(1,704	)		—			(1,704	)
	Intercompany loans from parent			—			(55,216	)		(18,997	)		74,213			—
	Equity contribution from parent			—			15,686			15,686			(31,372	)		—
	Other, net			5,370			—			(42	)		—			5,328

		Cash Flows from Financing Activities		1,052			(40,327	)		23,888			42,841			27,454
Effect of exchange rates on cash and cash equivalents				—			—			437			—			437
Increase (Decrease) in cash and cash equivalents				—			1,622			(4,788	)		—			(3,166	)
Cash and cash equivalents, beginning of period				—			11,021			20,921			—			31,942

Cash and cash equivalents, end of period			$	—		$	12,643		$	16,133		$	—		$	28,776

(8) Segment Information

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

	Business Records Management		Data Protection		International		Corporate & Other			Total Consolidated
Three Months Ended March 31, 2004
Revenue	$	272,830	$	66,351	$	84,554	$	10,187		$	433,922
Contribution		74,979		18,568		20,060		9,545			123,152
Total Assets		2,564,627		377,217		1,085,057		(18,012	)(1)		4,008,889
Expenditures for Segment Assets(2)		39,856		3,107		162,844		7,692			213,499
Three Months Ended March 31, 2005
Revenue		296,156		75,309		107,460		22,481			501,406
Contribution		84,410		22,480		25,030		3,518			135,438
Total Assets		2,740,244		399,747		1,067,675		300,264	(1)		4,507,930
Expenditures for Segment Assets(2)		49,349		4,377		35,058		5,958			94,742

(1): Total corporate & other assets include the intersegment elimination amounts of $2,117,314 and $1,870,151 as of March 31, 2004 and 2005, 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, 2004 except that certain costs continue to be allocated by Corporate to the other segments in both 2004 and 2005, primarily to our Business Records Management and 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 March 31,
			2004		2005
Contribution			$	123,152	$	135,438
	Less: Depreciation and Amortization			37,280		44,546
		Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net		120		(218	)
		Interest Expense, Net		43,459		45,806
		Other Expense, Net		2,270		4,663
		Provision for Income Taxes		16,550		17,236
		Minority Interest in Earnings of Subsidiaries		476		456

Net Income			$	22,997	$	22,949

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

		Three Months Ended March 31,
		2004		2005
Revenues:
United States		$	325,605	$	361,143
United Kingdom			63,030		69,886
Canada			23,763		31,686
Other International			21,524		38,691

	Total Revenues	$	433,922	$	501,406

		December 31, 2004		March 31, 2005
Long-lived Assets:
United States		$	2,735,545	$	2,759,437
United Kingdom			618,712		630,840
Canada			315,872		314,400
Other International			271,104		290,929

	Total Long-lived Assets	$	3,941,233	$	3,995,606

(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, 2004. See our Annual Report on Form 10-K for the year ended December 31, 2004 for amounts outstanding at December 31, 2004.

There have been no material developments during the first quarter of 2005 in the proceedings described in our Annual Report on Form 10-K for the year ended December 31, 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 in our Annual Report on Form 10-K for the year ended December 31, 2004, are pending to which we, or any of our properties, are subject. In addition, we record legal costs associated with loss contingencies as expenses in the period in which they are incurred.

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

The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2005 should be read in conjunction with our consolidated financial statements and notes thereto for the three months ended March 31, 2005 included herein, and the year ended December 31, 2004, included in our Annual Report on Form 10-K for the year ended December 31, 2004.

