<Page>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<Table>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</Table>
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
OR
<Table>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</Table>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-13045
------------------------
IRON MOUNTAIN INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
<Table>
PENNSYLVANIA 23-2588479
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
745 ATLANTIC AVENUE, BOSTON, MA 02111
(Address of Principal Executive Offices, Including Zip Code)
</Table>
(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 / /
Number of shares of the registrant's Common Stock outstanding as of
November 2, 2001: 56,026,635
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<Page>
IRON MOUNTAIN INCORPORATED
INDEX
<Table>
<Caption>
PAGE
--------
PART I--FINANCIAL INFORMATION
Item 1 -- Unaudited Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 2001 and
December 31, 2000 (Unaudited)............................. 3
Consolidated Statements of Operations for the Three Months
Ended September 30, 2001 and 2000 (Unaudited)............. 4
Consolidated Statements of Operations for the Nine Months
Ended
September 30, 2001 and 2000 (Unaudited)................... 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2001 and 2000 (Unaudited)............. 6
Notes to Consolidated Financial Statements (Unaudited)...... 7-21
Item 2 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22-29
Item 3 -- Quantitative and Qualitative Disclosures About Market
Risk...................................................... 29
PART II -- OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K............................ 30
Signature................................................... 31
</Table>
2
<Page>
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
IRON MOUNTAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 60,138 $ 6,200
Accounts receivable (less allowances of $17,894 and
$15,989 respectively)................................... 223,760 176,442
Deferred income taxes..................................... 30,667 30,990
Prepaid expenses and other................................ 40,564 23,036
---------- ----------
Total Current Assets.................................... 355,129 236,668
Property, Plant and Equipment:
Property, plant and equipment............................. 1,122,637 984,939
Less: Accumulated depreciation............................ (214,009) (152,545)
---------- ----------
Property, Plant and Equipment, net...................... 908,628 832,394
Other Assets, net:
Goodwill.................................................. 1,525,670 1,525,630
Customer acquisition costs................................ 31,881 27,692
Deferred financing costs.................................. 19,933 14,534
Other..................................................... 12,646 22,178
---------- ----------
Total Other Assets, net................................. 1,590,130 1,590,034
---------- ----------
Total Assets............................................ $2,853,887 $2,659,096
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 30,237 $ 40,789
Accounts payable.......................................... 50,998 42,531
Accrued expenses.......................................... 166,455 153,291
Deferred income........................................... 82,367 53,884
Other current liabilities................................. 19,650 23,558
---------- ----------
Total Current Liabilities............................... 349,707 314,053
Long-term Debt, net of current portion...................... 1,469,866 1,314,342
Other Long-term Liabilities................................. 21,131 7,920
Deferred Rent............................................... 17,484 16,346
Deferred Income Taxes....................................... 39,699 38,948
Minority Interest........................................... 66,470 43,029
Shareholders' Equity:
Common stock.............................................. 560 553
Additional paid-in capital................................ 1,002,396 990,854
Accumulated deficit....................................... (88,994) (59,383)
Accumulated other comprehensive items..................... (24,432) (7,566)
---------- ----------
Total Shareholders' Equity.............................. 889,530 924,458
---------- ----------
Total Liabilities and Shareholders' Equity.............. $2,853,887 $2,659,096
========== ==========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<Page>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------
2001 2000
-------- --------
Revenues:
Storage................................................... $175,012 $152,959
Service and storage material sales........................ 116,661 103,174
-------- --------
Total Revenues.......................................... 291,673 256,133
Operating Expenses:
Cost of sales (excluding depreciation).................... 139,918 125,079
Selling, general and administrative....................... 76,822 63,783
Depreciation and amortization............................. 38,921 34,829
Stock option compensation expense......................... -- 171
Merger-related expenses................................... 1,049 1,262
-------- --------
Total Operating Expenses................................ 256,710 225,124
-------- --------
Operating Income............................................ 34,963 31,009
Interest Expense............................................ 33,421 31,038
Other Expense............................................... (13,845) (3,025)
-------- --------
Loss Before Provision (Benefit) for Income Taxes and
Minority Interest..................................... (12,303) (3,054)
Provision (Benefit) for Income Taxes........................ 3,440 (7,023)
Minority Interest in Earnings (Losses) of Subsidiaries...... 27 (630)
-------- --------
Income (Loss) before Extraordinary Item................. (15,770) 4,599
Extraordinary Charge from Early Extinguishment of Debt (net
of tax benefit of $4,861 and $1,928 respectively)......... (7,039) (2,892)
-------- --------
Net Income (Loss)....................................... $(22,809) $ 1,707
======== ========
Net Income (Loss) per Common Share--Basic and Diluted:
Income (Loss) before Extraordinary Item................... $ (0.28) $ 0.08
Extraordinary Charge from Early Extinguishment of Debt.... (0.13) (0.05)
-------- --------
Net Income (Loss) per Share--Basic and Diluted.......... $ (0.41) $ 0.03
======== ========
Weighted Average Common Shares Outstanding--Basic........... 55,925 54,827
======== ========
Weighted Average Common Shares Outstanding--Diluted......... 55,925 56,130
======== ========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<Page>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2001 2000
-------- --------
Revenues:
Storage................................................... $514,768 $426,343
Service and storage material sales........................ 354,161 294,492
-------- --------
Total Revenues.......................................... 868,929 720,835
Operating Expenses:
Cost of sales (excluding depreciation).................... 418,768 351,510
Selling, general and administrative....................... 225,825 181,964
Depreciation and amortization............................. 112,427 92,776
Stock option compensation expense......................... -- 15,110
Merger-related expenses................................... 2,227 5,653
-------- --------
Total Operating Expenses................................ 759,247 647,013
-------- --------
Operating Income............................................ 109,682 73,822
Interest Expense............................................ 101,451 85,066
Other Expense............................................... (16,017) (7,505)
-------- --------
Loss Before Provision for Income Taxes and Minority
Interest.............................................. (7,786) (18,749)
Provision for Income Taxes.................................. 10,694 11,353
Minority Interest in Losses of Subsidiaries................. (943) (1,073)
-------- --------
Loss before Extraordinary Item.......................... (17,537) (29,029)
Extraordinary Charge from Early Extinguishment of Debt (net
of tax benefit of $8,161 and $1,928 respectively)......... (11,819) (2,892)
-------- --------
Net Loss................................................ $(29,356) $(31,921)
======== ========
Net Loss per Common Share -- Basic and Diluted:
Loss before Extraordinary Item............................ $ (0.32) $ (0.55)
Extraordinary Charge from Early Extinguishment of Debt.... (0.21) (0.06)
-------- --------
Net Loss per Share--Basic and Diluted................... $ (0.53) $ (0.61)
======== ========
Weighted Average Common Shares Outstanding--Basic and
Diluted................................................... 55,670 52,480
======== ========
Weighted Average Common Shares Outstanding--Basic and
Diluted................................................... 55,670 52,480
======== ========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<Page>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss.................................................. $(29,356) $(31,921)
Adjustments to Reconcile Net Loss before Extraordinary
Item:
Extraordinary Charge from Early Extinguishment of
Debt................................................... 11,819 2,892
-------- --------
Loss before Extraordinary Item............................ (17,537) (29,029)
Adjustments to Reconcile Net Loss before Extraordinary
Item to Cash
Provided by Operating Activities:
Minority Interests in Losses of Subsidiaries............ (943) (1,073)
Depreciation and Amortization........................... 112,427 92,776
Impairment of Long-term Assets.......................... 6,925 --
Amortization of Deferred Financing Costs and Bond
Discount............................................... 3,588 2,082
Provision for Doubtful Accounts......................... 8,491 4,101
Stock Option Compensation Expense....................... -- 15,110
Foreign Currency Loss................................... 8,661 7,723
Other, Net.............................................. (32) (50)
Changes in Assets and Liabilities (Exclusive of
Acquisitions):
Accounts Receivable..................................... (30,423) (16,209)
Prepaid Expenses and Other Current Assets............... (7,723) 11,614
Deferred Income Taxes................................... 8,325 9,697
Other Assets............................................ (466) 55
Accounts Payable........................................ 8,447 (3,618)
Accrued Expenses........................................ 5,182 16,080
Deferred Income......................................... 2,363 (680)
Other Current Liabilities............................... (156) --
Deferred Rent........................................... 1,164 1,490
Other Long-term Liabilities............................. (115) (387)
-------- --------
Cash Flows Provided by Operating Activities........... 108,178 109,682
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures...................................... (136,771) (116,158)
Cash Paid for Acquisitions, net of cash acquired.......... (54,647) (76,119)
Investment in Convertible Preferred Stock................. -- (6,524)
Additions to Customer Acquisition Costs................... (6,602) (10,147)
Other, Net................................................ 970 1,113
-------- --------
Cash Flows Used in Investing Activities............... (197,050) (207,835)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Debt......................................... (116,695) (579,277)
Early Retirement of Senior Subordinated Notes............. (304,352) --
Proceeds from Borrowings.................................. 104,820 388,230
Proceeds from Term Loans.................................. -- 350,000
Net Proceeds from Sale of Senior Subordinated Notes....... 427,924 --
Equity Contributions from Minority Shareholders........... 24,744 --
Debt Financing from (Repayment to) Minority
Shareholders............................................ (3,908) 9,457
Proceeds from Exercise of Stock Options................... 8,453 5,460
Financing and Stock Issuance Costs........................ (166) (5,419)
-------- --------
Cash Flows Provided by Financing Activities........... 140,820 168,451
Effect of Exchange Rates on Cash and Cash Equivalents....... 1,990 459
-------- --------
Increase in Cash and Cash Equivalents....................... 53,938 70,757
Cash and Cash Equivalents, Beginning of Period.............. 6,200 3,830
-------- --------
Cash and Cash Equivalents, End of Period.................... $ 60,138 $ 74,587
======== ========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<Page>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
(1) GENERAL
The interim consolidated financial statements presented herein have been
prepared by Iron Mountain Incorporated (the "Company") without audit and, in the
opinion of management, reflect all adjustments of a normal recurring nature
necessary for a fair presentation. Interim results are not necessarily
indicative of results for a full year.
