Iron Mountain 10Q 2005 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2005

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission file number 1-13045

IRON MOUNTAIN INCORPORATED

(Exact Name of Registrant as Specified in its Charter)

Delaware	23-2588479
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

745 Atlantic Avenue, Boston, MA 02111

(Address of Principal Executive Offices, Including Zip Code)

(617) 535-4766

(Registrant’s Telephone Number, Including Area Code)

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

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

Number of shares of the registrant’s Common Stock at August 1, 2005: 130,817,627

IRON MOUNTAIN INCORPORATED

Index

			Page
PART I—FINANCIAL INFORMATION
Item 1	—	Unaudited Consolidated Financial Statements		3
		Consolidated Balance Sheets at December 31, 2004 and June 30, 2005 (Unaudited)		3
		Consolidated Statements of Operations for the Three Months Ended June 30, 2004 and 2005 (Unaudited)		4
		Consolidated Statements of Operations for the Six Months Ended June 30, 2004 and 2005 (Unaudited)		5
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2005 (Unaudited)		6
		Notes to Consolidated Financial Statements (Unaudited)		7
Item 2	—	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 3	—	Quantitative and Qualitative Disclosures About Market Risk		45
Item 4	—	Controls and Procedures		46
PART II—OTHER INFORMATION
Item 1	—	Legal Proceedings		46
Item 2	—	Unregistered Sales of Equity Securities and Use of Proceeds		47
Item 4	—	Submission of Matters to a Vote of Security-Holders		47
Item 6	—	Exhibits		48
		Signature		49

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				June 30, 2005
ASSETS
Current Assets:
Cash and cash equivalents		$	31,942		$	29,517
Accounts receivable (less allowances of $13,886 and $13,162, respectively)		354,434			375,839
Deferred income taxes		36,033			34,542
Prepaid expenses and other		78,745			71,400
Total Current Assets		501,154			511,298
Property, Plant and Equipment:
Property, plant and equipment		2,266,839			2,404,327
Less—Accumulated depreciation		(617,043		)	(695,941		)
Net Property, Plant and Equipment		1,649,796			1,708,386
Other Assets, net:
Goodwill		2,040,217			2,061,258
Customer relationships and acquisition costs		189,780			199,914
Deferred financing costs		36,590			34,194
Other		24,850			25,405
Total Other Assets, net		2,291,437			2,320,771
Total Assets		$	4,442,387		$	4,540,455
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt		$	39,435		$	23,566
Accounts payable		103,415			115,093
Accrued expenses		234,697			265,935
Deferred revenue		136,470			140,572
Other current liabilities		1,446			812
Total Current Liabilities		515,463			545,978
Long-term Debt, net of current portion		2,438,587			2,406,196
Other Long-term Liabilities		23,932			30,779
Deferred Rent		26,253			30,318
Deferred Income Taxes		206,539			231,026
Commitments and Contingencies (see Note 9)
Minority Interests		13,045			5,288
Stockholders’ 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 130,682,839 shares, respectively)		1,298			1,307
Additional paid-in capital		1,063,560			1,081,913
Retained earnings		133,425			181,784
Accumulated other comprehensive items, net		20,285			25,866
Total Stockholders’ Equity		1,218,568			1,290,870
Total Liabilities and Stockholders’ Equity		$	4,442,387		$	4,540,455

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 June 30,
	2004			2005
Revenues:
Storage	$	255,770		$	291,666
Service and storage material sales	189,640			220,256
Total Revenues	445,410			511,922
Operating Expenses:
Cost of sales (excluding depreciation)	200,827			228,088
Selling, general and administrative	118,488			141,313
Depreciation and amortization	40,363			44,745
(Gain) Loss on disposal/writedown of property, plant and equipment, net	(1,134		)	1,083
Total Operating Expenses	358,544			415,229
Operating Income	86,866			96,693
Interest Expense, Net	42,659			47,222
Other Expense, Net	4,945			4,946
Income Before Provision for Income Taxes and Minority Interest	39,262			44,525
Provision for Income Taxes	15,825			18,866
Minority Interest in Earnings of Subsidiaries	580			249
Net Income	$	22,857		$	25,410
Net Income per Share—Basic	$	0.18		$	0.19
Net Income per Share—Diluted	$	0.17		$	0.19
Weighted Average Common Shares Outstanding—Basic	128,956			130,474
Weighted Average Common Shares Outstanding—Diluted	131,036			131,470

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)

	Six Months Ended June 30,
	2004			2005
Revenues:
Storage	$	504,365		$	577,021
Service and storage material sales	374,967			436,307
Total Revenues	879,332			1,013,328
Operating Expenses:
Cost of sales (excluding depreciation)	399,137			458,716
Selling, general and administrative	230,948			276,653
Depreciation and amortization	77,643			89,291
(Gain) Loss on disposal/writedown of property, plant and equipment, net	(1,014		)	865
Total Operating Expenses	706,714			825,525
Operating Income	172,618			187,803
Interest Expense, Net	86,118			93,028
Other Expense, Net	7,215			9,609
Income Before Provision for Income Taxes and Minority Interest	79,285			85,166
Provision for Income Taxes	32,375			36,102
Minority Interest in Earnings of Subsidiaries	1,056			705
Net Income	$	45,854		$	48,359
Net Income per Share—Basic	$	0.36		$	0.37
Net Income per Share—Diluted	$	0.35		$	0.37
Weighted Average Common Shares Outstanding—Basic	128,757			130,228
Weighted Average Common Shares Outstanding—Diluted	130,901			131,494

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

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

	Six Months Ended June 30,
	2004			2005
Cash Flows from Operating Activities:
Net income	$	45,854		$	48,359
Adjustments to reconcile net income to cash flows from operating activities:
Minority interest in earnings of subsidiaries	1,056			705
Depreciation	72,931			81,285
Amortization (includes deferred financing costs and bond discount of $1,285 and $2,416, respectively)	5,997			10,422
Provision for deferred income taxes	27,766			29,365
Loss on early extinguishment of debt	2,425			—
(Gain) Loss on disposal/writedown of property, plant and equipment, net	(1,014		)	865
Loss on foreign currency and other, net	2,418			9,494
Changes in Assets and Liabilities (exclusive of acquisitions):
Accounts receivable	(36,459		)	(17,862		)
Prepaid expenses and other current assets	(4,603		)	(1,665		)
Accounts payable	(2,479		)	7,272
Accrued expenses, deferred revenue and other current liabilities	14,776			21,186
Other assets and long-term liabilities	1,069			1,929
Cash Flows from Operating Activities	129,737			191,355
Cash Flows from Investing Activities:
Capital expenditures	(101,558		)	(131,850		)
Cash paid for acquisitions, net of cash acquired	(181,858		)	(34,874		)
Additions to customer relationship and acquisition costs	(6,400		)	(6,695		)
Proceeds from sales of property and equipment	2,362			919
Cash Flows from Investing Activities	(287,454		)	(172,500		)
Cash Flows from Financing Activities:
Repayment of debt and term loans	(672,218		)	(307,048		)
Proceeds from borrowings and term loans	588,457			275,405
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	(41,824		)	(1,769		)
Other, net	(606		)	12,150
Cash Flows from Financing Activities	122,439			(21,262		)
Effect of exchange rates on cash and cash equivalents	601			(18		)
Decrease in Cash and Cash Equivalents	(34,677		)	(2,425		)
Cash and Cash Equivalents, Beginning of Period	74,683			31,942
Cash and Cash Equivalents, End of Period	$	40,006		$	29,517

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.

