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

FORM 10-Q

Commission file number 1-13045

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

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

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

        Number of shares of the registrant's Common Stock at May 3, 2004: 85,891,427

IRON MOUNTAIN INCORPORATED

Index

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Part I. Financial Information

Item 1. Unaudited Consolidated Financial Statements

IRON MOUNTAIN INCORPORATED

CONSOLIDATED BALANCE SHEETS

(In Thousands, except Share and Per Share Data)

(Unaudited)

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

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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 CASH FLOWS

(In Thousands)

(Unaudited)

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

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IRON MOUNTAIN INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(Unaudited)

(1) General

        The interim consolidated financial statements are presented herein without audit and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair presentation. Interim results are not necessarily indicative of results for a full year.

        The consolidated balance sheet presented as of December 31, 2003 has been derived from the consolidated financial statements that have been audited by our independent auditors. The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to those rules and regulations, but we believe that the disclosures are adequate to make the information presented not misleading. The consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2003.

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

(2) Summary of Significant Accounting Policies

a.

Principles of Consolidation

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

b.

Foreign Currency Translation

        Local currencies are considered the functional currencies for most of our operations outside the United States. All assets and liabilities are translated at period-end exchange rates, and revenues and expenses are translated at average exchange rates for the applicable period, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." Resulting translation adjustments are reflected in the accumulated other comprehensive items component of shareholders' equity. The gain or loss on foreign currency transactions, including those related to U.S. dollar denominated 8¹/8% senior notes of our Canadian subsidiary (the "Subsidiary notes") and those related to the foreign currency denominated intercompany obligations of our foreign subsidiaries to us, are included in other (income) expense, net, on our consolidated statements of operations. The total of such net gains amounted to $5,084 and $108 for the three months ended March 31, 2003 and 2004, respectively.

c.

Goodwill and Other Intangible Assets

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

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annually for impairment or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have indefinite lives are amortized over their useful lives.

        We have selected October 1 as our annual goodwill impairment review date. We performed our last annual goodwill impairment review as of October 1, 2003 and noted no impairment of goodwill at our reporting units as of that date. As of March 31, 2004, no factors were identified that would alter this assessment.

        The changes in the carrying value of goodwill attributable to each reportable operating segment for the period ended March 31, 2004 are as follows:

        The components of our amortizable intangible assets at March 31, 2004 are as follows:

d.

Stock Based Compensation

        As of January 1, 2003, we adopted the measurement provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." As a result we began using the fair value method of accounting in our financial statements beginning January 1, 2003 using the prospective method. The prospective method involves recognizing expense for the fair value for all awards granted or modified in the year of adoption and thereafter with no expense recognition for previous awards. Additionally, we recognize expense related to the discount embedded in our employee stock purchase plan. We will apply the fair value recognition provisions to all stock based awards granted, modified or settled on or after January 1, 2003 and will continue to provide the required pro forma information for all awards previously granted, modified or settled before January 1, 2003.

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        Had we elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS No. 123 and No. 148 for options granted prior to January 1, 2003, net income and net income per share would have been changed to the pro forma amounts indicated in the table below:

        The weighted average fair value of options granted for the three months ended March 31, 2003 and 2004 was $9.44 and $12.09 per share, respectively. The values were estimated on the date of grant using the Black-Scholes option pricing model. The following table summarizes the weighted average assumptions used for grants in the respective period:

e.

Income Per Share—Basic and Diluted

        In accordance with SFAS No. 128, "Earnings per Share," basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding. The calculation of diluted net income per share is consistent with that of basic net income per share but gives effect to all potential common shares (that is, securities such as options, warrants or convertible securities) that were outstanding during the period, unless the effect is antidilutive. Potential common shares, substantially attributable to stock options, included in the calculation of diluted net income per share totaled 1,454,235 shares and 1,472,515 shares for the three months ended March 31, 2003 and 2004, respectively. Potential common shares of 236,067 for the three months ended March 31, 2003 and no shares for the three months ended March 31, 2004, have been excluded from the calculation of diluted net income per share, as their effects are antidilutive.

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f.

Supplemental Cash Flow Information

        For the three months ended March 31, 2003 and 2004, cash payments for interest were $27,628 and $46,277, respectively, and cash payments for income taxes were $449 and $3,106, respectively.

g.

New Accounting Pronouncements

        In January and December 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46 ("FIN 46") and No. 46, revised ("FIN 46R"), "Consolidation of Variable Interest Entities." These statements, which address perceived weaknesses in accounting for entities commonly known as special-purpose or off-balance-sheet, require consolidation of certain interests or arrangements by virtue of holding a controlling financial interest in such entities. Certain provisions of FIN 46R related to interests in special purpose entities were applicable for the period ended December 31, 2003. We applied FIN 46R to our interests in all entities subject to the interpretation as of and for the three months ended March 31, 2004. Adoption of this new method of accounting for variable interest entities did not have a material impact on our consolidated results of operations and financial position.