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 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) 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; (4) our ability or inability to complete acquisitions on satisfactory terms and to integrate acquired companies efficiently; (5) the cost and availability of financing for contemplated growth; (6) business partners upon whom we depend for technical assistance or management and acquisition expertise outside the U.S. will not perform as anticipated; (7) changes in the political and economic environments in the countries in which our international subsidiaries operate; 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 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 March 31,
		2004		2005
OIBDA		$	123,032	$	135,656
Less: Depreciation and Amortization			37,280		44,546

Operating Income			85,752		91,110
Less: Interest Expense, Net			43,459		45,806
	Other Expense, Net		2,270		4,663
	Provision for Income Taxes		16,550		17,236
	Minority Interest		476		456

Net Income		$	22,997	$	22,949

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 and credit memos, 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, which are listed in no particular order:

•: Accounting for Acquisitions
•: Allowance for Doubtful Accounts and Credit Memos
•: Accounting for Derivative Instruments and Hedging Activities
•: Accounting for Internal Use Software
•: Deferred Income Taxes
•: Stock-based Compensation

•: Self-Insured Liabilities

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, 2004 as filed with the SEC. Management has determined that no material changes concerning our critical accounting policies have occurred since December 31, 2004.

Recent Accounting Pronouncements

Among other items, SFAS No. 123R eliminates the use of APB No. 25 and the intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. The effective date of SFAS No. 123R is the first fiscal year beginning after June 15, 2005, which would be our first quarter of 2006, although early adoption is allowed. SFAS No. 123R permits companies to adopt its requirements using either a "modified prospective" method, or a "modified retrospective" method. Under the "modified prospective" method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS No. 123R for all share-based payments granted after that date, and based on the requirements of SFAS No. 123 for all unvested awards granted prior to the effective date of SFAS No. 123R. Under the "modified retrospective" method, the requirements are the same as under the "modified prospective" method, but this method also permits entities to restate financial statements of previous periods based on proforma disclosures made in accordance with SFAS No. 123.

We expect to adopt SFAS No. 123R effective January 1, 2006 using the modified prospective method of implementation. Subject to a complete review of the requirements of SFAS No. 123R, based on outstanding stock options granted to employees prior to our prospective implementation of the measurement provisions of SFAS No. 123 and SFAS No. 148 on January 1, 2003, we expect to record $0.9 million of stock compensation expense in 2006 associated with unvested stock option grants issued prior to January 1, 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 month period ended March 31, 2005 within each section.

Results of Operations

Comparison of Three Months Ended March 31, 2005 to Three Months Ended March 31, 2004 (in thousands):

	Three Months Ended March 31,
	Three Months Ended March 31,						Dollar Change			Percent Change
	2004			2005			Dollar Change			Percent Change
Revenues	$	433,922		$	501,406		$	67,484		15.6	%
Operating Expenses		348,170			410,296			62,126		17.8	%

Operating Income		85,752			91,110			5,358		6.2	%
Other Expenses, Net		62,755			68,161			5,406		8.6	%

Net Income	$	22,997		$	22,949		$	(48	)	(0.2	)%

OIBDA(1)	$	123,032		$	135,656		$	12,624		10.3	%

OIBDA Margin(1)		28.4	%		27.1	%

(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 $36.8 million, or 14.8%, to $285.4 million for the three months ended March 31, 2005 from $248.6 million for the three months ended March 31, 2004. The increase is attributable to internal revenue growth (8%) resulting from net increases in records and other media stored by existing customers and sales to new customers, acquisitions (4%), and foreign currency exchange rate fluctuations (2%).

Consolidated service and storage material sales revenues increased $30.7 million, or 16.6%, to $216.1 million for the three months ended March 31, 2005 from $185.3 million for the three months ended March 31, 2004. The increase is attributable to acquisitions (11%), internal revenue growth (3%) resulting from net increases in service and storage material sales to existing customers and sales to new customers, and foreign currency exchange rate fluctuations (2%).

For the reasons stated above, our consolidated revenues increased $67.5 million, or 15.6%, to $501.4 million for the three months ended March 31, 2005 from $433.9 million for the three months ended March 31, 2004. Foreign currency exchange rate fluctuations that impacted our revenues 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. Internal revenue growth was 8%, and 6% for the three months ended March 31, 2004, and 2005, respectively. We calculate internal revenue growth in local currency for our international operations.