The consolidated balance sheet presented as of December 31, 2000 has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The unaudited consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in the annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to those
rules and regulations, but the Company believes 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 the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
Certain reclassifications have been made to the 2000 financial statements to
conform to the 2001 presentation.
(2) COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," requires presentation of the components of comprehensive
income (loss), including the changes in equity from non-owner sources such as
unrealized gains (losses) on hedging transactions, securities and foreign
currency translation adjustments. The Company's total comprehensive income
(loss) is as follows:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2001 2000 2001 2000
-------- -------- -------- --------
Comprehensive Income (Loss):
Net Income (Loss)................................... $(22,809) $ 1,707 $(29,356) $(31,921)
Other Comprehensive Loss:
Foreign Currency Translation Adjustment........... (2,215) (1,144) (3,265) (3,621)
Transition Adjustment Charge...................... -- -- (214) --
Unrealized Loss on Hedging Contracts.............. (11,693) -- (13,387) --
-------- ------- -------- --------
Comprehensive Income (Loss)......................... $(36,717) $ 563 $(46,222) $(35,542)
======== ======= ======== ========
</Table>
(3) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company adopted the provisions of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," on January 1, 2001. The adoption
of SFAS No. 133 resulted in the recognition of a derivative liability and a
corresponding transition adjustment charge to accumulated other comprehensive
items of approximately $214.
7
<Page>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(3) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)
The Company has entered into three 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 its Tranche B
debt as well as certain variable operating lease commitments. For all qualifying
and highly effective cash flow hedges, the changes in the fair value of the
derivatives are recorded in other comprehensive income. As a result of these
interest rate swap agreements, the Company has recorded a derivative liability
of and a corresponding cumulative charge to accumulated other comprehensive
items of $13,601 at September 30, 2001.
For the three and nine months ended September 30, 2001, the Company recorded
net losses of $919 and $1,375 resulting from interest rate swap settlements in
interest, and $219 and $352 in rent expense, respectively. All interest rate
swap agreements were determined to be highly effective whereby no
ineffectiveness was recorded in earnings.
(4) ACQUISITIONS
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires all business combinations initiated after
June 30, 2001 to be accounted for using the purchase method. Under SFAS
No. 142, goodwill and intangible assets with indefinite lives are no longer
amortized but are reviewed annually for impairment or more frequently if
impairment indicators arise. Separable intangible assets that are not deemed to
have indefinite lives will continue to be amortized over their useful lives. The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the Company is required to adopt SFAS No. 142
effective January 1, 2002. We expect the adoption of SFAS No. 142 will have the
impact of reducing our amortization of goodwill and intangibles commencing
January 1, 2002; however, impairment reviews may result in future periodic
write-downs. The Company is currently evaluating the effect that the adoption of
the provisions of SFAS No. 142 will have on its intangible assets.
During the nine months ended September 30, 2001, the Company purchased
substantially all of the assets, and assumed certain liabilities, of 13
businesses.
Each of the 2001 acquisitions and all 12 of the records and information
management services businesses acquired during 2000 were accounted for using the
purchase method of accounting and, accordingly, the results of operations for
each acquisition have been included in the consolidated results of the Company
from their respective acquisition dates. In connection with certain 2001 and
2000 acquisitions, related real estate was also purchased. For the 2001
acquisitions closed prior to July 1, 2001, the aggregate purchase price exceeded
the underlying fair value of the net assets acquired by $53,252 which has been
assigned to goodwill and is being amortized over 20 to 30 years. For the 2001
acquisitions closed subsequent to June 30, 2001, the aggregate purchase price
exceeded the underlying fair value of the net assets acquired by $3,975 which
has been assigned to goodwill and has not been amortized. The Company recorded
goodwill amortization expense of $14,735 and $44,217 for the three and nine
months ended Septemer 30, 2001.
8
<Page>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(4) ACQUISITIONS (CONTINUED)
In connection with the 2001 and 2000 acquisitions, the Company has
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. These restructuring activities were recorded as
costs of the acquisitions and were provided in accordance with Emerging Issues
Task Force Issue No. 95-3, "Recognition of Liabilities in Connection with a
Purchase Business Combination." The Company finalizes its restructuring plans
for each business no later than one year from the date of acquisition.
Unresolved matters primarily include completion of planned abandonments of
facilities and employee severance costs for certain 2001 and 2000 acquisitions.
The following is a summary of reserves related to such restructuring
activities:
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
Reserves, Beginning Balance......................... $ 28,514 $ 9,340
Reserves Established................................ 2,729 31,409
Expenditures........................................ (6,251) (7,539)
Adjustments to Goodwill............................. (2,828) (4,696)
-------- --------
Reserves, Ending Balance............................ $ 22,164 $ 28,514
======== ========
</Table>
At September 30, 2001, the restructuring reserves related to acquisitions
consisted of lease losses on abandoned facilities ($14,446), severance costs for
approximately 14 people ($1,054) and other exit costs ($6,664). These accruals
are expected to be used within one year of the finalization of the restructuring
plans except for lease losses of $8,240 and severance contracts of approximately
$586, all of which are based on contracts that extend beyond one year.
9
<Page>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(5) LONG-TERM DEBT
Long-term debt consists of the following:
<Table>
<Caption>
SEPTEMBER 30, 2001 DECEMBER 31, 2000
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
Revolving Credit Facility due 2005............ $ -- $ -- $ 4,000 $ 4,000
Tranche A Term Loan due 2005.................. 150,000 150,000 150,000 150,000
Tranche B Term Loan due 2006.................. 199,000 199,000 199,750 199,750
11 1/8% Senior Subordinated Notes due 2006
(the "11 1/8 notes")........................ -- -- 131,517 136,500
10 1/8% Senior Subordinated Notes due 2006
(the "10 1/8 notes")........................ 8,349 8,800 165,000 170,800
9 1/8% Senior Subordinated Notes due 2007 (the
"9 1/8% notes")............................. 114,883 123,600 114,216 118,800
8 3/4% Senior Subordinated Notes due 2009 (the
"8 3/4% notes")............................. 249,677 255,000 249,646 245,600
8 1/4% Senior Subordinated Notes due 2011 (the
"8 1/4% notes")............................. 149,569 150,600 149,535 141,400
8 5/8% Senior Subordinated Notes due 2013 (the
"8 5/8% notes")............................. 438,127 443,700 -- --
8 1/8 Senior Subordinated Notes due 2008 (the
"Subsidiary notes")......................... 122,281 133,700 120,850 128,600
Real Estate Mortgage.......................... 19,850 19,850 20,457 20,457
Seller Notes.................................. 12,608 12,608 13,971 13,971
Other......................................... 35,759 35,759 36,189 36,189
---------- ----------
Long-term debt................................ 1,500,103 1,355,131
Less current portion.......................... (30,237) (40,789)
---------- ----------
Long-term debt, net of current portion........ $1,469,866 $1,314,342
========== ==========
</Table>
The estimated fair values for the long-term debt are based on the borrowing
rates available to the Company at September 30, 2001 and December 31, 2000 for
loans with similar terms and average maturities. The fair values of the 11 1/8%
notes, 10 1/8% notes, 9 1/8% notes, 8 3/4% notes, 8 1/4% notes, 8 5/8% notes
(collectively, the "Parent Notes") and the Subsidiary notes are based on the
quoted market prices for those notes on September 30, 2001 and December 31,
2000.
In September 2001, the Company completed an underwritten public offering
which resulted in the issuance of an additional $210,000 in aggregate principal
amount of 8 5/8% Senior Subordinated Notes due 2013. The 8 5/8% notes were
issued at a price to investors of 101.50% of par. The net proceeds to the
Company, $209,334 after paying the underwriters' discounts and commissions and
related expenses, were used to fund the Company's offer to purchase and consent
solicitation relating to its outstanding 10 1/8% Senior Subordinated Notes due
2006 and to redeem the remaining 10 1/8% notes, as well as to
10
<Page>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(5) LONG-TERM DEBT (CONTINUED)
repay outstanding borrowings under the Company's revolving credit facility and
for general corporate purposes, including future acquisitions.
