IRON MOUNTAIN INC/PA - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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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, 2002
OR

/ / 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

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IRON MOUNTAIN INCORPORATED

(Exact Name of Registrant as Specified in its Charter)

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)

(617) 535-4766
(Registrant's Telephone Number, Including Area Code)

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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 August
2, 2002: 84,747,435

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IRON MOUNTAIN INCORPORATED

INDEX

2

PART I. FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

IRON MOUNTAIN INCORPORATED

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

3

IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

4

IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

5

IRON MOUNTAIN INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

6

IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE DATA)

(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, 2001 has been
derived from the consolidated financial statements that have been audited by the
Company's predecessor 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, 2001.

Certain reclassifications have been made to the 2001 financial statements to
conform to the 2002 presentation.

(2) NEW ACCOUNTING PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44 and 64, amendment of FASB Statement No. 13, and
Technical Corrections," which among other things, limits the classification of
gains and losses from extinguishment of debt as extraordinary to only those
transactions that are unusual and infrequent in nature as defined by Accounting
Principles Board Opinion No. 30 "Reporting the Results of Operations--Reporting
the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." SFAS No. 145 is effective
no later than January 1, 2003. Upon adoption, gains and losses on certain future
debt extinguishments, if any, will be recorded in pre-tax income. In addition,
extraordinary losses of $4.8 million, net of tax for the six month period ended
June 30, 2001 and $0.8 million, net of tax for the six month period ended
June 30, 2002 will be reclassified to conform to the requirements under SFAS
No. 145.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", which nullifies Emerging Issues Task Force
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires a liability for a cost associated with an
exit or disposal activity to be recognized and measured initially at its fair
value in the period in which the liability is incurred. If fair value cannot be
reasonably estimated, the liability shall be recognized initially in the period
in which fair value can be reasonably estimated. In periods subsequent to the
initial measurement, changes to the liability resulting from revisions to either
the timing or the amount of estimated cash flows must be recognized as
adjustments to the liability in the period of the change. The provisions of SFAS
No. 146 will be effective for the Company prospectively for exit or disposal

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(2) NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
activities initiated after December 31, 2002. The Company is in the process of
assessing the impact of SFAS No. 146 on the Company's consolidated financial
statements.

(3) COMPREHENSIVE INCOME (LOSS)

SFAS No. 130, "Reporting Comprehensive Income," requires presentation of the
components of comprehensive income (loss), including the changes in equity from
non-owner sources such as unrealized gains (losses) on hedging transactions,
securities and foreign currency translation adjustments. The Company's total
comprehensive income (loss) is as follows:

(4) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Effective January 1, 2001, the Company adopted the provisions of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 requires that every derivative instrument be recorded in the balance
sheet as either an asset or a liability measured at its fair value. 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 $214 as of March 31, 2001.

Periodically, the Company acquires derivative instruments that are intended
to hedge either cash flows or values which are subject to exchange or other
market price risk, and not for trading purposes. The Company has formally
documented its hedging relationships, including identification of the hedging
instruments and the hedge items, as well as its risk management objectives and
strategies for undertaking each hedge transaction.

Effective during the first and second quarter of 2001, 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 term loan 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 (loss). Specifically, the Company chose
to swap the interest rates on $195,500 of floating rate debt to fixed rate and
the variable component of $47,500 of certain operating lease commitments to
fixed operating lease commitments. Since that time, interest rates have fallen.
As a result, the estimated cost to terminate these swaps would be $14,479 and
$9,857 at June 30, 2002 and December 31, 2001, respectively. The Company has
recorded, in the accompanying consolidated balance sheets, even though

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(4) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)
the Company has not terminated these swaps, a derivative liability, a deferred
tax asset and a corresponding charge to accumulated other comprehensive loss of
$14,479, $5,271 and $9,208 as of June 30, 2002 and $9,857, $4,000 and $5,857 as
of December 31, 2001, respectively.

As a result of the foregoing, for the three and six months ended June 30,
2002, the Company recorded additional interest expense of $1,882 and $3,679
resulting from interest rate swap settlements and $439 and $878 in additional
rent expense, respectively. For the three and six months ended June 30, 2001,
the Company recorded additional interest expense of $397 and $456 resulting from
interest rate swap settlements and $125 and $134 in additional rent expense,
respectively. All interest rate swap agreements were determined to be highly
effective whereby no ineffectiveness was recorded in earnings.

(5) GOODWILL AND OTHER INTANGIBLE ASSETS

Effective July 1, 2001 and January 1, 2002, the Company adopted the
provisions of SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill
and Other Intangible Assets", respectively. 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. Had SFAS No. 142 been effective
January 1, 2001, goodwill amortization expense would have been reduced by
$15,102 and $29,478 for the three and six months ended June 30, 2001,
respectively.

The result of testing the Company's goodwill for impairment in accordance
with SFAS No. 142, as of January 1, 2002, was a non-cash charge of $6,396 (net
of minority interest of $8,487), which is reported in the caption "cumulative
effect of change in accounting principle" in the accompanying Consolidated
Statement of Operations. The charge relates to the Company's South American
reporting unit within the Company's international reporting segment. The South
American reporting unit failed the impairment test primarily due to a reduction
in the expected future performance of the unit resulting from a deterioration of
the local economic environment and the devaluation of the currency in Argentina.
As goodwill amortization expense in the Company's South American reporting unit
is not deductible for tax purposes, this impairment charge is not net of a tax
benefit. Under SFAS No. 142, the impairment adjustment recognized upon adoption
of the new rules is reflected as a cumulative effect of change in accounting
principle in the Company's financial results as of January 1, 2002. Impairment
adjustments recognized after adoption, if any, are generally required to be
recognized as operating expenses.

The Company has a controlling 50.1% interest in Iron Mountain South
America, Ltd ("IMSA") and the remainder is owned by another unaffiliated entity.
IMSA has acquired a controlling interest in entities in which local partners
have retained a minority interest in order to enhance the Company's local market
expertise. These local partners have no ownership interest in IMSA. This has
caused the minority interest portion of the non-cash goodwill impairment charge
($8,487) to exceed the Company's portion of the non-cash goodwill impairment
charge ($6,396).

9

IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(5) GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
The changes in the carrying value of goodwill attributable to each
reportable operating segment for the period ended June 30, 2002 are as follows:

In connection with adopting SFAS No. 142, the Company reassessed the useful
lives and the classification of its identifiable intangible assets and
determined the useful lives of customer relationships and acquisition costs to
be between 5 and 30 years. The components of the Company's amortizable
intangible assets at June 30, 2002 are as follows:

Actual results of operations for the three-month and six-month periods ended
June 30, 2002 and pro forma results of operations for the three-month and
six-month periods ended June 30, 2001 had

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(5) GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
the Company applied the non-amortization provisions of SFAS No. 142 as of
January 1, 2001 are as follows:

(6) ACQUISITIONS

During the six months ended June 30, 2002, the Company purchased
substantially all of the assets, and assumed certain liabilities, of four
businesses.

Each of the 2002 acquisitions and all 16 of the records management
businesses acquired during 2001 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

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(6) ACQUISITIONS (CONTINUED)
their respective acquisition dates. In connection with certain 2001
acquisitions, related real estate was also purchased. For the 2002 acquisitions,
the aggregate purchase price exceeded the underlying fair value of the net
assets acquired by $10,288 which has been assigned to goodwill and, consistent
with SFAS No. 142, has not been amortized.

In connection with the 2002 and 2001 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 2002 and 2001 acquisitions.