On May 27, 2005, Iron Mountain Incorporated, a Pennsylvania corporation (“Iron Mountain PA”), reincorporated as a Delaware corporation. The reincorporation was effected by means of a statutory merger (the “Merger”) of Iron Mountain PA with and into Iron Mountain Incorporated, a Delaware corporation (“Iron Mountain DE” or the “Company”), a wholly owned subsidiary of Iron Mountain PA. In connection with the Merger, Iron Mountain DE succeeded to and assumed all of the assets and liabilities of Iron Mountain PA. Apart from the change in its state of incorporation, the Merger had no effect on Iron Mountain PA’s business, board composition, management, employees, fiscal year, assets or liabilities, or location of its facilities, and did not result in any relocation of management or other employees. The Merger was approved at the Annual Meeting of Shareholders held on May 26, 2005. Upon consummation of the Merger, Iron Mountain DE succeeded to Iron Mountain PA’s reporting obligations and continued to be listed on the New York Stock Exchange under the symbol IRM.

The consolidated balance sheet presented as of December 31, 2004 has been derived from our audited consolidated financial statements. 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 of America (“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.

(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 October 31 fiscal year end. 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 stockholders’ equity. The gain or loss on foreign currency transactions, including those related to (a) U.S.

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

(2) Summary of Significant Accounting Policies (Continued)

dollar denominated 8¹/8% senior notes of our Canadian subsidiary, which were fully redeemed as of March 31, 2004, (b) our 7¹/4% GBP Senior Subordinated Notes due 2014, (c) the borrowings in certain foreign currencies under our revolving credit agreements, and (d) certain 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 $5,046 and $4,938 of net losses associated with foreign currency transactions for the three and six months ended June 30, 2004, respectively, and $4,965 and $9,754 of net losses associated with foreign currency transactions for the three and six months ended June 30, 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 June 30, 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 six month period ended June 30, 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		8,811			1,500				—				—				10,311
Nondeductible Goodwill acquired during the period		3,324			—				3,033				—				6,357
Adjustments to purchase reserves		(105		)	—				(418		)		(230		)		(753		)
Fair value adjustments		(205		)	(132		)		(129		)		(1,107		)		(1,573		)
Currency effects and other adjustments		(3,497		)	85				10,111				—				6,699
Balance as of June 30, 2005		$	1,298,979		$	248,419			$	436,970			$	76,890			$	2,061,258

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

(2) Summary of Significant Accounting Policies (Continued)

The components of our amortizable intangible assets at June 30, 2005 are as follows:

	Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
Customer Relationships and Acquisition Costs		$	229,571		$	29,657		$	199,914
Core Technology(1)		15,460			1,643			13,817
Non-Compete Agreements(1)		1,368			842			526
Deferred Financing Costs		46,652			12,458			34,194
Total		$	293,051		$	44,600		$	248,451

(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.

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

(2) Summary of Significant Accounting Policies (Continued)

Had we elected to recognize compensation cost for all awards 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 June 30,						Six Months Ended June 30,
	2004			2005			2004			2005
Net income, as reported	$	22,857		$	25,410		$	45,854		$	48,359
Add: Stock-based employee compensation expense included in reported net income, net of tax benefit	480			833			923			1,692
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax benefit	(946		)	(1,135		)	(1,873		)	(2,333		)
Net income, pro forma	$	22,391		$	25,108		$	44,904		$	47,718
Net income per share:
Basic—as reported	0.18			0.19			0.36			0.37
Basic—pro forma	0.17			0.19			0.35			0.37
Diluted—as reported	0.17			0.19			0.35			0.37
Diluted—pro forma	0.17			0.19			0.34			0.36

The weighted average fair value of options granted for the six months ended June 30, 2004 and 2005 was $8.31 and $10.38 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	Six Months Ended June 30, 2004			Six Months Ended June 30, 2005
Expected volatility		25.1	%		26.8	%(1)
Risk-free interest rate		3.36			4.02
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.

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

(2) Summary of Significant Accounting Policies (Continued)

e. 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 2,079,513 shares and 995,719 shares for the three months ended June 30, 2004 and 2005, respectively, and 2,144,143 shares and 1,265,868 shares for the six months ended June 30, 2004 and 2005, respectively. No potential common shares for the three and six months ended June 30, 2004 and potential common shares of 569,643 for the three and six months ended June 30, 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 six months ended June 30, 2004 and 2005, cash payments for interest were $80,625 and $93,558, respectively, and cash payments for income taxes (net of refunds) were $6,015 and $6,745, respectively.

g. New 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.

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

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

(2) Summary of Significant Accounting Policies (Continued)

as 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 June 30,						Six Months Ended June 30,
	2004			2005			2004			2005
Comprehensive Income:
Net Income	$	22,857		$	25,410		$	45,854		$	48,359
Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustments	(6,730		)	1,398			(3,165		)	3,753
Market Value Adjustments for Hedging Contracts, Net of Tax	5,941			715			6,368			1,839
Market Value Adjustments for Securities, Net of Tax	(38		)	(20		)	16			(11		)
Comprehensive Income	$	22,030		$	27,503		$	49,073		$	53,940

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

(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 of 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 economically 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 $1,373, $502 and $871, respectively, as of June 30, 2005. For the three and six months ended June 30, 2004, we recorded additional interest expense of $2,256 and $4,493, respectively, resulting from interest rate swap cash payments. For the three and six months ended June 30, 2005, we recorded additional interest expense of $1,235 and $2,768, 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. 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 income of $97 and interest expense of $1,226 for the three and six months ended June 30, 2004, respectively. 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 income of $6 for the six months ended June 30, 2005.

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 hedged the majority of interest rate risk associated with VIE III’s then existing real estate term loans. We have recorded, in the accompanying consolidated balance sheet, the estimated cost to terminate this swap of $4,930 ($3,055 recorded in accrued expenses and $1,875 recorded in other long-term liabilities) as of June 30, 2005. For the three and six months ended June 30, 2004, we recorded additional interest expense of $1,231 and $2,459, respectively, resulting from interest rate swap cash payments. As a result of the

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

(4) Derivative Instruments and Hedging Activities (Continued)

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 expense of $1,035 and interest income of $393 for the three and six months ended June 30, 2005, respectively.

In July 2003, we provided the initial financing totaling 190,459 British pounds sterling to IME for all of the consideration associated with the acquisition of the European information management services business of Hays plc (“Hays IMS”) using cash on hand and borrowings under our revolving credit facility. In March 2004, IME repaid 135,000 British pounds sterling with proceeds from their new credit agreement (see Note 6). We recorded a foreign currency gain of $11,866 in other expense, net for this intercompany activity 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 an economic hedge. In the first quarter of 2004, these borrowings were repaid and we recorded a foreign currency loss of $2,995 on the translation to U.S. dollars in other 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 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 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 $57 (which was all recorded in other current assets), $17 and $40, respectively, as of June 30, 2005. For the three and six months ended June 30, 2005, we recorded additional interest income of $23 and $43, 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.

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

(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 2005 acquisitions was provided through cash flows from operations,

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)	$	34,692
Fair Value of Identifiable Net Assets Acquired:
Fair Value of Identifiable Assets Acquired(1)	(10,180		)
Liabilities Assumed(2)	974
Minority Interest(3)	(8,818		)
Total Fair Value of Identifiable Net Assets Acquired	(18,024		)
Recorded Goodwill	$	16,668

(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 June 30, 2005 primarily include completion of planned abandonments of facilities and severance contracts in connection with certain acquisitions.

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

(5) Acquisitions (Continued)

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

	Year Ended December 31, 2004				Six Months Ended June 30, 2005
Reserves, Beginning Balance		$	16,322			$	21,414
Reserves Established		15,282				380
Expenditures		(10,200		)		(3,206		)
Adjustments to Goodwill, including currency effect(1)		10				(422		)
Reserves, Ending Balance		$	21,414			$	18,166

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

At June 30, 2005, the restructuring reserves related to acquisitions consisted of lease losses on abandoned facilities of $12,240, severance costs for approximately 49 people of $1,632 and other exit costs of $4,294. These accruals are expected to be used prior to June 30, 2006 except for lease losses of $8,347 and severance contracts of $134, both of which are based on contracts that extend beyond one year.