(3) Comprehensive Income

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

(4) Derivative Instruments and Hedging Activities

        SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires that every derivative instrument be recorded in the balance sheet as either an asset or a liability measured at its fair value. Periodically, we acquire derivative instruments that are intended to hedge either cash flows or values that are subject to exchange or other market price risk, and not for trading purposes. We have formally documented our hedging relationships, including identification of the hedging instruments and the hedge items, as well as our risk management objectives and strategies for undertaking each

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

        We have entered into two interest rate swap agreements, which are derivatives as defined by SFAS No. 133 and designated as cash flow hedges. These swap agreements hedge interest rate risk on certain amounts of our term loan. We have recorded, in the accompanying consolidated balance sheet, the estimated cost to terminate these swaps (fair value of the derivative liability), a deferred tax asset and a corresponding charge to accumulated other comprehensive items of $12,762 ($8,828 recorded in accrued expenses and $3,934 recorded in other long-term liabilities), $4,653 and $8,109, respectively, as of March 31, 2004. For the three months ended March 31, 2003 and 2004, we recorded additional interest expense of $2,118 and $2,237, respectively, resulting from interest rate swap settlements. These interest rate swap agreements were determined to be highly effective, and therefore no ineffectiveness was recorded in earnings.

        In addition, we have entered into a third interest rate swap agreement, which was designated as a cash flow hedge through December 31, 2002. This swap agreement hedged interest rate risk on certain amounts of our variable operating lease commitments. We have recorded, in the accompanying consolidated balance sheet, the estimated cost to terminate this swap (fair value of the derivative liability) of $795 (which was all recorded in accrued expenses) as of March 31, 2004. For the three months ended March 31, 2003 and 2004, we recorded additional interest expense of $493 and $528, respectively, resulting from the settlements associated with this interest rate swap agreement. Additionally, as a result of the repayment of the real estate term loans discussed in Note 6, we recorded an additional $795 of interest in the three months ended March 31, 2004, representing the fair value of the derivative liability at March 31, 2004.

        Also, we consolidated a variable interest entity ("VIE III", collectively with our two other variable interest entities, our "Variable Interest Entities") which had entered into an interest rate swap agreement upon its inception that was designated as a cash flow hedge. This swap agreement hedges the majority of interest rate risk associated with VIE III's real estate term loans. We have recorded, in the accompanying consolidated balance sheets, the estimated cost to terminate this swap (fair value of the derivative liability), a deferred tax asset and a corresponding charge to accumulated other comprehensive items of $12,135 ($4,873 recorded in accrued expenses and $7,262 recorded in other long-term liabilities), $4,424 and $7,711, respectively, as of March 31, 2004. For the three months ended March 31, 2003 and 2004, we recorded additional interest expense of $1,161 and $1,228, respectively, resulting from interest rate swap settlements. This interest rate swap agreement has been since inception and continues to be a highly effective hedge, and therefore no ineffectiveness was recorded in earnings.

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        In July 2003, we provided the initial financing totaling 190,459 British pounds sterling to IME for all of the consideration associated with the acquisition of the European information management services business of Hays plc ("Hays IMS") using cash on hand and borrowings under our revolving credit facility. We recorded a foreign currency gain of $11,866 in other (income) expense, net for this intercompany balance for the three months ended March 31, 2004. In order to minimize the foreign currency risk associated with providing IME with the consideration necessary for the acquisition of Hay IMS, we borrowed 80,000 British pounds sterling under our revolving credit facility to create a natural hedge. We recorded a foreign currency loss of $2,995 on the translation of this revolving credit balance to U.S. dollars in other (income) expense, net for the three months ended March 31, 2004.

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

(5) Acquisitions

        During the three months ended March 31, 2004, we purchased substantially all of the assets, and assumed certain liabilities, of four businesses.

        In February 2004, we completed the acquisition of Mentmore plc's ("Mentmore") 49.9% equity interest in IME for total consideration of 82,500 British pounds sterling ($154,000) in cash. Included in this amount is the repayment of all trade and working capital funding owed to Mentmore by IME. Completion of the transaction gives us 100% ownership of IME, affording us full access to all future cash flows and greater strategic and financial flexibility. This transaction should have no material impact on revenue or operating income since we already fully consolidate IME's financial results. As we will be using the purchase method of accounting for this acquisition, the net assets of IME will be adjusted to reflect 49.9% of the difference between the fair market value and their current carrying value.