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

At June 30, 2002, the restructuring reserves related to acquisitions
consisted of lease losses on abandoned facilities of $7,645, severance costs for
approximately 5 people of $683 and other exit costs of $3,346. These accruals
are expected to be used prior to June 30, 2003 except for lease losses of $4,181
and severance contracts of $488, both of which are based on contracts that
extend beyond one year.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(7) LONG-TERM DEBT

Long-term debt consists of the following:

The estimated fair values for the long-term debt are based on the borrowing
rates available to the Company at June 30, 2002 and December 31, 2001 for loans
with similar terms and average maturities. The fair values of the 9 1/8% notes,
8 3/4% notes, 8 1/4% notes and 8 5/8% notes (collectively, the "Parent notes")
and the Subsidiary notes are based on the quoted market prices for those notes
on June 28, 2002 and December 31, 2001.

On March 15, 2002, the Company entered into a new amended and restated
revolving credit agreement (the "Amended and Restated Credit Agreement"). The
Amended and Restated Credit Agreement replaced the Company's prior credit
agreement. The Amended and Restated Credit Agreement has an aggregate principal
amount of $650,000 and includes a $400,000 revolving credit facility and a
$250,000 term loan facility. The revolving credit facility matures on
January 31, 2005 while the term loan is to be paid in full on February 15, 2008;
however, if the 9 1/8% notes are not redeemed or repurchased prior to April 15,
2007 the term loan will mature on April 15, 2007. The interest rate on
borrowings under the Amended and Restated Credit Agreement varies depending on
the Company's choice of base rates and currency options, plus an applicable
margin. All intercompany notes are now pledged to secure the Amended and
Restated Credit Agreement. As of June 30, 2002, the Company had $130,086 of
borrowings under the Company's revolving credit facility, all of which was
denominated in Canadian dollars in the amount of 197,490. The Company also had
various outstanding letters of credit totaling $27,779. The remaining
availability under the revolving credit facility was $242,135 as of June 30,
2002.

The indentures and other agreements governing the Company's indebtedness
contain certain restrictive financial and operating covenants including
covenants that restrict the Company's 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, in the event the Company's debt rating changes, this event would not
trigger a default under the Company's indentures and other agreements governing
the Company's indebtedness.

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(8) SELECTED FINANCIAL INFORMATION OF PARENT, GUARANTORS AND NON-GUARANTORS

The following financial data summarizes the consolidating Company on the
equity method of accounting as of June 30, 2002 and December 31, 2001 and for
the three and six month periods ended June 30, 2002 and 2001. The Guarantors
column includes all subsidiaries that guarantee the Parent notes and the
Subsidiary notes. The Canada Company column includes Iron Mountain Canada
Corporation ("Canada Company") 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."

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(8) SELECTED FINANCIAL INFORMATION OF PARENT, GUARANTORS AND NON-GUARANTORS
(CONTINUED)

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(8) SELECTED FINANCIAL INFORMATION OF PARENT, GUARANTORS AND NON-GUARANTORS
(CONTINUED)

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(8) SELECTED FINANCIAL INFORMATION OF PARENT, GUARANTORS AND NON-GUARANTORS
(CONTINUED)

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(8) SELECTED FINANCIAL INFORMATION OF PARENT, GUARANTORS AND NON-GUARANTORS
(CONTINUED)

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(8) SELECTED FINANCIAL INFORMATION OF PARENT, GUARANTORS AND NON-GUARANTORS
(CONTINUED)

19

IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(8) SELECTED FINANCIAL INFORMATION OF PARENT, GUARANTORS AND NON-GUARANTORS
(CONTINUED)

20

IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(8) SELECTED FINANCIAL INFORMATION OF PARENT, GUARANTORS AND NON-GUARANTORS
(CONTINUED)

21

IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(9) 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. Potential common shares,
entirely attributable to stock options, included in the calculation of diluted
net income per share totaled 1,544,445 shares and 1,569,943 shares for the three
and six months ended June 30, 2002, respectively.

(10) SEGMENT INFORMATION

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

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(1) Total corporate & other assets include the intersegment elimination amount
of $1,590,453.

Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes,
depreciation and amortization) adjusted for extraordinary items, other income
(expense), merger-related expenses, stock option compensation expense and
minority interest. The Company uses Adjusted EBITDA as an internal measurement
of the financial performance of, and as the basis for allocating resources to,
the Company's operating segments.

The Company has several hybrid business units, each generating revenues and
incurring expenses from a combination of different product lines such as
business records management, off-site data protection and confidential
destruction. To the extent that certain operations are reclassified between
segments, the related revenues and expenses are reported under the new segment.
To the extent practicable, the prior period amounts shown above have been
adjusted to reflect these changes.

22

IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(10) SEGMENT INFORMATION (CONTINUED)
A reconciliation from EBITDA to Adjusted EBITDA and income before provision
for income taxes and minority interest is as follows:

Information about the Company's operations in different geographical areas
is as follows:

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(11) STOCK BASED COMPENSATION

Effective January 1, 1996, the Company adopted the provisions of SFAS
No. 123, "Accounting for Stock Based Compensation." The Company has elected to
continue to account for stock options issued to employees at their intrinsic
value with disclosure of fair value accounting on net income (loss) and net
income (loss) per share on a pro forma basis. Had the Company elected to
recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123, net income (loss) and net income
(loss) per share would have been changed to the pro forma amounts indicated in
the table below:

The weighted average fair value of options granted in the year ended
December 31, 2001 and for the six months ended June 30, 2002 was $8.74 and $9.93
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 year:

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

(12) COMMITMENTS AND CONTINGENCIES

The Company is a party to numerous operating leases. No material changes in
the obligations associated with these leases has occurred since December 31,
2001. See the Company's Annual Report on Form 10-K for the year ended
December 31, 2001 for amounts outstanding at December 31, 2001.

As of June 30, 2002, the Company's synthetic leasing program consisted of
three synthetic lease facilities and had a total capacity of $203,900 of which
$175,000 had been utilized for property acquisitions leaving $28,900 available
for future property acquisitions. Each of the leases included in the Company's
synthetic lease facilities has a five to six and one-half year term for
specified records storage warehouses and include 36 of 511 leased facilities the
Company occupies. During the six months ended June 30, 2002, the Company
recorded $5,046 in rent expense on its statement of operations related to these
lease commitments. The Company's synthetic lease facilities included properties
with a lessor's original cost of $175,000 and $151,900 as of June 30, 2002 and
December 31, 2001, respectively. If on January 1, 2002, the original cost of the
Company's properties under synthetic lease facilities had equaled $175,000, rent
expense for the six months ended June 30, 2002 would have been approximately
$6,100 in its statement of operations related to these lease commitments.

On March 28, 2002, the Company and Iron Mountain Information
Management, Inc., one of the Company's wholly owned subsidiaries, commenced an
action in the Middlesex County, New Jersey, Superior Court, Chancery Division,
captioned IRON MOUNTAIN INCORPORATED AND IRON MOUNTAIN INFORMATION
MANAGEMENT, INC., V. J. PETER PIERCE, DOUGLAS B. HUNTLEY, J. MICHAEL GOLD, FRED
A. MATHEWSON, JR., MICHAEL DIIANNI, J. ANTHONY HAYDEN, PIONEER CAPITAL, LLC, AND
SEQUEDEX, LLC. In the complaint, the Company alleges that defendant J. Peter
Pierce, a member of the Company's Board of Directors and the former President of
Iron Mountain Information Management, Inc. until his termination without cause
effective June 30, 2000, has violated and is continuing to violate his fiduciary
obligations, as well as various noncompetition and other provisions of an
employment agreement with the Company, dated February 1, 2000, by providing
direct and/or indirect financial, management and other support to defendant
Sequedex, LLC. Sequedex was established in October 2000, and competes directly
with the Company in the records and information management services industry.
The complaint also alleges that Mr. Pierce and certain of the other defendants,
who were employed by or affiliated with Pierce Leahy Corp. prior to the merger
of Pierce Leahy with the Company in February 2000, have misappropriated and used
the Company's trade secrets and other confidential information. Finally, the
complaint asserts claims against Sequedex and others for tortious interference
with contractual relations, against all of the defendants for civil conspiracy
in respect of the matters described above, and against defendant Michael DiIanni
for breach of his employment agreement with Iron Mountain Information
Management, Inc., dated September 6, 2000. The litigation seeks injunctions in
respect of certain matters and recovery of damages against the defendants. On
April 12, 2002, the Company also initiated an arbitration proceeding against
Mr. Pierce before the Philadelphia, Pennsylvania, office of the American
Arbitration Association on account of an arbitration clause in the employment
agreement between the Company and Mr. Pierce. In the arbitration, Mr. Pierce has
counterclaimed for indemnification of his expenses, including attorneys' fees.
The Company has disputed Mr. Pierce's claim. On July 19, 2002, the litigation
was stayed pending the outcome of the arbitration proceeding, which is currently
scheduled for hearings in January 2003. The Company intends to prosecute the
arbitration proceeding and the litigation vigorously.