In September 2001, the Company received and accepted tenders for $156,651 of
the $165,000 aggregate principal amount outstanding of its 10 1/8% notes. The
Company recorded an extraordinary charge of $7,039 (net of tax benefit of
$4,861) in the third quarter related to the early retirement of the 10 1/8%
notes. In October 2001, the Company received and accepted tenders for an
additional $250 in aggregate principal amount of its 10 1/8% notes and redeemed
the remaining $8,099 of outstanding principal amount of its 10 1/8% notes, at a
redemption price (expressed as a percentage of principal amount) of 105.06%,
plus accrued and unpaid interest, totaling $8,960.
11
<Page>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(6) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS
The following financial data summarizes the consolidating Company on the
equity method of accounting as of September 30, 2001 and December 31, 2000 and
for the three and nine month periods ended September 30, 2001 and 2000. The
Guarantor column includes all subsidiaries that guarantee the Parent notes and
the Subsidiary notes. The Canada Company column includes Iron Mountain Canada
Corporation ("Canada Company") and the Company's other Canadian subsidiaries
that guarantee the Subsidiary notes, but do not guarantee the Parent notes. The
Parent and the Guarantors also guarantee the Subsidiary notes issued by Canada
Company. The subsidiaries that do not guarantee either the Parent notes or the
Subsidiary notes are referred to in the table as the "non-guarantors."
<Table>
<Caption>
SEPTEMBER 30, 2001
-----------------------------------------------------------------------------
CANADA NON-
PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- -------- ---------- ------------ ------------
ASSETS
Current Assets:
Cash and Cash Equivalents............ $ -- $ 52,200 $ 1,216 $ 6,722 $ -- $ 60,138
Accounts Receivable.................. -- 187,726 14,379 21,655 -- 223,760
Intercompany Receivable (Payable).... 630,898 (514,174) (90,612) (26,112) -- --
Other Current Assets................. -- 64,109 2,943 4,202 (23) 71,231
---------- ---------- -------- -------- ----------- ----------
Total Current Assets............... 630,898 (210,139) (72,074) 6,467 (23) 355,129
Property, Plant and Equipment, net..... -- 742,255 69,325 97,048 -- 908,628
Other Assets:
Long-term Intercompany Receivable.... 547,939 -- -- -- (547,939) --
Long-term Notes Receivable from
Affiliates......................... 654,278 -- -- -- (654,278) --
Investment in Subsidiaries........... 382,086 84,021 -- -- (466,107) --
Goodwill, net........................ -- 1,254,807 118,078 142,131 10,654 1,525,670
Other................................ 31,403 38,586 10,131 824 (16,484) 64,460
---------- ---------- -------- -------- ----------- ----------
Total Other Assets................. 1,615,706 1,377,414 128,209 142,955 (1,674,154) 1,590,130
---------- ---------- -------- -------- ----------- ----------
Total Assets....................... $2,246,604 $1,909,530 $125,460 $246,470 $(1,674,177) $2,853,887
========== ========== ======== ======== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total Current Liabilities............ $ 40,530 $ 218,230 $ 16,253 $ 74,717 $ (23) $ 349,707
Long-term Debt, Net of Current
Portion............................ 1,316,544 1,722 124,562 27,038 -- 1,469,866
Long-term Intercompany Payable....... -- 547,939 -- -- (547,939) --
Long-term Notes Payable to
Affiliates......................... -- 654,278 -- -- (654,278) --
Other Long-term Liabilities.......... -- 92,048 860 1,890 (16,484) 78,314
Minority Interest.................... -- -- -- (287) 66,757 66,470
Shareholders' Equity................. 889,530 395,313 (16,215) 143,112 (522,210) 889,530
---------- ---------- -------- -------- ----------- ----------
Total Liabilities and Shareholders'
Equity........................... $2,246,604 $1,909,530 $125,460 $246,470 $(1,674,177) $2,853,887
========== ========== ======== ======== =========== ==========
</Table>
12
<Page>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(6) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS (CONTINUED)
<Table>
<Caption>
DECEMBER 31, 2000
-----------------------------------------------------------------------------
CANADA NON-
PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- -------- ---------- ------------ ------------
ASSETS
Current Assets:
Cash and Cash Equivalents..... $ 191 $ 3,336 $ 302 $ 2,371 $ -- $ 6,200
Accounts Receivable........... 7,060 140,095 12,370 16,917 -- 176,442
Intercompany Receivable
(Payable)................... 795,522 (658,022) (98,386) (45,060) 5,946 --
Other Current Assets.......... 531 46,605 827 6,063 -- 54,026
---------- ---------- -------- -------- ----------- ----------
Total Current Assets........ 803,304 (467,986) (84,887) (19,709) 5,946 236,668
Property, Plant and Equipment,
net........................... 99,549 586,504 66,953 79,388 -- 832,394
Other Assets:
Long-term Intercompany
Receivable.................. 344,300 -- -- -- (344,300) --
Long-term Notes Receivable
from Affiliates............. 607,600 124,100 -- -- (731,700) --
Investment in Subsidiaries.... 370,830 49,626 -- -- (420,456) --
Goodwill, net................. -- 1,255,302 138,663 121,096 10,569 1,525,630
Other......................... 20,986 42,956 11,036 1,834 (12,408) 64,404
---------- ---------- -------- -------- ----------- ----------
Total Other Assets.......... 1,343,716 1,471,984 149,699 122,930 (1,498,295) 1,590,034
---------- ---------- -------- -------- ----------- ----------
Total Assets................ $2,246,569 $1,590,502 $131,765 $182,609 $(1,492,349) $2,659,096
========== ========== ======== ======== =========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Total Current Liabilities..... $ 26,921 $ 189,362 $ 12,429 $ 79,378 $ 5,963 $ 314,053
Long-term Debt, Net of Current
Portion..................... 1,170,884 3,513 124,834 15,111 -- 1,314,342
Long-term Intercompany
Payable..................... -- 344,300 -- -- (344,300) --
Long-term Notes Payable to
Affiliates.................. 124,100 607,600 -- -- (731,700) --
Other Long-term Liabilities... 206 73,693 113 1,610 (12,408) 63,214
Minority Interest............. -- -- -- (1,636) 44,665 43,029
Shareholders' Equity.......... 924,458 372,034 (5,611) 88,146 (454,569) 924,458
---------- ---------- -------- -------- ----------- ----------
Total Liabilities and
Shareholders' Equity.... $2,246,569 $1,590,502 $131,765 $182,609 $(1,492,349) $2,659,096
========== ========== ======== ======== =========== ==========
</Table>
13
<Page>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(6) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS (CONTINUED)
<Table>
<Caption>
THREE MONTHS ENDED SEPTEMBER 30, 2001
---------------------------------------------------------------------------
CANADA NON-
PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------- ---------- ------------ ------------
Revenues:
Storage............................ $ -- $152,553 $ 8,282 $14,177 $ -- $175,012
Service and Storage Material
Sales............................ -- 100,341 8,060 8,260 -- 116,661
-------- -------- ------- ------- ------- --------
Total Revenues................... -- 252,894 16,342 22,437 -- 291,673
Operating Expenses:
Cost of Sales (Excluding
Depreciation).................... -- 119,513 8,940 11,465 -- 139,918
Selling, General and
Administrative................... 3 67,967 2,890 5,962 -- 76,822
Depreciation and Amortization...... -- 33,452 2,531 2,938 -- 38,921
Merger-Related Expenses............ -- 1,049 -- -- -- 1,049
-------- -------- ------- ------- ------- --------
Total Operating Expenses......... 3 221,981 14,361 20,365 -- 256,710
-------- -------- ------- ------- ------- --------
Operating Income (Loss).............. (3) 30,913 1,981 2,072 -- 34,963
Interest Expense, net................ 12,371 15,099 3,968 1,983 -- 33,421
Equity in the (Earnings) Losses of
Subsidiaries....................... (3,574) 148 -- -- 3,426 --
Other Income (Expense), net.......... (6,970) (1,244) (5,637) 6 -- (13,845)
-------- -------- ------- ------- ------- --------
Income (Loss) Before Provision
(Benefit) for Income Taxes and
Minority Interest Expense........ (15,770) 14,422 (7,624) 95 (3,426) (12,303)
Provision (Benefit) for Income
Taxes.............................. -- 3,641 (367) 166 -- 3,440
Minority Interests in Earnings of
Subsidiaries....................... -- -- -- 27 -- 27
-------- -------- ------- ------- ------- --------
Income (Loss) before Extraordinary
Item............................. (15,770) 10,781 (7,257) (98) (3,426) (15,770)
Extraordinary Charge from Early
Extinguishment of Debt (Net of Tax
Benefit of $4,861)................. (7,039) -- -- -- -- (7,039)
-------- -------- ------- ------- ------- --------
Net Income (Loss).................. $(22,809) $ 10,781 $(7,257) $ (98) $(3,426) $(22,809)
======== ======== ======= ======= ======= ========
</Table>
14
<Page>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(6) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS (CONTINUED)
<Table>
<Caption>
THREE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------------------------------------------
CANADA NON-
PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------- ---------- ------------ ------------
Revenues:
Storage............................. $ 880 $135,498 $ 6,621 $ 9,960 $ -- $152,959
Service and Storage Material