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

(6) Long-term Debt

Long-term debt consists of the following:

	December 31, 2004					June 30, 2005
	Carrying Amount			Fair Value		Carrying Amount			Fair Value
IMI Revolving Credit Facility(1)	$	122,563		$	122,563	$	105,032		$	105,032
IMI Term Loan Facility(1)	349,000			349,000		347,250			347,250
IME Revolving Credit Facility(1)	101,478			101,478		89,769			89,769
IME Term Loan Facility(1)	184,330			184,330		190,750			190,750
81¤4% Senior Subordinated Notes due 2011(2)	149,715			154,500		149,737			152,625
85¤8% Senior Subordinated Notes due 2013(2)	481,054			509,726		481,043			498,907
71¤4% GBP Senior Subordinated Notes due 2014(2)	288,990			275,263		270,720			253,800
73¤4% Senior Subordinated Notes due 2015(2)	440,418			435,568		439,962			434,489
65¤8% Senior Subordinated Notes due 2016(2)	314,565			299,200		314,812			295,200
Real Estate Mortgages(1)	5,908			5,908		7,088			7,088
Seller Notes(1)	11,307			11,307		9,907			9,907
Other(1)	28,694			28,694		23,692			23,692
Total Long-term Debt	2,478,022					2,429,762
Less Current Portion	(39,435		)			(23,566		)
Long-term Debt, Net of Current Portion	$	2,438,587				$	2,406,196

(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 June 30, 2005) or it is impracticable to estimate the fair value due to the nature of such long-term debt.

(2) The fair values of these Senior Subordinated notes are based on quoted market prices for these notes on December 31, 2004 and June 30, 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 June 30, 2005 includes 119,250 British pounds sterling and 41,212 Euro of borrowings (totaling $280,519) 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 April 30, 2005, was approximately 40,590 British pounds sterling ($77,425). The interest rate in effect

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

(6) Long-term Debt (Continued)

under the IME revolving credit facility ranged from 3.9% to 6.6% as of April 30, 2005. For the three and six months ended June 30, 2005, we recorded commitment fees of $213 and $419, respectively, 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 that began 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 June 30, 2005, we had $105,032 of borrowings under our IMI revolving credit facility, all of which were denominated in Canadian dollars (CAD 129,000); we also had various outstanding letters of credit totaling $23,967. The remaining availability, based on IMI’s current level of external debt and the leverage ratio under the IMI revolving credit facility, on June 30, 2005 was $221,001. The interest rate in effect under the IMI revolving credit facility was 4.6% as of June 30, 2005. For the three and six months ended June 30, 2005, we recorded commitment fees of $186 and $443, respectively, 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 and the indentures and other agreements governing our indebtedness. We were in compliance with all material debt covenants as of June 30, 2005.

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

(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 June 30, 2005 and for the three and six month periods ended June 30, 2004 and 2005. The Guarantors column includes all subsidiaries that guarantee the senior subordinated notes, the IMI revolving credit facility and the IMI term loan facility. The subsidiaries that do not guarantee the senior subordinated 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 Stockholders’ 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
Stockholders’ Equity	1,218,568		460,987		200,276		(661,263		)		1,218,568
Total Liabilities and Stockholders’ Equity	$	3,303,446	$	3,211,165	$	1,385,526	$	(3,457,750	)		$	4,442,387

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

(7) Selected Financial Information of Parent, Guarantors and Non-Guarantors (Continued)

	June 30, 2005
	Parent		Guarantors		Non- Guarantors		Eliminations			Consolidated
Assets
Current Assets:
Cash and Cash Equivalents	$	—	$	12,796	$	16,721	$	—			$	29,517
Accounts Receivable	—		254,224		121,615		—				375,839
Intercompany Receivable	868,802		—		—		(868,802		)		—
Other Current Assets	502		72,545		33,538		(643		)		105,942
Total Current Assets	869,304		339,565		171,874		(869,445		)		511,298
Property, Plant and Equipment, Net	—		1,161,059		547,327		—				1,708,386
Other Assets, Net:
Long-term Notes Receivable from Affiliates and Intercompany Receivable	1,946,854		11,159		—		(1,958,013		)		—
Investment in Subsidiaries	505,072		214,429		—		(719,501		)		—
Goodwill	—		1,447,809		603,708		9,741				2,061,258
Other	28,386		118,095		113,585		(553		)		259,513
Total Other Assets, Net	2,480,312		1,791,492		717,293		(2,668,326		)		2,320,771
Total Assets	$	3,349,616	$	3,292,116	$	1,436,494	$	(3,537,771	)		$	4,540,455
Liabilities and Stockholders’ Equity
Intercompany Payable	$	—	$	274,594	$	594,208	$	(868,802	)		$	—
Current Portion of Long-term Debt	3,834		1,278		18,454		—				23,566
Total Other Current Liabilities	49,449		341,196		132,410		(643		)		522,412
Long-term Debt, Net of Current Portion	2,000,610		332		405,254		—				2,406,196
Long-term Notes Payable to Affiliates and Intercompany Payable	1,000		1,946,854		10,159		(1,958,013		)		—
Other Long-term Liabilities	3,853		240,329		48,494		(553		)		292,123
Commitments and Contingencies
Minority Interests	—		—		1,437		3,851				5,288
Stockholders’ Equity	1,290,870		487,533		226,078		(713,611		)		1,290,870
Total Liabilities and Stockholders’ Equity	$	3,349,616	$	3,292,116	$	1,436,494	$	(3,537,771	)		$	4,540,455

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

(7) Selected Financial Information of Parent, Guarantors and Non-Guarantors (Continued)

	Three Months Ended June 30, 2004
	Parent			Guarantors				Non- Guarantors				Eliminations				Consolidated
Revenues:
Storage	$	—			$	190,423			$	65,347			$	—			$	255,770
Service and Storage Material Sales	—				133,808				55,832				—				189,640
Total Revenues	—				324,231				121,179				—				445,410
Operating Expenses:
Cost of Sales (Excluding Depreciation)	—				142,336				58,491				—				200,827
Selling, General and Administrative	40				88,104				30,344				—				118,488
Depreciation and Amortization	6				29,787				10,570				—				40,363
Gain on Disposal/Writedown of Property, Plant and Equipment, Net	—				(1,124		)		(10		)		—				(1,134		)
Total Operating Expenses	46				259,103				99,395				—				358,544
Operating (Loss) Income	(46		)		65,128				21,784				—				86,866
Interest Expense (Income), Net	37,167				(5,470		)		10,962				—				42,659
Equity in the Earnings of Subsidiaries	(57,141		)		(5,938		)		—				63,079				—
Other (Income) Expense, Net	(2,929		)		7,864				10				—				4,945
Income Before Provision for Income Taxes and Minority Interest	22,857				68,672				10,812				(63,079		)		39,262
Provision for Income Taxes	—				11,844				3,981				—				15,825
Minority Interest in Earnings of Subsidiaries	—				—				580				—				580
Net Income	$	22,857			$	56,828			$	6,251			$	(63,079	)		$	22,857

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

(7) Selected Financial Information of Parent, Guarantors and Non-Guarantors (Continued)