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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, 2002 and 2001 should
be read in conjunction with the consolidated financial statements and footnotes
for the three and six months ended June 30, 2002 included herein, and the year
ended December 31, 2001, included in our Annual Report on Form 10-K filed with
the Securities and Exchange Commission, or SEC, on March 20, 2002.

Effective July 1, 2001 and January 1, 2002, we adopted the provisions of
SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets", respectively. 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. Had SFAS No. 142 been effective
January 1, 2001, goodwill amortization expense would have been reduced by
$15.1 million and $29.5 million for the three and six months ended June 30,
2001, respectively.

The result of testing our goodwill for impairment in accordance with SFAS
No. 142, as of January 1, 2002, was a non-cash charge of $6.4 million (net of
minority interest of $8.5 million), which is reported in the caption "cumulative
effect of change in accounting principle" in our Consolidated Statement of
Operations. The charge relates to our South American reporting unit within our
international reporting segment. The South American reporting unit failed the
impairment test primarily due to a reduction in the expected future performance
of the unit resulting from a deterioration of the local economic environment and
the devaluation of the currency in Argentina. As goodwill amortization expense
in our South American reporting unit is not deductible for tax purposes, this
impairment charge is not net of a tax benefit. Under SFAS No. 142, the
impairment adjustment recognized upon adoption of the new rules is reflected as
a cumulative effect of change in accounting principle in our financial results
as of January 1, 2002. Impairment adjustments recognized after adoption, if any,
are generally required to be recognized as operating expenses.

We have a controlling 50.1% interest in Iron Mountain South America, Ltd
("IMSA") and the remainder is owned by another unaffiliated entity. IMSA has
acquired a controlling interest in entities in which local partners have
retained a minority interest in order to enhance our local market expertise.
These local partners have no ownership interest in IMSA. This has caused the
minority interest portion of the non-cash goodwill impairment charge
($8.5 million) to exceed our portion of the non-cash goodwill impairment charge
($6.4 million).

CRITICAL ACCOUNTING POLICIES

The Company's discussion and analysis of its financial condition and results
of operations are based upon the Company's Unaudited Consolidated Financial
Statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires us to make estimates, judgments and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities at the date of the financial
statements and for the period then ended. On an on-going basis, we evaluate the
estimates used, including those related to the allowance for doubtful accounts,
impairments of tangible and intangible assets, income taxes, purchase accounting
related reserves, self-insurance liabilities, incentive compensation
liabilities, litigation liabilities and contingencies. We base our estimates on
historical experience, actuarial estimates, current conditions and various other

26

IRON MOUNTAIN INCORPORATED

assumptions that we believe to be reasonable under the circumstances. These
estimates form the basis for making judgments about the carrying values of
assets and liabilities and are not readily apparent from other sources. We use
these estimates to assist us in the identification and assessment of the
accounting treatment necessary with respect to commitments and contingencies.
Actual results may differ from these estimates under different assumptions or
conditions. The Company's critical accounting policies include:

- ACCOUNTING FOR ACQUISITIONS

- ALLOWANCE FOR DOUBTFUL ACCOUNTS

- ACCOUNTING FOR SYNTHETIC LEASES

- ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

- ACCOUNTING FOR INTERNAL USE SOFTWARE

- ACCOUNTING FOR INVESTMENTS

Further detail regarding the Company's critical accounting policies can be
found in the consolidated financial statements and the notes included in the
Company's latest Annual Report on Form 10-K as filed with the SEC. Management
has determined that no material changes concerning our critical accounting
policies has occurred since our Annual Report on Form 10-K for the year ended
December 31, 2001 other than the adoption of SFAS No. 142 discussed above.
Management has elected to update the quantitative disclosures included in our
Annual Report on Form 10-K for the year ended December 31, 2001 related to
synthetic leases as of and for the six month period ended June 30, 2002, as
follows:

We participate in three synthetic leasing programs that involve 36 of the
511 leased facilities that we occupy. Under these synthetic lease facilities,
special purpose entities are established to acquire properties and subsequently
lease those properties to us. The leases are designed and qualify as operating
leases for accounting purposes, where the monthly lease expense is recorded as
rent expense in our statement of operations. We do not consolidate the assets or
liabilities related to these facilities in our consolidated financial
statements.

Synthetic lease facilities require the application of complex lease and
special purpose entity accounting rules and interpretations. We are aware that
the Financial Accounting Standards Board is currently reviewing these accounting
rules and interpretations and is considering their current and future
application. In the course of applying these complex accounting rules and
interpretations, we have made certain judgments, estimates and assumptions
relative to their treatment.

We had properties in our synthetic lease facilities with a lessor's original
cost of $151.9 million as of December 31, 2001. During 2002, we added six
properties to our synthetic lease program with an original cost of
$23.1 million, bringing the total original cost of properties in our synthetic
lease program to $175.0 million as of June 30, 2002. If all of our synthetic
leases were accounted for as capital leases rather than operating leases or if
these special purpose entities were consolidated in our historical financial
statements as of June 30, 2002: (1) our gross property, plant and equipment and
long-term debt would each be increased in an amount equal to $175.0 million as
of June 30, 2002; (2) depreciation expense would increase in an amount equal to
$1.5 million for the six months ended June 30, 2002 for the properties leased
pursuant to the synthetic lease facilities; and (3) rent expense for these
properties would be reclassified as interest expense in an amount equal to
$5.0 million for the six months ended June 30, 2002. Consequently, our EBITDA,
Adjusted EBITDA, operating income and interest expense would have increased by
$5.0 million, $5.0 million, $3.5 million and $5.0 million,

27

IRON MOUNTAIN INCORPORATED

respectively. In addition, net income before tax would have decreased by
$1.5 million for the six months ended June 30, 2002. See "--Liquidity and
Capital Resources."

We believe that the following pro forma information will further assist in
the understanding of this topic. If we had occupied all 36 properties on
January 1, 2002 and all of our synthetic leases were accounted for as capital
leases rather than operating leases or if these special purpose entities were
consolidated in our financial statements: (1) our gross property, plant and
equipment and long-term debt would each be increased in an amount equal to
$175.0 million as of June 30, 2002; (2) depreciation expense would increase in
an amount equal to $1.6 million for the six months ended June 30, 2002 for the
properties leased pursuant to the synthetic lease facilities; and (3) rent
expense for these properties would be reclassified as interest expense in an
amount equal to $6.1 million for the six months ended June 30, 2002.
Consequently, our EBITDA, Adjusted EBITDA, operating income and interest expense
would have increased by $5.0 million, $5.0 million, $3.4 million and
$6.1 million, respectively. In addition, net income before tax would have
decreased by $2.7 million for the six months ended June 30, 2002.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001

Our consolidated revenues increased $30.2 million, or 10.3%, to
$323.5 million for the second quarter of 2002 from $293.3 million for the second
quarter of 2001. Internal revenue growth for the second quarter of 2002 was
9.1%, comprised of 8.6% for storage revenue and 9.8% for service revenue. We
calculate internal revenue growth in local currency for our international
operations.