Sales............................. 4,750 85,750 6,612 7,356 (1,294) 103,174
------- -------- ------- ------- -------- --------
Total Revenues.................... 5,630 221,248 13,233 17,316 (1,294) 256,133
Operating Expenses:
Cost of Sales (Excluding
Depreciation)..................... 3,725 100,105 6,203 10,092 4,954 125,079
Selling, General and
Administrative.................... 790 61,244 3,447 4,550 (6,248) 63,783
Depreciation and Amortization....... 388 30,389 1,821 2,231 -- 34,829
Stock Option Compensation Expense... -- -- -- 171 -- 171
Merger-Related Expenses............. -- 931 70 261 -- 1,262
------- -------- ------- ------- -------- --------
Total Operating Expenses.......... 4,903 192,669 11,541 17,305 (1,294) 225,124
------- -------- ------- ------- -------- --------
Operating Income...................... 727 28,579 1,692 11 -- 31,009
Interest (Income) Expense............. 26,992 (1,016) 3,924 1,138 -- 31,038
Equity in the (Earnings) Losses of
Subsidiaries........................ (28,773) 1,281 -- -- 27,492 --
Other Expense, net.................... -- (720) (1,808) (497) -- (3,025)
------- -------- ------- ------- -------- --------
Income (Loss) Before Provision
(Benefit) for Income Taxes and
Minority Interest Expense....... 2,508 27,594 (4,040) (1,624) (27,492) (3,054)
Provision (Benefit) for Income
Taxes............................... (2,178) (4,897) (560) 612 -- (7,023)
Minority Interests in Earnings
(Losses) of Subsidiaries............ 87 -- -- (717) -- (630)
------- -------- ------- ------- -------- --------
Income (Loss) before Extraordinary
Item............................ 4,599 32,491 (3,480) (1,519) (27,492) 4,599
Extraordinary Charge from Early
Extinguishment of Debt (Net of Tax
Benefit of $1,928).................. (2,892) -- -- -- -- (2,892)
------- -------- ------- ------- -------- --------
Net Income (Loss)................. $ 1,707 $ 32,491 $(3,480) $(1,519) $(27,492) $ 1,707
======= ======== ======= ======= ======== ========
</Table>
15
<Page>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(6) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS (CONTINUED)
<Table>
<Caption>
NINE MONTHS ENDED SEPTEMBER 30, 2001
---------------------------------------------------------------------------
CANADA NON-
PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------- ---------- ------------ ------------
Revenues:
Storage........................... $ -- $448,794 $ 24,963 $41,011 $ -- $514,768
Service and Storage Material
Sales........................... -- 303,856 25,268 25,037 -- 354,161
-------- -------- -------- ------- -------- --------
Total Revenues................ -- 752,650 50,231 66,048 -- 868,929
Operating Expenses:
Cost of Sales (Excluding
Depreciation)................... -- 356,986 26,044 35,738 -- 418,768
Selling, General and
Administrative.................. 78 199,200 9,171 17,376 -- 225,825
Depreciation and Amortization..... -- 96,075 7,579 8,773 -- 112,427
Merger-Related Expenses........... -- 2,198 -- 29 -- 2,227
-------- -------- -------- ------- -------- --------
Total Operating Expenses...... 78 654,459 42,794 61,916 -- 759,247
-------- -------- -------- ------- -------- --------
Operating Income (Loss)............. (78) 98,191 7,437 4,132 -- 109,682
Interest Expense, net............... 38,731 44,821 12,081 5,818 -- 101,451
Equity in the (Earnings) Losses of
Subsidiaries...................... (28,242) 1,346 -- -- 26,896 --
Other Expense, net.................. (6,970) (2,133) (6,907) (7) -- (16,017)
-------- -------- -------- ------- -------- --------
Income (Loss) Before Provision
(Benefit) for Income Taxes
and Minority Interest
Expense..................... (17,537) 49,891 (11,551) (1,693) (26,896) (7,786)
Provision (Benefit) for Income
Taxes............................. -- 10,387 (353) 660 -- 10,694
Minority Interests in Losses of
Subsidiaries...................... -- -- -- (943) -- (943)
-------- -------- -------- ------- -------- --------
Income (Loss) before
Extraordinary Item.......... (17,537) 39,504 (11,198) (1,410) (26,896) (17,537)
Extraordinary Charge from Early
Extinguishment of Debt (Net of Tax
Benefit of $8,161)................ (11,819) -- -- -- -- (11,819)
-------- -------- -------- ------- -------- --------
Net Income (Loss)............. $(29,356) $ 39,504 $(11,198) $(1,410) $(26,896) $(29,356)
======== ======== ======== ======= ======== ========
</Table>
16
<Page>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(6) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS (CONTINUED)
<Table>
<Caption>
NINE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------------------------------------------
CANADA NON-
PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------- ---------- ------------ ------------
Revenues:
Storage........................... $ 2,323 $ 377,962 $ 17,624 $ 28,434 $ -- $ 426,343
Service and Storage Material
Sales........................... 12,740 244,042 18,975 21,779 (3,044) 294,492
-------- --------- -------- -------- ------- ---------
Total Revenues.................. 15,063 622,004 36,599 50,213 (3,044) 720,835
Operating Expenses:
Cost of Sales (Excluding
Depreciation)................... 9,090 295,035 17,343 30,042 -- 351,510
Selling, General and
Administrative.................. 2,410 161,382 9,273 11,943 (3,044) 181,964
Depreciation and Amortization..... 2,118 79,860 4,458 6,340 -- 92,776
Stock Option Compensation
Expense......................... -- 14,939 -- 171 -- 15,110
Merger-Related Expenses........... -- 5,200 192 261 -- 5,653
-------- --------- -------- -------- ------- ---------
Total Operating Expenses........ 13,618 556,416 31,266 48,757 (3,044) 647,013
-------- --------- -------- -------- ------- ---------
Operating Income.................... 1,445 65,588 5,333 1,456 -- 73,822
Interest Expense, net............... 45,326 26,080 10,656 3,004 -- 85,066
Equity in the (Earnings) Losses of
Subsidiaries...................... (9,440) 1,365 -- -- 8,075 --
Other Expense, net.................. -- (1,367) (4,762) (1,376) -- (7,505)
-------- --------- -------- -------- ------- ---------
Income (Loss) Before Provision
(Benefit) for Income Taxes and
Minority Interest Expense..... (34,441) 36,776 (10,085) (2,924) (8,075) (18,749)
Provision (Benefit) for Income
Taxes............................. (5,499) 17,609 (1,130) 373 -- 11,353
Minority Interests in Earnings
(Losses) of Subsidiaries.......... 87 -- -- (1,160) -- (1,073)
-------- --------- -------- -------- ------- ---------
Income (Loss) before
Extraordinary Item............ (29,029) 19,167 (8,955) (2,137) (8,075) (29,029)
Extraordinary Charge from Early
Extinguishment of Debt (Net of Tax
Benefit of $1,928)................ (2,892) -- -- -- -- (2,892)
-------- --------- -------- -------- ------- ---------
Net Income (Loss)............... $(31,921) $ 19,167 $ (8,955) $ (2,137) $(8,075) $ (31,921)
======== ========= ======== ======== ======= =========
</Table>
17
<Page>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(6) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS (CONTINUED)
<Table>
<Caption>
NINE MONTHS ENDED SEPTEMBER 30, 2001
---------------------------------------------------------------------------
CANADA NON-
PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------- ---------- ------------ ------------
Cash Flows from Operating Activities:
Cash Flows Provided by (Used in)
Operating Activities............... $(97,676) $ 196,711 $ 5,045 $ 4,098 $ -- $ 108,178
Cash Flows from Investing Activities:
Cash Paid for Acquisitions, net of cash
acquired............................. -- (33,903) (230) (20,514) -- (54,647)
Capital Expenditures................... -- (114,177) (4,447) (18,147) -- (136,771)
Intercompany Loans to Subsidiaries..... (20,204) (11,134) -- -- 31,338 --
Investment in Subsidiaries............. (6,739) (6,739) -- -- 13,478 --
Additions to Customer Acquisition
Costs................................ -- (5,862) (292) (448) -- (6,602)
Other, Net............................. -- 146 20 804 -- 970
-------- --------- ------- ------- ------- ---------
Cash Flows Used in Investing
Activities......................... (26,943) (171,669) (4,949) (38,305) 44,816 (197,050)
Cash Flows from Financing Activities:
Repayment of Debt...................... (110,431) (644) (2,465) (3,155) -- (116,695)
Early Retirement of Senior Subordinated
Notes................................ (304,352) -- -- -- -- (304,352)
Proceeds from Borrowings............... 103,000 73 -- 1,747 -- 104,820
Net Proceeds from Sale of Senior
Subordinated Notes................... 427,924 -- -- -- -- 427,924
Debt Repayment to Minority
Shareholders......................... -- -- -- (3,908) -- (3,908)
Equity Contributions from Minority
Shareholders......................... -- -- -- 24,744 -- 24,744
Intercompany Loans from Parent......... -- 17,654 2,501 11,183 (31,338) --
Equity Contribution from Parent........ -- 6,739 -- 6,739 (13,478) --
Proceeds from Exercise of Stock
Options.............................. 8,453 -- -- -- -- 8,453
Debt Financing and Stock Issuance
Costs................................ (166) -- -- -- -- (166)
-------- --------- ------- ------- ------- ---------
Cash Flows Provided by Financing
Activities......................... 124,428 23,822 36 37,350 (44,816) 140,820
Effect of Exchange Rates on Cash and Cash
Equivalents............................ -- -- 782 1,208 -- 1,990
-------- --------- ------- ------- ------- ---------