	Three Months Ended June 30, 2005
	Parent			Guarantors				Non- Guarantors			Eliminations				Consolidated
Revenues:
Storage	$	—			$	212,449			$	79,217		$	—			$	291,666
Service and Storage Material Sales	—				157,123				63,133			—				220,256
Total Revenues	—				369,572				142,350			—				511,922
Operating Expenses:
Cost of Sales (Excluding Depreciation)	—				160,096				67,992			—				228,088
Selling, General and Administrative	28				107,527				33,758			—				141,313
Depreciation and Amortization	22				32,124				12,599			—				44,745
Loss on Disposal/Writedown of Property, Plant and Equipment, Net	—				1,075				8			—				1,083
Total Operating Expenses	50				300,822				114,357			—				415,229
Operating (Loss) Income	(50		)		68,750				27,993			—				96,693
Interest Expense (Income), Net	39,088				(8,292		)		16,426			—				47,222
Equity in the Earnings of Subsidiaries	(53,065		)		(5,420		)		—			58,485				—
Other (Income) Expense, Net	(11,483		)		14,608				1,821			—				4,946
Income Before Provision for Income Taxes and Minority Interest	25,410				67,854				9,746			(58,485		)		44,525
Provision for Income Taxes	—				15,260				3,606			—				18,866
Minority Interest in Earnings of Subsidiaries	—				—				249			—				249
Net Income	$	25,410			$	52,594			$	5,891		$	(58,485	)		$	25,410

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

(7) Selected Financial Information of Parent, Guarantors and Non-Guarantors (Continued)

	Six Months Ended June 30, 2004
	Parent			Guarantors				Non- Guarantors			Eliminations				Consolidated
Revenues:
Storage	$	—			$	377,452			$	126,913		$	—			$	504,365
Service and Storage Material Sales	—				271,578				103,389			—				374,967
Total Revenues	—				649,030				230,302			—				879,332
Operating Expenses:
Cost of Sales (Excluding Depreciation)	—				286,256				112,881			—				399,137
Selling, General and Administrative	123				173,562				57,263			—				230,948
Depreciation and Amortization	16				59,681				17,946			—				77,643
(Gain) Loss on Disposal/Writedown of Property, Plant and Equipment, Net	—				(1,079		)		65			—				(1,014		)
Total Operating Expenses	139				518,420				188,155			—				706,714
Operating (Loss) Income	(139		)		130,610				42,147			—				172,618
Interest Expense (Income), Net	74,541				(10,413		)		21,990			—				86,118
Equity in the Earnings of Subsidiaries	(124,992		)		(7,274		)		—			132,266				—
Other Expense (Income), Net	4,458				(3,793		)		6,550			—				7,215
Income Before Provision for Income Taxes and Minority Interest	45,854				152,090				13,607			(132,266		)		79,285
Provision for Income Taxes	—				27,295				5,080			—				32,375
Minority Interest in Earnings of Subsidiaries	—				—				1,056			—				1,056
Net Income	$	45,854			$	124,795			$	7,471		$	(132,266	)		$	45,854

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

(7) Selected Financial Information of Parent, Guarantors and Non-Guarantors (Continued)

	Six Months Ended June 30, 2005
	Parent			Guarantors				Non- Guarantors				Eliminations				Consolidated
Revenues:
Storage	$	—			$	420,502			$	156,519			$	—			$	577,021
Service and Storage Material Sales	—				310,157				126,150				—				436,307
Total Revenues	—				730,659				282,669				—				1,013,328
Operating Expenses:
Cost of Sales (Excluding Depreciation)	—				321,501				137,215				—				458,716
Selling, General and Administrative	82				207,836				68,735				—				276,653
Depreciation and Amortization	31				64,400				24,860				—				89,291
Loss (Gain) on Disposal/Writedown of Property, Plant and Equipment, Net	—				872				(7		)		—				865
Total Operating Expenses	113				594,609				230,803				—				825,525
Operating (Loss) Income	(113		)		136,050				51,866				—				187,803
Interest Expense (Income), Net	78,177				(16,545		)		31,396				—				93,028
Equity in the Earnings of Subsidiaries	(107,883		)		(9,945		)		—				117,828				—
Other (Income) Expense, Net	(18,766		)		25,541				2,834				—				9,609
Income Before Provision for Income Taxes and Minority Interest	48,359				136,999				17,636				(117,828		)		85,166
Provision for Income Taxes	—				29,951				6,151				—				36,102
Minority Interest in Earnings of Subsidiaries	—				—				705				—				705
Net Income	$	48,359			$	107,048			$	10,780			$	(117,828	)		$	48,359

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

(7) Selected Financial Information of Parent, Guarantors and Non-Guarantors (Continued)

	Six Months Ended June 30, 2004
	Parent			Guarantors			Non- Guarantors			Eliminations				Consolidated
Cash Flows from Operating Activities:
Cash Flows from Operating Activities	$	(101,978	)	$	198,044		$	33,671			$	—			$	129,737
Cash Flows from Investing Activities:
Capital expenditures	—			(67,462		)	(34,096		)		—				(101,558		)
Cash paid for acquisitions, net of cash acquired	—			(19,602		)	(162,256		)		—				(181,858		)
Intercompany loans to subsidiaries	128,653			90,281			—				(218,934		)		—
Investment in subsidiaries	(111,974		)	(111,974		)	—				223,948				—
Additions to customer relationship and acquisition costs	—			(5,169		)	(1,231		)		—				(6,400		)
Proceeds from sales of property and equipment	—			2,316			46				—				2,362
Cash Flows from Investing Activities	16,679			(111,610		)	(197,537		)		5,014				(287,454		)
Cash Flows from Financing Activities:
Repayment of debt and term loans	(481,579		)	(106,418		)	(84,221		)		—				(672,218		)
Proceeds from borrowings	292,693			—			295,764				—				588,457
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	—			—			(41,824		)		—				(41,824		)
Intercompany loans from parent	—			(131,151		)	(87,783		)		218,934				—
Equity contribution from parent	—			111,974			111,974				(223,948		)		—
Other, net	4,758			—			(5,364		)		—				(606		)
Cash Flows from Financing Activities	85,299			(125,595		)	167,749				(5,014		)		122,439
Effect of exchange rates on cash and cash equivalents	—			—			601				—				601
(Decrease) Increase in cash and cash equivalents	—			(39,161		)	4,484				—				(34,677		)
Cash and cash equivalents, beginning of period	—			54,793			19,890				—				74,683
Cash and cash equivalents, end of period	$	—		$	15,632		$	24,374			$	—			$	40,006

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

(7) Selected Financial Information of Parent, Guarantors and Non-Guarantors (Continued)

	Six Months Ended June 30, 2005
	Parent			Guarantors			Non- Guarantors			Eliminations				Consolidated
Cash Flows from Operating Activities	$	(76,219	)	$	226,011		$	41,563			$	—			$	191,355
Cash Flows from Investing Activities:
Capital expenditures	—			(90,247		)	(41,603		)		—				(131,850		)
Cash paid for acquisitions, net of cash acquired	—			(15,564		)	(19,310		)		—				(34,874		)
Intercompany loans to subsidiaries	84,458			(29,893		)	—				(54,565		)		—
Investment in subsidiaries	(15,686		)	(15,686		)	—				31,372				—
Additions to customer relationship and acquisition costs	—			(3,443		)	(3,252		)		—				(6,695		)
Proceeds from sales of property and equipment	—			903			16				—				919
Cash Flows from Investing Activities	68,772			(153,930		)	(64,149		)		(23,193		)		(172,500		)
Cash Flows from Financing Activities:
Repayment of debt and term loans	(202,700		)	(791		)	(103,557		)		—				(307,048		)
Proceeds from borrowings and term loans	197,818			—			77,587				—				275,405
Debt financing (repayment to) and equity contribution from (distribution to) minority shareholders, net	—			—			(1,769		)		—				(1,769		)
Intercompany loans from parent	—			(85,201		)	30,636				54,565				—
Equity contribution from parent	—			15,686			15,686				(31,372		)		—
Other, net	12,329			—			(179		)		—				12,150
Cash Flows from Financing Activities	7,447			(70,306		)	18,404				23,193				(21,262		)
Effect of exchange rates on cash and cash equivalents	—			—			(18		)		—				(18		)
Increase (Decrease) in cash and cash equivalents	—			1,775			(4,200		)		—				(2,425		)
Cash and cash equivalents, beginning of period	—			11,021			20,921				—				31,942
Cash and cash equivalents, end of period	$	—		$	12,796		$	16,721			$	—			$	29,517