        Each of the 2004 acquisitions were accounted for using the purchase method of accounting, and accordingly, the results of operations for each acquisition have been included in our consolidated results from their respective acquisition dates. Cash consideration for the various acquisitions was provided through our credit facilities and the issuance of certain of our senior subordinated notes.

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

(1)

Included in cash paid for acquisitions in the consolidated statement of cash flows for the three months ended March 31, 2004 is $34,699 associated with an IME acquisition, which will be recorded in our second quarter of 2004 due to differences in consolidation periods. Such amount was funded by Iron Mountain Incorporated in March 2004 and is included in other assets, net in the accompanying consolidated balance sheet at March 31, 2004. Also included in cash paid for acquisitions in the consolidated statement of cash flows for the three months ended March 31, 2004 is $576 of contingent and other payments that were paid in 2004 related to acquisitions made in 1999 and 2003.

(2)

Comprised primarily of accounts receivable, prepaid expenses and other, land, buildings, racking, leasehold improvements, and customer relationship assets.

(3)

Comprised primarily of accounts payable, accrued expenses and notes payable.

(4)

Comprised primarily of the carrying value of Mentmore's 49.9% minority interest in IME at the date of acquisition.

        Allocation of the purchase price for the 2004 acquisitions was based on estimates of the fair value of net assets acquired, and is subject to adjustment. The purchase price allocations of certain 2003 and 2004 transactions are subject to finalization of the assessment of the fair value of property, plant and equipment, intangible assets (primarily customer relationship assets), operating leases, restructuring purchase reserves and deferred income taxes. We are not aware of any information that would indicate that the final purchase price allocations will differ meaningfully from preliminary estimates.

        In connection with each of our acquisitions, we have undertaken certain restructurings of the acquired businesses. The restructuring activities include certain reductions in staffing levels, elimination of duplicate facilities and other costs associated with exiting certain activities of the acquired businesses. The estimated cost of these restructuring activities were recorded as costs of the acquisitions and were provided for in accordance with Emerging Issues Task Force Issue No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination." We finalize restructuring plans for each business no later than one year from the date of acquisition. Unresolved matters at March 31, 2004 primarily include completion of planned abandonments of facilities and severances for certain acquisitions.

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

(1)

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

        At March 31, 2004, the restructuring reserves related to acquisitions consisted of lease losses on abandoned facilities of $10,321, severance costs for approximately 123 people of $2,836 and other exit costs of $6,699. These accruals are expected to be used prior to March 31, 2005 except for lease losses of $8,184 and severance contracts of $285, both of which are based on contracts that extend beyond one year.

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(6) Long-term Debt

        Long-term debt consists of the following:

(1)

The fair value of this long-term debt either approximates the carrying value (as borrowings under these debt instruments are based on current variable market interest rates as of December 31, 2003 and March 31, 2004) or it is impracticable to estimate the fair value due to the nature of such long-term debt.

(2)

These debt instruments are collectively referred to as the "Parent notes."

(3)

The fair values of the Parent notes and the Subsidiary notes are based on quoted market prices for these notes on December 31, 2003 and March 31, 2004.

(4)

Includes amounts borrowed by IME under their credit agreement and during their fiscal quarter ending April 30, 2004, which will be consolidated within our results during the three months ended June 30, 2004. IME used those proceeds to repay us 135,000 British pounds sterling related to our initial financing of the acquisition of Hays IMS, which we have reflected in our financial position as of March 31, 2004.

        In January 2004, we completed an offering of 150,000 British pounds sterling in aggregate principal amount of our 7¹/4% GBP Senior Subordinated Notes due 2014 (the "7¹/4% notes"), which were issued at a price of 100% of par. Our net proceeds of 146,900 British pounds sterling, after paying the initial purchasers' discounts, commissions and transaction fees, were used to fund our acquisition of Mentmore's 49.9% equity interest in IME for total consideration of 82,500 British pounds sterling, to redeem $19,985 in aggregate principal amount of our outstanding Subsidiary notes in February 2004,

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repay borrowings under our revolving credit facility, repay $48,750 of our term loans, repay other indebtedness and pay for other acquisitions.

        In February 2004, we redeemed the remaining $19,985 of outstanding principal amount of the Subsidiary notes, at a redemption price (expressed as a percentage of principal amount) of 104.063%, plus accrued and unpaid interest. We recorded a charge to other (income) expense, net of $2,028 in the first quarter of 2004 related to the early retirement of these remaining Subsidiary notes, which consists of redemption premiums and transaction costs as well as original issue discount related to these Subsidiary notes.