Increase (Decrease) in Cash and Cash
Equivalents............................ (191) 48,864 914 4,351 -- 53,938
Cash and Cash Equivalents, Beginning of
Period................................. 191 3,336 302 2,371 -- 6,200
-------- --------- ------- ------- ------- ---------
Cash and Cash Equivalents, End of
Period................................. $ -- $ 52,200 $ 1,216 $ 6,722 $ -- $ 60,138
======== ========= ======= ======= ======= =========
</Table>
18
<Page>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(6) SELECTED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
NON-GUARANTORS (CONTINUED)
<Table>
<Caption>
NINE MONTHS ENDED SEPTEMBER 30, 2000
----------------------------------------------------------------------------
CANADA NON-
PARENT GUARANTORS COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- -------- ---------- ------------ ------------
Cash Flows from Operating
Activities:
Cash Flows Provided by (Used in)
Operating Activities.......... $(100,603) $209,958 $(4,465) $ 4,792 $ -- $109,682
Cash Flows from Investing
Activities:
Cash Paid for Acquisitions, net of
cash acquired................... (6,417) (61,926) 55 (7,831) -- (76,119)
Capital Expenditures.............. (14,499) (87,254) (4,795) (9,610) -- (116,158)
Investment in Convertible
Preferred Stock................. -- (6,524) -- -- -- (6,524)
Intercompany Loans to
Subsidiaries.................... (252,074) (9,958) -- -- 262,032 --
Investment Subsidiaries........... (151) (151) -- -- 302 --
Additions to Customer Acquisition
Costs........................... -- (8,897) (1.196) (54) -- (10,147)
Other, Net........................ -- 1,113 -- -- -- 1,113
--------- -------- ------- ------- -------- --------
Cash Flows Used in Investing
Activities.................... (273,141) (173,597) (5,936) (17,495) 262,334 (207,835)
Cash Flows from Financing
Activities:
Repayment of Debt................. (390,999) (172,407) (6,951) (8,920) -- (579,277)
Proceeds from Borrowings.......... 382,500 3,746 1,146 838 -- 388,230
Proceeds from Term Loans.......... 350,000 -- -- -- -- 350,000
Debt Financing and Equity
Contribution from Minority
Shareholders.................... -- -- -- 9,457 -- 9,457
Intercompany Loans from Parent.... 31,961 198,387 16,756 14,928 (262,032) --
Equity Contribution from Parent... -- 151 -- 151 (302) --
Proceeds from Exercise of Stock
Options......................... 5,460 -- -- -- -- 5,460
Debt Financing and Stock Issuance
Costs........................... (5,010) (409) -- -- -- (5,419)
--------- -------- ------- ------- -------- --------
Cash Flows Provided by Financing
Activities.................... 373,912 29,468 10,951 16,454 (262,334) 168,451
Effect of Exchange Rates on Cash and
Cash Equivalents.................. -- -- (152) 611 -- 459
--------- -------- ------- ------- -------- --------
Increase in Cash and Cash
Equivalents....................... 168 65,829 398 4,362 -- 70,757
Cash and Cash Equivalents, Beginning
of Period......................... -- 2,260 -- 1,570 -- 3,830
--------- -------- ------- ------- -------- --------
Cash and Cash Equivalents, End of
Period............................ $ 168 $ 68,089 $ 398 $ 5,932 $ -- $ 74,587
========= ======== ======= ======= ======== ========
</Table>
19
<Page>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(7) EARNINGS PER SHARE
In accordance with SFAS No. 128, "Earnings per Share," basic net income
(loss) per common share is calculated by dividing net income (loss) by the
weighted average number of common shares outstanding. The calculation of diluted
net income (loss) per share is consistent with that of basic net income (loss)
per share but gives effect to all potential common shares (that is, securities
such as options, warrants or convertible securities) that were outstanding
during the period, unless the effect is antidilutive. For the three and nine
months ended September 30, 2001, 2,828 potential common shares have been
excluded from the calculation of diluted net loss per share, as their effects
are antidilutive.
(8) SEGMENT INFORMATION
An analysis of the Company's business segment information to the respective
information in the consolidated financial statements is as follows:
<Table>
<Caption>
BUSINESS OFF-SITE
RECORDS DATA CORPORATE TOTAL
MANAGEMENT PROTECTION INTERNATIONAL & OTHER CONSOLIDATED
---------- ---------- ------------- --------- ------------
THREE MONTHS ENDED SEPTEMBER 30, 2001
Revenue.............................. $ 193,064 $ 47,757 $ 38,266 $ 12,586 $ 291,673
Adjusted EBITDA...................... 53,424 11,906 8,950 653 74,933
THREE MONTHS ENDED SEPTEMBER 30, 2000
Revenue.............................. 176,019 43,635 30,136 6,343 256,133
Adjusted EBITDA...................... 46,138 11,709 6,215 3,209 67,271
NINE MONTHS ENDED SEPTEMBER 30, 2001
Revenue.............................. $ 576,204 $140,549 $114,808 $ 37,368 $ 868,929
Adjusted EBITDA...................... 156,629 35,386 26,504 5,817 224,336
Total Assets......................... 1,127,249 79,761 365,371 1,281,506 2,853,887
NINE MONTHS ENDED SEPTEMBER 30, 2000
Revenue.............................. 494,349 123,321 85,636 17,529 720,835
Adjusted EBITDA...................... 133,233 31,540 18,286 4,302 187,361
</Table>
Beginning with this quarter, the Company will use the term Adjusted EBITDA,
which the Company has consistently referred to in the past as EBITDA. Adjusted
EBITDA has been regularly evaluated by the chief operating decision maker in
deciding resource allocation and performance assessment. Adjusted EBITDA is
defined as EBITDA (earnings before interest, taxes, depreciation and
amortization) adjusted for other income (expense), merger-related expenses,
stock option compensation expense and minority interest.
The Company's consulting business, previously analyzed as part of Business
Records Management, is now analyzed within the Corporate & Other category. In
addition, certain allocations from Corporate & Other to Business Records
Management and Off-Site Data Protection have been changed. To the extent
practicable, the prior period numbers shown above have been adjusted to reflect
both such changes.
20
<Page>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
(8) SEGMENT INFORMATION (CONTINUED)
A reconciliation from EBITDA to Adjusted EBITDA and the consolidated
balances for income (loss) before provision (benefit) for income taxes and
minority interest is as follows:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ---------------------
2001 2000 2001 2000
---------- ---------- --------- ---------
EBITDA...................................................... $ 60,012 $63,443 $207,035 $ 160,166
Other Expense............................................. 13,845 3,025 16,017 7,505
Merger-Related Expenses................................... 1,049 1,262 2,227 5,653
Stock Option Compensation Expense......................... -- 171 -- 15,110
Minority Interests in Earnings (Losses) of Subsidiaries... 27 (630) (943) (1,073)
-------- ------- --------- ---------
ADJUSTED EBITDA............................................. 74,933 67,271 224,336 187,361
Depreciation and Amortization............................. (38,921) (34,829) (112,427) (92,776)
Stock Option Compensation Expense......................... -- (171) -- (15,110)
Merger-Related Expenses................................... (1,049) (1,262) (2,227) (5,653)
Interest Expense.......................................... (33,421) (31,038) (101,451) (85,066)
Other Expense............................................. (13,845) (3,025) (16,017) (7,505)
-------- ------- --------- ---------
LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES AND
MINORITY INTEREST......................................... $(12,303) $(3,054) $ (7,786) $ (18,749)
======== ======= ========= =========
</Table>
Information as to the Company's operations in different geographical areas
is as follows:
<Table>
<Caption>
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
2001 2000
--------------- ---------------
Revenues:
United States............................................... $253,407 $225,997
International............................................... 38,266 30,136
-------- --------
Total Revenues.......................................... $291,673 $256,133
======== ========
</Table>
<Table>
<Caption>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
2001 2000
--------------- ---------------
Revenues:
United States............................................... $754,121 $635,199
International............................................... 114,808 85,636
-------- --------
Total Revenues.......................................... $868,929 $720,835
======== ========
</Table>
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
--------------- ---------------
Long-lived Assets:
United States............................................... $2,073,157 $2,050,257
International............................................... 425,601 372,171
---------- ----------
Total Long-lived Assets................................. $2,498,758 $2,422,428
========== ==========
</Table>
(9) SUBSEQUENT EVENTS
In October 2001, the Company received and accepted tenders for an additional
$250 in aggregate principal amount of its 10 1/8% notes and redeemed the
remaining $8,099 of outstanding principal amount of its 10 1/8% notes, at a
redemption price (expressed as a percentage of principal amount) of 105.06%,
plus accrued and unpaid interest, totaling $8,960.