Consolidated storage revenues increased $15.1 million, or 8.8%, to
$187.0 million for the second quarter of 2002 from $171.9 million for the second
quarter of 2001. The increase was primarily attributable to: (1) internal
revenue growth of 8.6% resulting primarily from net increases in records and
other media stored by existing customers and sales to new customers; and
(2) acquisitions. The total increase in storage revenues was partially offset by
the unfavorable effects of foreign currency translation of $1.0 million as a
result of the strengthening of the U.S. dollar against certain currencies,
primarily the Argentine peso, the Canadian dollar, and the British pound
sterling, based on an analysis of the weighted daily average rates for the
comparable periods.

Consolidated service and storage material sales revenues increased
$15.1 million, or 12.4%, to $136.5 million for the second quarter of 2002 from
$121.4 million for the second quarter of 2001. The increase was primarily
attributable to: (1) internal revenue growth of 9.8% resulting primarily from
net increases in service and storage material sales to existing customers and
sales to new customers; and (2) acquisitions. The total increase in service and
storage material sales revenues was partially offset by the unfavorable effects
of foreign currency translation of $0.6 million as a result of the strengthening
of the U.S. dollar against certain currencies, primarily the Argentine peso, the
Canadian dollar, and the British pound sterling, based on an analysis of the
weighted daily average rates for the comparable periods.

Consolidated cost of sales (excluding depreciation) increased
$12.1 million, or 8.7%, to $151.2 million (46.7% of consolidated revenues) for
the second quarter of 2002 from $139.0 million (47.4% of consolidated revenues)
for the second quarter of 2001. The dollar increase was primarily attributable
to the required costs to support our revenue growth. The decrease as a percent
of consolidated revenues is primarily attributable to: (1) improved labor
management in our North American operations (a decrease of 0.3%); (2) improved
transportation efficiencies (a decrease of 0.5%); and (3) decreased utility
costs in comparison to high levels in 2001 (a decrease of 0.2%) offset by
increased insurance expense due to higher premiums for property and casualty
insurance (an

28

IRON MOUNTAIN INCORPORATED

increase of 0.3%). Improvements in labor and increased transportation
efficiencies are the result of the increased scale of our business and
efficiencies gained through our merger integration with Pierce Leahy Corp.

Consolidated selling, general and administrative expenses increased
$6.5 million, or 8.2%, to $85.1 million (26.3% of consolidated revenues) for the
second quarter of 2002 from $78.7 million (26.8% of consolidated revenues) for
the second quarter of 2001. The dollar increase was primarily attributable to
the required costs to support our revenue growth, while the decrease as a
percent of consolidated revenues was primarily attributable to: improvements in
labor absorption (a decrease of 0.3%) and reductions in recruiting and travel
and entertainment expenses (a decrease of 0.6%) in our North American operations
offset by (1) expenditures for marketing and information technology initiatives
related to the development of our technology-based service offerings (an
increase of 0.2%); and (2) increased investment in our sales force (an increase
of 0.2%).

Consolidated depreciation and amortization expense decreased $11.3 million,
or 30.0%, to $26.5 million (8.2% of consolidated revenues) for the second
quarter of 2002 from $37.8 million (12.9% of consolidated revenues) for the
second quarter of 2001. Depreciation expense increased $4.3 million, primarily
due to the additional depreciation expense related to the 2001 and 2002
acquisitions, and capital expenditures including storage systems, information
systems and expansion of storage capacity in existing facilities. Amortization
expense decreased $15.6 million, primarily due to eliminating amortization
expense related to the goodwill in accordance with Statement of Financial
Accounting Standards, or SFAS, No. 142 "Goodwill and Other Intangible Assets"
(See Note 5, Goodwill and Other Intangible Assets, of Notes to Consolidated
Financial Statements).

Merger-related expenses are certain expenses directly related to our 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 $0.3 million (0.1% of consolidated revenues) for the second
quarter of 2002 compared to $0.4 million (0.1% of consolidated revenues) for the
same period of 2001.

As a result of the foregoing factors, consolidated operating income
increased $23.0 million, or 61.4%, to $60.4 million (18.7% of consolidated
revenues) for the second quarter of 2002 from $37.4 million (12.8% of
consolidated revenues) for the second quarter of 2001.

Consolidated interest expense, net decreased $1.3 million, or 3.7%, to
$32.8 million for the second quarter of 2002 from $34.0 million for the second
quarter of 2001. This decrease was primarily attributable to a decline in our
overall weighted average interest rate as a result of a general decline in
interest rates coupled with our refinancing efforts. Savings attributable to
these rate reductions have been partially offset by interest expense
attributable to increased long-term borrowings through our 2001 bond offerings.

Consolidated other income, net was $8.2 million for the second quarter of
2002 compared to $7.0 million for the second quarter of 2001. The change was
primarily attributable to a gain of $2.1 million recorded on the sale of a
property held by one of our European subsidiaries during the second quarter of
2002. No such gain was recorded in 2001. Additionally, non-cash foreign currency
gains of $6.3 million and $7.0 million were recorded in the second quarter of
2002 and second quarter of 2001, respectively. These gains are primarily due to
the effect of the strengthening of the Canadian dollar and British pound against
the U.S. dollar as they relate to our intercompany balances with our Canadian
and European subsidiaries, based on period-end exchange rates.

As a result of the foregoing factors, consolidated income before provision
for income taxes and minority interests increased $25.4 million to
$35.8 million (11.1% of consolidated revenues) for the

29

IRON MOUNTAIN INCORPORATED

second quarter of 2002 from $10.4 million (3.6% of consolidated revenues) for
the second quarter of 2001.

The provision for income taxes was $14.7 million for the second quarter of
2002 compared to $16.1 million for the second quarter of 2001. The effective
rate was 41.1% for the second quarter of 2002 and the primary reconciling item
between the statutory rate of 35% and the effective rate is state income taxes
(net of federal benefit). The effective rate was 154.4% for the second quarter
of 2001. During 2001, we amortized non-deductible goodwill for book purposes,
however, as result of the adoption of SFAS No. 142 in 2002, goodwill
amortization ceased, thereby reducing the effective rate and some of the
volatility with respect to our effective rate in the future. Additionally, the
2001 effective rate was impacted by state income taxes (net of federal benefit).
There may be future volatility with respect to our effective rate related to
items including unusual unforecasted permanent items, significant changes in tax
rates in foreign jurisdictions, the need for additional valuation allowances and
changes with respect to nondeductible foreign currency gains (losses). Also, as
a result of our net operating loss carryforwards, we do not expect to pay any
significant federal and state income taxes in the next three years.

Minority interest in earnings (losses) of subsidiaries increased
$1.8 million to income of $1.1 million (0.3% of consolidated revenues) for the
second quarter of 2002 from a loss of $0.7 million (0.2% of consolidated
revenues) for the second quarter of 2001. This represents our minority partners'
share of earnings (losses) in our majority owned international subsidiaries that
are consolidated in operating results. The increase is primarily a result of
(1) the elimination of goodwill amortization expense in accordance with SFAS
No. 142, (2) increased profitability in our emerging business in Europe in 2002
and (3) our European minority partners' share ($0.7 million, net of tax) of the
$2.1 million gain recorded on the sale of a property held by one of our European
subsidiaries during the second quarter of 2002.

Consolidated income (loss) before extraordinary item increased
$25.0 million to income of $20.0 million (6.2% of consolidated revenues) for the
second quarter of 2002 from a loss of $5.0 million (1.7% of consolidated
revenues) for the second quarter of 2001.

In the second quarter of 2001, we recorded an extraordinary charge of
$4.8 million (net of tax benefit of $3.3 million) related to the early
retirement of the 11 1/8% senior subordinated notes in conjunction with our
underwritten public offering of the 8 5/8% notes. The charge consisted primarily
of the write-off of unamortized deferred financing costs associated with the
extinguished debt.