Internal Growth—Eight-Quarter Trend

	2003						2004								2005
	Second Quarter		Third Quarter		Fourth Quarter		First Quarter		Second Quarter		Third Quarter		Fourth Quarter		First Quarter
Storage Revenue	8	%	9	%	8	%	8	%	9	%	8	%	9	%	8	%
Service and Storage Material Sales Revenue	3	%	2	%	1	%	6	%	4	%	5	%	9	%	3	%
Total Revenue	6	%	6	%	5	%	8	%	7	%	7	%	9	%	6	%

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 consistently ranged between 8% and 9%. Our storage revenue internal growth rate trend over that period reflects stable net carton volume growth in our North American records management business and strong growth rates in our digital and 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 the more discretionary nature of the services we offer such as large special projects and data products and carton sales, as well as the price of 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 current internal growth rate for service and storage material sales revenues reflects the following: (1) continued strength in our secure shredding business; (2) improved growth rates in our data protection business; and (3) strong data product sales. These positive factors were partially offset by: (1) lower special project revenues related to the public sector business in the UK; (2) a large, one-time software license sale in the first quarter of 2004 that did not repeat in the first quarter of 2005; and (3) difficult year-over-year comparisons in our North American business records segment.

OPERATING EXPENSES

Cost of Sales

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

	Three Months Ended March 31,								% of Consolidated Revenues
													Percent Change (Favorable)/ Unfavorable
					Dollar Change		Percent Change
	2004		2005		Dollar Change		Percent Change		2004		2005
Labor	$	100,370	$	110,261	$	9,891	9.9	%	23.1	%	22.0	%	(1.1	)%
Facilities		62,537		70,750		8,213	13.1	%	14.4	%	14.1	%	(0.3	)%
Transportation		18,630		22,696		4,066	21.8	%	4.3	%	4.5	%	0.2	%
Product Cost of Sales		8,788		11,977		3,189	36.3	%	2.0	%	2.4	%	0.4	%
Other		7,985		14,944		6,959	87.2	%	1.8	%	3.0	%	1.2	%

	$	198,310	$	230,628	$	32,318	16.3	%	45.7	%	46.0	%	0.3	%

Labor

For the three months ended March 31, 2005 as compared to the three months ended March 31, 2004, labor expense decreased as a percentage of consolidated revenues as a result of the continued

monitoring of labor management controls implemented in the fourth quarter of 2004 in our North American operations and an increasing proportion of revenue from less labor intensive digital services and product sales. We have also experienced improvement in our ratio of labor costs in our European operations as a result of completing the integration of Hays plc ("Hays IMS") in 2004.

Facilities

Facilities costs as a percentage of consolidated revenues decreased to 14.1% as of March 31, 2005 from 14.4% as of March 31, 2004. The decrease in facilities costs as a percentage of consolidated revenues was primarily a result of maintaining approximately the same overall base rent per square foot in our North American operations during 2004 and into 2005. The largest component of our facilities cost is rent expense, which increased $3.9 million for the three months ended March 31, 2005 compared to the three months ended March 31, 2004 primarily as a result of properties under lease acquired through acquisitions in both Europe and North America. The remaining facilities expenses for the three months ended March 31, 2005 were consistent with the three months ended March 31, 2004 as a percentage of consolidated revenues.

Transportation

Our transportation expenses, which increased 0.2% as a percentage of consolidated revenues for the three months ended March 31, 2005 compared to the three months ended March 31, 2004, are influenced by several variables including total number of vehicles, owned versus leased vehicles, use of subcontracted couriers, fuel expenses and maintenance. Higher fuel expenses during the three months ended March 31, 2005 compared to the three months ended March 31, 2004 were primarily responsible for the increase in transportation expenses as a percentage of consolidated revenues.