21
<Page>
IRON MOUNTAIN INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations for the three and nine months ended September 30, 2001
and 2000 should be read in conjunction with the consolidated financial
statements and footnotes for the three and nine months ended September 30, 2001
included herein, and the year ended December 31, 2000, included in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission on
March 23, 2001.
OVERVIEW
The Company's consolidated revenues increased $35.5 million, or 13.9%, to
$291.7 million for the third quarter of 2001 from $256.1 million for the third
quarter of 2000. Internal revenue growth for the third quarter of 2001 was 9.0%,
comprised of 10.9% for storage revenue and 6.2% for service revenue. For the
nine months ended September 30, 2001, the Company's consolidated revenues were
$868.9 million compared to $720.8 million for the same period last year,
representing an increase of 20.5%. Internal revenue growth for the nine months
ended September 30, 2001 was 10.4%, comprised of 11.7% for storage revenue and
8.4% for service revenue. The Company calculates internal revenue growth in
local currency for our international operations and as if Pierce Leahy had
merged with the Company on January 1, 2000. The events of September 11, 2001
negatively impacted the Company's service revenues by an estimated $3 million.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2000
Consolidated storage revenues increased $22.1 million, or 14.4%, to
$175.0 million for the third quarter of 2001, from $153.0 million for the third
quarter of 2000. The increase was attributable to: (i) internal revenue growth
of 10.9% resulting primarily from net increases in records and other media
stored by existing customers and sales to new customers; and (ii) acquisitions.
The total increase in storage revenues was partially offset by the unfavorable
effects of foreign currency translation of $0.9 million as a result of the
strengthening of the U.S. dollar against certain currencies, primarily the
Canadian dollar and the British pound sterling, in which the Company's
international segment does business.
Consolidated service and storage material sales revenues increased
$13.5 million, or 13.1%, to $116.7 million for the third quarter of 2001, from
$103.2 million for the third quarter of 2000. The increase was attributable to:
(i) internal revenue growth of 6.2% resulting primarily from net increases in
service and storage material sales to existing customers and sales to new
customers; and (ii) acquisitions. The total increase in service and storage
material sales revenues was partially offset by an estimated loss in service
revenue of approximately $3 million due to the events of September 11, 2001, and
by the unfavorable effects of foreign currency translation of $0.5 million as a
result of the strengthening of the U.S. dollar against certain currencies,
primarily the Canadian dollar and the British pound sterling, in which the
Company's international segment does business.
For the reasons discussed above, total consolidated revenues increased
$35.5 million, or 13.9%, to $291.7 million for the third quarter of 2001 from
$256.1 million for the third quarter of 2000.
Consolidated cost of sales (excluding depreciation) increased
$14.8 million, or 11.9%, to $139.9 million (48.0% of consolidated revenues) for
the third quarter of 2001 from $125.1 million (48.8% of consolidated revenues)
for the third quarter of 2000. The dollar increase was consistent with
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IRON MOUNTAIN INCORPORATED
the revenue growth of the Company and was partially offset by operating
efficiencies at the Company's U.S. and Canadian operations, particularly related
to real estate management and labor efficiencies obtained as a result of an
increase in scale, and by an improvement in gross margin at the Company's
expanding Latin American operations of 0.3% of consolidated revenues. In the
Company's U.S. and Canadian operations, facility costs increased $4.0 million
and labor costs increased $7.0 million, which represented a decrease of 0.2% of
consolidated revenues for each category. The decrease as a percent of
consolidated revenues was offset by a lower gross margin in the Company's
expanding Confidential Destruction services business, negatively impacting the
Company's gross margin by 0.3% of consolidated revenues.
Consolidated selling, general and administrative expenses increased
$13.0 million, or 20.4%, to $76.8 million (26.3% of consolidated revenues) for
the third quarter of 2001 from $63.8 million (24.9% of consolidated revenues)
for the third quarter of 2000. The dollar increase was consistent with the
revenue growth of the Company, while the increase as a percent of revenues was
primarily attributable to: (i) expenditures for the Company's marketing and
information technology initiatives related to the development of complementary
technology-based service offerings (0.6% of consolidated revenues);
(ii) investment in management and administration compensation expenses in the
Company's expanding Confidential Destruction business (0.4% of consolidated
revenues); and (iii) an increase in compensation expense as a percent of revenue
due to the loss of service revenue associated with the events of September 11,
2001 (0.1% of consolidated revenues).
Consolidated depreciation and amortization expense increased $4.1 million,
or 11.7%, to $38.9 million (13.3% of consolidated revenues) for the third
quarter of 2001 from $34.8 million (13.6% of consolidated revenues) for the
third quarter of 2000. Depreciation expense increased $3.7 million, primarily
due to the additional depreciation expense related to the 2000 and 2001
acquisitions, and capital expenditures including racking systems, information
systems and expansion of storage capacity in existing facilities. Amortization
expense increased $0.4 million, primarily due to the additional amortization
expense related to the goodwill generated by the Company's 2000 and 2001
acquisitions.
Stock option compensation expense represents a non-cash charge resulting
from the acceleration and extension of previously granted stock options as a
part of separation agreements with certain executives. There were no such costs
in the third quarter of 2001 compared to $0.2 million for the third quarter of
2000.
Merger-related expenses are certain expenses directly related to the
Company's merger with Pierce Leahy that cannot be capitalized and include system
conversion costs, costs of exiting certain facilities, severance, relocation and
pay-to-stay payments and other transaction-related costs. Merger-related
expenses were $1.0 million (0.4% of consolidated revenues) for the third quarter
of 2001 compared to $1.3 million (0.5% of consolidated revenues) for the third
quarter of 2000.
As a result of the foregoing factors, consolidated operating income
increased $4.0 million, or 12.8%, to $35.0 million (12.0% of consolidated
revenues) for the third quarter of 2001 from $31.0 million (12.1% of
consolidated revenues) for the third quarter of 2000.
Consolidated interest expense increased $2.4 million, or 7.7%, to
$33.4 million for the third quarter of 2001 from $31.0 million for the third
quarter of 2000. The increase was primarily attributable to increased
indebtedness related to: (i) the inclusion of $5.5 million of interest expense
on the 8 5/8% notes, which were issued in April and September 2001 and (ii) the
financing of acquisitions and capital expenditures. These increases were
partially offset by reduced interest expense of $4.1 million due to the early
retirement of the 11 1/8% and 10 1/8% notes as well as a decline in the weighted
average interest rate on the Company's variable rate debt.
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IRON MOUNTAIN INCORPORATED
Consolidated other expense was $13.8 million for the third quarter of 2001
compared to $3.0 million for the third quarter of 2000. The change was partially
due to a $6.9 million impairment charge taken on the Company's investment in
convertible preferred stock of a technology development company. Additionally,
the Company recorded a non-cash foreign currency loss of $6.5 million, primarily
due to the effect of further weakening of the Canadian dollar against the U.S.
dollar in the third quarter of 2001, versus the third quarter of 2000, as it
relates to Canada Company's 8 1/8% Senior Subordinated Notes and the
intercompany balances with the Company's Canadian subsidiaries.
As a result of the foregoing factors, consolidated loss before provision
(benefit) for income taxes and minority interest increased $9.2 million to
$12.3 million (4.2% of consolidated revenues) for the third quarter of 2001 from
a loss of $3.1 million (1.2% of consolidated revenues) for the third quarter of
2000. The provision (benefit) for income taxes was a provision of $3.4 million
for the third quarter of 2001 compared to a benefit of $7.0 million for the
third quarter of 2000.
Consolidated net income (loss) before extraordinary item decreased
$20.4 million to a loss of $15.8 million (5.4% of consolidated revenues) for the
third quarter of 2001 from income of $4.6 million (1.8% of consolidated
revenues) for the third quarter of 2000. In addition, the Company recorded an
extraordinary charge of $7.0 million (net of tax benefit of $4.9 million)
related to the early retirement of the 10 1/8% notes in conjunction with the
Company's additional underwritten public offering of the 8 5/8% notes in the
third quarter of 2001.