As a result of the foregoing factors, consolidated net income (loss)
increased $29.7 million to income of $20.0 million (6.2% of consolidated
revenues) for the second quarter of 2002 from a loss of $9.7 million (3.3% of
consolidated revenues) for the second quarter of 2001.

As noted in Note 10, Segment Information, of Notes to Consolidated Financial
Statements, Adjusted EBITDA, defined as EBITDA (earnings before interest, taxes,
depreciation and amortization) adjusted for extraordinary items, other income
(expense), merger-related expenses, stock option compensation expense and
minority interest, is used as our internal measurement of the financial
performance of our operating segments. In addition, substantially all of our
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
$11.6 million, or 15.3%, to $87.2 million (26.9% of consolidated revenues) for
the second quarter of 2002 from $75.6 million (25.8% of consolidated revenues)
for the second quarter of 2001. Excluding the $1.9 million of development costs,
net of recorded revenues, for the second quarter of 2002 and

30

IRON MOUNTAIN INCORPORATED

$1.2 million of development costs, net of recorded revenues, for the second
quarter of 2001 related to our new technology-related service offerings,
Adjusted EBITDA margins were 27.6% and 26.2% for the second quarter of 2002 and
2001, respectively.

Adjusted EBITDA as a percent of segment revenue for our business records
management segment increased from 27.5% to 27.8%, primarily due to an increase
in gross margin as a result of labor and transportation efficiencies generated
by the increasing scale of our business, efficiencies gained through the
integration of Pierce Leahy and lower cost of sales associated with a reduction
in non-rent occupancy costs, including utilities, as a percentage of segment
revenue. This increase was partially offset by: (1) an increase in cost of sales
from higher insurance premiums for property and casualty insurance; and (2) an
increase in the provision for doubtful accounts. Revenue in our business records
management segment increased 7.9% of which less than 1.0% related to
acquisitions. The remainder related to internal growth primarily from increases
in volume stored by existing and new customers. Service revenue grew at
approximately the same rate as storage revenue.

Adjusted EBITDA as a percent of segment revenue for our off-site data
protection segment increased from 26.5% to 30.3% primarily due to an increase in
gross margin as a result of improved labor and transportation management.
Reductions in overhead spending related to recruiting, travel and entertainment
and communication costs also contributed to increasing Adjusted EBITDA. This
increase was partially offset by: (1) an increase in cost of sales from higher
insurance premiums for property and casualty insurance; and (2) an increase in
the provision for doubtful accounts. Revenue in our off-site data protection
segment increased 13.4% and was primarily attributable to internal revenue
growth from both existing and new customers.

Adjusted EBITDA as a percent of segment revenue for our international
segment increased from 22.4% to 24.8% primarily due to: (1) facilities
management improvements and efficiency gains from the economies of scale
achieved through the integration of the December 2000 acquisition of FACS Record
Centre Inc., a Canadian company; (2) improved gross margins from our European
operations; and (3) reduced bad debt expense. This increase was partially offset
by (1) higher insurance premiums for property and casualty insurance;
(2) increased overhead expenses associated with the expansion of our emerging
international businesses; and (3) reduced margins in our South American
operations due to the deteriorating economic conditions and devaluation of the
currency in Argentina. Revenue in our international segment increased 13.3% and
was primarily attributable to increases in volume stored and related services
from both existing and new customers and large service projects in Canada and
the United Kingdom. The increase in revenues as measured in U.S. dollars was
partially offset by unfavorable currency fluctuations.

SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001

For the six months ended June 30, 2002, our consolidated revenues increased
$59.4 million, or 10.3%, to $636.7 million from $577.3 million for the same
period of 2001. Internal revenue growth for the first six months of 2002 was
8.9%, comprised of 8.5% for storage revenue and 9.6% for service revenue. We
calculate internal revenue growth in local currency for our international
operations.

Consolidated storage revenues increased $30.7 million, or 9.0%, to
$370.4 million for the first six months of 2002 from $339.8 million for the
first six months of 2001. The increase was primarily attributable to:
(1) internal revenue growth of 8.5% resulting primarily from net increases in
records and other media stored by existing customers and sales to new customers;
and (2) acquisitions. The total increase in storage revenues was partially
offset by the unfavorable effects of foreign currency translation of
$2.1 million as a result of the strengthening of the U.S. dollar against certain
currencies,

31

IRON MOUNTAIN INCORPORATED

primarily the Argentine peso, the Canadian dollar, and the British pound
sterling, based on an analysis of the weighted daily average rates for the
comparable periods.

Consolidated service and storage material sales revenues increased
$28.7 million, or 12.1%, to $266.2 million for the first six months of 2002 from
$237.5 million for the first six months of 2001. The increase was primarily
attributable to: (1) internal revenue growth of 9.6% resulting primarily from
net increases in service and storage material sales to existing customers and
sales to new customers; and (2) acquisitions. The total increase in service and
storage material sales revenues was partially offset by the unfavorable effects
of foreign currency translation of $1.2 million as a result of the strengthening
of the U.S. dollar against certain currencies, primarily the Argentine peso, the
Canadian dollar, and the British pound sterling, based on an analysis of the
weighted daily average rates for the comparable periods.

Consolidated cost of sales (excluding depreciation) increased
$20.8 million, or 7.4%, to $299.6 million (47.1% of consolidated revenues) for
the first six months of 2002 from $278.9 million (48.3% of consolidated
revenues) for the first six months of 2001. The dollar increase was primarily
attributable to the required costs to support our revenue growth. The decrease
as a percent of consolidated revenues is primarily attributable to:
(1) improved labor management in our North American operations (a decrease of
0.5%); (2) improved transportation efficiencies (a decrease of 0.4%); and
(3) improved management of our North American facilities costs including rent (a
decrease of 0.2%) and decreased utility costs in comparison to high levels in
2001 (a decrease of 0.4%) offset by increased insurance expense due to higher
premiums for property and casualty insurance (an increase of 0.3%). Improvements
in labor and increased transportation efficiencies are the result of the
increased scale of our business and efficiencies gained through our merger
integration with Pierce Leahy.

Consolidated selling, general and administrative expenses increased
$18.2 million, or 12.2%, to $167.2 million (26.3% of consolidated revenues) for
the first six months of 2002 from $149.0 million (25.8% of consolidated
revenues) for the first six months of 2001. The dollar increase was primarily
attributable to the required costs to support our revenue growth, while the
increase as a percent of consolidated revenues was primarily attributable to:
(1) expenditures for marketing and information technology initiatives related to
the development of our technology-based service offerings (an increase of 0.3%);
(2) increased information technology costs primarily as a result of higher data
communications costs resulting from network deployment and migration activities
(an increase of 0.3%); (3) increased investment in our sales force (an increase
of 0.3%); and (4) increased bad debt expense (an increase of 0.2%). This
increase as a percentage of consolidated revenues was offset by improvements in
labor absorption (a decrease of 0.2%) and reductions in recruiting and travel
and entertainment expenses (a decrease of 0.4%) in our North American
operations.

Consolidated depreciation and amortization expense decreased $22.0 million,
or 29.9%, to $51.5 million (8.1% of consolidated revenues) for the first six
months of 2002 from $73.5 million (12.7% of consolidated revenues) for the first
six months of 2001. Depreciation expense increased $8.3 million, primarily due
to the additional depreciation expense related to the 2001 and 2002 acquisitions
and capital expenditures including storage systems, information systems and
expansion of storage capacity in existing facilities. Amortization expense
decreased $30.3 million, primarily due to eliminating amortization expense
related to the goodwill in accordance with SFAS No. 142 (See Note 5, Goodwill
and Other Intangible Assets, of Notes to Consolidated Financial Statements).

Merger-related expenses are certain expenses directly related to our 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

32

IRON MOUNTAIN INCORPORATED

$0.6 million (0.1% of consolidated revenues) for the first six months of 2002
compared to $1.2 million (0.2% of consolidated revenues) for the same period of
2001.