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

(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 June 30, 2004
Revenue		$	271,149	$	68,174		$	96,260	$	9,827			$	445,410
Contribution		75,830		20,220			24,436		5,609				126,095
Expenditures for Segment Assets(2)		35,533		7,880			25,276		7,628				76,317
Three Months Ended June 30, 2005
Revenue		300,508		78,418			108,820		24,176				511,922
Contribution		86,565		22,174			28,246		5,536				142,521
Expenditures for Segment Assets(2)		33,568		6,529			19,141		19,439				78,677
Six Months Ended June 30, 2004
Revenue		543,979		134,525			180,814		20,014				879,332
Contribution		150,809		38,788			44,496		15,154				249,247
Total Assets		2,576,586		385,318			938,608		166,375		(1)		4,066,887
Expenditures for Segment Assets(2)		75,389		10,987			188,120		15,320				289,816
Six Months Ended June 30, 2005
Revenue		596,664		153,727			216,280		46,657				1,013,328
Contribution		170,975		44,654			53,276		9,054				277,959
Total Assets		2,756,774		407,550			1,072,996		303,135		(1)		4,540,455
Expenditures for Segment Assets(2)		82,917		10,906			54,199		25,397				173,419

(1) Total corporate & other assets include the intersegment elimination amounts of $2,003,585 and $1,839,913 as of June 30, 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.

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

(8) Segment Information (Continued)

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2004			2005		2004			2005
Contribution	$	126,095		$	142,521	$	249,247		$	277,959
Less: Depreciation and Amortization	40,363			44,745		77,643			89,291
(Gain) Loss on Disposal/Writedown of Property, Plant and Equipment, Net	(1,134		)	1,083		(1,014		)	865
Interest Expense, Net	42,659			47,222		86,118			93,028
Other Expense, Net	4,945			4,946		7,215			9,609
Provision for Income Taxes	15,825			18,866		32,375			36,102
Minority Interest in Earnings of Subsidiaries	580			249		1,056			705
Net Income	$	22,857		$	25,410	$	45,854		$	48,359

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2005		2004		2005
Revenues:
United States	$	325,070	$	369,701	$	650,675	$	730,844
United Kingdom	71,175		69,876		134,205		139,762
Canada	24,078		32,280		47,841		63,966
Other International	25,087		40,065		46,611		78,756
Total Revenues	$	445,410	$	511,922	$	879,332	$	1,013,328

	December 31, 2004			June 30, 2005
Long-lived Assets:
United States		$	2,735,545	$	2,777,762
United Kingdom		618,712		642,994
Canada		315,872		314,674
Other International		271,104		293,727
Total Long-lived Assets		$	3,941,233	$	4,029,157

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

(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.

We and Iron Mountain Information Management, Inc. (“IMIM”), our wholly owned subsidiary, entered into two interrelated agreements with all necessary parties for the settlement and general release of all claims asserted in the Pierce, H-W Associates, Pioneer and Sequedex proceedings in New Jersey and Pennsylvania described in our Annual Report on Form 10-K for the year ended December 31, 2004. The settlement agreements, which were consummated on June 2, 2005, fully resolve and settle all the related litigations. Under the settlement agreements, we paid an aggregate of $3,100 to fully settle all claims in these actions, which includes approximately $2,100 previously awarded by the arbitrator to indemnify Mr. Pierce for legal expenses incurred in the proceeding. The $3,100 was fully reserved as of December 31, 2004 and included in accrued expenses in the accompanying consolidated balance sheet.

Other than the matters discussed above, there have been no material developments during the second quarter of 2005 in the proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2004 or our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.

Additionally, we are involved in litigation from time to time in the ordinary course of business with a portion of the defense and/or settlement costs being covered by various commercial liability insurance policies purchased by us. In the opinion of management, no material legal proceedings, other than those described above and in our Annual Report on Form 10-K for the year ended December 31, 2004 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, 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.

IRON MOUNTAIN INCORPORATED

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

The following discussion and analysis of our financial condition and results of operations for the three and six months ended June 30, 2005 should be read in conjunction with our consolidated financial statements and notes thereto for the three and six months ended June 30, 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 June 30,		Six Months Ended June 30,
	2004	2005	2004	2005
OIBDA	$127,229	$141,438	$250,261	$277,094
Less: Depreciation and Amortization	40,363	44,745	77,643	89,291
Operating Income	86,866	96,693	172,618	187,803
Less: Interest Expense, Net	42,659	47,222	86,118	93,028
Other Expense, Net	4,945	4,946	7,215	9,609
Provision for Income Taxes	15,825	18,866	32,375	36,102
Minority Interest	580	249	1,056	705
Net Income	$22,857	$25,410	$45,854	$48,359

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

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.

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 $0.9 million of stock compensation expense in 2006 associated with unvested stock option grants issued prior to January 1, 2003.

principle. We are in the process of evaluating the effect of FIN 47 on our consolidated results of operations and financial position.

Overview

The following discussions set forth, for the periods indicated, management’s discussion and analysis of results. Significant trends and changes are discussed for the three and six month periods ended June 30, 2005 within each section. Trends and changes that are consistent within the three and six months periods are not repeated and are discussed on a year to date basis.

Results of Operations

Comparison of Three and Six Months Ended June 30, 2005 to Three and Six Months Ended June 30, 2004 (in thousands):

	Three Months Ended June 30,
	2004			2005			Dollar Change		Percent Change
Revenues	$	445,410		$	511,922		$	66,512		14.9	%
Operating Expenses	358,544			415,229			56,685			15.8	%
Operating Income	86,866			96,693			9,827			11.3	%
Other Expenses, Net	64,009			71,283			7,274			11.4	%
Net Income	$	22,857		$	25,410		$	2,553		11.2	%
OIBDA(1)	$	127,229		$	141,438		$	14,209		11.2	%
OIBDA Margin(1)	28.6		%	27.6		%

	Six Months Ended June 30,
	2004			2005			Dollar Change		Percent Change
Revenues	$	879,332		$	1,013,328		$	133,996		15.2	%
Operating Expenses	706,714			825,525			118,811			16.8	%
Operating Income	172,618			187,803			15,185			8.8	%
Other Expenses, Net	126,764			139,444			12,680			10.0	%
Net Income	$	45,854		$	48,359		$	2,505		5.5	%
OIBDA(1)	$	250,261		$	277,094		$	26,833		10.7	%
OIBDA Margin(1)	28.5		%	27.3		%

(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 $35.9 million, or 14.0%, to $291.7 million and $72.7 million, or 14.4%, to $577.0 million for the three and six months ended June 30, 2005 compared to the same periods in 2004, respectively. For both the three and six month periods ended June 30, 2005, the increase is attributable to internal revenue growth (9%) 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 $30.6 million, or 16.0%, to $220.3 million and $61.3 million, or 16.4%, to $436.3 million for the three and six months ended June 30, 2005 compared to the same periods in 2004, respectively. For the three months ended June 30, 2005 the increase is attributable to acquisitions (8%), internal revenue growth (6%) 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 six months ended June 30, 2005, the increase is attributable to acquisitions (10%), internal revenue growth (5%) resulting from net increases in service and storage material sales to existing customers and sales to new customers, and foreign currency exchange rate fluctuations (2%).

For the reasons stated above, our consolidated revenues increased $66.5 million, or 14.9%, to $511.9 million and $134.0 million, or 15.2%, to $1,013.3 million for the three and six months ended June 30, 2005 compared to the same periods in 2004, respectively. 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 7% for the three and six months ended June 30, 2005, respectively. We calculate internal revenue growth in local currency for our international operations.