As noted in Note 8, Segment Information, of Notes to Consolidated Financial
Statements, Adjusted EBITDA (EBITDA adjusted for other income (expense),
merger-related expenses, stock option compensation expense and minority
interest) is used for the Company's internal measurement of financial
performance. In addition, substantially all of the Company's financing
agreements contain covenants in which Adjusted EBITDA-based calculations are
used as a measure of financial performance for financial ratio purposes. As a
result of the foregoing factors, consolidated Adjusted EBITDA increased
$7.7 million, or 11.4%, to $74.9 million (25.7% of consolidated revenues) for
the third quarter of 2001 from $67.3 million (26.3% of consolidated revenues)
for the third quarter of 2000. Excluding the $1.7 million of expenses related to
the Company's technology-related service offerings, the Company's Adjusted
EBITDA margin for the third quarter of 2001 was 26.3% of consolidated revenues.
There were no such costs in the third quarter of 2000.
Adjusted EBITDA as a percent of segment revenue for the Company's Business
Records Management segment increased from 26.2% to 27.7%, primarily due to labor
and transportation efficiencies obtained as a result of an increase in scale.
Adjusted EBITDA as a percent of segment revenue for the Company's Off-Site Data
Protection segment declined from 26.8% to 24.9%, despite an increase in gross
margin, primarily due to decentralization of various overhead functions, an
increase in spending for sales and marketing, and an increase in the provision
for doubtful accounts. Adjusted EBITDA margins for the Company's International
segment increased from 20.6% to 23.4% primarily due to a decrease in management
and administrative expenses as a percent of revenue in the Company's Canadian
subsidiary as a result of efficiencies gained through the increase in scale with
the acquisition of FACS, a Canadian company, in December 2000 and improved
margins at the Company's Latin American operations. These gains were partially
offset by an increase in the provision for doubtful accounts at the Company's
Canadian operations.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2000
Consolidated storage revenues increased $88.4 million, or 20.7%, to
$514.8 million for the first nine months of 2001, from $426.3 million for the
first nine months of 2000. The increase was attributable to: (i) internal
revenue growth of 11.7% resulting primarily from net increases in records
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IRON MOUNTAIN INCORPORATED
and other media stored by existing customers and sales to new customers; and
(ii) acquisitions, particularly the inclusion of Pierce Leahy's revenue for nine
months of 2001 versus eight months of 2000. The total increase in storage
revenues was partially offset by the unfavorable effects of foreign currency
translation of $3.2 million as a result of the strengthening of the U.S. dollar
against certain currencies, primarily the Canadian dollar and the British pound
sterling, in which the Company's international segment does business.
Consolidated service and storage material sales revenues increased
$59.7 million, or 20.3%, to $354.2 million for the first nine months of 2001,
from $294.5 million for the first nine months of 2000. The increase was
attributable to: (i) acquisitions, particularly the inclusion of Pierce Leahy's
revenue for nine months of 2001 versus eight months of 2000; and (ii) internal
revenue growth of 8.4% resulting primarily from net increases in service and
storage material sales to existing customers and sales to new customers. The
total increase in service and storage material sales revenues was partially
offset by an estimated loss in service revenue of approximately $3 million due
to the events of September 11, 2001, and by the unfavorable effects of foreign
currency translation of $2.7 million as a result of the strengthening of the
U.S. dollar against certain currencies, primarily the Canadian dollar and the
British pound sterling, in which the Company's international segment does
business.
For the reasons discussed above, total consolidated revenues increased
$148.1 million, or 20.5%, to $868.9 million for the first nine months of 2001
from $720.8 million for the first nine months of 2000.
Consolidated cost of sales (excluding depreciation) increased
$67.3 million, or 19.1%, to $418.8 million (48.2% of consolidated revenues) for
the first nine months of 2001 from $351.5 million (48.8% of consolidated
revenues) for the first nine months of 2000. The dollar increase was consistent
with the revenue growth of the Company and was partially offset by operating
efficiencies at the Company's U.S. and Canadian operations, particularly related
to real estate management and labor efficiencies obtained as a result of an
increase in scale, and by an improvement in gross margin at the Company's
expanding Latin American operations of 0.3% of consolidated revenues. The
decrease in cost of sales was offset by higher energy costs of 0.3% of
consolidated revenues. In the Company's U.S. and Canadian operations, facility
costs increased $18.7 million and labor costs increased $28.2 million, which
represented a decrease of 0.4% and 0.5% of consolidated revenues, respectively.
The decrease as a percent of consolidated revenues was offset by a lower gross
margin in the Company's expanding Confidential Destruction services business,
negatively impacting the Company's gross margin by 0.2% of consolidated
revenues.
Consolidated selling, general and administrative expenses increased
$43.9 million, or 24.1%, to $225.8 million (26.0% of consolidated revenues) for
the first nine months of 2001 from $182.0 million (25.2% of consolidated
revenues) for the first nine months of 2000. The dollar increase was primarily
attributable to revenue growth of the Company, while the increase as a percent
of consolidated revenues was primarily attributable to expenditures for the
Company's marketing and information technology initiatives related to the
development of complementary technology-based service offerings (0.4% of
consolidated revenues) as well as an increased provision for doubtful accounts,
from 0.6% of consolidated revenues for the nine months ended September 30, 2000,
to 1.0% of consolidated revenues in 2001.
Consolidated depreciation and amortization expense increased $19.7 million,
or 21.2%, to $112.4 million (12.9% of consolidated revenues) for the first nine
months of 2001 from $92.8 million (12.9% of consolidated revenues) for the first
nine months of 2000. Depreciation expense increased $14.3 million, primarily due
to the additional depreciation expense related to the 2000 and 2001
acquisitions, particularly the inclusion of Pierce Leahy's depreciation expense
for nine months of 2001 versus eight months of 2000, and capital expenditures
including racking systems, information systems
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IRON MOUNTAIN INCORPORATED
and expansion of storage capacity in existing facilities. Amortization expense
increased $5.4 million, primarily due to the additional amortization expense
related to the goodwill generated by the Company's 2000 and 2001 acquisitions,
particularly Pierce Leahy.
Stock option compensation expense represents a non-cash charge resulting
from the acceleration and extension of previously granted stock options as a
part of separation agreements with certain executives. There were no such costs
for the first nine months of 2001 compared to $15.1 million for the same period
of 2000.
Merger-related expenses are certain expenses directly related to the
Company's merger with Pierce Leahy that cannot be capitalized and include system
conversion costs, costs of exiting certain facilities, severance, relocation and
pay-to-stay payments and other transaction-related costs. Merger-related
expenses were $2.2 million (0.3% of consolidated revenues) for the first nine
months of 2001 compared to $5.7 million (0.8% of consolidated revenues) for the
same period of 2000.
As a result of the foregoing factors, consolidated operating income
increased $35.9 million, or 48.6%, to $109.7 million (12.6% of consolidated
revenues) for the first nine months of 2001 from $73.8 million (10.2% of
consolidated revenues) for the first nine months of 2000.
Consolidated interest expense increased $16.4 million, or 19.3%, to
$101.5 million for the first nine months of 2001 from $85.1 million for the
first nine months of 2000. The increase was primarily attributable to increased
indebtedness related to: (i) the inclusion of Pierce Leahy's debt for nine
months of 2001 versus eight months of 2000 resulting in an increase of
$4.7 million; (ii) the inclusion of $10.2 million of interest expense on the
8 5/8% notes, which were issued in April and September 2001; and (iii) the
financing of acquisitions and capital expenditures. These increases were
partially offset by reduced interest expense of $6.2 million due to the early
retirement of the 11 1/8% and 10 1/8% notes as well as a decline in the weighted
average interest rate on the Company's variable rate debt.
Consolidated other expense was $16.0 million for the first nine months of
2001 compared to $7.5 million for the first nine months of 2000. The change was
partially due to a $6.9 million impairment charge taken on the Company's
investment in convertible preferred stock of a technology development company.
Additionally, the Company recorded a non-cash foreign currency loss of
$8.6 million, primarily due to the effect of further weakening of the Canadian
dollar against the U.S. dollar in the first nine months of 2001, versus the
first nine months of 2000, as it relates to Canada Company's 8 1/8% Senior
Subordinated Notes and the intercompany balances with the Company's Canadian
subsidiaries.
As a result of the foregoing factors, consolidated loss before provision for
income taxes and minority interest decreased $11.0 million to a loss of
$7.8 million (0.9% of consolidated revenues) for the first nine months of 2001
from a loss of $18.7 million (2.6% of consolidated revenues) for the first nine
months of 2000. The provision for income taxes was $10.7 million for the first
nine months of 2001 compared to $11.4 million for the first nine months of 2000.
For the nine months ended September 30, 2001, the Company recorded
$29.5 million in nondeductible goodwill amortization expense.
Consolidated net loss before extraordinary item decreased $11.5 million to
$17.5 million (2.0% of consolidated revenues) for the first nine months of 2001
from $29.0 million (4.0% of consolidated revenues) for the first nine months of
2000. For the first nine months of 2001, the Company recorded an extraordinary
charge of $11.8 million (net of tax benefit of $8.2 million) related to the
early retirement of the 11 1/8% and 10 1/8% notes in conjunction with the
Company's underwritten public offerings of the 8 5/8% notes.