As a result of the foregoing factors, consolidated operating income
increased $43.1 million, or 57.6%, to $117.8 million (18.5% of consolidated
revenues) for the first six months of 2002 from $74.7 million (12.9% of
consolidated revenues) for the first six months of 2001.

Consolidated interest expense, net decreased $2.4 million, or 3.5%, to
$65.7 million for the first six months of 2002 from $68.0 million for the first
six months of 2001. This decrease was primarily attributable to a decline in our
overall weighted average interest rate as a result of a general decline in
interest rates coupled with our refinancing efforts. Savings attributable to
these rate reductions have been partially offset by interest expense
attributable to increased long-term borrowings through our 2001 bond offerings.

Consolidated other income, net was $7.9 million for the first six months of
2002 compared to other expense, net of $2.2 million for the first six months of
2001. The change was primarily attributable to a non-cash foreign currency gain
of $6.3 million recorded in the first six months of 2002 primarily due to the
effect of the strengthening of the Canadian dollar and British pound against the
U.S. dollar as they relate to our intercompany balances with our Canadian and
European subsidiaries, based on period-end exchange rates. During the first six
months of 2001 these currencies had weakened compared to the U.S. dollar and
resulted in a non-cash foreign currency loss of $2.2 million recorded in the
first six months of 2001, based on period-end exchange rates. The increase in
other income, net is also attributable to a gain of $2.1 million recorded on the
sale of a property held by one of our European subsidiaries during the second
quarter of 2002. No such gain was recorded in 2001.

As a result of the foregoing factors, consolidated income before provision
for income taxes and minority interests increased $55.5 million to
$60.0 million (9.4% of consolidated revenues) for the first six months of 2002
from $4.5 million (0.8% of consolidated revenues) for the first six months of
2001.

The provision for income taxes was $24.7 million for the first six months of
2002 compared to $7.3 million for the first six months of 2001. The effective
rate was 41.1% for the first six months of 2002 and the primary reconciling item
between the statutory rate of 35% and the effective rate is state income taxes
(net of federal benefit). The effective rate was 160.6% for the first six months
of 2001. During 2001, we amortized non-deductible goodwill for book purposes,
however, as result of the adoption of SFAS No. 142 in 2002, goodwill
amortization ceased, thereby reducing the effective rate and some of the
volatility with respect to our effective rate in the future. Additionally, the
2001 effective rate was impacted by state income taxes (net of federal benefit).
There may be future volatility with respect to our effective rate related to
items including unusual unforecasted permanent items, significant changes in tax
rates in foreign jurisdictions, the need for additional valuation allowances and
changes with respect to nondeductible foreign currency gains (losses). Also, as
a result of our net operating loss carryforwards, we do not expect to pay any
significant federal and state income taxes in the next three years.

Minority interest in earnings (losses) of subsidiaries increased
$3.0 million to income of $2.1 million (0.3% of consolidated revenues) for the
first six months of 2002 from a loss of $1.0 million (0.2% of consolidated
revenues) for the first six months of 2001. This represents our minority
partners' share of earnings (losses) in our majority owned international
subsidiaries that are consolidated in operating results. The increase is
primarily a result of (1) the elimination of goodwill amortization expense in
accordance with SFAS No. 142, (2) increased profitability in our emerging
business in Europe and (3) our European minority partners' share ($0.7 million,
net of tax) of the $2.1 million gain recorded on the sale of a property held by
one of our European subsidiaries during the second quarter of 2002.

33

IRON MOUNTAIN INCORPORATED

Consolidated income (loss) before extraordinary item and cumulative effect
of change in accounting principle increased $35.1 million to income of
$33.3 million (5.2% of consolidated revenues) for the first six months of 2002
from a loss of $1.8 million (0.3% of consolidated revenues) for the first six
months of 2001.

In the first quarter of 2002, we recorded an extraordinary charge of
$0.8 million (net of tax benefit of $0.4 million) related to the early
retirement of debt in conjunction with the refinancing of our credit facility.
In the second quarter of 2001, we recorded an extraordinary charge of
$4.8 million (net of tax benefit of $3.3 million) related to the early
retirement of the 11 1/8% senior subordinated notes in conjunction with our
underwritten public offering of the 8 5/8% notes. The charges consisted
primarily of the write-off of unamortized deferred financing costs associated
with the extinguished debt.

In the first quarter of 2002, we recorded a non-cash charge for the
cumulative effect of change in accounting principle of $6.4 million (net of
minority interest of $8.5 million) as a result of our implementation of SFAS
No. 142. There was no such charge in 2001.

As a result of the foregoing factors, consolidated net income (loss)
increased $32.7 million to income of $26.1 million (4.1% of consolidated
revenues) for the first six months of 2002 from a loss of $6.5 million (1.1% of
consolidated revenues) for the first six months of 2001.

As noted in Note 10, Segment Information, of Notes to Consolidated Financial
Statements, Adjusted EBITDA, defined as EBITDA (earnings before interest, taxes,
depreciation and amortization) adjusted for extraordinary items, other income
(expense), merger-related expenses, stock option compensation expense and
minority interest, is used as our internal measurement of the financial
performance of our operating segments. In addition, substantially all of our
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
$20.5 million, or 13.7%, to $169.9 million (26.7% of consolidated revenues) for
the first six months of 2002 from $149.4 million (25.9% of consolidated
revenues) for the first six months of 2001. Excluding the $3.7 million of
development costs, net of recorded revenues, for the first six months of 2002
and $2.1 million of development costs, net of recorded revenues, for the first
six months of 2001 related to our new technology-related service offerings,
Adjusted EBITDA margins were 27.3% and 26.2% for the first six months of 2002
and 2001, respectively.

Adjusted EBITDA as a percent of segment revenue for our business records
management segment increased from 27.0% to 27.3%, primarily due to an increase
in gross margin as a result of labor and transportation efficiencies generated
by the increasing scale of our business, efficiencies gained through the
integration of Pierce Leahy and lower cost of sales associated with utilities as
a percentage of segment revenue. This increase was partially offset by: (1) an
increase in cost of sales from higher insurance premiums for property and
casualty insurance; and (2) increased overhead expenses from information
technology spending including higher data communications costs resulting from
network deployment and migration activities. Revenue in our business records
management segment increased 7.5% of which less than 1.0% related to
acquisitions. The remainder related to internal growth primarily from increases
in volume stored by existing and new customers. Service revenue grew at
approximately the same rate as storage revenue.

Adjusted EBITDA as a percent of segment revenue for our off-site data
protection segment increased from 25.3% to 28.7% primarily due to an increase in
gross margin as a result of improved labor and transportation management.
Reductions in overhead spending related to recruiting, travel and entertainment
and communications costs also contributed to increasing Adjusted EBITDA. This

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IRON MOUNTAIN INCORPORATED

increase was partially offset by: (1) an increase in cost of sales from higher
insurance premiums for property and casualty insurance; and (2) an increase in
the provision for doubtful accounts. Revenue in our off-site data protection
segment increased 14.7% and was primarily attributable to internal revenue
growth from both existing and new customers.

Adjusted EBITDA as a percent of segment revenue for our international
segment increased from 22.9% to 25.0% primarily due to: (1) facilities
management improvements and efficiency gains from the economies of scale
achieved through the integration of the December 2000 acquisition of FACS Record
Centre Inc., a Canadian company; and (2) improved gross margins from our
European operations; and (3) reduced bad debt expense. This increase was
partially offset by higher insurance premiums for property and casualty
insurance and reduced margins in our South American operations due to the
deteriorating economic conditions and devaluation of the currency in Argentina.
Revenue in our international segment increased 15.5% and was primarily
attributable to increases in volume stored and related service from both
existing and new customers and large service projects in Canada and the United
Kingdom. The increase in revenues as measured in U.S. dollars was partially
offset by unfavorable currency fluctuations.