Internal Growth—Eight-Quarter Trend

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

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 stabilized net carton volume growth in our North American records management business and strong growth rates in our digital and certain 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, which are often event driven, or 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) strong data product sales; (2) growth in North American storage related service revenue; (3) continued growth in our secure shredding business; and (4) improved growth rates in our data protection business. These positive factors were partially offset by: (1) lower special project revenues related to the public sector business in the UK; and (2) a large, one-time software license sale in the first quarter of 2004 that did not repeat in the first quarter of 2005.

OPERATING EXPENSES

Cost of Sales

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

	Three Months Ended June 30,		Dollar	Percent			% of Consolidated Revenues				Percent Change (Favorable)/
	2004	2005	Change	Change			2004		2005		Unfavorable
Labor	$103,875	$112,609	$8,734		8.4	%	23.3	%	22.0	%		(1.3	)%
Facilities	59,024	65,226	6,202		10.5	%	13.3	%	12.7	%		(0.6	)%
Transportation	19,990	23,951	3,961		19.8	%	4.5	%	4.7	%		0.2	%
Product Cost of Sales	8,444	11,662	3,218		38.1	%	1.9	%	2.3	%		0.4	%
Other	9,494	14,640	5,146		54.2	%	2.1	%	2.9	%		0.8	%
	$200,827	$228,088	$27,261		13.6	%	45.1	%	44.6	%		(0.5	)%

	Six Months Ended									% of Consolidated				Percent Change
	June 30,				Dollar		Percent			Revenues				(Favorable)
	2004		2005		Change		Change			2004		2005		Unfavorable
Labor	$	204,245	$	222,870	$	18,625		9.1	%	23.2	%	22.0	%		(1.2	)%
Facilities	121,561		135,977		14,416			11.9	%	13.8	%	13.4	%		(0.4	)%
Transportation	38,620		46,647		8,027			20.8	%	4.4	%	4.6	%		0.2	%
Product Cost of Sales	17,232		23,639		6,407			37.2	%	2.0	%	2.3	%		0.3	%
Other	17,479		29,583		12,104			69.2	%	2.0	%	2.9	%		0.9	%
	$	399,137	$	458,716	$	59,579		14.9	%	45.4	%	45.3	%		(0.1	)%

Labor

For the six months ended June 30, 2005 as compared to the six months ended June 30, 2004, labor expense decreased as a percentage of consolidated revenues as a result 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 to revenues 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 13.4% for the six months ended June 30, 2005 from 13.8% for the six months ended June 30, 2004. The decrease in facilities costs as a percentage of consolidated revenues was primarily a result of decreasing 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 $7.3 million for the six months ended June 30, 2005 compared to the six months ended June 30, 2004 primarily as a result of properties under lease acquired through acquisitions in both Europe and North America.

Transportation

Our transportation expenses, which increased 0.2% as a percentage of consolidated revenues for the six months ended June 30, 2005 compared to the six months ended June 30, 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 six months ended June 30, 2005 compared

to the six months ended June 30, 2004 were primarily responsible for the increase in transportation expenses as a percentage of consolidated revenues.

Product and Other Costs of Sales

Product and other costs of sales are highly correlated to complementary revenue streams. Product and other costs of sales for the six months ended June 30, 2005 were higher than the six months ended June 30, 2004 as a percentage of consolidated revenues due to increased sales of data products at lower margins in North America and 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 June 30,					Dollar		Percent		% of Consolidated Revenues				Percent Change (Favorable)/
	2004			2005		Change		Change		2004		2005		Unfavorable
General and Administrative	$	65,354		$	72,199	$	6,845	10.5	%	14.7	%	14.1	%		(0.6	)%
Sales, Marketing & Account Management	36,225			44,036		7,811		21.6	%	8.1	%	8.6	%		0.5	%
Information Technology	18,123			24,114		5,991		33.1	%	4.1	%	4.7	%		0.6	%
Bad Debt Expense	(1,214		)	964		2,178		(179.4	)%	(0.3	)%	0.2	%		0.5	%
	$	118,488		$	141,313	$	22,825	19.3	%	26.6	%	27.6	%		1.0	%

	Six Months Ended June 30,					Dollar		Percent		% of Consolidated Revenues				Percent Change (Favorable)/
	2004			2005		Change		Change		2004		2005		Unfavorable
General and Administrative	$	127,258		$	140,280	$	13,022	10.2	%	14.5	%	13.8	%		(0.7	)%
Sales, Marketing & Account Management	68,201			86,681		18,480		27.1	%	7.8	%	8.6	%		0.8	%
Information Technology	36,622			47,948		11,326		30.9	%	4.2	%	4.7	%		0.5	%
Bad Debt Expense	(1,133		)	1,744		2,877		(253.9	)%	(0.1	)%	0.2	%		0.3	%
	$	230,948		$	276,653	$45,705		19.8	%	26.3	%	27.3	%		1.0	%

General and Administrative

The decrease in general and administrative expenses as a percentage of consolidated revenues for the six months ended June 30, 2005 compared to the six months ended June 30, 2004 is attributable to controls over overhead spending implemented in late 2004. 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 six months ended June 30, 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 $5.4 million for the six months ended June 30, 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 an $8.2 million increase in compensation, including a $2.4 million increase in sales commissions, for the six months ended June 30, 2005 compared to the six months ended June 30, 2004.

Information Technology

Information technology expenses increased as a percentage of consolidated revenues for the six months ended June 30, 2005 compared to the six months ended June 30, 2004 due to increases in internal software 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 by revenue producing projects partially offset this increase.

Bad Debt Expense

The increase in consolidated bad debt expense for the six months ended June 30, 2005 compared to the six months ended June 30, 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 $11.6 million to $89.3 million (8.8% of consolidated revenues) for the six months ended June 30, 2005 from $77.6 million (8.8% of consolidated revenues) for the six months ended June 30, 2004. Depreciation expense increased $2.8 million and $8.4 million for the three and six months ended June 30, 2005 compared to the same periods in 2004, respectively, primarily due to the additional depreciation expense related to recent capital expenditures and acquisitions, including storage systems, which consist of racking, building and leasehold improvements, computer systems hardware and software, and buildings. Amortization expense increased $1.6 million and $3.3 million for the three and six months ended June 30, 2005 compared to the same periods in 2004, respectively, primarily due to amortization of intangible assets such as customer relationship intangible assets and intellectual property acquired through business combinations, including the Connected acquisition in November 2004. 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 losses on disposal/writedown of property, plant and equipment, net of $1.1 million and $0.9 million for the three and six months ended June 30, 2005, respectively, consisted primarily of software asset writedowns. For the three and six months ended June 30, 2004, we recorded gains on disposal/writedown of property, plant and equipment, net of $1.1 million and $1.0 million, respectively, consisting primarily of a gain on the sale of a property in Florida during the second quarter of 2004 of $1.2 million.

OPERATING INCOME

As a result of the foregoing factors, consolidated operating income increased $9.8 million, or 11.3%, to $96.7 million (18.9% of consolidated revenues) for the three months ended June 30, 2005 from $86.9 million (19.5% of consolidated revenues) for the three months ended June 30, 2004. Consolidated operating income increased $15.2 million, or 8.8%, to $187.8 million (18.5% of consolidated revenues) for the six months ended June 30, 2005 from $172.6 million (19.6% of consolidated revenues) for the six months ended June 30, 2004.

OIBDA

As a result of the foregoing factors, consolidated OIBDA increased $14.2 million, or 11.2% to $141.4 million (27.6% of consolidated revenues) for the three months ended June 30, 2005 from $127.2 million (28.6% of consolidated revenues) for the three months ended June 30, 2004. Consolidated OIBDA increased $26.8 million, or 10.7% to $277.1 million (27.3% of consolidated revenues) for the six months ended June 30, 2005 from $250.3 million (28.5% of consolidated revenues) for the six months ended June 30, 2004.