Product and Other Cost of Sales

Product and other cost of sales are highly correlated to complementary revenue streams. Product and other cost of sales for the three months ended March 31, 2005 were higher than the three months ended March 31, 2004 as a percentage of consolidated revenues due to increased royalty payments associated with our electronic vaulting revenues and increases in technology costs associated with these revenue producing activities.

Selling, General and Administrative Expenses

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

	Three Months Ended March 31,								% of Consolidated Revenues
													Percent Change (Favorable)/ Unfavorable
					Dollar Change		Percent Change
	2004		2005		Dollar Change		Percent Change		2004		2005
General and Administrative	$	61,904	$	68,081	$	6,177	10.0	%	14.3	%	13.6	%	(0.7	)%
Sales, Marketing & Account Management		31,976		42,645		10,669	33.4	%	7.4	%	8.5	%	1.1	%
Information Technology		18,499		23,834		5,335	28.8	%	4.3	%	4.8	%	0.5	%
Bad Debt Expense		81		780		699	863.0	%	0.0	%	0.2	%	0.2	%

	$	112,460	$	135,340	$	22,880	20.3	%	25.9	%	27.0	%	1.1	%

General and Administrative

The decrease in general and administrative expenses as a percentage of consolidated revenues for the three months ended March 31, 2005 compared to the three months ended March 31, 2004 is attributable to the monitoring of controls over spending implemented in late 2004 in our North

American operations carried over to the first quarter of 2005. These decreases were partially offset by increased incentive compensation expense and growth of our European operations due to expansion and acquisitions.

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 related compensation and commissions are the most significant contributors to the increase in sales and marketing expenses as a percentage of revenues for the three months ended March 31, 2005. Throughout 2004, 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 contributed to the increase in our sales, marketing and account management expenses. Costs associated with our European sales and account management teams increased by $3.5 million for the three months ended March 31, 2005, due to the expansion of our sales force through the hiring of new personnel and acquisitions. In addition, our larger North American sales force generated a $1.5 million increase in sales commissions for the three months ended March 31, 2005 compared to the three months ended March 31, 2004.

Information Technology

Information technology expenses increased as a percentage of consolidated revenues for the three months ended March 31, 2005 compared to the three months ended March 31, 2004 due to increases in internal software development projects within our digital business, the acquisition of Connected Corporation ("Connected") and associated research and development activities, and increased information technology spending in our European operations. Higher utilization of existing information technology resources to revenue producing projects partially offset this increase.

Bad Debt Expense

The increase in consolidated bad debt expense for the three months ended March 31, 2005 compared to the three months ended March 31, 2004 is primarily attributable to increased bad debt expense in our European operations represented by increases in days sales outstanding as a result of our recent relocation of our U.K. credit and collections team.

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

Consolidated depreciation and amortization expense increased $7.3 million to $44.5 million (8.9% of consolidated revenues) for the three months ended March 31, 2005 from $37.3 million (8.6% of consolidated revenues) for the three months ended March 31, 2004. Depreciation expense increased $5.6 million for the three months ended March 31, 2005 compared to the three months ended March 31, 2004 primarily due to the additional depreciation expense related to recent capital expenditures and acquisitions, including storage systems, which include racking, building and leasehold improvements, computer systems hardware and software, and buildings. Amortization expense increased $1.7 million for the three months ended March 31, 2005 compared to the three months ended March 31, 2004 due to amortization of intangible assets, primarily customer relationship intangible assets acquired through business combinations. We expect that amortization expense will continue to increase as we acquire new businesses and reflect the recent buyouts of our minority interest partners.

Consolidated gains on disposal/writedown of property, plant and equipment, net of $0.2 million for the three months ended March 31, 2005, consisted primarily of the sale of vehicles offset by disposals

and asset writedowns compared to $0.1 million of losses recorded on asset disposals during the three months ended March 31, 2004.