LIQUIDITY AND CAPITAL RESOURCES

On March 15, 2002, we entered into the Amended and Restated Credit
Agreement. The Amended and Restated Credit Agreement replaced our prior credit
agreement. The Amended and Restated Credit Agreement has an aggregate principal
amount of $650.0 million and includes a $400.0 million revolving credit facility
and a $250.0 million term loan facility. The revolving credit facility matures
on January 31, 2005 while the term loan is to be paid in full on February 15,
2008; however, if our 9 1/8% notes are not redeemed or repurchased prior to
April 15, 2007 the term loan will mature on April 15, 2007. The interest rate on
borrowings under the Amended and Restated Credit Agreement varies depending on
our choice of base rates and currency options, plus an applicable margin. The
margin applicable to the term loan under the Amended and Restated Credit
Agreement is lower than the margin applicable to term loans under our prior
credit agreement and has resulted in reduced interest expense on our borrowings
as compared to the previous credit agreement. All intercompany notes are now
pledged to secure the Amended and Restated Credit Agreement. As of June 30,
2002, we had $130.1 million of borrowings under our revolving credit facility,
all of which was denominated in Canadian dollars in the amount of 197.5 million.
We also had various outstanding letters of credit totaling $27.8 million. The
remaining availability under the revolving credit facility was $242.1 million as
of June 30, 2002.

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IRON MOUNTAIN INCORPORATED

We are highly leveraged and expect to continue to be highly leveraged for
the foreseeable future. Our consolidated debt totaled $1,487.2 million as of
June 30, 2002 and was comprised of the following:

Revolving Credit Facility................................... $ 130,086
Term Loan................................................... 250,000
9 1/8% Senior Subordinated Notes due 2007 (the "9 1/8%
notes").................................................... 115,551
8 1/8% Senior Notes due 2008 (the "Subsidiary notes")....... 123,712
8 3/4% Senior Subordinated Notes due 2009 (the "8 3/4%
notes").................................................... 249,707
8 1/4% Senior Subordinated Notes due 2011 (the "8 1/4%
notes").................................................... 149,603
8 5/8% Senior Subordinated Notes due 2013 (the "8 5/8%
notes").................................................... 437,923
Real estate mortgages....................................... 18,551
Seller Notes................................................ 12,305
Other....................................................... 38,516
----------
Total Debt.................................................. 1,525,954
Less Current Portion........................................ (38,753)
----------
Long-term Debt, Net of Current Portion...................... $1,487,201
==========

The 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, in the event
our debt rating changes, this event would not trigger a default under our
indentures and other agreements governing our indebtedness.

Our key bond leverage ratio of indebtedness to Adjusted EBITDA, as
calculated per our bond indenture agreements, decreased from 5.2 as of
December 31, 2001 to 4.6 as of June 30, 2002. We expect this ratio to generally
be in the range of 4.5 to 5.5. In the event that our outstanding synthetic lease
balance were to be recharacterized as debt, as a result of proposed changes to
current accounting standards, we would reclassify recorded rent expense to
interest expense and record depreciation expense. If this recharacterization
were to have occurred, our bond leverage ratio would have been 5.0 as of
June 30, 2002.

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.

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

We are a party to numerous operating leases. No material changes in the
obligations associated with these leases has occurred since December 31, 2001.
See our Annual Report on Form 10-K for the year ended December 31, 2001 for
amounts outstanding at December 31, 2001.

Under our synthetic lease facilities, special purpose entities are
established to acquire properties and subsequently lease those properties to us.
Neither we nor any of our related parties have invested, either via debt
obligations or equity, in these special purpose entities. Our obligations under
our

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IRON MOUNTAIN INCORPORATED

synthetic lease facilities are considered indebtedness for purposes of financial
covenants under the Amended and Restated Credit Agreement. As of June 30, 2002,
our synthetic leasing program consisted of three synthetic lease facilities that
had a total capacity of $203.9 million of which $175.0 million had been utilized
for property acquisitions and $28.9 million is currently available for future
property acquisitions.

We have entered into these synthetic leases because we believe they afford
meaningful benefits. Such benefits include rental payments below those available
from traditional landlords and developers, and tax benefits and control
provisions normally associated with direct ownership. Each of the leases under
our synthetic lease facilities has a five to six and one-half year term for
specified records storage warehouses; commencement dates for these leases range
from 1998 to 2002. During the six months ended June 30, 2002, we recorded
$5.0 million in rent expense on our statement of operations related to these
lease commitments. We had synthetic lease facilities related to properties with
a lessor's original cost of $175.0 million and $151.9 million as of June 30,
2002 and December 31, 2001, respectively. If on January 1, 2002, the original
cost of properties under synthetic lease facilities had equaled $175.0 million,
rent expense for the six months ended June 30, 2002 would have been
approximately $6.1 million. See "--Critical Accounting Policies" in this
Form 10-Q.

Cash and cash equivalents increased from $21.4 million at December 31, 2001
to $26.1 million at June 30, 2002.

Net cash provided by operations was $98.1 million for the first six months
of 2002 compared to $62.8 million for the same period in 2001. The increase
resulted primarily from an increase in operating income, accrued expenses,
deferred revenue, deferred income taxes, and a decrease in prepaid expenses,
which was partially offset by an increase in accounts receivable and a decrease
in accounts payable.

We have made significant capital investments, including: (1) capital
expenditures, primarily related to growth, including investments in storage
systems and information systems and discretionary investments in real estate;
(2) acquisitions; and (3) customer relationship and acquisition costs. Cash paid
for these investments during the first six months of 2002 amounted to
$105.6 million, $14.7 million and $2.7 million, respectively. These investments
have been funded primarily through cash flows from operations and borrowings
under our revolving credit facilities. In addition, we received proceeds from
sales of property and equipment of $6.3 million in the first six months of 2002.
Included in capital expenditures for the first six months of 2002 is
$8.3 million related to our technology-based service offerings. Excluding our
technology-based service offerings and any potential acquisitions, we expect to
invest between $175.0 million and $200.0 million on capital investments for the
full year 2002.

Net cash provided by financing activities was $23.0 million for the first
six months of 2002, consisting primarily of the proceeds from borrowings under
our credit facilities of $176.4 million, which was partially offset by net
repayment of term loans of $98.8 million and repayment of debt under our credit
facilities and other debt of $54.2 million.

RECENT PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 145, "Rescission of FASB Statements No. 4, 44 and 64, amendment of FASB
Statement No. 13, and Technical Corrections," which among other things, limits
the classification of gains and losses from extinguishment of debt as
extraordinary to only those transactions that are unusual and infrequent in
nature as defined by Accounting Principles Board Opinion No. 30 "Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS No. 145 is effective no later than

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IRON MOUNTAIN INCORPORATED

January 1, 2003. Upon adoption, gains and losses on certain future debt
extinguishments, if any, will be recorded in pre-tax income. In addition,
extraordinary losses of $4.8 million, net of tax for the six month period ended
June 30, 2001 and $0.8 million, net of tax for the six month period ended
June 30, 2002 will be reclassified to conform to the requirements under SFAS
No. 145.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", which nullifies Emerging Issues Task Force
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires a liability for a cost associated with an
exit or disposal activity to be recognized and measured initially at its fair
value in the period in which the liability is incurred. If fair value cannot be
reasonably estimated, the liability shall be recognized initially in the period
in which fair value can be reasonably estimated. In periods subsequent to the
initial measurement, changes to the liability resulting from revisions to either
the timing or the amount of estimated cash flows must be recognized as
adjustments to the liability in the period of the change. The provisions of SFAS
No. 146 will be effective for us prospectively for exit or disposal activities
initiated after December 31, 2002. We are in the process of assessing the impact
of SFAS No. 146 on our consolidated financial statements.

SEASONALITY

Historically, our businesses have not been subject to seasonality in any
material respect.

INFLATION

Certain of our expenses, such as wages and benefits, 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

There have been no significant changes in market risk from the December 31,
2001 disclosures included in our Annual Report on Form 10-K.