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IRON MOUNTAIN INCORPORATED
As noted in Note 8, Segment Information, of Notes to Consolidated Financial
Statements, Adjusted EBITDA is used for the Company's internal measurement of
financial performance. In addition, substantially all of the Company's financing
agreements contain covenants in which Adjusted EBITDA-based calculations are
used as a measure of financial performance for financial ratio purposes. As a
result of the foregoing factors, consolidated Adjusted EBITDA increased
$37.0 million, or 19.7%, to $224.3 million (25.8% of consolidated revenues) for
the first nine months of 2001 from $187.4 million (26.0% of consolidated
revenues) for the first nine months of 2000. Excluding the $3.8 million of
expenses related to the Company's technology-related service offerings, the
Company's Adjusted EBITDA margin for the first nine months of 2001 was 26.3% of
consolidated revenues. There were no such costs in the first nine months of
2000.
Adjusted EBITDA as a percent of segment revenue for the Company's Business
Records Management segment increased from 27.0% to 27.2%, partially due to an
increase in gross margin driven by real estate management and labor efficiencies
obtained as a result of an increase in scale. The increase in gross margin was
offset by increased costs associated with the decentralization of the Company's
administrative functions, which took place in the second half of 2000, as well
as an increase in the provision for doubtful accounts. Adjusted EBITDA as a
percent of segment revenue for the Company's Off-Site Data Protection segment
declined from 25.6% to 25.2% primarily due to (i) decentralization of the
Company's various overhead functions; (ii) an increase in spending for sales and
marketing; and (iii) a decrease in contribution from the segments' higher margin
complementary services due to the relatively slower growth in revenue for those
services. This decrease was partially offset by an increase in gross margin as a
result of improved labor management, as well as the contribution from the
segment's two 2001 acquisitions of higher margin escrow businesses. Adjusted
EBITDA margin for the Company's International segment increased from 21.4% to
23.1% due to: (i) the inclusion of an additional month in 2001 of the Company's
more profitable Canadian business acquired as a part of the Pierce Leahy
acquisition; (ii) efficiency gains from the December 2000 acquisition of FACS, a
Canadian company; and (iii) improved margins from the Company's Latin American
operations. These increases were partially offset by an increase of
$0.9 million in the provision for doubtful accounts of bad debt expense at the
Company's European operations.
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IRON MOUNTAIN INCORPORATED
LIQUIDITY AND CAPITAL RESOURCES
The Company has made significant capital investments, consisting primarily
of: (i) capital expenditures, primarily related to growth (including investments
in real estate, racking systems, information systems and expansion of storage
capacity in existing facilities); (ii) acquisitions; and (iii) customer
acquisition costs. Cash paid for these investments during the first nine months
of 2001 amounted to $136.8 million, $54.6 million and $6.6 million,
respectively. These investments have been primarily funded through cash flows
from operations, borrowings under the Company's credit agreements and a portion
of the net proceeds from the 8 5/8% notes. Included in capital expenditures is
$4.2 million related to the Company's technology-based service offerings.
Net cash provided by operations was $108.2 million for the first nine months
of 2001 compared to $109.7 million for the same period in 2000. The decrease
primarily resulted from an increase in trade accounts receivable and prepaid
expenses and a decrease in accrued expenses, which was partially offset by an
increase in operating income and trade accounts payable.
Net cash provided by financing activities was $140.8 million for the first
nine months of 2001, consisting primarily of net proceeds of $427.9 million from
the sale of the 8 5/8% notes and equity contributions from minority shareholders
of $24.7 million, which were partially offset by the early retirement of the
11 1/8% notes and the 10 1/8% notes of $304.4 million.
In April 2001, the Company completed an underwritten public offering of
$225.0 million in aggregate principal amount of 8 5/8% Senior Subordinated Notes
due 2013. The 8 5/8% notes were issued at a price to investors of 100% of par.
The net proceeds to the Company, $218.6 million after paying the underwriters'
discounts and commissions and related expenses, were used to fund the Company's
offer to purchase and consent solicitation relating to its outstanding 11 1/8%
Senior Subordinated Notes due 2006, to repay outstanding borrowings under the
Company's revolving credit facility and for general corporate purposes,
including acquisitions.
In April 2001, the Company received and accepted tenders for $124.6 million
of the outstanding principal amount of its 11 1/8% notes. The Company recorded
an extraordinary charge of $4.8 million (net of tax benefit of $3.3 million) in
the second quarter related to the early retirement of the 11 1/8% notes. The
Company redeemed the remaining $5.4 million of principal amount of the 11 1/8%
notes in July 2001, at a redemption price (expressed as a percentage of
principal amount) of 105.563%, plus accrued and unpaid interest, totaling
$6.0 million.
In September 2001, the Company completed an underwritten public offering
which resulted in the issuance of an additional $210.0 million in aggregate
principal amount of 8 5/8% Senior Subordinated Notes due 2013. The 8 5/8% notes
were issued at a price to investors of 101.50% of par. The net proceeds to the
Company, $209.3 million after paying the underwriters' discounts and commissions
and related expenses, were used to fund the Company's offer to purchase and
consent solicitation relating to its outstanding 10 1/8% Senior Subordinated
Notes due 2006 and to redeem the remaining 10 1/8% notes, as well as to repay
outstanding borrowings under the Company's revolving credit facility and for
general corporate purposes, including future acquisitions.
In September 2001, the Company received and accepted tenders for
$156.7 million of the $165.0 million aggregate principal amount outstanding of
its 10 1/8% notes. The Company recorded an extraordinary charge of $7.0 million
(net of tax benefit of $4.9 million) in the third quarter related to the early
retirement of the 10 1/8% notes. In October 2001, the Company received and
accepted tenders for an additional $0.3 million in aggregate principal amount of
its 10 1/8% notes and redeemed the remaining $8.0 million of outstanding
principal amount of its 10 1/8% notes, at a redemption price
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IRON MOUNTAIN INCORPORATED
(expressed as a percentage of principal amount) of 105.06%, plus accrued and
unpaid interest, totaling $9.0 million.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires all business combinations initiated after
June 30, 2001 to be accounted for using the purchase method. Under SFAS
No. 142, goodwill and intangible assets with indefinite lives are no longer
amortized but are reviewed annually for impairment or more frequently if
impairment indicators arise. Separable intangible assets that are not deemed to
have indefinite lives will continue to be amortized over their useful lives. The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the Company is required to adopt SFAS No. 142
effective January 1, 2002. We expect the adoption of SFAS No. 142 will have the
impact of reducing our amortization of goodwill and intangibles commencing
January 1, 2002; however, impairment reviews may result in future periodic
write-downs. For the nine months ended September 30, 2001, the Company recorded
goodwill amortization of $44.2 million. The Company is currently evaluating the
effect that the adoption of the provisions of SFAS No. 142 will have on its
intangible assets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In December 2000 and January 2001, the Company entered into certain
derivative financial contracts, which are variable-for-fixed swaps of interest
payments payable on an aggregate principal amount of $195.5 million of the
Company's Tranche B term loan and certain variable operating lease commitments.
The Company's investments in Iron Mountain Europe Limited, Iron Mountain
South America, Ltd. and other international investments may be subject to risks
and uncertainties relating to fluctuations in currency valuation. One of the
Company's Canadian subsidiaries, Canada Company, has U.S. dollar denominated
debt. Gains and losses due to exchange rate fluctuations related to this debt
are recognized in the Company's consolidated statements of operations.
As of September 30, 2001, the Company had $177.0 million of variable rate
debt outstanding with a weighted average interest rate of 6.17% and
$1,323.1 million of fixed rate debt outstanding. If the weighted average
variable interest rate had increased by 1%, such increase would have had a
negative impact on the Company's net income for the three and nine month periods
ended September 30, 2001 by approximately $0.3 and $0.9 million, respectively.
See Note 5 of Notes to Consolidated Financial Statements for a discussion of the
Company's long-term indebtedness, including the fair values of such indebtedness
as of September 30, 2001.
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IRON MOUNTAIN INCORPORATED
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
On September 7, 2001, the Company filed a Current Report on Form 8-K under
Items 5 and 7 to announce the Company's proposed underwritten public offering of
Senior Subordinated Notes. The Current Report on Form 8-K also updated
previously filed unaudited pro forma information for the year ended
December 31, 2000 and provided unaudited pro forma information for the six
months ended June 30, 2001, to include the impact of the March Debt Issuance and
the September Debt Offering, as defined therein, and the related redemptions.
On September 17, 2001, the Company filed a Current Report on Form 8-K under
Item 5 to announce a change in the record date with respect to the October 1,
2001 interest payment on its Senior Subordinated Notes to September 24, 2001.
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IRON MOUNTAIN INCORPORATED
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<Table>
IRON MOUNTAIN INCORPORATED
November 14, 2001 By: /s/ JEAN A. BUA
- ------------------------------------------- -----------------------------------------
(date) Jean A. Bua
VICE PRESIDENT AND CORPORATE CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
</Table>
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