OPERATING INCOME

As a result of the foregoing factors, consolidated operating income increased $5.4 million, or 6.2%, to $91.1 million (18.2% of consolidated revenues) for the three months ended March 31, 2005 from $85.8 million (19.8% of consolidated revenues) for the three months ended March 31, 2004.

OIBDA

As a result of the foregoing factors, consolidated OIBDA increased $12.6 million, or 10.3%, to $135.7 million (27.1% of consolidated revenues) for the three months ended March 31, 2005 from $123.0 million (28.4% of consolidated revenues) for the three months ended March 31, 2004.

OTHER EXPENSES, NET

Interest Expense, Net

Consolidated interest expense, net increased $2.3 million to $45.8 million (9.1% of consolidated revenues) for the three months ended March 31, 2005 from $43.5 million (10.0% of consolidated revenues) for the three months ended March 31, 2004. Increased borrowings, primarily from entering into an additional $150.0 million of term loans as permitted under our IMI Credit Agreement in November 2004 contributed to the dollar increase in interest expense.

The decrease of interest expense, net as a percentage of consolidated revenues was partially due to the recording of interest income totaling $1.4 million related to the mark-to-market adjustments on the interest rate swap associated with a real estate term loan we repaid in August 2004 and a decline in our weighted average interest rate to 7.6% as of March 31, 2005 from 7.8% as of March 31, 2004. During the three months ended March 31, 2004, we recorded a charge of $0.8 million associated with the fair market value of a similar swap on a real estate term loan repaid in March 2004, which was 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 either of these swaps and have marked to market the fair market value of the derivative liability to interest expense, net and are making our monthly cash payments as required under the swap contract through each swap's maturity date in November 2007 and March 2005, respectively.

Other Expense (Income), Net (in thousands)

	Three Months Ended March 31,
	2004			2005			Change
Foreign currency transaction (gains) losses	$	(108	)	$	4,789		$	4,897
Debt extinguishment expense		2,433			0			(2,433	)
Other, net		(55	)		(126	)		(71	)

	$	2,270		$	4,663		$	2,393

Foreign currency losses of $4.8 million based on period-end exchange rates were recorded in the three months ended March 31, 2005 primarily due to the weakening of the British pound sterling, Canadian dollar and the Euro against the U.S. dollar as these currencies relate to our intercompany balances with our U.K., Canadian and European subsidiaries, and British pounds sterling denominated debt held by our U.S. parent company.

During the three months ended March 31, 2004, we recorded foreign currency gains of $0.1 million based on period-end exchange rates primarily due to the strengthening of the British pound sterling offset by the weakening of the Canadian dollar against the U.S. dollar as these currencies relate to our intercompany balances with our Canadian and U.K. subsidiaries, U.S. dollar denominated debt held by our Canadian subsidiary, borrowings denominated in foreign currencies under our revolving credit facility, 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.

During the three months ended March 31, 2004, we redeemed the remaining outstanding principal amount of the 8¹/8% Senior Notes due 2008 of our Canadian subsidiary (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. The charges consisted primarily of the call and tender premiums associated with the extinguished debt and the write-off of unamortized deferred financing cost and discounts.

PROVISION FOR INCOME TAXES

Our effective tax rates for the three months ended March 31, 2004 and 2005 were 41.4%, and 42.4%, respectively. The primary reconciling item between the statutory rate of 35% and our effective rate is state income taxes (net of federal benefit). We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different than that which is reflected in historical income tax provisions and accruals. Additional taxes assessed as a result of an audit or litigation could have a material effect on our income tax provision and net income in the period or periods in which that determination is made. 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 2005.

MINORITY INTEREST

Minority interest in earnings of subsidiaries, net resulted in a charge to income of $0.5 million (0.1% of consolidated revenues) for both the three months ended March 31, 2004 and 2005. This represents our minority partners' share of earnings in our majority-owned international subsidiaries that are consolidated in our operating results.