INTEREST RATE RISK

In December 2000 and January 2001, we entered into certain derivative
financial contracts, which are variable-for-fixed swaps of interest payments
payable on our term loan of an aggregate principal amount of $195.5 million and
$47.5 million of rental payments payable on certain variable operating lease
commitments.

After taking into account the swap contracts mentioned above, as of
June 30, 2002, we had $211.0 million of variable rate debt outstanding with a
weighted average variable interest rate of 5.0%, and $1,314.9 million of fixed
rate debt outstanding. Over 85% of total debt outstanding is fixed. If the
weighted average variable interest rate on our variable rate debt had increased
by 1%, such increase would have had a negative impact on our net income for the
three and six-month periods ended June 30, 2002 by $0.2 million and
$0.5 million, respectively. See Note 7 of Notes to Consolidated Financial
Statements for a discussion of our long-term indebtedness, including the fair
values of such indebtedness as of June 28, 2002.

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IRON MOUNTAIN INCORPORATED

CURRENCY RISK

Our investments in Iron Mountain Europe Limited, Iron Mountain South
America, Ltd. and other international investments may be subject to risks and
uncertainties related to fluctuations in currency valuation. Our reporting
currency is the U.S. dollar. However, our international revenues are generated
in the currencies of the countries in which we operate, primarily the Canadian
dollar and British pound sterling. The currencies of many Latin American
countries have experienced substantial volatility and depreciation in the past,
including the Argentine peso. In addition, one of our Canadian subsidiaries,
Iron Mountain Canada Corporation, has U.S. dollar denominated debt. Declines in
the value of the local currencies in which we are paid relative to the U.S.
dollar will cause revenues in the U.S. dollar terms to decrease and
dollar-denominated liabilities to increase in local currency. We also have
several intercompany obligations between our foreign subsidiaries and Iron
Mountain Incorporated and our U.S. based subsidiaries. These intercompany
obligations are primarily denominated in the local currency of the foreign
subsidiary. We have attempted to limit our exposure to exchange rate
fluctuations through borrowings of Canadian dollars in the U.S. at a level that
approximates the U.S. dollar denominated borrowings of Iron Mountain Canada
Corporation. However, our currency exposures to intercompany borrowings are
unhedged. At June 30, 2002, we did not have any outstanding foreign currency
hedging contracts.

The impact of devaluation or depreciating currency on an entity depends on
the residual effect on the local economy and the ability of an entity to raise
prices and/or reduce expenses. Due to our constantly changing currency exposure
and the potential substantial volatility of currency exchange rates, we cannot
predict the effect of exchange fluctuations on our business.

FORWARD LOOKING STATEMENTS

This quarterly report on Form 10-Q contains certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, and is subject to the safe-harbor created by such Act. Forward-looking
statements include our statements regarding our goals, beliefs, strategies,
objectives, plans or current expectations. These statements involve known and
unknown risks, uncertainties and other factors that may cause the actual results
to be materially different from those contemplated in the forward-looking
statements. Such factors include, but are not limited to: (i) the cost and
availability of financing for contemplated growth; (ii) changes in customer
preferences and demand for our services; (iii) changes in the price for our
services relative to the cost of providing such services; (iv) the possibility
that business partners upon which we depend for technical assistance or
management and acquisition expertise outside the United States will not perform
as anticipated; (v) changes in the political and economic environments in the
countries in which our international subsidiaries operate; (vi) in the various
digital businesses on which we are embarking, 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; (vii) our
ability or inability to complete acquisitions on satisfactory terms and to
integrate acquired companies efficiently; and (viii) other trends in competitive
or economic conditions affecting our financial condition or results of
operations not presently contemplated. We undertake no obligation to release
publicly the result of any revision to these forward-looking statements that may
be made to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events. Readers are also urged to carefully
review and consider the various disclosures we have made, in this document, as
well as our other periodic reports on Forms 10-K, 10-Q and 8-K filed with the
SEC.

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IRON MOUNTAIN INCORPORATED

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On March 28, 2002, Iron Mountain and Iron Mountain Information Management,
Inc., one of our wholly owned subsidiaries, commenced an action in the Middlesex
County, New Jersey, Superior Court, Chancery Division, captioned IRON MOUNTAIN
INCORPORATED AND IRON MOUNTAIN INFORMATION MANAGEMENT, INC., V. J. PETER PIERCE,
DOUGLAS B. HUNTLEY, J. MICHAEL GOLD, FRED A. MATHEWSON, JR., MICHAEL DIIANNI,
J. ANTHONY HAYDEN, PIONEER CAPITAL, LLC, AND SEQUEDEX, LLC. In the complaint, we
allege that defendant J. Peter Pierce, a member of our Board of Directors and
the former President of Iron Mountain Information Management, Inc. until his
termination without cause effective June 30, 2000, has violated and is
continuing to violate his fiduciary obligations, as well as various
noncompetition and other provisions of an employment agreement with Iron
Mountain, dated February 1, 2000, by providing direct and/or indirect financial,
management and other support to defendant Sequedex, LLC. Sequedex was
established in October 2000, and competes directly with us in the records and
information management services industry. The complaint also alleges that
Mr. Pierce and certain of the other defendants, who were employed by or
affiliated with Pierce Leahy Corp. prior to the merger of Pierce Leahy with Iron
Mountain in February 2000, have misappropriated and used our trade secrets and
other confidential information. Finally, the complaint asserts claims against
Sequedex and others for tortious interference with contractual relations,
against all of the defendants for civil conspiracy in respect of the matters
described above, and against defendant Michael DiIanni for breach of his
employment agreement with Iron Mountain Information Management, Inc., dated
September 6, 2000. The litigation seeks injunctions in respect of certain
matters and recovery of damages against the defendants. On April 12, 2002 Iron
Mountain also initiated an arbitration proceeding against Mr. Pierce before the
Philadelphia, Pennsylvania, office of the American Arbitration Association on
account of an arbitration clause in the employment agreement between Iron
Mountain and Mr. Pierce. In the arbitration, Mr. Pierce has counterclaimed for
indemnification of his expenses, including attorneys' fees. We have disputed
Mr. Pierce's claim. On July 19, 2002, the litigation was stayed pending the
outcome of the arbitration proceeding, which is currently scheduled for hearings
in January 2003. We intend to prosecute the arbitration proceeding and the
litigation vigorously.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

The following matters were voted on by the Company's shareholders at its
Annual Meeting of Shareholders held on May 23, 2002 (the "2002 Annual Meeting").

(A) ELECTION OF CLASS III DIRECTORS

Election of three (3) Class III directors to serve until the Company's Year
2005 Annual Meeting of Shareholders, or until their successors are elected and
qualified.

The following directors' terms continued after the 2002 Annual Meeting:
Clarke H. Bailey, Constantin R. Boden, Kent P. Dauten, Eugene B. Doggett,
Arthur D. Little, J. Peter Pierce and C. Richard Reese.

(B) CHANGE IN THE COMPANY'S STATE OF INCORPORATION FROM PENNSYLVANIA TO DELAWARE

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IRON MOUNTAIN INCORPORATED

The change in the Company's State of Incorporation from Pennsylvania to
Delaware has not been consummated to date.

(C) APPROVAL OF THE ADOPTION OF THE IRON MOUNTAIN INCORPORATED 2002 STOCK
INCENTIVE PLAN

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

(B) REPORTS ON FORM 8-K

On June 20, 2002, the Company filed a Current Report on Form 8-K under Items
4 and 7 to announce that the Company had engaged Deloitte & Touche LLP as its
independent auditors for the fiscal year ending December 31, 2002 replacing
Arthur Andersen LLP in that capacity.

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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.

IRON MOUNTAIN INCORPORATED

August 14, 2002 By: /s/ JEAN A. BUA
- ------------------------------------------- -----------------------------------------
(date) Jean A. Bua
VICE PRESIDENT AND CORPORATE CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)