        In March 2004, IME and certain of its subsidiaries entered into a credit agreement (the "IME Credit Agreement") with a syndicate of European lenders. The IME Credit Agreement provides for maximum borrowing availability in the principal amount of 210,000 British pounds sterling, including a 100,000 British pounds sterling revolving credit facility (which includes the ability to borrow in certain other foreign currencies), a 100,000 British pounds sterling term loan, and a 10,000 British pounds sterling overdraft protection line. The British pounds sterling revolving credit facility matures on March 2, 2009. The British pounds sterling term loan facility is payable in three installments; two installments of 20,000 British pounds sterling on March 2, 2007 and 2008, respectively, and the final payment of the remaining balance on March 2, 2009. The interest rate on borrowings under the IME Credit Agreement is based on British pounds sterling LIBOR and varies depending on IME's choice of interest rate period, plus an applicable margin. The IME Credit Agreement includes various financial covenants applicable to the results of IME, which may restrict IME's ability to incur indebtedness under the IME Credit Agreement and with third parties, as well as limit IME's ability to pay dividends to us. Each of IME's non-dormant subsidiaries will either guarantee the obligations or will have its shares pledged to secure the IME Credit Agreement. We have not guaranteed or otherwise provided security for the IME Credit Agreement nor have any of our U.S., Canadian, Mexican and South American subsidiaries.

        In March 2004, IME borrowed approximately 147,000 British pounds sterling under the IME Credit Agreement, including the full amount of the term loan. IME used those proceeds to repay us 135,000 British pounds sterling related to our initial financing of the acquisition of Hays IMS, to repay amounts outstanding under its old term loan and revolving credit facility and transaction costs associated with the IME Credit Agreement. Because of the two-month lag in reporting IME's results and financial position, the accompanying consolidated balance sheet at March 31, 2004 only reflects the 135,000 British pounds sterling ($249,467) received from IME by us in March 2004. The repayment of amounts outstanding under IME's old term loan and revolving credit facility and the associated deferred financing costs related to transaction fees on the IME Credit Agreement will be reflected in our consolidated balance sheet and consolidated statement of cash flows in our second quarter of 2004. We used the 135,000 British pounds sterling received from IME to: (1) pay down $103,932 of real estate term loans, (2) settle all obligations totaling $27,714 associated with terminating our two cross currency swaps used to hedge the foreign currency impact of our intercompany financing with IME related to the Hays IMS acquisition, and (3) to pay down amounts outstanding under our prior credit agreement. As of March 31, 2004, IME's availability under the IME Credit Agreement, based on its

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current level of external debt and the leverage ratio under the IME Credit Agreement, was approximately 9,000 British pounds sterling.

        On April 2, 2004, we entered into a new amended and restated revolving credit facility and term loan facility (the "IMI Credit Agreement"). The IMI Credit Agreement replaced our prior credit agreement. As a result, we will record a charge to other (income) expense, net in our consolidated statement of operations of $174 in the second quarter of 2004 related to the early retirement of debt in conjunction with the refinancing of our credit facility. The IMI Credit Agreement has an aggregate principal amount of $550,000 and is comprised of a $350,000 revolving credit facility (the "IMI revolving credit facility"), which includes the ability to borrow in certain foreign currencies, and a $200,000 term loan facility (the "IMI term loan facility"). The IMI revolving credit facility matures on April 2, 2009. Quarterly term loan payments of $500 begin in the third quarter of 2004 and will continue through maturity on April 2, 2011, at which time the remaining outstanding principal balance of the IMI term loan facility is due. The interest rate on borrowings under the IMI Credit Agreement varies depending on our choice of interest rate and currency options, plus an applicable margin. All intercompany notes and the capital stock of the majority of our U.S. subsidiaries are pledged to secure the IMI Credit Agreement. As of March 31, 2004, we had $22,000 of borrowings under our prior revolving credit facility, all of which was denominated in U.S. dollars; we also had various outstanding letters of credit totaling $34,396. The interest rate in effect was 5% as of March 31, 2004. As of April 2, 2004, the remaining availability under the IMI revolving credit facility was $219,284 based on our current level of external debt and the leverage ratio under the IMI Credit Agreement.

        Our Variable Interest Entities were financed with real estate term loans. In March 2004, $103,932 of these real estate term loans was repaid; as a result, the remaining real estate term loans amounted to $98,715 as of March 31, 2004. We recorded a charge to other (income) expense, net of $405 in the first quarter of 2004 related to the early retirement of these real estate term loans.

        Our indentures and other agreements governing our indebtedness contain certain restrictive financial and operating covenants including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take certain other corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under our indentures and other agreements governing our indebtedness. As of March 31, 2004, we were in compliance with all material debt covenants and agreements.

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

        The following financial data summarizes the consolidating Company on the equity method of accounting as of March 31, 2004 and December 31, 2003 and for the three month periods ended March 31, 2004 and 2003. The Guarantors column includes all subsidiaries that guarantee the Parent notes. The subsidiaries that do not guarantee the Parent notes are referred to in the table as the "Non-Guarantors."

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