NET INCOME

As a result of the foregoing factors, for the three months ended March 31, 2005 consolidated net income was $22.9 million (4.6% of consolidated revenues) compared to net income of $23.0 million (5.3% of consolidated revenues) for the three months ended March 31, 2004.

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 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 all our product and services lines outside the U.S. and Canada. Our corporate and other segment includes our corporate overhead functions and our fulfillment, consulting, digital archiving and PC/desktop computing electronic vaulting services.

Business Records Management

		Segment Revenue											Segment Contribution(1)						Segment Contribution as a Percentage of Segment Revenue
		March 31, 2004			March 31, 2005			Increase in Revenues			Percentage Increase in Revenues		March 31, 2004			March 31, 2005			March 31, 2004		March 31, 2005
Three Months Ended		$	272,830		$	296,156		$	23,326		8.5	%	$	74,979		$	84,410		27.5	%	28.5	%

Items Excluded from the Calculation of Contribution(1)

		Depreciation and Amortization						Foreign Currency Losses						Loss (Gain) on Disposal/ Writedown of Property, Plant and Equipment, Net						Loss on Debt Extinguishment
		March 31, 2004			March 31, 2005			March 31, 2004			March 31, 2005			March 31, 2004			March 31, 2005			March 31, 2004			March 31, 2005
Three Months Ended		$	19,383		$	19,926		$	1,871		$	1,699		$	254		($	207	)	$	2,028		$	0

(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 months ended March 31, 2005, revenue in our business records management segment increased 8.5% primarily due to increased storage revenues, growth of our secure shredding operations and acquisitions, and was impacted by slower growth in service and special project revenue. In addition, favorable currency fluctuations during the three months ended March 31, 2005 in Canada increased revenue $2.2 million when compared to the three months ended March 31, 2004. Contribution as a percent of segment revenue increased in the three months ended March 31, 2005 due to the effectiveness of recent labor and cost management initiatives and lower bad debt expense, which were partially offset by increases in transportation and facility related expenses.

Data Protection

		Segment Revenue											Segment Contribution(1)						Segment Contribution as a Percentage of Segment Revenue
		March 31, 2004			March 31, 2005			Increase in Revenues			Percentage Increase in Revenues		March 31, 2004			March 31, 2005			March 31, 2004		March 31, 2005
Three Months Ended		$	66,351		$	75,309		$	8,958		13.5	%	$	18,568		$	22,480		28.0	%	29.9	%

Items Excluded from the Calculation of Contribution(1)

		Depreciation and Amortization						Loss on Disposal/Writedown of Property, Plant and Equipment, Net
		March 31, 2004			March 31, 2005			March 31, 2004			March 31, 2005
Three Months Ended		$	3,915		$	3,773		$	89		$	4

(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 months ended March 31, 2005, revenue in our data protection segment increased 13.5% primarily due to internal revenue growth from both existing and new customers. Higher revenue growth rates from our product sales, 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 labor and cost management initiatives and lower bad debt expense and was partially offset by decreased product sales margins and the growth of our sales and account management force including higher sales commissions.

International

		Segment Revenue											Segment Contribution(1)						Segment Contribution as a Percentage of Segment Revenue
		March 31, 2004			March 31, 2005			Increase in Revenues			Percentage Increase in Revenues		March 31, 2004			March 31, 2005			March 31, 2004		March 31, 2005
Three Months Ended		$	84,554		$	107,460		$	22,906		27.1	%	$	20,060		$	25,030		23.7	%	23.3	%

Items Excluded from the Calculation of Contribution(1)

		Depreciation and Amortization						Foreign Currency Losses						Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net
		March 31, 2004			March 31, 2005			March 31, 2004			March 31, 2005			March 31, 2004			March 31, 2005
Three Months Ended		$	5,819		$	10,134		$	4,036		$	1,916		$	72		($	15	)

(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 27.1% during the three months ended March 31, 2005 primarily due to acquisitions completed in Europe and in South America and strong internal growth in Latin America. Favorable currency fluctuations during the three months ended March 31, 2005 in Europe, Mexico and South America increased revenue, as measured in U.S. dollars, by $7.3 million compared to the three months ended March 31, 2004. Contribution as a percent of segment revenue decreased primarily due to compensation associated with additional sales, marketing, and account management personnel, several new marketing and promotional efforts, and increased bad debt expense. This decrease was mitigated by improvements in both cost of sales and overhead labor ratios as a result of completing the integration of Hays IMS in 2004.