OTHER EXPENSES, NET

Interest Expense, Net

Consolidated interest expense, net increased $4.6 million to $47.2 million (9.2% of consolidated revenues) and $6.9 million to $93.0 million (9.2% of consolidated revenues) for the three and six months ended June 30, 2005, respectively from $42.7 million (9.6% of consolidated revenues) and $86.1 million (9.8% of consolidated revenue) for the three and six months ended June 30, 2004, respectively. 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 $0.4 million for the six months ended June 30, 2005 related to the net impact of mark-to-market adjustments and cash payments 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 June 30, 2005 from 7.8% as of June 30, 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 or have made 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 June 30,										Six Months Ended June 30,
	2004			2005			Change				2004			2005			Change
Foreign currency transaction losses, net	$	5,046		$	4,965			$	(81	)	$	4,938		$	9,754		$	4,816
Debt extinguishment expense	—			—				—			2,433			—			(2,433		)
Other, net	(101		)	(19		)		82			(156		)	(145		)	11
	$	4,945		$	4,946			$	1		$	7,215		$	9,609		$	2,394

Foreign currency losses of $9.8 million based on period-end exchange rates were recorded in the six months ended June 30, 2005 primarily due to the weakening of the British pound sterling, Canadian dollar and the Euro against the U.S. dollar since December 31, 2004 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 six months ended June 30, 2004, we recorded foreign currency losses of $4.9 million based on period-end exchange rates primarily due to the weakening of the Canadian dollar offset by the strengthening of the British pound sterling and the Euro offset against the U.S. dollar since December 31, 2003 as these currencies relate to our intercompany balances with our Canadian and U.K. subsidiaries, U.S. dollar denominated debt previously 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, 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 June 30, 2004 and 2005 were 40.3%, and 42.4%, respectively. Our effective tax rates for the six months ended June 30, 2004 and 2005 were 40.8% 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 $0.2 million and $0.7 million (0.1% of consolidated revenues) for the three and six months ended June 30, 2005, respectively, compared to $0.6 million (0.1% of consolidated revenue) and $1.1 million (0.1% of consolidated revenue) for the three and six months ended June 30, 2004, respectively. 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, consolidated net income increased $2.6 million, or 11.2%, to $25.4 million (5.0% of consolidated revenues) for the three months ended June 30, 2005 from net income of $22.9 million (5.1% of consolidated revenues) for the three months ended June 30, 2004. For the six months ended June 30, 2005, consolidated net income increased $2.5 million, or 5.5%, to $48.4 million (4.8% of consolidated revenues) from net income of $45.9 million (5.2% of consolidated revenues) for the six months ended June 30, 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							Percentage			Segment Contribution(1)				Segment Contribution as a Percentage of Segment Revenue
	June 30, 2004		June 30, 2005		Increase in Revenues			Increase in Revenues			June 30, 2004		June 30, 2005		June 30, 2004			June 30, 2005
Three Months Ended	$	271,149	$	300,508		$	29,359		10.8	%	$	75,830	$	86,565		28.0	%		28.8	%
Six Months Ended	543,979		596,664			52,685			9.7	%	150,809		170,975			27.7	%		28.7	%

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
	June 30, 2004		June 30, 2005		June 30, 2004			June 30, 2005			June 30, 2004			June 30, 2005				June 30, 2004			June 30, 2005
Three Months Ended	$	21,146	$	20,028		$	4,623		$	56	$	(1,580	)		$	8			$	—		$	—
Six Months Ended	40,529		39,954			6,494			1,755		(1,326		)		(200		)		2,028			—

(1) See Note 8 of Notes to Consolidated Financial Statements for definition of Contribution and for the basis on which allocations are made and a reconciliation of Contribution to net income on a consolidated basis.

During the three and six months ended June 30, 2005, revenue in our business records management segment increased 10.8% and 9.7%, respectively, compared to the three and six months ended June 30, 2004, primarily due to growth in storage volumes and associated service revenues, growth in our secure shredding operations and acquisitions. In addition, favorable currency fluctuations during the six months ended June 30, 2005 in Canada increased revenue, as measured in U.S. dollars, by $5.0 million. Contribution as a percent of segment revenue increased in the six months ended June 30, 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							Percentage			Segment Contribution(1)				Segment Contribution as a Percentage of Segment Revenue
	June 30, 2004		June 30, 2005		Increase in Revenues			Increase in Revenues			June 30, 2004		June 30, 2005		June 30, 2004			June 30, 2005
Three Months Ended	$	68,174	$	78,418		$	10,244		15.0	%	$	20,220	$	22,174		29.7	%		28.3	%
Six Months Ended	134,525		153,727			19,202			14.3	%	38,788		44,654			28.8	%		29.0	%

Items Excluded from the Calculation of Contribution(1)

	Depreciation and Amortization						(Gain)/Loss on Disposal/Writedown of Property, Plant and Equipment, Net
	June 30, 2004			June 30, 2005			June 30, 2004				June 30, 2005
Three Months Ended		$	2,927		$	3,815		$	(1	)		$	(13	)
Six Months Ended		6,841			7,588			88				(9		)

During the three and six months ended June 30, 2005, revenue in our data protection segment increased 15.0% and 14.3%, respectively, compared to the three and six months ended June 30, 2004 primarily due to internal revenue growth. Higher revenue growth rates from our product sales and electronic vaulting 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 was partially offset by decreased product sales margins and the growth of our sales and account management force including higher sales commissions. Bad debt expense for the three months ended June 30, 2005 was higher than the three months ended June 30, 2004, but was consistent over the six months ended June 30, 2004 and 2005.

International

	Segment Revenue							Percentage			Segment Contribution(1)				Segment Contribution as a Percentage of Segment Revenue
	June 30, 2004		June 30, 2005		Increase in Revenues			Increase in Revenues			June 30, 2004		June 30, 2005		June 30, 2004			June 30, 2005
Three Months Ended	$	96,260	$	108,820		$	12,560		13.0	%	$	24,436	$	28,246		25.4	%		26.0	%
Six Months Ended	180,814		216,280			35,466			19.6	%	44,496		53,276			24.6	%		24.6	%

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
	June 30, 2004		June 30, 2005		June 30, 2004			June 30, 2005			June 30, 2004				June 30 2005
Three Months Ended	$	9,002	$	10,473		$	10		$	2,898		$	(6	)		$	(19	)
Six Months Ended	14,821		20,607			4,047			4,814			66				(34		)

Revenue in our international segment increased 13.0% and 19.6% during the three and six months ended June 30, 2005, respectively, compared to the three and six months ended June 30, 2004, primarily due to acquisitions completed in Europe and in South America and strong internal growth in Latin America, offset by lower revenue in our U.K. public sector business. Favorable currency fluctuations

during the six months ended June 30, 2005 in Europe, Mexico and South America increased revenue, as measured in U.S. dollars, by $11.9 million. Contribution as a percent of segment revenue was flat primarily due improvements in both cost of sales and overhead labor ratios as a result of completing the integration of Hays IMS in the second half of 2004 offset by increased compensation associated with additional sales, marketing, and account management personnel, several new marketing and promotional efforts, and increased bad debt expense.

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 and six months ended June 30, 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 $14.3 million to $24.2 million for the three months ended June 30, 2005 compared to $9.8 million for the three months ended June 30, 2004 and increased $26.7 million to $46.7 million for the six months ended June 30, 2005 compared to $20.0 million for the six months ended June 30, 2004. The increase in revenues for the three and six month periods ended June 30, 2005 compared to the same periods in 2004 was due primarily to the acquisition of Connected and strong internal growth in our Digital Archiving services.

Contribution decreased $0.1 million to $5.5 million for the three months ended June 30, 2005 compared to $5.6 million for the three months ended June 30, 2004 and decreased $6.1 million to $9.1 million for the six months ended June 30, 2005 compared to $15.2 million for the six months ended June 30, 2004. Items excluded from the calculation of Contribution include the following: (1) depreciation and amortization expense for the three months ended June 30, 2004 of $7.3 million compared to $10.4 million for the three months ended June 30, 2005 and depreciation and amortization expense for the six months ended June 30, 2004 of $15.4 million compared to $21.1 million for the six months ended June 30, 2005, (2) foreign currency losses of $0.4 million and $2.0 million for the three months ended June 30, 2004 and 2005, respectively, and foreign currency gains of $5.6 million and foreign currency losses of $3.2 million for the six months ended June 30, 2004 and 2005, respectively, (3) debt extinguishment expenses of $0.4 million for the six months ended June 30, 2004, and (4) losses on disposal/writedown of property, plant and equipment, net for the three months ended June 30, 2004 of $0.5 million compared to $1.1 million for the three months June 30, 2005 and losses on disposal/writedown of property, plant and equipment, net for the six months ended June 30, 2004 of $0.2 million compared to $1.1 million for the six months ended June 30, 2005.

Liquidity and Capital Resources

The following is a summary of our cash balances and cash flows for the six months ended June 30, 2004 and 2005 (in thousands).

	2004			2005
Cash flows provided by operating activities	$	129,737		$	191,355
Cash flows used in investing activities	(287,454		)	(172,500		)
Cash flows provided by (used in) financing activities	122,439			(21,262		)
Cash and cash equivalents at the end of period	$	40,006		$	29,517

Net cash provided by operating activities was $191.4 million for the six months ended June 30, 2005 compared to $129.7 million for the six months ended June 30, 2004, an increase of 47.5%. The increase resulted primarily from an increase in operating income and non-cash items, such as depreciation and an increase in the net change in assets and liabilities. The net change in assets and liabilities is primarily associated with improved receivables collections, and an increase in accounts payable and payroll and incentive compensation related accruals.

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 six months ended June 30, 2005 amounted to $131.9 million and $6.7 million, respectively. For the six months ended June 30, 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 $250 million and $275 million in the year ending December 31, 2005.

In the six months ended June 30, 2005, we paid net cash consideration of $34.9 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 funded these acquisitions.

Net cash used in financing activities was $21.3 million for the six months ended June 30, 2005. During the six months ended June 30, 2005 we had gross borrowings under our revolving credit facilities and term loan facilities of $275.4 million. We used the proceeds from these financing transactions and cash flows from operations to repay debt and term loans ($307.0 million) and to repay debt financing from minority shareholders, net ($1.8 million).

We are highly leveraged and expect to continue to be highly leveraged for the foreseeable future. Our consolidated debt as of June 30, 2005 was comprised of the following (in thousands):

IMI Revolving Credit Facility	$	105,032
IMI Term Loan Facility	347,250
IME Revolving Credit Facility	89,769
IME Term Loan Facility	190,750
81¤4% Senior Subordinated Notes due 2011(1)	149,737
85¤8% Senior Subordinated Notes due 2013(1)	481,043
71¤4% GBP Senior Subordinated Notes due 2014(1)	270,720
73¤4% Senior Subordinated Notes due 2015(1)	439,962
65¤8% Senior Subordinated Notes due 2016(1)	314,812
Real Estate Mortgages	7,088
Seller Notes	9,907
Other	23,692
Long-term Debt	2,429,762
Less Current Portion	(23,566		)
Long-term Debt, Net of Current Portion	$	2,406,196

(1) These debt instruments 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 these 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 4.8 as of December 31, 2004 and June 30, 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 June 30, 2005 includes 119.3 million British pounds sterling and 41.2 million Euro of borrowings (totaling $280.5 million) 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 April 30, 2005, was approximately 40.6 million British pounds sterling (approximately $77.4 million). The interest rate in effect under the IME revolving credit facility ranged from 3.9% to 6.6% as of April 30, 2005.

As of June 30, 2005, we had $105.0 million of borrowings under the IMI revolving credit facility, all of which were denominated in Canadian dollars (CAD 129.0 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 June 30, 2005 was $221.0 million. The interest rate in effect under the IMI revolving credit facility was 4.6% as of June 30, 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 June 30, 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 June 30, 2005, we had estimated net operating loss carryforwards of approximately $141 million for federal income tax purposes. As a result of such loss carryforwards, cash paid for income taxes has historically been substantially lower than the provision for income taxes. These net operating loss carryforwards do not include approximately $103 million of potential preacquisition net operating loss carryforwards of Arcus Group, Inc. 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 of 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 June 30, 2005, we had $310.3 million of variable rate debt outstanding with a weighted average variable interest rate of 5.0% and $2,119.5 million of fixed rate debt outstanding. As of June 30, 2005, 87% of our total debt outstanding was fixed. If the weighted average variable interest rate on our variable rate debt had increased by 1%, our net income for the three and six months ended June 30, 2005 would have been reduced by $0.5 million and $0.9 million, respectively. 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 June 30, 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, British pound sterling and the Euro. 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 an economic 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 an economic 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 June 30, 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 June 30, 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 June 30, 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

We and Iron Mountain Information Management, Inc. (“IMIM”), our wholly owned subsidiary, entered into two interrelated agreements with all necessary parties for the settlement and general release of all claims asserted in the Pierce, H-W Associates, Pioneer and Sequedex proceedings in New Jersey and Pennsylvania described in our Annual Report on Form 10-K for the year ended December 31, 2004. The settlement agreements, which were consummated on June 2, 2005, fully resolve and settle all the related litigations. Under the settlement agreements, we paid an aggregate of $3.1 million to fully settle all claims in these actions, which includes approximately $2.1 million previously awarded by the arbitrator to indemnify Mr. Pierce for legal expenses incurred in the proceeding. The $3.1 million was fully reserved as of December 31, 2004 and included in accrued expenses in the accompanying consolidated balance sheet.

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

There was no common stock repurchased or sales of unregistered securities for the three months ended June 30, 2005.

Item 4. Submission of Matters to a Vote of Security-Holders

The following matters were voted on by our stockholders at the Annual Meeting of Stockholders held on May 26, 2005.

(a) Election of directors to serve until the Year 2006 Annual Meeting of Stockholders, or until their successors are elected and qualified

	Total Votes For Each Director		Total Votes Withheld From Each Director		Broker Non-votes
Clarke H. Bailey		120,017,028		156,263		0
Constantin R. Boden		119,264,310		908,981		0
Kent P. Dauten		120,017,715		155,576		0
B. Thomas Golisano		91,946,273		28,227,018		0
John F. Kenny, Jr.		118,597,234		1,576,057		0
Arthur D. Little		119,860,214		313,077		0
C. Richard Reese		119,364,566		808,725		0
Vincent J. Ryan		118,421,699		1,751,592		0

(b) Approval of the adoption of the Agreement and Plan of Merger resulting in the reincorporation of Iron Mountain Incorporated in the State of Delaware

	For	Against	Abstain	Broker Non-votes
95,772,831		3,780,263	31,574		20,588,623

(c) Approval of an amendment to the Iron Mountain Incorporated 2003 Employee Stock Purchase Plan to increase the number of shares of Common Stock authorized for issuance under the 2003 Employee Stock Purchase Plan from 1,125,000 to 2,325,000

	For	Against	Abstain	Broker Non-votes
98,964,702		403,409	216,557		20,588,623

(d) Ratification of the selection by the Audit Committee of Deloitte & Touche LLP as the Company’s independent public accountants for the year ending December 31, 2005

	For	Against	Abstain
120,055,235		96,381	21,675

Item 6. Exhibits

(a) Exhibits

Exhibit No.		Description
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
August 5, 2005	BY:	/s/ JEAN A. BUA
(DATE)		Jean A. Bua Senior Vice President and Corporate Controller
		(Principal Accounting Officer)

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Iron Mountain (IRM) 10-Q2005 Q2 Quarterly report

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