Corporate and Other

The Corporate and Other segment is comprised of results from operations not discussed above, including our digital archiving services, PC/Desktop computing electronic vaulting services, consulting and fulfillment operations and costs associated with our corporate headquarters' operations. Certain

costs incurred by our Corporate division were allocated to the other segments in the three months ended March 31, 2004 and 2005, primarily to our Business Records Management and 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 $12.3 million to $22.5 million for the three months ended March 31, 2005 from $10.2 million for the three months ended March 31, 2004 primarily due to the acquisition of Connected in November 2004, which had revenue of $8.5 million during the three months ended March 31, 2005. Contribution decreased $6.0 million to $3.5 million for the three months ended March 31, 2005 from $9.5 million for the three months ended March 31, 2004. Items excluded from the calculation of Contribution include the following: (1) depreciation and amortization expense for the three months ended March 31, 2004 and 2005, of $8.2 million and $10.7 million, respectively, (2) foreign currency gains of $6.0 million for the three months ended March 31, 2004 and foreign currency losses of $1.2 million for the three months ended March 31, 2005, (3) debt extinguishment expense of $0.4 million for the three months ended March 31, 2004 and (4) a $0.3 million gain on disposal/writedown of property, plant and equipment, net for the three months ended March 31, 2004.

Liquidity and Capital Resources

The following is a summary of our cash balances and cash flows for the three months ended March 31, 2004 and 2005 (in thousands).

	2004			2005
Cash flows provided by operating activities	$	41,608		$	63,414
Cash flows used in investing activities		(213,374	)		(94,471	)
Cash flows provided by financing activities		126,710			27,454
Cash and cash equivalents at the end of period	$	30,978		$	28,776

Net cash provided by operating activities was $63.4 million for the three months ended March 31, 2005 compared to $41.6 million for the three months ended March 31, 2004. 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, growth in deferred revenue, an increase in days sales outstanding in our European operations and timing of incentive compensation payments.

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 three months ended March 31, 2005 amounted to $58.6 million and $2.9 million, respectively. For the three months ended March 31, 2005, 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 $220 million and approximately $250 million in the year ending December 31, 2005.

In the three months ended March 31, 2005, we paid net cash consideration of $33.2 million for acquisitions, which included $19 million to purchase our minority partners equity interest in certain of our Latin American subsidiaries. Cash flows from operations and borrowings under our revolving credit facilities funded these acquisitions.

Net cash provided by financing activities was $27.5 million for the three months ended March 31, 2005. During the three months ended March 31, 2005 we had gross borrowings under our revolving credit facilities and term loan facilities of $139.3 million. We used the proceeds from these financing

transactions to repay debt and term loans ($115.4 million), repay debt financing from minority shareholders, net ($1.7 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 March 31, 2005 was comprised of the following (in thousands):

IMI Revolving Credit Facility	$	151,248
IMI Term Loan Facility		348,000
IME Revolving Credit Facility		89,963
IME Term Loan Facility		188,760
8¹/4% Senior Subordinated Notes due 2011(1)		149,726
8⁵/8% Senior Subordinated Notes due 2013(1)		481,049
7¹/4% GBP Senior Subordinated Notes due 2014(1)		281,850
7³/4% Senior Subordinated Notes due 2015(1)		440,190
6⁵/8% Senior Subordinated Notes due 2016(1)		314,688
Real Estate Mortgages		7,340
Seller Notes		10,333
Other		36,266

Long-term Debt		2,499,413
Less Current Portion		(50,887	)

Long-term Debt, Net of Current Portion	$	2,448,526

(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 and 5.1 as of December 31, 2004 and March 31, 2005, respectively. 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.

Our consolidated balance sheet as of March 31, 2005 included 147.7 million British pounds sterling (approximately $278.7 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 January 31, 2005, was approximately 34 million British pounds sterling (approximately $65 million). The interest rate in effect under the IME revolving credit facility ranged from 3.4% to 6.6% as of January 31, 2005.

As of March 31, 2005, we had $151.2 million of borrowings under the IMI revolving credit facility, all of which were denominated in Canadian dollars (CAD 184.0 million); we also had various outstanding letters of credit totaling $24.0 million. The remaining availability, based on IMI's current

level of external debt and the leverage ratio under the IMI revolving credit facility, on March 31, 2005 was $174.8 million. The interest rate in effect under the IMI revolving credit facility was 4.6% as of March 31, 2005.

The IME Credit Agreement, IMI Credit Agreement and our indentures and other agreements governing our indebtedness contain certain restrictive financial and operating covenants, including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take certain other corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under the IME Credit Agreement, IMI Credit Agreement and our indentures and other agreements governing our indebtedness. We were in compliance with all material debt covenants as of March 31, 2005.

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 the IMI revolving credit facility and other financings, which may include secured credit facilities, securitizations and mortgage or capital lease financings. See Note 6 to Notes to Consolidated Financial Statements.

Net Operating Loss Carryforwards

At March 31, 2005, we had estimated net operating loss carryforwards of approximately $170 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 operation loss carryforwards of Arcus Group, Inc. 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 next year. As a result of these loss carryforwards, we do not expect to pay any significant international, U.S. federal and state income taxes in 2005.

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 helping to preserve 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 variable interest entities 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 the IMI term loan facility of an aggregate principal amount of $195.5 million, (b) one contract, which expired in March 2005, 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 facility 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, 2004.

After consideration of the swap contracts mentioned above, as of March 31, 2005, we had $303.8 million of variable rate debt outstanding with a weighted average variable interest rate of 5.8%, and $2,195.6 million of fixed rate debt outstanding. As of March 31, 2005, 88% 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 year ended March 31, 2005 would have been reduced by $0.4 million. See Note 6 to Notes to Consolidated Financial Statements included in this Form 10-Q for a discussion of our long-term indebtedness, including the fair values of such indebtedness as of March 31, 2005.

Currency Risk

Our investments in IME, Iron Mountain Canada Corporation ("IM Canada"), Iron Mountain Mexico, SA de RL de CV, 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% senior subordinated 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 on a portion of the intercompany balance 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 March 31, 2005, 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 March 31, 2005 (the "Evaluation Date"), we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, our chief executive officer and chief financial officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

There have been no material developments during the first quarter of 2005 in the proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2004.

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

The following table sets forth our common stock repurchased for the three months ended March 31, 2005:

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
March 1, 2005-March 31, 2005	4,977	$	30.81	—	—

Total	4,977	$	30.81	—	—

(1): Consists of shares tendered by current and former employees, as payment of the exercise price of stock options granted, in accordance with provisions of our equity compensation plans and individual stock option agreements. No shares have been purchased other than as payment of the exercise price of stock options.

Item 6. Exhibits

(a): Exhibits

Exhibit No.		Description
10		Compensation Plan for Non-Employee Directors.
31.1		Certification required by Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended.
31.2		Certification required by Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended.
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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
May 9, 2005 (DATE)		BY:	/s/ JEAN A. BUA Jean A. Bua Vice President and Corporate Controller (Principal Accounting Officer)

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Iron Mountain (IRM) 10-Q2005 Q1 Quarterly report

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